ITEM 1. FINANCIAL STATEMENTS
POAGE BANKSHARES, INC.
UNAUDITED CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands except per
share data)
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Cash and due from financial institutions
|
|
$
|
19,493
|
|
|
$
|
23,876
|
|
Interest-bearing deposits in other financial institutions
|
|
|
1,992
|
|
|
|
1,992
|
|
Securities available for sale
|
|
|
57,799
|
|
|
|
63,975
|
|
Loans held for sale
|
|
|
710
|
|
|
|
367
|
|
Loans, net of allowance of $2,317 and $1,858
|
|
|
339,616
|
|
|
|
314,143
|
|
Restricted stock, at cost
|
|
|
3,276
|
|
|
|
3,276
|
|
Other real estate owned, net
|
|
|
988
|
|
|
|
1,306
|
|
Premises and equipment, net
|
|
|
11,426
|
|
|
|
11,514
|
|
Company owned life insurance
|
|
|
7,076
|
|
|
|
6,941
|
|
Accrued interest receivable
|
|
|
1,395
|
|
|
|
1,340
|
|
Goodwill
|
|
|
1,277
|
|
|
|
1,277
|
|
Other intangible assets, net
|
|
|
1,092
|
|
|
|
1,353
|
|
Deferred tax asset
|
|
|
918
|
|
|
|
1,617
|
|
Other assets
|
|
|
1,835
|
|
|
|
2,111
|
|
Total assets
|
|
$
|
448,893
|
|
|
$
|
435,088
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
|
|
|
|
|
|
Non-interest bearing
|
|
$
|
50,287
|
|
|
$
|
49,222
|
|
Interest bearing
|
|
|
309,508
|
|
|
|
293,908
|
|
Total deposits
|
|
|
359,795
|
|
|
|
343,130
|
|
Federal Home Loan Bank advances
|
|
|
12,793
|
|
|
|
15,803
|
|
Subordinated debenture
|
|
|
2,809
|
|
|
|
2,761
|
|
Accrued interest payable
|
|
|
101
|
|
|
|
38
|
|
Other liabilities
|
|
|
3,642
|
|
|
|
2,115
|
|
Total liabilities
|
|
|
379,140
|
|
|
|
363,847
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingent liabilities
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Shareholders' equity
|
|
|
|
|
|
|
|
|
Common stock, $.01 par value, 30,000,000 shares authorized, 3,713,695 and 3,894,282 issued and outstanding at September 30, 2016 and December 31, 2015, respectively
|
|
|
37
|
|
|
|
39
|
|
Additional paid-in-capital
|
|
|
35,856
|
|
|
|
38,673
|
|
Retained earnings
|
|
|
35,059
|
|
|
|
34,270
|
|
Unearned Employee Stock Ownership Plan (ESOP) shares
|
|
|
(2,023
|
)
|
|
|
(2,125
|
)
|
Accumulated other comprehensive income
|
|
|
824
|
|
|
|
384
|
|
Total shareholders' equity
|
|
|
69,753
|
|
|
|
71,241
|
|
Total liabilities and shareholders' equity
|
|
$
|
448,893
|
|
|
$
|
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
|
|
|
Nine months ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Interest and dividend income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, including fees
|
|
$
|
4,455
|
|
|
$
|
4,380
|
|
|
$
|
13,134
|
|
|
$
|
12,770
|
|
Taxable securities
|
|
|
207
|
|
|
|
253
|
|
|
|
703
|
|
|
|
758
|
|
Tax exempt securities
|
|
|
115
|
|
|
|
104
|
|
|
|
336
|
|
|
|
311
|
|
Federal funds sold and other
|
|
|
49
|
|
|
|
35
|
|
|
|
149
|
|
|
|
102
|
|
|
|
|
4,826
|
|
|
|
4,772
|
|
|
|
14,322
|
|
|
|
13,941
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
501
|
|
|
|
454
|
|
|
|
1,459
|
|
|
|
1,351
|
|
Federal Home Loan Bank advances and other
|
|
|
101
|
|
|
|
93
|
|
|
|
292
|
|
|
|
298
|
|
|
|
|
602
|
|
|
|
547
|
|
|
|
1,751
|
|
|
|
1,649
|
|
Net interest income
|
|
|
4,224
|
|
|
|
4,225
|
|
|
|
12,571
|
|
|
|
12,292
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses
|
|
|
352
|
|
|
|
-
|
|
|
|
812
|
|
|
|
485
|
|
Net interest income after provision for loan losses
|
|
|
3,872
|
|
|
|
4,225
|
|
|
|
11,759
|
|
|
|
11,807
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service charges on deposits
|
|
|
525
|
|
|
|
529
|
|
|
|
1,531
|
|
|
|
1,461
|
|
Other service charges
|
|
|
13
|
|
|
|
13
|
|
|
|
40
|
|
|
|
35
|
|
Loan servicing fees
|
|
|
151
|
|
|
|
113
|
|
|
|
357
|
|
|
|
379
|
|
Gains on mortgage banking activity
|
|
|
64
|
|
|
|
28
|
|
|
|
161
|
|
|
|
179
|
|
Net gains (losses) on securities
|
|
|
-
|
|
|
|
12
|
|
|
|
(3
|
)
|
|
|
12
|
|
Income from company owned life insurance
|
|
|
45
|
|
|
|
45
|
|
|
|
135
|
|
|
|
135
|
|
Bargain purchase gain
|
|
|
-
|
|
|
|
35
|
|
|
|
-
|
|
|
|
1,590
|
|
Other
|
|
|
2
|
|
|
|
5
|
|
|
|
14
|
|
|
|
51
|
|
|
|
|
800
|
|
|
|
780
|
|
|
|
2,235
|
|
|
|
3,842
|
|
Non-interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
|
1,865
|
|
|
|
1,853
|
|
|
|
5,586
|
|
|
|
5,566
|
|
Occupancy and equipment
|
|
|
509
|
|
|
|
457
|
|
|
|
1,381
|
|
|
|
1,248
|
|
Data processing
|
|
|
668
|
|
|
|
615
|
|
|
|
1,991
|
|
|
|
1,711
|
|
Federal deposit insurance
|
|
|
60
|
|
|
|
62
|
|
|
|
176
|
|
|
|
181
|
|
Loan processing and collection
|
|
|
108
|
|
|
|
69
|
|
|
|
268
|
|
|
|
230
|
|
Foreclosed assets, net
|
|
|
191
|
|
|
|
111
|
|
|
|
306
|
|
|
|
280
|
|
Advertising
|
|
|
114
|
|
|
|
42
|
|
|
|
230
|
|
|
|
126
|
|
Professional fees
|
|
|
137
|
|
|
|
238
|
|
|
|
395
|
|
|
|
676
|
|
Other taxes
|
|
|
106
|
|
|
|
217
|
|
|
|
320
|
|
|
|
400
|
|
Director fees and expenses
|
|
|
44
|
|
|
|
69
|
|
|
|
136
|
|
|
|
180
|
|
Amortization of intangible assets
|
|
|
87
|
|
|
|
93
|
|
|
|
261
|
|
|
|
253
|
|
Early termination fee and conversion costs
|
|
|
-
|
|
|
|
85
|
|
|
|
-
|
|
|
|
503
|
|
Other
|
|
|
297
|
|
|
|
390
|
|
|
|
812
|
|
|
|
951
|
|
|
|
|
4,186
|
|
|
|
4,301
|
|
|
|
11,862
|
|
|
|
12,305
|
|
Income before income taxes
|
|
|
486
|
|
|
|
704
|
|
|
|
2,132
|
|
|
|
3,344
|
|
Income tax expense
|
|
|
122
|
|
|
|
174
|
|
|
|
581
|
|
|
|
512
|
|
Net income
|
|
$
|
364
|
|
|
$
|
530
|
|
|
$
|
1,551
|
|
|
$
|
2,832
|
|
Earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.10
|
|
|
$
|
0.14
|
|
|
$
|
0.43
|
|
|
$
|
0.78
|
|
Dilutive
|
|
|
0.10
|
|
|
|
0.14
|
|
|
$
|
0.43
|
|
|
$
|
0.78
|
|
Dividend per share
|
|
$
|
0.08
|
|
|
$
|
0.06
|
|
|
$
|
0.20
|
|
|
$
|
0.17
|
|
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
|
|
|
Nine months ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
364
|
|
|
$
|
530
|
|
|
$
|
1,551
|
|
|
$
|
2,832
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding gains (losses) on available for sale securities
|
|
|
(135
|
)
|
|
|
367
|
|
|
|
664
|
|
|
|
39
|
|
Reclassification adjustments for (gains) losses recognized in income
|
|
|
-
|
|
|
|
(12
|
)
|
|
|
3
|
|
|
|
(12
|
)
|
Net unrealized holding gains (losses) on available for sale securities
|
|
|
(135
|
)
|
|
|
355
|
|
|
|
667
|
|
|
|
27
|
|
Tax effect
|
|
|
46
|
|
|
|
(121
|
)
|
|
|
(227
|
)
|
|
|
(9
|
)
|
Other comprehensive income (loss)
|
|
|
(89
|
)
|
|
|
234
|
|
|
|
440
|
|
|
|
18
|
|
Comprehensive income
|
|
$
|
275
|
|
|
$
|
764
|
|
|
$
|
1,991
|
|
|
$
|
2,850
|
|
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
|
|
|
-
|
|
|
|
-
|
|
|
|
1,551
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,551
|
|
Stock repurchases, 179,757 shares repurchased
|
|
|
(2
|
)
|
|
|
(3,193
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,195
|
)
|
Dividends paid ($0.20/share)
|
|
|
-
|
|
|
|
-
|
|
|
|
(762
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(762
|
)
|
ESOP compensation earned
|
|
|
-
|
|
|
|
75
|
|
|
|
-
|
|
|
|
102
|
|
|
|
-
|
|
|
|
177
|
|
Stock based compensation expense, net of 2,156 forfeited shares
|
|
|
-
|
|
|
|
301
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
301
|
|
Other comprehensive income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
440
|
|
|
|
440
|
|
Balances, September 30, 2016
|
|
$
|
37
|
|
|
$
|
35,856
|
|
|
$
|
35,059
|
|
|
$
|
(2,023
|
)
|
|
$
|
824
|
|
|
$
|
69,753
|
|
See notes to unaudited consolidated financial
statements.
