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Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 


 

FORM 10-Q

 


 

(Mark One)

 

x      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Quarterly Period Ended June 30, 2014

 

Or

 

x      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from              to             

 

Commission file number: 001-33126

 


 

CITIZENS FIRST CORPORATION

(Exact name of registrant as specified in its charter)

 


 

Kentucky

 

61-0912615

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

1065 Ashley Street, Bowling Green, Kentucky

 

42103

(Address of principal executive offices)

 

(Zip Code)

 

(270) 393-0700

(Registrant’s telephone number, including area code)

 


 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  x  No  o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  x  No  o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer  o

Accelerated filer  o

Non-accelerated filer  o

Smaller reporting company  x

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  o  No  x

 

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

 

1,968,777 shares of Common Stock, no par value, were outstanding at August 7, 2014.

 

 

 




Table of Contents

 

Part 1. Financial Information

 

Item 1. Financial Statements

 

Citizens First Corporation

Consolidated Balance Sheets

 

 

 

(In Thousands, Except Share Data)

 

 

 

June 30,
2014

 

December 31,
2013

 

 

 

Unaudited

 

 

 

Assets

 

 

 

 

 

Cash and due from financial institutions

 

$

11,055

 

$

8,572

 

Federal funds sold

 

11,775

 

28,490

 

Cash and cash equivalents

 

22,830

 

37,062

 

Available-for-sale securities

 

55,405

 

51,633

 

Loans held for sale

 

286

 

 

Loans, net of allowance for loan losses of $4,953 and $4,653 at June 30, 2014 and December 31, 2013, respectively

 

306,502

 

290,415

 

Premises and equipment, net

 

10,880

 

11,054

 

Bank owned life insurance (BOLI)

 

7,900

 

7,806

 

Federal Home Loan Bank (FHLB) stock, at cost

 

2,025

 

2,025

 

Accrued interest receivable

 

1,536

 

1,554

 

Deferred income taxes

 

1,614

 

2,279

 

Goodwill

 

4,097

 

4,097

 

Core deposit intangible

 

499

 

665

 

Other real estate owned

 

598

 

833

 

Other assets

 

639

 

752

 

Total Assets

 

$

414,811

 

$

410,175

 

Liabilities

 

 

 

 

 

Deposits

 

 

 

 

 

Noninterest bearing

 

44,972

 

39,967

 

Savings, NOW and money market

 

139,293

 

143,602

 

Time

 

161,545

 

159,382

 

Total deposits

 

345,810

 

342,951

 

FHLB advances and other borrowings

 

25,300

 

22,000

 

Subordinated debentures

 

5,000

 

5,000

 

Accrued interest payable

 

239

 

243

 

Other liabilities

 

1,661

 

1,634

 

Total Liabilities

 

$

378,010

 

$

371,828

 

Stockholders’ Equity

 

 

 

 

 

6.5% cumulative preferred stock; no par value, authorized 250 shares, aggregate liquidation preference of $7,998; issued and outstanding 250 shares at June 30, 2014 and December 31, 2013, respectively

 

$

7,659

 

$

7,659

 

5.0% Series A cumulative preferred stock; no par value, authorized 250 shares, aggregate liquidation preference of $0 and $3,266; issued and outstanding 0 shares at June 30, 2014 and 93 shares at December 31, 2013

 

 

3,266

 

Common stock, no par value, authorized 5,000,000 shares; issued and outstanding 1,968,777 shares at June 30, 2014 and December 31, 2013, respectively

 

27,072

 

27,072

 

Retained earnings

 

1,818

 

653

 

Accumulated other comprehensive income (loss)

 

252

 

(303

)

Total stockholders’ equity

 

$

36,801

 

$

38,347

 

Total liabilities and stockholders’ equity

 

$

414,811

 

$

410,175

 

 

See Notes to Unaudited Consolidated Financial Statements

 

3



Table of Contents

 

Citizens First Corporation
Unaudited Consolidated Statements of Income

 

 

 

Three months ended

 

 

 

(In Thousands, Except Per Share Data)

 

 

 

June 30, 2014

 

June 30, 2013

 

Interest and dividend income

 

 

 

 

 

Loans

 

$

3,879

 

$

4,022

 

Taxable securities

 

151

 

101

 

Non-taxable securities

 

167

 

165

 