POAGE BANKSHARES, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF
CASH FLOWS
(Dollar amounts in thousands except per
share data)
|
|
Nine months ended
|
|
|
|
September 30,
|
|
|
|
2016
|
|
|
2015
|
|
CASH FLOW FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1,551
|
|
|
$
|
2,832
|
|
Adjustments to reconcile net income to net cash from operating activities:
|
|
|
|
|
|
|
|
|
Bargain purchase gain
|
|
|
-
|
|
|
|
(1,590
|
)
|
Depreciation
|
|
|
583
|
|
|
|
532
|
|
Provision for loan losses
|
|
|
812
|
|
|
|
485
|
|
ESOP compensation expense
|
|
|
177
|
|
|
|
155
|
|
Stock based compensation expense
|
|
|
301
|
|
|
|
293
|
|
(Gain) Loss on securities
|
|
|
3
|
|
|
|
(12
|
)
|
Gain on sale of premises and equipment
|
|
|
(92
|
)
|
|
|
-
|
|
Loss on sale and write-downs of other real estate owned
|
|
|
182
|
|
|
|
166
|
|
(Gain) Loss on sale of repossessed assets
|
|
|
5
|
|
|
|
(1
|
)
|
Amortization of core deposit intangible
|
|
|
261
|
|
|
|
253
|
|
Accretion of fair value adjustments related to loans
|
|
|
(594
|
)
|
|
|
(901
|
)
|
Accretion of fair value adjustments related to deposits
|
|
|
(49
|
)
|
|
|
(54
|
)
|
Amortization of fair value related to subordinated debenture
|
|
|
48
|
|
|
|
48
|
|
Net amortization on securities
|
|
|
209
|
|
|
|
390
|
|
Deferred income tax expense
|
|
|
472
|
|
|
|
82
|
|
Net gain on mortgage banking activities
|
|
|
(161
|
)
|
|
|
(179
|
)
|
Origination of loans held for sale
|
|
|
(6,067
|
)
|
|
|
(5,854
|
)
|
Proceeds from loans held for sale
|
|
|
5,885
|
|
|
|
6,630
|
|
Increase in cash value of life insurance
|
|
|
(135
|
)
|
|
|
(135
|
)
|
Change in asset and liabilities, net assets and liabilities acquired:
|
|
|
|
|
|
|
|
|
Accrued interest receivable
|
|
|
(55
|
)
|
|
|
12
|
|
Other assets
|
|
|
311
|
|
|
|
411
|
|
Accrued interest payable
|
|
|
63
|
|
|
|
86
|
|
Other liabilities
|
|
|
1,533
|
|
|
|
855
|
|
Net cash from operating activities
|
|
|
5,243
|
|
|
|
4,504
|
|
|
|
|
|
|
|
|
|
|
CASH FLOW FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net increase in interest-bearing deposits with other institutions
|
|
|
-
|
|
|
|
(1,494
|
)
|
Securities available for sale:
|
|
|
|
|
|
|
|
|
Proceeds from sales
|
|
|
-
|
|
|
|
2,017
|
|
Proceeds from calls
|
|
|
6,655
|
|
|
|
1,010
|
|
Proceeds from maturities
|
|
|
-
|
|
|
|
655
|
|
Purchases
|
|
|
(5,565
|
)
|
|
|
(9,543
|
)
|
Principal payments received
|
|
|
5,541
|
|
|
|
5,201
|
|
Purchase of restricted stock
|
|
|
-
|
|
|
|
(56
|
)
|
Cash paid for acquisition, net of cash acquired
|
|
|
-
|
|
|
|
2,355
|
|
Loan originations and principal payments on loans, net
|
|
|
(26,785
|
)
|
|
|
5,754
|
|
Proceeds from the sale of other real estate owned
|
|
|
1,184
|
|
|
|
436
|
|
Proceeds from the sale of repossessed assets
|
|
|
-
|
|
|
|
52
|
|
Purchase of properties and equipment, net
|
|
|
(403
|
)
|
|
|
(744
|
)
|
Net cash from investing activities
|
|
|
(19,373
|
)
|
|
|
5,643
|
|
|
|
|
|
|
|
|
|
|
CASH FLOW FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Net change in deposits
|
|
|
16,714
|
|
|
|
(3,095
|
)
|
Proceeds from Federal Home Loan Bank borrowings
|
|
|
80,500
|
|
|
|
28,000
|
|
Payments on Federal Home Loan Bank borrowings
|
|
|
(83,510
|
)
|
|
|
(35,865
|
)
|
Cash dividend paid
|
|
|
(762
|
)
|
|
|
(657
|
)
|
Proceeds from issuance of common stock, net of costs
|
|
|
-
|
|
|
|
1,675
|
|
Stock repurchases
|
|
|
(3,195
|
)
|
|
|
(1,630
|
)
|
Net cash from financing activities
|
|
|
9,747
|
|
|
|
(11,572
|
)
|
|
|
|
|
|
|
|
|
|
CHANGE IN CASH AND CASH EQUIVALENTS
|
|
|
(4,383
|
)
|
|
|
(1,425
|
)
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of period
|
|
|
23,876
|
|
|
|
16,967
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS AT END OF PERIOD
|
|
$
|
19,493
|
|
|
$
|
15,542
|
|
|
|
|
|
|
|
|
|
|
Additional cash flows and supplementary information:
|
|
|
|
|
|
|
|
|
Cash paid during the year for:
|
|
|
|
|
|
|
|
|
Interest on deposits and debt
|
|
$
|
1,689
|
|
|
$
|
1,547
|
|
Income taxes (refund) payment
|
|
|
(450
|
)
|
|
|
350
|
|
Real estate acquired in settlement of loans
|
|
$
|
1,196
|
|
|
$
|
1,335
|
|
Loans provided for sales of real estate owned
|
|
$
|
142
|
|
|
$
|
500
|
|
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 September 30, 2016 and December 31, 2015 and the results of operations and cash flows
for the interim periods ended September 30, 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.
Newly Issued Accounting Standards Not
Yet Effective
In June 2016, the FASB issued Accounting
Standards Update No. 2016-13, “Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments.”
This ASU replaces the measurement for credit losses from a probable incurred estimate with an expected future loss model, which
is referred to as the “current expected credit loss” or “(CECL)” model. The standard pertains to financial
assets measured at amortized cost such as loans, debt securities classified as held-to-maturity, and certain other contracts. The
largest impact will be on the allowance for loan and lease losses. The update is effective for public entities for fiscal years
beginning after December 15. 2019, including interim periods within, which will apply to March 31, 2020, interim financial statements
for calendar year-ends. Management is currently evaluating the impact of the adoption of this guidance on the Company’s financial
statements.
In August 2016, the FASB issued Accounting
Standards Update No. 2016-15, “Statements of Cash Flows – Classification of Certain Cash Receipts and Cash Payments.”
This update is designed to address the diversity in how certain cash receipts and cash payments are presented and classified in
the statement of cash flows. The standard also provides guidance on when an entity should separate cash flows and classify them
into more than one class and when an entity should classify the aggregate of those cash flows into a single class based on the
predominance principle. The update is effective for public entities for fiscal years beginning after December 15, 2017, and interim
periods within those fiscal years, which first applies to March 31, 2018, interim financial statements for calendar year-end public
business entities. We do not believe this update will have a significant impact on our consolidated financial statements.
NOTE 2 – SECURITIES AVAILABLE FOR SALE
The amortized cost and fair value of securities
available for sale at September 30, 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
|
|
September 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
States and political subdivisions
|
|
$
|
19,893
|
|
|
$
|
618
|
|
|
$
|
(4
|
)
|
|
$
|
20,507
|
|
U.S. Government agencies and sponsored entities
|
|
|
3,500
|
|
|
|
13
|
|
|
|
(3
|
)
|
|
|
3,510
|
|
Government sponsored entities residential mortgage-backed:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FHLMC
|
|
|
10,653
|
|
|
|
283
|
|
|
|
-
|
|
|
|
10,936
|
|
FNMA
|
|
|
9,869
|
|
|
|
219
|
|
|
|
-
|
|
|
|
10,088
|
|
Collateralized mortgage obligations
|
|
|
5,977
|
|
|
|
10
|
|
|
|
(11
|
)
|
|
|
5,976
|
|
SBA loan pools
|
|
|
6,658
|
|
|
|
124
|
|
|
|
-
|
|
|
|
6,782
|
|
Total securities
|
|
$
|
56,550
|
|
|
$
|
1,267
|
|
|
$
|
(18
|
)
|
|
$
|
57,799
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
The proceeds from sales and calls of securities and the associated
gains and losses are listed below (in thousands):
|
|
Three months ended
|
|
|
Nine months ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Proceeds
|
|
$
|
3,000
|
|
|
$
|
2,027
|
|
|
$
|
6,655
|
|
|
$
|
3,027
|
|
Gross gains
|
|
|
-
|
|
|
|
14
|
|
|
|
-
|
|
|
|
14
|
|
Gross losses
|
|
|
-
|
|
|
|
(2
|
)
|
|
|
(3
|
)
|
|
|
(2
|
)
|
The amortized cost and fair value of the
securities portfolio at September 30, 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):
|
|
September 30,
|
|
|
|
2016
|
|
|
|
Amortized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Value
|
|
|
|
|
|
|
|
|
Within one year
|
|
$
|
438
|
|
|
$
|
437
|
|
One to five years
|
|
|
10,047
|
|
|
|
10,169
|
|
Five to ten years
|
|
|
9,413
|
|
|
|
9,827
|
|
Beyond ten years
|
|
|
3,495
|
|
|
|
3,584
|
|
Mortgage-backed securities and collateralized mortgage obligations
|
|
|
26,499
|
|
|
|
27,000
|
|
SBA loan pools
|
|
|
6,658
|
|
|
|
6,782
|
|
Total
|
|
$
|
56,550
|
|
|
$
|
57,799
|
|
The following table summarizes the securities
with unrealized losses at September 30, 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
|
|
September 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
States and political subdivisions
|
|
$
|
2,693
|
|
|
$
|
(4
|
)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
2,693
|
|
|
$
|
(4
|
)
|
U.S. Government agencies and sponsored entities
|
|
|
2,498
|
|
|
|
(3
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
2,498
|
|
|
|
(3
|
)
|
Collateralized mortgage obligations
|
|
|
695
|
|
|
|
(3
|
)
|
|
|
2,283
|
|
|
|
(8
|
)
|
|
|
2,978
|
|
|
|
(11
|
)
|
Total available-for-sale securities
|
|
$
|
5,886
|
|
|
$
|
(10
|
)
|
|
$
|
2,283
|
|
|
$
|
(8
|
)
|
|
$
|
8,169
|
|
|
$
|
(18
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 September 30, 2016 and December
31, 2015 were as follows (in thousands):
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Real estate:
|
|
|
|
|
|
|
|
|
One to four family
|
|
$
|
183,229
|
|
|
$
|
184,613
|
|
Multi-family
|
|
|
5,636
|
|
|
|
4,521
|
|
Commercial real estate
|
|
|
70,735
|
|
|
|
62,726
|
|
Construction and land
|
|
|
16,336
|
|
|
|
6,282
|
|
|
|
|
275,936
|
|
|
|
258,142
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
|
37,871
|
|
|
|
31,841
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
|
|
|
|
|
|
Home equity loans and lines of credit
|
|
|
10,088
|
|
|
|
8,287
|
|
Motor vehicle
|
|
|
10,696
|
|
|
|
10,735
|
|
Other
|
|
|
7,783
|
|
|
|
7,347
|
|
|
|
|
28,567
|
|
|
|
26,369
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
342,374
|
|
|
|
316,352
|
|
Less: Net deferred loan fees
|
|
|
441
|
|
|
|
351
|
|
Allowance for loan losses
|
|
|
2,317
|
|
|
|
1,858
|
|
|
|
$
|
339,616
|
|
|
$
|
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 September
30, 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):
September 30, 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
|
|
$
|
11
|
|
|
$
|
-
|
|
|
$
|
1,959
|
|
|
$
|
1,970
|
|
|
$
|
3,787
|
|
|
$
|
2,003
|
|
|
$
|
270,146
|
|
|
$
|
275,936
|
|
Commercial and industrial
|
|
|
-
|
|
|
|
-
|
|
|
|
189
|
|
|
$
|
189
|
|
|
|
1,001
|
|
|
|
-
|
|
|
|
36,870
|
|
|
|
37,871
|
|
Consumer
|
|
|
-
|
|
|
|
-
|
|
|
|
158
|
|
|
$
|
158
|
|
|
|
40
|
|
|
|
2
|
|
|
|
28,525
|
|
|
|
28,567
|
|
Unallocated
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
11
|
|
|
$
|
-
|
|
|
$
|
2,306
|
|
|
$
|
2,317
|
|
|
$
|
4,828
|
|
|
$
|
2,005
|
|
|
$
|
335,541
|
|
|
$
|
342,374
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 September 30, 2016 and December 31, 2015 (in thousands):
|
|
September 30, 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
|
|
$
|
640
|
|
|
$
|
640
|
|
|
$
|
-
|
|
|
$
|
1,416
|
|
|
$
|
1,100
|
|
|
$
|
-
|
|
Multi-family
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Commercial real estate
|
|
|
3,089
|
|
|
|
3,089
|
|
|
|
-
|
|
|
|
183
|
|
|
|
183
|
|
|
|
-
|
|
Construction and land
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Commercial and industrial
|
|
|
1,144
|
|
|
|
1,001
|
|
|
|
-
|
|
|
|
582
|
|
|
|
449
|
|
|
|
-
|
|
Consumer:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity and lines of credit
|
|
|
40
|
|
|
|
40
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Motor vehicle
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Other
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Subtotal
|
|
$
|
4,913
|
|
|
$
|
4,770
|
|
|
$
|
-
|
|
|
$
|
2,181
|
|
|
$
|
1,732
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One to four family
|
|
$
|
58
|
|
|
$
|
58
|
|
|
$
|
11
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Multi-family
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Commercial real estate
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
214
|
|
|
|
214
|
|
|
|
2
|
|
Construction and land
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Commercial and industrial
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Consumer:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity and lines of credit
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
23
|
|
|
|
23
|
|
|
|
13
|
|
Motor vehicle
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Other
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Subtotal
|
|
|
58
|
|
|
|
58
|
|
|
|
11
|
|
|
|
237
|
|
|
|
237
|
|
|
|
15
|
|
Total
|
|
$
|
4,971
|
|
|
$
|
4,828
|
|
|
$
|
11
|
|
|
$
|
2,418
|
|
|
$
|
1,969
|
|
|
$
|
15
|
|
For the purpose of this disclosure, the unpaid balance is not
reduced for partial charge-offs.
The following
tables present the average balance of loans individually evaluated for impairment and interest income recognized on these loans
for the three and nine months ended September 30, 2016 and 2015 (in thousands):
|
|
Three months ended September 30, 2016
|
|
|
Three months ended September 30, 2015
|
|
|
|
Average
|
|
|
Interest
|
|
|
Cash Basis
|
|
|
Average
|
|
|
Interest
|
|
|
Cash Basis
|
|
|
|
Recorded
|
|
|
Income
|
|
|
Interest
|
|
|
Recorded
|
|
|
Income
|
|
|
Interest
|
|
|
|
Investment
|
|
|
Recognized
|
|
|
Recognized
|
|
|
Investment
|
|
|
Recognized
|
|
|
Recognized
|
|
Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One to four family
|
|
$
|
698
|
|
|
$
|
1
|
|
|
$
|
-
|
|
|
$
|
952
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Multi-family
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Commercial real estate
|
|
|
3,089
|
|
|
|
32
|
|
|
|
-
|
|
|
|
323
|
|
|
|
-
|
|
|
|
-
|
|
Construction and land
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Commercial and industrial
|
|
|
1,001
|
|
|
|
6
|
|
|
|
-
|
|
|
|
335
|
|
|
|
-
|
|
|
|
-
|
|
Consumer:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity and lines of credit
|
|
|
40
|
|
|
|
-
|
|
|
|
-
|
|
|
|
7
|
|
|
|
-
|
|
|
|
-
|
|
Motor vehicle
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Other
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
4,828
|
|
|
$
|
39
|
|
|
$
|
-
|
|
|
$
|
1,617
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2016
|
|
|
Nine months ended September 30, 2015
|
|
|
|
Average
|
|
|
Interest
|
|
|
Cash Basis
|
|
|
Average
|
|
|
Interest
|
|
|
Cash Basis
|
|
|
|
Recorded
|
|
|
Income
|
|
|
Interest
|
|
|
Recorded
|
|
|
Income
|
|
|
Interest
|
|
|
|
Investment
|
|
|
Recognized
|
|
|
Recognized
|
|
|
Investment
|
|
|
Recognized
|
|
|
Recognized
|
|
Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One to four family
|
|
$
|
854
|
|
|
$
|
7
|
|
|
$
|
-
|
|
|
$
|
952
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Multi-family
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Commercial real estate
|
|
|
1,287
|
|
|
|
101
|
|
|
|
-
|
|
|
|
671
|
|
|
|
-
|
|
|
|
-
|
|
Construction and land
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Commercial and industrial
|
|
|
499
|
|
|
|
31
|
|
|
|
-
|
|
|
|
366
|
|
|
|
-
|
|
|
|
-
|
|
Consumer:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity and lines of credit
|
|
|
23
|
|
|
|
1
|
|
|
|
-
|
|
|
|
7
|
|
|
|
-
|
|
|
|
-
|
|
Motor vehicle
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Other
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
2,663
|
|
|
$
|
140
|
|
|
$
|
-
|
|
|
$
|
1,996
|
|
|
$
|
-
|
|
|
$
|
-
|
|
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 tables sets forth an analysis of our allowance
for loan losses for the three and nine months ended September 30, 2016 and 2015 (in thousands):
Three months ended
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
September 30, 2016
|
|
Real Estate
|
|
|
and Industrial
|
|
|
Consumer
|
|
|
Unallocated
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
1,797
|
|
|
$
|
126
|
|
|
$
|
144
|
|
|
$
|
-
|
|
|
$
|
2,067
|
|
Provision for loan losses
|
|
|
249
|
|
|
|
58
|
|
|
|
45
|
|
|
|
-
|
|
|
|
352
|
|
Loans charged-off
|
|
|
(83
|
)
|
|
|
-
|
|
|
|
(51
|
)
|
|
|
-
|
|
|
|
(134
|
)
|
Recoveries
|
|
|
7
|
|
|
|
5
|
|
|
|
20
|
|
|
|
-
|
|
|
|
32
|
|
Total ending allowance balance
|
|
$
|
1,970
|
|
|
$
|
189
|
|
|
$
|
158
|
|
|
$
|
-
|
|
|
$
|
2,317
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
September 30, 2015
|
|
Real Estate
|
|
|
and Industrial
|
|
|
Consumer
|
|
|
Unallocated
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
1,900
|
|
|
$
|
89
|
|
|
$
|
84
|
|
|
$
|
-
|
|
|
$
|
2,073
|
|
Provision for loan losses
|
|
|
(38
|
)
|
|
|
(7
|
)
|
|
|
24
|
|
|
|
21
|
|
|
|
-
|
|
Loans charged-off
|
|
|
(52
|
)
|
|
|
(12
|
)
|
|
|
(49
|
)
|
|
|
-
|
|
|
|
(113
|
)
|
Recoveries
|
|
|
18
|
|
|
|
5
|
|
|
|
30
|
|
|
|
-
|
|
|
|
53
|
|
Total ending allowance balance
|
|
$
|
1,828
|
|
|
$
|
75
|
|
|
$
|
89
|
|
|
$
|
21
|
|
|
$
|
2,013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
September 30, 2016
|
|
Real Estate
|
|
|
and Industrial
|
|
|
Consumer
|
|
|
Unallocated
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
1,676
|
|
|
$
|
77
|
|
|
$
|
105
|
|
|
$
|
-
|
|
|
$
|
1,858
|
|
Provision for loan losses
|
|
|
527
|
|
|
|
151
|
|
|
|
134
|
|
|
|
-
|
|
|
|
812
|
|
Loans charged-off
|
|
|
(250
|
)
|
|
|
(77
|
)
|
|
|
(165
|
)
|
|
|
-
|
|
|
|
(492
|
)
|
Recoveries
|
|
|
17
|
|
|
|
38
|
|
|
|
84
|
|
|
|
-
|
|
|
|
139
|
|
Total ending allowance balance
|
|
$
|
1,970
|
|
|
$
|
189
|
|
|
$
|
158
|
|
|
$
|
-
|
|
|
$
|
2,317
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
September 30, 2015
|
|
Real Estate
|
|
|
and Industrial
|
|
|
Consumer
|
|
|
Unallocated
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
1,806
|
|
|
$
|
43
|
|
|
$
|
62
|
|
|
$
|
-
|
|
|
$
|
1,911
|
|
Provision for loan losses
|
|
|
240
|
|
|
|
54
|
|
|
|
170
|
|
|
|
21
|
|
|
|
485
|
|
Loans charged-off
|
|
|
(370
|
)
|
|
|
(64
|
)
|
|
|
(195
|
)
|
|
|
-
|
|
|
|
(629
|
)
|
Recoveries
|
|
|
152
|
|
|
|
42
|
|
|
|
52
|
|
|
|
-
|
|
|
|
246
|
|
Total ending allowance balance
|
|
$
|
1,828
|
|
|
$
|
75
|
|
|
$
|
89
|
|
|
$
|
21
|
|
|
$
|
2,013
|
|
Nonaccrual loans, and loans past due 90 days still on accrual
status, 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 status, by class of loans, as of September 30, 2016 and
December 31, 2015 (in thousands):
|
|
September 30, 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
|
|
$
|
2,671
|
|
|
$
|
-
|
|
|
$
|
2,967
|
|
|
$
|
-
|
|
Multi-family
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Commercial real estate
|
|
|
885
|
|
|
|
-
|
|
|
|
773
|
|
|
|
-
|
|
Construction and land
|
|
|
-
|
|
|
|
-
|
|
|
|
259
|
|
|
|
-
|
|
Commercial and industrial
|
|
|
152
|
|
|
|
-
|
|
|
|
449
|
|
|
|
-
|
|
Consumer:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity loans and lines of credit
|
|
|
123
|
|
|
|
-
|
|
|
|
23
|
|
|
|
-
|
|
Motor vehicle
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Other
|
|
|
5
|
|
|
|
-
|
|
|
|
31
|
|
|
|
-
|
|
Total
|
|
$
|
3,836
|
|
|
$
|
-
|
|
|
$
|
4,502
|
|
|
$
|
-
|
|
The following tables present the aging
of the recorded investment in past due loans as of September 30, 2016 and December 31, 2015 by class of loans. As of September
30, 2016, consumer residential properties in process of foreclosure was $800,000 compared to $863,000 at December 31, 2015. Non-accrual
loans of $3.8 million as of September 30, 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
|
|
September 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One to four family
|
|
$
|
1,462
|
|
|
$
|
727
|
|
|
$
|
830
|
|
|
$
|
3,019
|
|
|
$
|
1,128
|
|
|
$
|
179,082
|
|
|
$
|
183,229
|
|
Multi-family
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,636
|
|
|
|
5,636
|
|
Commercial real estate
|
|
|
486
|
|
|
|
399
|
|
|
|
216
|
|
|
|
1,101
|
|
|
|
875
|
|
|
|
68,759
|
|
|
|
70,735
|
|
Construction and land
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
16,336
|
|
|
|
16,336
|
|
Commercial and industrial
|
|
|
90
|
|
|
|
8
|
|
|
|
146
|
|
|
|
244
|
|
|
|
-
|
|
|
|
37,627
|
|
|
|
37,871
|
|
Consumer:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity loans and lines of credit
|
|
|
-
|
|
|
|
79
|
|
|
|
123
|
|
|
|
202
|
|
|
|
-
|
|
|
|
9,886
|
|
|
|
10,088
|
|
Motor vehicle
|
|
|
35
|
|
|
|
16
|
|
|
|
-
|
|
|
|
51
|
|
|
|
-
|
|
|
|
10,645
|
|
|
|
10,696
|
|
Other
|
|
|
4
|
|
|
|
2
|
|
|
|
-
|
|
|
|
6
|
|
|
|
2
|
|
|
|
7,775
|
|
|
|
7,783
|
|
Total
|
|
$
|
2,077
|
|
|
$
|
1,231
|
|
|
$
|
1,315
|
|
|
$
|
4,623
|
|
|
$
|
2,005
|
|
|
$
|
335,746
|
|
|
$
|
342,374
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 September 30, 2016, the Company has a recorded investment
in six TDRs which totaled $3.4 million. There were three TDRs which totaled $307,000 at December 31, 2015. A less than market rate
and extended term was granted as concessions for 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.