Federal funds sold and other

 

33

 

37

 

Total interest and dividend income

 

4,230

 

4,325

 

Interest expense

 

 

 

 

 

Deposits

 

551

 

625

 

FHLB advances and other

 

126

 

121

 

Subordinated debentures

 

24

 

24

 

Total interest expense

 

701

 

770

 

Net interest income

 

3,529

 

3,555

 

Provision for loan losses

 

150

 

50

 

Net interest income after provision for loan losses

 

3,379

 

3,505

 

Non-interest income

 

 

 

 

 

Service charges on deposit accounts

 

296

 

321

 

Other service charges and fees

 

141

 

158

 

Gain on sale of mortgage loans

 

51

 

78

 

Non-deposit brokerage fees

 

75

 

78

 

Lease income

 

74

 

75

 

BOLI income

 

47

 

56

 

Gain on sale of securities available-for-sale (includes $74 in 2014 and $29 in 2013 accumulated other comprehensive income reclassifications for unrealized net gains on available-for-sale-securities)

 

74

 

29

 

Total non-interest income

 

758

 

795

 

Non-interest expenses

 

 

 

 

 

Salaries and employee benefits

 

1,486

 

1,417

 

Net occupancy expense

 

479

 

465

 

Advertising and public relations

 

93

 

110

 

Professional fees

 

149

 

174

 

Data processing services

 

248

 

272

 

Franchise shares and deposit tax

 

145

 

141

 

FDIC insurance

 

74

 

26

 

Core deposit intangible amortization

 

82

 

85

 

Postage and office supplies

 

59

 

35

 

Other real estate owned expenses

 

47

 

20

 

Other

 

271

 

434

 

Total non-interest expenses

 

3,133

 

3,179

 

Income before income taxes

 

1,004

 

1,121

 

 

 

 

 

 

 

Income taxes

 

271

 

333

 

Net income

 

$

733

 

$

788

 

Dividends and accretion on preferred stock

 

127

 

176

 

Net income available for common stockholders

 

$

606

 

$

612

 

Basic earnings per common share

 

$

0.31

 

$

0.31

 

Diluted earnings per common share

 

$

0.29

 

$

0.30

 

 

See Notes to Unaudited Consolidated Financial Statements

 

4



Table of Contents

 

Citizens First Corporation
Unaudited Consolidated Statements of Income

 

 

 

Six months ended

 

 

 

(In Thousands, Except Per Share Data)

 

 

 

June 30, 2014

 

June 30, 2013

 

Interest and dividend income

 

 

 

 

 

Loans

 

$

7,722

 

$

8,147

 

Taxable securities

 

292

 

196

 

Non-taxable securities

 

332

 

334

 

Federal funds sold and other

 

65

 

76

 

Total interest and dividend income

 

8,411

 

8,753

 

Interest expense

 

 

 

 

 

Deposits

 

1,094

 

1,252

 

FHLB advances and other

 

243

 

231

 

Subordinated debentures

 

47

 

49

 

Total interest expense

 

1,384

 

1,532

 

Net interest income

 

7,027

 

7,221

 

Provision for loan losses

 

275

 

1,300

 

Net interest income after provision for loan losses

 

6,752

 

5,921

 

Non-interest income

 

 

 

 

 

Service charges on deposit accounts

 

557

 

612

 

Other service charges and fees

 

294

 

296

 

Gain on sale of mortgage loans

 

75

 

160

 

Non-deposit brokerage fees

 

144

 

143

 

Lease income

 

149

 

149

 

BOLI income

 

94

 

117

 

Gain on sale of securities available-for-sale (includes $74 in 2014 and $37 in 2013 accumulated other comprehensive income reclassifications for unrealized net gains on available-for-sale-securities) comprehensive income reclassifications for unrealized net gains on available-for-sale securities)

 

74

 

37

 

Total non-interest income

 

1,387

 

1,514

 

Non-interest expenses

 

 

 

 

 

Salaries and employee benefits

 

3,013

 

2,858

 

Net occupancy expense

 

961

 

926

 

Advertising and public relations

 

176

 

188

 

Professional fees

 

302

 

338

 

Data processing services

 

481

 

537

 

Franchise shares and deposit tax

 

291

 

282

 

FDIC insurance

 

151

 

111

 

Core deposit intangible amortization

 

166

 

169

 

Postage and office supplies

 

110

 

78

 

Other real estate owned expenses

 

57

 

31

 

Other

 

487

 

743

 

Total non-interest expenses

 

6,195

 

6,261

 

Income before income taxes

 

1,944

 

1,174

 

 

 

 

 

 

 

Income taxes

 

520

 

271

 

Net income

 

$

1,424

 

$

903

 

Dividends and accretion on preferred stock

 

259

 

393

 

Net income available for common stockholders

 

$

1,165

 

$

510

 

Basic earnings per common share

 

$

0.59

 

$

0.26

 

Diluted earnings per common share

 

$

0.56

 

$

0.25

 

 

See Notes to Unaudited Consolidated Financial Statements

 

5



Table of Contents

 

Citizens First Corporation

Unaudited Consolidated Statements of Comprehensive Income

In thousands, except share data

 

 

 

Three months ended

 

 

 

(In Thousands, Except Per Share Data)

 

 

 

June 30, 2014

 

June 30, 2013

 

Comprehensive income (loss), net of tax

 

 

 

 

 

Net income

 

733

 

788

 

Other comprehensive income (loss)

 

 

 

 

 

Reclassification adjustment for gains included in net income, net

 

(49

)

(19

)

Change in unrealized gain (loss) on available for sale securities, net of $113 taxes in 2014 and $327 in 2013

 

331

 

(914

)

Total other comprehensive income (loss)

 

282

 

(933

)

Comprehensive income (loss)

 

$

1,015

 

$

(145

)

 

See Notes to Unaudited Consolidated Financial Statements

 

 

 

Six months ended

 

 

 

(In Thousands, Except Per Share Data)

 

 

 

June 30, 2014

 

June 30, 2013

 

 

 

 

 

 

 

Comprehensive income (loss), net of tax

 

 

 

 

 

Net income

 

1,424

 

903

 

Other comprehensive income (loss)

 

 

 

 

 

Reclassification adjustment for gains included in net income, net

 

(49

)

(24

)

Change in unrealized gain (loss) on available for sale securities, net of $205 taxes in 2014 and $360 in 2013

 

604

 

(1,009

)

Total other comprehensive income (loss)

 

555

 

(1,033

)

Comprehensive income (loss)

 

$

1,979

 

$

(130

)

 

See Notes to Unaudited Consolidated Financial Statements

 

6



Table of Contents

 

Citizens First Corporation

Unaudited Consolidated Statements of Changes in Stockholders’ Equity

In thousands, except share data

 

 

 

Preferred
Stock

 

Common
Stock

 

Retained
Earnings
(Deficit)

 

Accumulated Other
Comprehensive
Income (Loss)

 

Total

 

Balance, January 1, 2013

 

$

14,178

 

$

27,072

 

$

(430

)

$

746

 

$

41,566

 

Net income

 

 

 

 

 

903

 

 

 

903

 

Series A preferred stock

 

(3,301

)

 

 

 

 

 

 

(3,301

)

Accretion on Series A preferred stock

 

35

 

 

 

(35

)

 

 

 

Change in other comprehensive loss

 

 

 

 

 

 

 

(1,033

)

(1,033

)

Dividend declared and paid on preferred stock

 

 

 

 

 

(359

)

 

 

(359

)

Balance, June 30, 2013

 

$

10,912

 

$

27,072

 

$

79

 

$

(287

)

$

37,776

 

 

 

 

Preferred
Stock

 

Common
Stock

 

Retained
Earnings

 

Accumulated Other
Comprehensive
Income (Loss)

 

Total

 

Balance, January 1, 2014

 

$

10,925

 

$

27,072

 

$

653

 

$

(303

)

$

38,347

 

Net income

 

 

 

 

 

1,424

 

 

 

1,424

 

Repayment of 93 shares Series A preferred stock

 

(3,266

)

 

 

 

 

 

 

(3,266

)

Change in other comprehensive income

 

 

 

 

 

 

 

555

 

555

 

Dividend declared and paid on preferred stock

 

 

 

 

 

(259

)

 

 

(259

)

Balance, June 30, 2014

 

$

7,659

 

$

27,072

 

$

1,818

 

$

252

 

$

36,801

 

 

See Notes to Unaudited Consolidated Financial Statements

 