September 30, 2016
|
|
TDRs on
|
|
|
|
|
|
|
|
(in thousands)
|
|
Non-accrual
|
|
|
Other TDRs
|
|
|
Total TDRs
|
|
Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
One to four family
|
|
$
|
17
|
|
|
$
|
104
|
|
|
$
|
121
|
|
Multi-family
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Commercial real estate
|
|
|
166
|
|
|
|
2,204
|
|
|
|
2,370
|
|
Construction and land
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Commercial and industrial
|
|
|
19
|
|
|
|
849
|
|
|
|
868
|
|
Consumer:
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity loans and lines of credit
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Motor vehicle
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Other
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
202
|
|
|
$
|
3,157
|
|
|
$
|
3,359
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
TDRs on
|
|
|
|
|
|
|
|
(in thousands)
|
|
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 two TDRs, one commercial real estate loan and one
commercial and industrial loan, which occurred during the three months ended September 30, 2016. There were three TDRs, one commercial
real estate loan, one commercial and industrial loan and one residential real estate loan, which occurred during the nine months
ended September 30, 2016. There was one TDR, a residential real estate loan, which occurred during the three and nine months ended
September 30, 2015.
The modifications 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 and nine months ended September
30, 2016 and 2015. There were no TDRs that subsequently defaulted within twelve months of modification during the three and nine
months ended September 30, 2016 and 2015.
The following table presents TDRs that occurred during the nine
months ended September 30, 2016 and September 30, 2015 (dollars in thousands):
|
|
Nine months ended September 30, 2016
|
|
|
Nine months ended September 30, 2015
|
|
Loan Class
|
|
Number of
Loans
|
|
|
Pre-Modification
Outstanding
Recorded
Investment
|
|
|
Post-Modification
Outstanding
Recorded
Investment
|
|
|
Number of
Loans
|
|
|
Pre-Modification
Outstanding
Recorded
Investment
|
|
|
Post-Modification
Outstanding
Recorded
Investment
|
|
Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One to four family
|
|
|
1
|
|
|
$
|
17
|
|
|
$
|
17
|
|
|
|
1
|
|
|
$
|
105
|
|
|
$
|
105
|
|
Multi-family
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Commercial real estate
|
|
|
1
|
|
|
|
2,204
|
|
|
|
2,204
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Construction and land
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Commercial and industrial
|
|
|
1
|
|
|
|
849
|
|
|
|
849
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Consumer:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity loans and lines of credit
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Motor vehicle
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Other
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
|
3
|
|
|
$
|
3,070
|
|
|
$
|
3,070
|
|
|
|
1
|
|
|
$
|
105
|
|
|
$
|
105
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2016
|
|
Pass
|
|
|
Mention
|
|
|
Substandard
|
|
|
Doubtful
|
|
|
Loss
|
|
|
Total
|
|
One to four family
|
|
$
|
176,514
|
|
|
$
|
2,148
|
|
|
$
|
4,567
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
183,229
|
|
Multi family
|
|
|
5,636
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,636
|
|
Commercial real estate
|
|
|
64,897
|
|
|
|
1,597
|
|
|
|
4,241
|
|
|
|
-
|
|
|
|
-
|
|
|
|
70,735
|
|
Construction and land
|
|
|
16,336
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
16,336
|
|
Commercial and industrial
|
|
|
33,937
|
|
|
|
2,226
|
|
|
|
1,708
|
|
|
|
-
|
|
|
|
-
|
|
|
|
37,871
|
|
Home equity loans and lines of credit
|
|
|
9,902
|
|
|
|
6
|
|
|
|
180
|
|
|
|
-
|
|
|
|
-
|
|
|
|
10,088
|
|
Motor vehicle
|
|
|
10,664
|
|
|
|
9
|
|
|
|
23
|
|
|
|
-
|
|
|
|
-
|
|
|
|
10,696
|
|
Other
|
|
|
7,776
|
|
|
|
2
|
|
|
|
5
|
|
|
|
-
|
|
|
|
-
|
|
|
|
7,783
|
|
Total
|
|
$
|
325,662
|
|
|
$
|
5,988
|
|
|
$
|
10,724
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
342,374
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 $1.8 million and $2.3 million purchased credit impaired
(“PCI”) loans included in substandard loans at September 30, 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:
Purchased Loans as of September 30, 2016
|
|
Non-impaired
|
|
|
Credit-impaired
|
|
|
|
Purchased
|
|
|
Purchased
|
|
(in thousands)
|
|
Loans
|
|
|
Loans
|
|
Real estate:
|
|
|
|
|
|
|
|
|
One to four family
|
|
$
|
32,485
|
|
|
$
|
1,128
|
|
Commercial real estate
|
|
|
22,112
|
|
|
|
875
|
|
Construction and land
|
|
|
874
|
|
|
|
-
|
|
Commercial and Industrial
|
|
|
3,578
|
|
|
|
-
|
|
Consumer loans:
|
|
|
|
|
|
|
|
|
Home equity loans and lines of credit
|
|
|
1,487
|
|
|
|
-
|
|
Motor vehicle
|
|
|
252
|
|
|
|
-
|
|
Other
|
|
|
752
|
|
|
|
2
|
|
Total loans
|
|
$
|
61,540
|
|
|
$
|
2,005
|
|
|
|
|
|
|
|
|
|
|
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 and nine months ended September 30, 2016 and September 30, 2015.
The following table presents the composition
of the acquired loans at September 30, 2016:
As of September 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
Contractual
|
|
|
Fair Value
|
|
|
|
|
(in thousands)
|
|
Amount
|
|
|
Adjustments
|
|
|
Fair Value
|
|
Real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
One to four family
|
|
$
|
34,237
|
|
|
$
|
(624
|
)
|
|
$
|
33,613
|
|
Commercial Real Estate
|
|
|
23,372
|
|
|
|
(385
|
)
|
|
|
22,987
|
|
Construction and land
|
|
|
882
|
|
|
|
(8
|
)
|
|
|
874
|
|
Commercial and Industrial
|
|
|
3,611
|
|
|
|
(33
|
)
|
|
|
3,578
|
|
Consumer loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity loans and lines of credit
|
|
|
1,502
|
|
|
|
(15
|
)
|
|
|
1,487
|
|
Motor vehicle
|
|
|
255
|
|
|
|
(3
|
)
|
|
|
252
|
|
Other
|
|
|
761
|
|
|
|
(7
|
)
|
|
|
754
|
|
Total loans
|
|
$
|
64,620
|
|
|
$
|
(1,075
|
)
|
|
$
|
63,545
|
|
The following tables 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 September 30, 2016 and December 31, 2015.
(in thousands)
|
|
September 30, 2016
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
Carrying Amount
|
|
$
|
2,005
|
|
|
$
|
2,640
|
|
Non-Accretable difference
|
|
|
285
|
|
|
|
349
|
|
Accretable yield
|
|
|
164
|
|
|
|
292
|
|
Contractually-required principal and interest payments
|
|
$
|
2,454
|
|
|
$
|
3,281
|
|
The Company adjusted interest income to recognize $42,000, and
$128,000 of accretable yield on credit-impaired purchased loans for the three and nine months ended September 30, 2016. The Company
adjusted interest income to recognize $40,000, and $189,000 of accretable yield on credit-impaired purchased loans for the three
and nine months ended September 30, 2015.