7



Table of Contents

 

Citizens First Corporation

Unaudited Consolidated Statements of Cash Flows

 

 

 

Six months ended

 

 

 

(In Thousands)

 

 

 

June 30, 2014

 

June 30,2013

 

Operating Activities

 

 

 

 

 

Net income

 

$

1,424

 

$

903

 

Items not requiring (providing) cash:

 

 

 

 

 

Depreciation and amortization

 

277

 

310

 

Provision for loan losses

 

275

 

1,300

 

Amortization of premiums and discounts on securities

 

138

 

181

 

Amortization of core deposit intangible

 

166

 

169

 

Deferred income taxes

 

796

 

182

 

BOLI income

 

(94

)

(117

)

Proceeds from sale of mortgage loans

 

2,956

 

6,743

 

Origination of mortgage loans held for sale

 

(3,167

)

(6,678

)

Gains on sales of available-for-sale securities

 

(74

)

(37

)

Gains on sales of mortgage loans

 

(75

)

(160

)

Write-downs and losses on sale of other real estate owned

 

35

 

8

 

Gain on sale premises and equipment

 

(11

)

(9

)

Changes in:

 

 

 

 

 

Accrued interest receivable

 

18

 

(6

)

Other assets

 

(304

)

552

 

Accrued interest payable and other liabilities

 

23

 

923

 

Net cash provided by operating activities

 

2,383

 

4,264

 

Investing Activities

 

 

 

 

 

Loan originations and payments, net

 

(16,462

)

(8,959

)

Purchase of premises and equipment

 

(115

)

(36

)

Proceeds from maturities of available-for-sale securities

 

3,252

 

5,535

 

Proceeds from sales of available-for-sale securities

 

5,888

 

1,089

 

Proceeds from sales of other real estate owned

 

300

 

25

 

Purchase of available-for-sale securities

 

(12,135

)

(10,894

)

Proceeds from sales of premises and equipment

 

23

 

9

 

Net cash used in investing activities

 

(19,249

)

(13,231

)

Financing Activities

 

 

 

 

 

Net change in demand deposits, money market, NOW and savings accounts

 

696

 

(418

)

Net change in time deposits

 

2,163

 

5,911

 

Repayment of TARP preferred stock

 

(3,266

)

(3,301

)

Proceeds from other borrowings

 

3,300

 

2,300

 

Dividends paid on preferred stock

 

(259

)

(359

)

Net cash provided by financing activities

 

2,634

 

4,133

 

Decrease in Cash and Cash Equivalents

 

(14,232

)

(4,834

)

Cash and Cash Equivalents, Beginning of Year

 

37,062

 

34,799

 

Cash and Cash Equivalents, End of Quarter

 

$

22,830

 

$

29,965

 

 

 

 

 

 

 

Supplemental Cash Flows Information

 

 

 

 

 

Interest paid

 

$

1,389

 

$

1,487

 

Income taxes paid

 

$

10

 

$

260

 

Loans transferred to other real estate owned

 

$

100

 

$

359

 

 

See Notes to Unaudited Consolidated Financial Statements

 

8



Table of Contents

 

Citizens First Corporation

Notes to Unaudited Consolidated Financial Statements

 

Note 1 — Nature of Operations and Summary of Significant Accounting Policies

 

The accounting and reporting policies of Citizens First Corporation (the “Company”) and its subsidiary, Citizens First Bank, Inc. (the “Bank”), conform to U.S. generally accepted accounting principles and general practices within the banking industry.  The consolidated financial statements include the accounts of the Company and the Bank.  All significant intercompany transactions and accounts have been eliminated in consolidation.

 

Certain information and note disclosures normally included in the Company’s annual financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted.  These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s 2013 Annual Report on Form 10-K filed with the Securities and Exchange Commission.

 

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets 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, all adjustments considered necessary for a fair presentation have been reflected in the accompanying unaudited financial statements.  Those adjustments consist only of normal recurring adjustments. Results of interim periods are not necessarily indicative of results to be expected for the full year.  The consolidated balance sheet of the Company as of December 31, 2013 has been derived from the audited consolidated balance sheet of the Company as of that date.