(in thousands)
|
|
September 30, 2016
|
|
|
December 31, 2015
|
|
Real Estate:
|
|
|
|
|
|
|
|
|
One to four family
|
|
$
|
1,128
|
|
|
$
|
1,305
|
|
Commercial real estate
|
|
|
875
|
|
|
|
1,061
|
|
Construction and land
|
|
|
-
|
|
|
|
258
|
|
Commercial and industrial
|
|
|
-
|
|
|
|
-
|
|
Consumer:
|
|
|
|
|
|
|
|
|
Home equity loans and lines of credit
|
|
|
-
|
|
|
|
-
|
|
Motor vehicle
|
|
|
-
|
|
|
|
4
|
|
Other
|
|
|
2
|
|
|
|
12
|
|
Outstanding balance
|
|
$
|
2,005
|
|
|
$
|
2,640
|
|
|
|
|
|
|
|
|
|
|
Carrying amount, net of allowance of $0 and $0
|
|
$
|
2,005
|
|
|
$
|
2,640
|
|
Accretable yield, or income expected to be collected, is as
follows for the nine months ended September 30, 2016 and 2015 (in thousands):
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Balance at January 1,
|
|
$
|
292
|
|
|
$
|
625
|
|
New Loans Purchased
|
|
|
-
|
|
|
|
-
|
|
Accretion of income
|
|
|
(128
|
)
|
|
|
(189
|
)
|
Reclassifications from nonaccretable difference
|
|
|
-
|
|
|
|
-
|
|
Disposals
|
|
|
-
|
|
|
|
-
|
|
Balance at September 30,
|
|
$
|
164
|
|
|
$
|
436
|
|
NOTE 4 – FEDERAL HOME LOAN BANK ADVANCES
Advances from the FHLB at September 30, 2016 and December 31,
2015 were as follows (in thousands):
|
|
September 30, 2016
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
Maturities October 2016 through January 2029, fixed rate at rates from 0.45% to 6.86%, weighted average rate of 1.50% at September 30, 2016 and 1.52% at December 31, 2015
|
|
$
|
12,793
|
|
|
$
|
15,803
|
|
Payments contractually required over the next five years are
as follows as of September 30, 2016 (in thousands):
September 30,
|
|
|
|
2017
|
|
$
|
10,106
|
|
2018
|
|
|
1,565
|
|
2019
|
|
|
632
|
|
2020
|
|
|
93
|
|
2021
|
|
|
79
|
|
Thereafter
|
|
|
318
|
|
Total
|
|
$
|
12,793
|
|
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
|
|
|
|
September 30, 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
|
|
$
|
20,507
|
|
|
$
|
-
|
|
|
$
|
20,507
|
|
|
$
|
-
|
|
U.S. Government agencies and sponsored entities
|
|
|
3,510
|
|
|
|
-
|
|
|
|
3,510
|
|
|
|
-
|
|
Mortgage backed securities: residential
|
|
|
21,024
|
|
|
|
-
|
|
|
|
21,024
|
|
|
|
-
|
|
Collateralized mortgage obligations
|
|
|
5,976
|
|
|
|
-
|
|
|
|
5,976
|
|
|
|
-
|
|
SBA loan pools
|
|
|
6,782
|
|
|
|
-
|
|
|
|
6,782
|
|
|
|
-
|
|
Total securities
|
|
$
|
57,799
|
|
|
$
|
-
|
|
|
$
|
57,799
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
$
|
-
|
|
There were no transfers between Level 1 and Level 2 during 2016
or 2015.
Assets measured at fair value on a non-recurring
basis are summarized below (in thousands):
|
|
Fair Value Measurements at
|
|
|
|
September 30, 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate, net
|
|
$
|
150
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other real estate owned
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate, net
|
|
$
|
70
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 September 30, 2016, impaired loans recorded
at fair value had a net carrying amount of $150,000 equal to the outstanding balance of $161,000, net of a valuation allowance
of $11,000. There were charge-offs of $0 and $31,000 for the three and nine months ended September 30, 2016, and $200,000 for both
the three and nine months ended September 30, 2015. 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.
At September 30, 2016, OREO recorded at
fair value had a net carrying amount of $70,000 made up of the outstanding balance of $119,000 net of a valuation allowance of
$49,000, which resulted in a write-down of $34,000 and $48,000 for the three and nine months ended September 30, 2016 respectively.
There were $95,400 write-downs for both the three and nine months ended September 30, 2015. At December 31, 2015 no OREO was recorded
at fair value.
The carrying amounts and estimated fair values of financial
instruments at September 30, 2016 and December 31, 2015 are as follows (in thousands):
|
|
|
|
|
Fair Value Measurements
|
|
|
|
Carrying
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2016
|
|
Value
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
19,493
|
|
|
$
|
19,493
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
19,493
|
|
Interest-bearing deposits
|
|
|
1,992
|
|
|
|
1,992
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,992
|
|
Securities
|
|
|
57,799
|
|
|
|
-
|
|
|
|
57,799
|
|
|
|
-
|
|
|
|
57,799
|
|
Restricted stock
|
|
|
3,276
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Loans held for sale
|
|
|
710
|
|
|
|
-
|
|
|
|
710
|
|
|
|
-
|
|
|
|
710
|
|
Loans, net
|
|
|
339,616
|
|
|
|
-
|
|
|
|
-
|
|
|
|
340,097
|
|
|
|
340,097
|
|
Accrued interest receivable
|
|
|
1,395
|
|
|
|
-
|
|
|
|
320
|
|
|
|
1,075
|
|
|
|
1,395
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
359,795
|
|
|
$
|
169,238
|
|
|
$
|
170,905
|
|
|
$
|
-
|
|
|
$
|
340,143
|
|
Federal Home Loan Bank advances
|
|
|
12,793
|
|
|
|
8,004
|
|
|
|
4,789
|
|
|
|
-
|
|
|
|
12,793
|
|
Subordinated debenture
|
|
|
2,809
|
|
|
|
-
|
|
|
|
3,128
|
|
|
|
-
|
|
|
|
3,128
|
|
Accrued interest payable
|
|
|
101
|
|
|
|
-
|
|
|
|
101
|
|
|
|
-
|
|
|
|
101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements
|
|
|
|
Carrying
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
Value
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
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 and nine months ended September 30, 2016 and 2015.
Shares held by the ESOP at September 30, 2016 and December 31,
2015 were as follows (dollars in thousands):
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Allocated to participants
|
|
|
40,671
|
|
|
|
42,832
|
|
Committed to be released
|
|
|
23,606
|
|
|
|
-
|
|
Unearned
|
|
|
202,347
|
|
|
|
225,953
|
|
Total ESOP shares
|
|
|
266,624
|
|
|
|
268,785
|
|
|
|
|
|
|
|
|
|
|
Fair value of unearned shares
|
|
$
|
3,904
|
|
|
$
|
3,864
|
|
NOTE 7 – EARNINGS PER SHARE
The factors used in the earnings per share
computation for the three and nine months ended September 30, 2016 and 2015, were as follows (dollar amounts in thousands, except
per share data):
|
|
Three months ended
|
|
|
Nine months ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
364
|
|
|
$
|
530
|
|
|
$
|
1,551
|
|
|
$
|
2,832
|
|
Less: Earnings allocated to participating securities
|
|
|
3
|
|
|
|
9
|
|
|
|
16
|
|
|
|
55
|
|
Net income available to common shareholders
|
|
$
|
361
|
|
|
$
|
521
|
|
|
|
1,535
|
|
|
|
2,777
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
3,764,946
|
|
|
|
3,938,130
|
|
|
|
3,808,622
|
|
|
|
3,876,984
|
|
Less: Average unallocated ESOP shares
|
|
|
204,571
|
|
|
|
225,949
|
|
|
|
207,922
|
|
|
|
233,559
|
|
Average participating shares
|
|
|
31,098
|
|
|
|
64,149
|
|
|
|
39,139
|
|
|
|
75,896
|
|
Average shares
|
|
|
3,529,277
|
|
|
|
3,648,032
|
|
|
|
3,561,561
|
|
|
|
3,567,529
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share
|
|
$
|
0.10
|
|
|
$
|
0.14
|
|
|
$
|
0.43
|
|
|
$
|
0.78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common shareholders
|
|
$
|
361
|
|
|
$
|
521
|
|
|
$
|
1,535
|
|
|
$
|
2,777
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding for basic earnings per common share
|
|
|
3,529,277
|
|
|
|
3,648,032
|
|
|
|
3,561,561
|
|
|
|
3,567,529
|
|
Add: Dilutive effects of assumed exercises of stock options
|
|
|
31,012
|
|
|
|
-
|
|
|
|
20,744
|
|
|
|
-
|
|
Average shares and dilutive potential common shares
|
|
|
3,560,289
|
|
|
|
3,648,032
|
|
|
|
3,582,305
|
|
|
|
3,567,529
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share
|
|
$
|
0.10
|
|
|
$
|
0.14
|
|
|
$
|
0.43
|
|
|
$
|
0.78
|
|
Stock options of 200,600 shares of common stock were considered
in computing diluted earnings per common share for the three and nine months ended September 30, 2016. No stock options were excluded
from the calculation of diluted earnings per common share for September 30, 2016. Stock options of 234,650 shares of common stock
were not considered in computing diluted earnings per common share for the three and nine months ended September 30, 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
nine months ended September 30, 2016:
|
|
|
|
|
Weighted
Average
|
|
|
|
Options
|
|
|
Exercise Price
|
|
|
|
|
|
|
|
|
Outstanding -December 31, 2015
|
|
|
205,500
|
|
|
$
|
14.92
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
Exercised and settled
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
4,900
|
|
|
|
15.00
|
|
Outstanding -September 30, 2016
|
|
|
200,600
|
|
|
$
|
14.91
|
|
|
|
|
|
|
|
|
|
|
Fully vested and exercisable at September 30, 2016
|
|
|
122,100
|
|
|
|
|
|
Fully vested and exercisable at December 31, 2015
|
|
|
76,200
|
|
|
|
|
|
Expected to vest in future periods
|
|
|
78,500
|
|
|
|
|
|
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. At September 30, 2016, 200,600 options were outstanding and 122,100 options were fully
vested and exercisable with aggregate intrinsic value of $880,000 and $535,000, respectively. At December 31, 2015, 205,500 options
were outstanding and 76,200 options were fully vested and exercisable with aggregate intrinsic value of $446,000 and $165,000,
respectively. During the nine months ended September 30, 2016, 45,900 options vested. Stock-based compensation expense for stock
options included in salaries and benefits for the three and nine months ended September 30, 2016 was $18,000 and $68,000, respectively.
Stock-based compensation for stock options included in salaries and benefits for the three and nine months ended September 2015
was ($4,000) and $56,000, respectively. Total unrecognized compensation cost related to non-vested stock options was $130,000 at
September 30, 2016 and $208,000 at December 31, 2015 and is expected to be recognized over a period of 2 – 3 years.
The following table summarizes non-vested restricted stock activity
for the nine months ended September 30, 2016:
Balance - December 31, 2015
|
|
53,947
|
Granted
|
|
-
|
Forfeited
|
|
(2,156)
|
Vested
|
|
(21,185)
|
Balance - September 30, 2016
|
|
30,606
|
The fair value of the restricted stock
awards is amortized to compensation expense over the vesting period (generally five years) and is based on the market price of
the Company’s common stock at the date of the grant multiplied by the number of shares granted that are expected to vest.
Stock-based compensation expense for the restricted stock included in salaries and benefits for the three and nine months ended
September 30, 2016 was $55,000 and $233,000, respectively. Stock-based compensation expense for restricted stock included in salaries
and benefits for the three and nine months ended September 30, 2015 was $36,000 and $237,000, respectively. Unrecognized compensation
expense for non-vested restricted stock awards was $357,000 at September 30, 2016 and $623,000 at December 31, 2015 and is expected
to be recognized over a weighted-average period of 2 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 and nine months ended September 30, 2016 and September 30, 2015 (in thousands):
|
|
Unrealized Gains and Losses on Available-for-Sale Securities
|
|
|
|
Three months ended
|
|
|
Nine months ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Beginning balance
|
|
$
|
913
|
|
|
$
|
244
|
|
|
$
|
384
|
|
|
$
|
460
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss), net of tax before reclassification
|
|
|
(89
|
)
|
|
|
246
|
|
|
|
438
|
|
|
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts reclassified from accumulated other comprehensive income for loss on call of securities, net of tax benefit (expense) of $0, ($6), $1 and ($6) respectively.
|
|
|
-
|
|
|
|
(12
|
)
|
|
|
2
|
|
|
|
(12
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net current period other comprehensive income (loss)
|
|
|
(89
|
)
|
|
|
234
|
|
|
|
440
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
$
|
824
|
|
|
$
|
478
|
|
|
$
|
824
|
|
|
$
|
478
|
|
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 Statements
This Quarterly Report contains forward-looking
statements, which can be identified by the use of such words as “estimate,” “project,” “believe,”
“intend,” “anticipate,” “plan,” “seek,” “expect,” “will,”
“may,” and similar expressions. These forward-looking statements include, but are not limited to:
|
>
|
statements of our goals, intentions and expectations;
|
|
>
|
statements regarding our business plans and prospects and growth and operating strategies;
|
|
>
|
statements regarding the asset quality of our loan and investment portfolios;
|
|
>
|
estimates of our risks and future costs and benefits;
|
|
>
|
statements about the expected 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 integrated successfully with the businesses of Town Square Financial Corporation and Commonwealth, or such integration may take longer to accomplish than expected, if at all;
|
|
>
|
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, if at all;
|
|
>
|
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 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 September 30, 2016 and
December 31, 2015
At September 30, 2016, the Company’s
assets totaled $448.9 million, an increase of $13.8 million, or 3.2%, from $435.1 million at December 31, 2015. The increase was
attributed to growth in real estate loans during the quarter, funded by FHLB advances and non-interest bearing cash.
Cash and Cash equivalents decreased by
$4.4 million, or 18.4%, to $19.5 million at September 30, 2016 from $23.9 million at December 31, 2015. The decrease in cash was
primarily attributable to loan growth of $25.5 million and a decrease in Federal Home Loan Bank advances of $3.0 million, offset
by principal payments on securities of $6.2 million and an increase in deposits of $16.7 million.
Loans held for sale increased $343,000,
or 93.5%, to $710,000 at September 30, 2016 from $367,000 at December 31, 2015 due to an increase in mortgage banking activity.
Loans, net, increased $25.5 million, or
8.1%, to $339.6 million at September 30, 2016 from $314.1 million at December 31, 2015. The increase was primarily attributable
to an increase in commercial real estate, construction loans and commercial and industrial loans. Real estate secured loans increased
$17.8 million, commercial loans increased $6.0 million and consumer loans increased $2.2 million during the nine month period ended
September 30, 2016. Non-performing loans decreased $666,000, or 14.8%, to $3.8 million at September 30, 2016 from $4.5 million
at December 31, 2015.
Securities available for sale decreased
by $6.2 million, or 9.7%, to $57.8 million at September 30, 2016 from $64.0 million at December 31, 2015. This decrease is primarily
due to $12.2 million in calls and principal payments, offset by $5.6 million in purchases.
Deposits increased $16.7 million, or 4.9%,
to $359.8 million at September 30, 2016 from $343.1 million at December 31, 2015. The increase was attributable to an increase
in NOW and money market accounts combined with the $9.0 million in short-term certificates of deposits acquired in the nationwide
marketplace.
Federal Home Loan Bank advances decreased
$3.0 million, or 19.0%, to $12.8 million at September 30, 2016 from $15.8 million at December 31, 2015. This decrease in borrowings
was due to maturities.
Other borrowings increased by $48,000,
or 1.7%, to $2.8 million at September 30, 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 2.68% at September 30, 2016.
Total shareholders’ equity decreased
by $1.5 million, or 2.1%, to $69.7 million at September 30, 2016 from $71.2 million at December 31, 2015. The decrease resulted
primarily from the repurchase of common stock totaling $3.2 million and the payment of cash dividends totaling $762,000, offset
by an increase in accumulated other comprehensive income by $440,000 and net income of $1.6 million.
Average Balances and Yields
The following table sets forth average
balances, 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 are 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 September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
Average
|
|
|
Interest and
|
|
|
|
|
|
Average
|
|
|
Interest and
|
|
|
|
|
|
|
Balance
|
|
|
Dividends
|
|
|
Yield/ Cost
|
|
|
Balance
|
|
|
Dividends
|
|
|
Yield/ Cost
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$
|
344,546
|
|
|
$
|
4,455
|
|
|
|
5.14
|
%
|
|
$
|
317,048
|
|
|
$
|
4,380
|
|
|
|
5.48
|
%
|
Investment securities
|
|
|
59,414
|
|
|
|
322
|
|
|
|
2.16
|
%
|
|
|
66,606
|
|
|
|
357
|
|
|
|
2.13
|
%
|
FHLB stock
|
|
|
3,036
|
|
|
|
30
|
|
|
|
3.93
|
%
|
|
|
3,036
|
|
|
|
30
|
|
|
|
3.92
|
%
|
Other interest-earning assets
|
|
|
13,164
|
|
|
|
19
|
|
|
|
0.57
|
%
|
|
|
14,819
|
|
|
|
5
|
|
|
|
0.13
|
%
|
Total interest-earning assets
|
|
|
420,160
|
|
|
|
4,826
|
|
|
|
4.57
|
%
|
|
|
401,509
|
|
|
|
4,772
|
|
|
|
4.72
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-earning assets
|
|
|
27,677
|
|
|
|
|
|
|
|
|
|
|
|
29,216
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
447,837
|
|
|
|
|
|
|
|
|
|
|
|
430,725
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOW, savings, money market, and other
|
|
|
140,453
|
|
|
|
62
|
|
|
|
0.18
|
%
|
|
|
130,027
|
|
|
|
57
|
|
|
|
0.17
|
%
|
Certificates of deposit
|
|
|
161,467
|
|
|
|
439
|
|
|
|
1.08
|
%
|
|
|
160,168
|
|
|
|
397
|
|
|
|
0.98
|
%
|
Total interest bearing deposits
|
|
|
301,920
|
|
|
|
501
|
|
|
|
0.66
|
%
|
|
|
290,195
|
|
|
|
454
|
|
|
|
0.62
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FHLB advances
|
|
|
19,559
|
|
|
|
58
|
|
|
|
1.18
|
%
|
|
|
13,692
|
|
|
|
55
|
|
|
|
1.59
|
%
|
Subordinated debenture
|
|
|
2,800
|
|
|
|
43
|
|
|
|
6.11
|
%
|
|
|
2,735
|
|
|
|
38
|
|
|
|
5.51
|
%
|
Total borrowings
|
|
|
22,359
|
|
|
|
101
|
|
|
|
1.80
|
%
|
|
|
16,427
|
|
|
|
93
|
|
|
|
2.25
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest bearing liabilities
|
|
|
324,279
|
|
|
|
602
|
|
|
|
0.74
|
%
|
|
|
306,622
|
|
|
|
547
|
|
|
|
0.71
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest bearing deposits
|
|
|
48,860
|
|
|
|
|
|
|
|
|
|
|
|
48,677
|
|
|
|
|
|
|
|
|
|
Accrued interest payable
|
|
|
163
|
|
|
|
|
|
|
|
|
|
|
|
231
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
3,572
|
|
|
|
|
|
|
|
|
|
|
|
4,090
|
|
|
|
|
|
|
|
|
|
Total non-interest bearing liabilities
|
|
|
52,595
|
|
|
|
|
|
|
|
|
|
|
|
52,998
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
376,874
|
|
|
|
|
|
|
|
|
|
|
|
359,620
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
70,963
|
|
|
|
|
|
|
|
|
|
|
|
71,105
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
|
447,837
|
|
|
|
|
|
|
|
|
|
|
|
430,725
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
|
|
|
|
4,224
|
|
|
|
|
|
|
|
|
|
|
|
4,225
|
|
|
|
|
|
Interest rate spread
|
|
|
|
|
|
|
|
|
|
|
3.83
|
%
|
|
|
|
|
|
|
|
|
|
|
4.01
|
%
|
Net interest margin
|
|
|
|
|
|
|
|
|
|
|
4.00
|
%
|
|
|
|
|
|
|
|
|
|
|
4.17
|
%
|
Average interest-earning assets to average interest-bearing liabilities
|
|
|
|
|
|
|
|
|
|
|
129.57
|
%
|
|
|
|
|
|
|
|
|
|
|
130.95
|
%
|
|
|
For the Nine Months Ended September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
Average
|
|
|
Interest and
|
|
|
|
|
|
Average
|
|
|
Interest and
|
|
|
|
|
|
|
Balance
|
|
|
Dividends
|
|
|
Yield/ Cost
|
|
|
Balance
|
|
|
Dividends
|
|
|
Yield/ Cost
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$
|
333,755
|
|
|
$
|
13,134
|
|
|
|
5.26
|
%
|
|
$
|
309,545
|
|
|
$
|
12,770
|
|
|
|
5.52
|
%
|
Investment securities
|
|
|
62,622
|
|
|
|
1,039
|
|
|
|
2.22
|
%
|
|
|
67,672
|
|
|
|
1,069
|
|
|
|
2.11
|
%
|
FHLB stock
|
|
|
3,036
|
|
|
|
91
|
|
|
|
4.00
|
%
|
|
|
2,848
|
|
|
|
84
|
|
|
|
3.94
|
%
|
Other interest-earning assets
|
|
|
13,339
|
|
|
|
58
|
|
|
|
0.58
|
%
|
|
|
16,289
|
|
|
|
18
|
|
|
|
0.15
|
%
|
Total interest-earning assets
|
|
|
412,752
|
|
|
|
14,322
|
|
|
|
4.63
|
%
|
|
|
396,354
|
|
|
|
13,941
|
|
|
|
4.70
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-earning assets
|
|
|
27,702
|
|
|
|
|
|
|
|
|
|
|
|
27,269
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
440,454
|
|
|
|
|
|
|
|
|
|
|
|
423,623
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOW, savings, money market, and other
|
|
|
138,145
|
|
|
|
184
|
|
|
|
0.18
|
%
|
|
|
124,853
|
|
|
|
168
|
|
|
|
0.18
|
%
|
Certificates of deposit
|
|
|
160,470
|
|
|
|
1,275
|
|
|
|
1.06
|
%
|
|
|
160,216
|
|
|
|
1,183
|
|
|
|
0.99
|
%
|
Total interest bearing deposits
|
|
|
298,615
|
|
|
|
1,459
|
|
|
|
0.65
|
%
|
|
|
285,069
|
|
|
|
1,351
|
|
|
|
0.63
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FHLB advances
|
|
|
16,493
|
|
|
|
167
|
|
|
|
1.35
|
%
|
|
|
15,461
|
|
|
|
184
|
|
|
|
1.59
|
%
|
Subordinated Debenture
|
|
|
2,785
|
|
|
|
125
|
|
|
|
6.00
|
%
|
|
|
2,719
|
|
|
|
114
|
|
|
|
5.61
|
%
|
Total borrowings
|
|
|
19,278
|
|
|
|
292
|
|
|
|
2.02
|
%
|
|
|
18,180
|
|
|
|
298
|
|
|
|
2.19
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest bearing liabilities
|
|
|
317,893
|
|
|
|
1,751
|
|
|
|
0.74
|
%
|
|
|
303,249
|
|
|
|
1,649
|
|
|
|
0.73
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest bearing deposits
|
|
|
48,414
|
|
|
|
|
|
|
|
|
|
|
|
46,782
|
|
|
|
|
|
|
|
|
|
Accrued interest payable
|
|
|
143
|
|
|
|
|
|
|
|
|
|
|
|
186
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
2,929
|
|
|
|
|
|
|
|
|
|
|
|
4,259
|
|
|
|
|
|
|
|
|
|
Total non-interest bearing liabilities
|
|
|
51,486
|
|
|
|
|
|
|
|
|
|
|
|
51,227
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
369,379
|
|
|
|
|
|
|
|
|
|
|
|
354,476
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
71,075
|
|
|
|
|
|
|
|
|
|
|
|
69,147
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
|
440,454
|
|
|
|
|
|
|
|
|
|
|
|
423,623
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
|
|
|
|
12,571
|
|
|
|
|
|
|
|
|
|
|
|
12,292
|
|
|
|
|
|
Interest rate spread
|
|
|
|
|
|
|
|
|
|
|
3.89
|
%
|
|
|
|
|
|
|
|
|
|
|
3.97
|
%
|
Net interest margin
|
|
|
|
|
|
|
|
|
|
|
4.07
|
%
|
|
|
|
|
|
|
|
|
|
|
4.15
|
%
|
Average interest-earning assets to average interest-bearing liabilities
|
|
|
|
|
|
|
|
|
|
|
129.84
|
%
|
|
|
|
|
|
|
|
|
|
|
130.70
|
%
|
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 September 30,
2016, we had $12.8 million in advances from the Federal Home Loan Bank of Cincinnati and an additional borrowing capacity of $101.6
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 September 30, 2016, Poage Bankshares, Inc. (on an
unconsolidated basis) had liquid assets of $4.4 million.
On June 16, 2016, Poage Bankshares, Inc.
executed a $2.0 million commercial line of credit secured with Town Square Bank common stock, with an unaffiliated lender. The
initial variable interest rate on the line of credit is 4.00% with an interest rate equal to the Wall Street Prime plus 0.50%.
The line of credit matures June 16, 2018. The line of credit will be used for general working capital purposes. At September 30,
2016, we have $2.0 million available on the line of credit.
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 September 30, 2016, the actual capital conservation buffer
for Town Square Bank was 13.43% 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 September 30, 2016, the capital of the Town Square Bank
exceeded all required regulatory guidelines and Town Square Bank was categorized as well-capitalized.
The following table reflects the Bank’s
current regulatory capital levels in more detail, including comparisons to the regulatory minimums at September 30, 2016 and December
31, 2015 (in thousands).
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To Be Well
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Capitalized Under
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For Capital Adequacy
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Prompt Corrective
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Actual
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Purposes
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Action Regulations
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As of September 30, 2016
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Amount
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Ratio
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Amount
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Ratio
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Amount
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Ratio
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Total Risk-Based Capital
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(to Risk-weighted Assets)
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$
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64,345
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21.43
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%
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$
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24,020
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8.00
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%
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$
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30,025
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10.00
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%
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Tier I Capital
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(to Risk-weighted Assets)
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61,982
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20.64
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%
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18,015
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6.00
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%
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24,020
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8.00
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%
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Common Equity
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(to Risk-weighted Assets)
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61,982
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20.64
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%
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13,511
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4.50
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%
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19,516
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6.50
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%
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Tier I Capital
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(to Adjusted Total Assets)
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61,982
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13.85
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%
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17,901
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4.00
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%
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22,376
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5.00
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%
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To Be Well
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Capitalized Under
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For Capital Adequacy
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Prompt Corrective
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Actual
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Purposes
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|
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Action Regulations
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As of December 31, 2015
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Amount
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Ratio
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Amount
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Ratio
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|
|
Amount
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|
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Ratio
|
|
Total Risk-Based Capital
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|
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|
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|
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|
|
|
|
|
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(to Risk-weighted Assets)
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$
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67,705
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|
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24.36
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%
|
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$
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22,237
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|
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8.00
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%
|
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$
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27,796
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|
|
|
10.00
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%
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Tier I Capital
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|
|
|
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(to Risk-weighted Assets)
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65,816
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|
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23.68
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%
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16,678
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6.00
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%
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|
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22,237
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|
|
|
8.00
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%
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Common Equity
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(to Risk-weighted Assets)
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65,816
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23.68
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%
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12,508
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4.50
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%
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18,067
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|
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6.50
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%
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Tier I Capital
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(to Adjusted Total Assets)
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65,816
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|
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15.31
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%
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17,190
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|
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4.00
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%
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21,488
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5.00
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%
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Off-Balance Sheet Arrangements.
In the normal course of operations, we engage in a variety of financial transactions that, in accordance with U.S. generally accepted
accounting principles, are not recorded in our financial statements. These transactions involve, to varying degrees, elements of
credit, interest rate and liquidity risk. Such transactions are used primarily to manage customers’ requests for funding
and take the form of loan commitments and lines of credit. These arrangements are not expected to have a material impact on the
Company’s financial condition or results of operations.
Comparison of Operating Results for the Three and Nine months
Ended September 30, 2016 and September 30, 2015
General.
Net income for the
three months ended September 30, 2016 decreased $166,000 to $364,000 from net income of $530,000 for the three months ended September
30, 2015. The decrease in net income is primarily attributable to an increase in the provision for loan losses of $352,000 to $352,000
for the three months ended September 30, 2016 compared to $0 for the three months ended September 30, 2015, offset by a decrease
in professional fees of $101,000 to $137,000 for the three months ended September 30, 2016 from $238,000 for the three months ended
September 30, 2015 and a decrease in other taxes of $111,000 to $106,000 for the three months ended September 30, 2016 compared
to $217,000 for the three months ended September 30, 2015.
Net income for the nine months ended September
30, 2016 decreased $1.3 million to $1.5 million from net income of $2.8 million for the nine months ended September 30, 2015. The
decrease in net income is primarily attributable to a decrease in bargain purchase gain of $1.6 million to $0 for the nine months
ended September 30, 2016 compared to $1.6 million for the nine months ended September 30, 2015 and an increase in the provision
for loan losses of $327,000 to $812,000 for the nine months ended September 30, 2016 compared to $485,000 for the nine months ended
September 30, 2015, offset by a decrease in early termination fee and conversion cost of $503,000 to $0 for the nine months ended
September 30, 2016 compared to $503,000 for the nine months ended September 30, 2015.
Interest Income.
Interest
income remained unchanged at $4.8 million for the three months ended September 30, 2016 and 2015. The average balance of interest-earning
assets increased $18.7 million, or 4.6%, to $420.2 million from $401.5 million. The increase is primarily attributable to growth
in commercial real estate, construction loans and commercial and industrial loans.
Interest income on loans increased $75,000,
or 1.7%, to $4.5 million for the three months ended September 30, 2016 from $4.4 million for the three months ended September 30,
2015. The average yields on loans decreased 34 basis points to 5.14% for the three months ended September 30, 2016, compared to
5.48% for the three months ended September 30, 2015. The average balance of loans increased $27.5 million, or 8.7%, to $344.5 million
for the three months ended September 30, 2016 from $317.0 million for the three months ended September 30, 2015. Interest income
on investment securities decreased $35,000, or 9.8%, to $322,000 for the three months ended September 30, 2016 from $357,000 for
the three months ended September 30, 2015. The average yield on securities increased 3 basis points to 2.16% for the three months
ended September 30, 2016, compared to 2.13% for the three months ended September 30, 2015. The average balance of investment securities
decreased $7.2 million, or 10.8%, to $59.4 million for the three months ended September 30, 2016 from $66.6 million for the
three months ended September 30, 2015.
Interest income on FHLB stock remained
unchanged at $30,000 for the three months ended September 30, 2016 and 2015. The average yield on FHLB stock increased 1 basis
points to 3.93% for the three months ended September 30, 2016 compared to 3.92% for the three months ended September 30, 2015.
The average balance of FHLB stock remained unchanged at $3.0 million for the three months ended September 30, 2016 and 2015. Interest
income on other interest-earning assets increased $14,000, or 280.0%, to $19,000 for the three months ended September 30, 2016
from $5,000 for the three months ended September 30, 2015. The average yield on other interest-earning assets increased 44 basis
points to 0.57% for the three months ended September 30, 2016 compared to 0.13% for the three months ended September 30, 2016.
The average balance of other interest earning assets decreased $1.6 million, or 11.2%, to $13.2 million for the three months ended
September 30, 2016 from $14.8 million for the three months ended September 30, 2015.
Interest income increased $381,000, or
2.7%, to $14.3 million for the nine months ended September 30, 2016 from $13.9 million for the nine months ended September 30,
2015. The average balance of interest-earning assets increased $16.4 million, or 4.1%, to $412.8 million from $396.4 million. The
increase is primarily attributable to loan growth for the nine months ended September 30, 2016 combined with the acquisition of
Commonwealth on May 31, 2015.
Interest income on loans increased $364,000,
or 2.9%, to $13.1 million for the nine months ended September 30, 2016 from $12.8 million for the nine months ended September 30,
2015. The average yields on loans decreased 26 basis points to 5.26% for the nine months ended September 30, 2016, compared to
5.52% for the nine months ended September 30, 2015. The average balance of loans increased $24.3 million, or 7.8%, to $333.8 million
for the nine months ended September 30, 2016 from $309.5 million for the nine months ended September 30, 2015. Interest income
on investment securities decreased $30,000, or 2.8%, to $1.0 million for the nine months ended September 30, 2016 from $1.0 million
for the nine months ended September 30, 2015. The average yield on securities increased 11 basis points to 2.22% for the nine months
ended September 30, 2016, compared to 2.11% for the nine months ended September 30, 2015. The average balance of investment securities
decreased $5.1 million, or 7.5%, to $62.6 million for the nine months ended September 30, 2016 from $67.7 million for the
nine months ended September 30, 2015.
Interest income on FHLB stock increased
$7,000, or 8.3%, to $91,000 for the nine months ended September 30, 2016 from $84,000 for the nine months ended September 30, 2015.
The average yield on FHLB stock increased 6 basis points to 4.00% for the nine months ended September 30, 2016 compared to 3.94%
for the nine months ended September 30, 2015. The average balance of FHLB stock increased $188,000, or 6.6%, to $3.0 million for
the nine months ended September 30, 2016 from $2.8 million for the nine months ended September 30, 2015 attributable to the acquisition
of Commonwealth on May 31, 2015. Interest income on other interest-earning assets increased $40,000, or 222.2%, to $58,000 for
the nine months ended September 30, 2016 from $18,000 for the nine months ended September 30, 2015. The average yield on other
interest-earning assets increased 43 basis points to 0.58% for the nine months ended September 30, 2016 compared to 0.15% for the
nine months ended September 30, 2015. The average balance of other interest earning assets decreased $3.0 million, or 18.1%, to
$13.3 million for the nine months ended September 30, 2016 from $16.3 million for the nine months ended September 30, 2015.
Interest Expense.
Interest
expense increased $55,000, or 10.1%, to $602,000 for the three months ended September 30, 2016 from $547,000 for the three months
ended September 30, 2015. Interest expense on interest bearing deposits increased $47,000, or 10.4% to $501,000 for the three months
ended September 30, 2016 from $454,000 for the three months ended September 30, 2015. The average balance of interest bearing deposits
increased $11.7 million, or 4.0%, to $301.9 million for the three months ended September 30, 2016 from $290.2 million for the three
months ended September 30, 2015 while the average interest rate paid on interest bearing deposits increased 4 basis points to 0.66%
for the three months ended September 30, 2016 compared to 0.62% for the three months ended September 30, 2015. The increase in
average balance on interest bearing deposits is primarily attributable to an increase in NOW and money market accounts combined
with the $9.0 million in short-term certificates of deposits acquired in the nationwide marketplace.
Interest expense on FHLB advances and subordinated
debentures increased $8,000, or 8.6%, to $101,000 for the three months ended September 30, 2016 from $93,000 for the three months
ended September 30, 2015. The average balance on FHLB advances increased $5.9 million, 42.8%, to $19.6 million for the three months
ended September 30, 2016 from $13.7 million for the three months ended September 30, 2015, offset by a 41 basis point decrease
in the average rate paid on the FHLB advances to 1.18% from 1.59%. The average balance on subordinated debentures increased $65,000,
or 2.4%, to $2.8 million for the three months ended September 30, 2016 from $2.7 million for the three months ended September 30,
2015. The average interest rate paid on subordinated debentures increased 60 basis points to 6.11% for the three months ended September
30, 2016 from 5.51% for the three months ended September 30, 2015.
Interest expense increased $102,000, or
6.2%, to $1.7 million for the nine months ended September 30, 2016 from $1.6 million for the nine months ended September 30, 2015.
Interest expense on interest bearing deposits increased $108,000, or 8.0% to $1.4 million for the nine months ended September 30,
2016 from $1.3 million for the nine months ended September 30, 2015. The average balance of interest bearing deposits increased
$13.5 million, or 4.8%, to $298.6 million for the nine months ended September 30, 2016 from $285.1 million for the nine months
ended September 30, 2015. The average interest rate paid on interest bearing deposits increased 2 basis point to 0.65% for the
nine months ended September 30, 2016 from 0.63% for the nine months ended September 30, 2015. The average balance in certificates
of deposits remains relatively flat. The increase in average balance on interest bearing deposits is primarily attributable to
growth in NOW, savings and money market accounts.
Interest expense on FHLB advances and subordinated
debentures decreased $6,000, or 2.0%, to $292,000 for the nine months ended September 30, 2016 from $298,000 for the nine months
ended September 30, 2015. The average balance on FHLB advances decreased $1.0 million, or 6.7%, to $16.5 million for the nine months
ended September 30, 2016 from $15.5 million for the nine months ended September 30, 2015, combined with a 24 basis point decrease
in the average rate paid on the FHLB advances to 1.35% from 1.59%. The average balance on subordinated debentures increased $66,000,
or 2.4%, to $2.8 million for the nine months ended September 30, 2016 from $2.7 million for the nine months ended September 30,
2015. The average interest rate paid on subordinated debentures increased 39 basis points to 6.00% for the nine months ended September
30, 2016 from 5.61% for the nine months ended September 30, 2015.
Net Interest Income
. Net
interest income remained flat at $4.2 million for the three months ended September 30, 2016 and 2015 despite a decrease in the
ratio of average interest earning assets to average interest bearing liabilities to 129.57% for the three months ended September
30, 2016 from 130.95% for the three months ended September 30, 2015. The interest rate spread margin decreased 18 basis points
to 3.83% for the three months ended September 30, 2016 from 4.01% for the three months ended September 30, 2015. The interest margin
decreased 17 basis points to 4.00% for the three months ended September 30, 2016 from 4.17% for the three months ended September
30, 2015.
The interest rate spread and net interest
margin for the three months ended September 30, 2016 decreased due to the lower yields on assets for the three months ended September
30, 2016 as compared the three months ended September 30, 2015. Income recognized from purchase discounts attributable to the Town
Square and Commonwealth acquisitions decreased $153,000 to $167,000 for the three months ended September 30, 2016 compared to $320,000
for the three months ended September 30, 2015.
Net interest income increased $279,000,
or 2.3%, to $12.6 million for the nine months ended September 30, 2016 from $12.3 million for the nine months ended September 30,
2015. Net interest income increased despite a decrease in the ratio of average interest earning assets to average interest bearing
liabilities to 129.84% for the nine months ended September 30, 2016 from 130.70% for the nine months ended September 30, 2015.
The interest rate spread and interest margin decreased 8 basis points to 3.89% and 4.07% for the nine months ended September 30,
2016 from 3.97% and 4.15% for the nine months ended September 30, 2015, respectively.
The interest rate spread and net interest
margin for the nine months ended September 30, 2016 decreased due to the lower yields on assets for the nine months ended September
30, 2016 as compared the nine months ended September 30, 2015. Income recognized from purchase discounts attributable to the Town
Square acquisition decreased $307,000 to $594,000 for the nine months ended September 30, 2016 compared to $901,000 for the nine
months ended September 30, 2015.
Provision for Loan Losses.
We recorded $352,000 in provision for loan losses for the three months ended September 30, 2016 and $0 in provision for loan losses
for the three months ended September 30, 2015. The increase in the provision for three months ended September 30, 2016 compared
to the three months ended September 30, 2015 was primarily attributable to the increase in classified commercial loans for the
three months ended September 30, 2016.
We recorded $812,000 in provision for loan
losses for the nine months ended September 30, 2016 and $485,000 provision for loan losses for the nine months ended September
30, 2015. The increase in the provision for nine months ended September 30, 2016 compared to the nine months ended September 30,
2015 was primarily attributable to the increase in classified commercial loans and loan growth for the nine months ended September
30, 2016.
Noninterest Income.
Noninterest
income increased $20,000, or 2.6%, to $800,000 for the three months ended September 30, 2016 from $780,000 for the three months
ended September 30, 2015. The increase in noninterest income was primarily attributable an increase in loan servicing fees of $38,000,
or 33.6%, to $151,000 for the three months ended September 30, 2016 from $113,000 for the three months ended September 30, 2015
and an increase in mortgage banking activity of $36,000, or 128.6%, to $64,000 for the three months ended September 30, 2016 from
$28,000 for the three months ended September 30, 2015, offset by a decrease bargain purchase gain of $35,000, or 100%, to $0 for
the three months ended September 30, 2016 from $35,000 for the three months ended September 30, 2015.
Noninterest income decreased $1.6 million,
or 41.8%, to $2.2 million for the nine months ended September 30, 2016 from $3.8 million for the nine months ended September 30,
2015. The decrease in noninterest income was primarily attributable to the decrease bargain purchase gain of $1.6 million, or 100%,
to $0 for the nine months ended September 30, 2016 from $1.6 million for the nine months ended September 30, 2015.
Noninterest Expense.
Noninterest expense decreased
$115,000, or 2.7%, to $4.2 million for the three months ended September 30, 2016 from $4.3 million for the three months ended September
30, 2015. This decrease was primarily due to the decrease of $101,000, or 42.4%, to $137,000 in professional fees for the three
months ended September 30, 2016 from $238,000 for the three months ended September 30, 2015 due to the completion of the Commonwealth
acquisition in May 2015. Other taxes decreased $111,000, or 51.2%, to $106,000 for the three months ended September 30, 2016 from
$217,000 for the three months ended September 30, 2015 primarily due to business franchise and personal property taxes paid in
2015. Early termination fee decreased $85,000, or 100.0%, to $0 for the three months ended September 30, 2016 from $85,000 for
the three months ended September 30, 2015 due to the Commonwealth acquisition in May 2015.
The decreases above are offset by an increase in advertising
of $72,000, or 171.4%, to $114,000 for the three months ended September 30, 2016 from $42,000 for the three months ended September
30, 2015 and an increase in foreclosed assets expense of $80,000, or 72.1%, to $191,000 for the three months ended September 30,
2016 from $111,000 for the three months ended September 30, 2015. Advertising expense increased primarily due increased media advertising
and our recently developed customer acquisition and growth program. In addition, data processing increased $53,000, or 8.6%, to
$668,000 for the three months ended September 30, 2016 from $615,000 for the three months ended September 30, 2015 primarily due
to the Commonwealth acquisition in May 2015. Likewise, occupancy and equipment expense increased $52,000, or 11.4%, to $509,000
for the three months ended September 30, 2016 compared to $457,000 for the three months ended September 30, 2015 due to the Commonwealth
acquisition in May 2015.
Noninterest expense decreased $443,000, or 3.6%, to $11.9 million
for the nine months ended September 30, 2016 from $12.3 million for the nine months ended September 30, 2015. This decrease was
primarily due to the decrease of $503,000, or 100%, to $0 in early termination fees for the nine months ended September 30, 2016
from $503,000 for the nine months ended September 30, 2015 combined with a decrease of $281,000, or 41.6%, to $395,000 in professional
fees for the nine months ended September 30, 2016 from $676,000 for the nine months ended September 30, 2015 due to the Commonwealth
acquisition.
The decreases above are offset by an increase in advertising
of $104,000, or 82.5%, to $230,000 for the nine months ended September 30, 2016 from $126,000 for the nine months ended September
30, 2015. Advertising expense increased primarily due increased media advertising and our recently developed customer acquisition
and growth program. In addition, data processing increased $280,000, or 16.4%, to $2.0 million for the nine months ended September
30, 2016 from $1.7 million for the nine months ended September 30, 2015 primarily attributable to an increase in the accrual for
prepaid data processing of $93,000, the Commonwealth acquisition in May 2015 and one-time charges associated with an upgrade to
online banking. Occupancy and equipment increased $133,000, or 10.7%, to $1.4 million for the nine months ended September 30, 2016
from $1.2 million for the nine months ended September 30, 2015 due to the depreciation, utilities and insurance expenses associated
with Commonwealth acquisition, the re-opening of the Midtown branch located on Martin Luther King Jr. Boulevard in Ashland, Kentucky
and the relocation of the operations center to the previously closed Summit branch.
Income Tax Expense.
The provision
for income taxes decreased $52,000, or 29.9%, to $122,000 for the three months ended September 30, 2016 compared to a $174,000
tax expense for the three months ended September 30, 2015 due to lower pre-tax income for the three months ended September 30,
2015. Our effective tax rate for the three months ended September 30, 2016 was 25.1% compared to 24.7% for the three months ended
September 30, 2015.
The provision for income taxes increased
$69,000, or 13.5%, to $581,000 for the nine months ended September 30, 2016 compared to a $512,000 tax expense for the nine months
ended September 30, 2015 due to lower pre-tax income, excluding the bargain purchase gain on the Commonwealth acquisition, in the
nine months ended September 30, 2015. Our effective tax rate for the nine months ended September 30, 2016 was 27.3% compared to
29.2% for the nine months ended September 30, 2015, excluding the bargain purchase gain on the Commonwealth acquisition.