 

Note 2 - Reclassifications

 

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

 

9



Table of Contents

 

Note 3 - Available-For-Sale Securities

 

The following table summarizes the amortized cost and fair value of the available-for sale securities portfolio at June 30, 2014 and December 31, 2013 and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive loss:

 

 

 

(Dollars in Thousands)

 

 

 

Amortized
Cost

 

Gross
Unrealized
Gains

 

Gross
Unrealized
Losses

 

Fair
Value

 

June 30, 2014

 

 

 

 

 

 

 

 

 

U. S. government agencies and government sponsored entities

 

$

5,991

 

$

 

$

(67

)

$

5,924

 

State and municipal

 

20,614

 

819

 

(131

)

21,302

 

Agency mortgage-backed securities: residential

 

25,544

 

267

 

(71

)

25,740

 

Trust preferred security

 

1,874

 

 

(434

)

1,440

 

Corporate Bonds

 

1,000

 

 

(1

)

999

 

Total Available-for-Sale Securities

 

$

55,023

 

$

1,086

 

$

(704

)

$

55,405

 

 

 

 

 

 

 

 

 

 

 

December 31, 2013

 

 

 

 

 

 

 

 

 

U. S. government agencies and government sponsored entities

 

$

6001

 

$

 

$

(182

)

$

5,819

 

State and municipal

 

19,394

 

547

 

(265

)

19,676

 

Agency mortgage-backed securities: residential

 

23,825

 

172

 

(253

)

23,744

 

Trust preferred security

 

1,872

 

 

(472

)

1,400

 

Corporate bond

 

1,000

 

 

(6

)

994

 

Total Available-for-Sale Securities

 

$

52,092

 

$

719

 

$

(1,178

)

$

51,633

 

 

The amortized cost and fair value of investment securities at June 30, 2014 by contractual maturity were as follows.  Securities not due at a single maturity date, primarily mortgage-backed securities, are shown separately.

 

10



Table of Contents

 

 

 

June 30, 2014
(Dollars in Thousands)

 

 

 

Available-For-Sale

 

 

 

Amortized Cost

 

Fair Value

 

Due in one year or less

 

534

 

543

 

Due from one to five years

 

8,091

 

8,251

 

Due from five to ten years

 

11,978

 

12,226

 

Due after ten years

 

8,876

 

8,645

 

Agency mortgage-backed: residential

 

25,544

 

25,740

 

Total

 

$

55,023

 

$

55,405

 

 

The following table summarizes the investment securities with unrealized losses at June 30, 2014 and December 31, 2013, aggregated by investment category and length of time that individual securities have been in continuous unrealized loss position:

 

 

 

(Dollars in Thousands)

 

 

 

Less than 12 Months

 

12 Months or More

 

Total

 

Description of
Securities

 

Fair Value

 

Unrealized
Losses

 

Fair Value

 

Unrealized
Losses

 

Fair Value

 

Unrealized
Losses

 

June 30, 2014:

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government agencies and government sponsored entities

 

$

990

 

$

(2

)

$

4,934

 

$

(65

)

$

5,924

 

$

(67

)

State and municipal

 

1,736

 

(8

)

2,489

 

(123

)

4,225

 

(131

)

Agency mortgage-backed: residential

 

7,984

 

(21

)

1751

 

(50

)

9,735

 

(71

)

Trust preferred security

 

 

 

1,440

 

(434

)

1,440

 

(434

)

Corporate Bonds

 

999

 

(1

)

 

 

999

 

(1

)

Total temporarily impaired

 

$

11,709

 

$

(32

)

$

10,614

 

$

(672

)

$

22,323

 

$

(704

)

 

 

 

(Dollars in Thousands)

 

 

 

Less than 12 Months

 

12 Months or More

 

Total

 

Description of
Securities

 

Fair Value

 

Unrealized
Losses

 

Fair Value

 

Unrealized
Losses

 

Fair Value

 

Unrealized
Losses

 

December 31, 2013:

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government agencies and government sponsored entities

 

$

4,882

 

$

(119

)

$

937

 

$

(63

)

$

5,819

 

$

(182

)

State and municipal

 

3,988

 

(128

)

844

 

(137

)

4,832

 

(265

)

Agency mortgage-backed: residential

 

12,977

 

(253

)

 

 

12,977

 

(253

)

Trust preferred security

 

 

 

1,400

 

(472

)

1,400

 

(472

)

Corporate bonds

 

994

 

(6

)

 

 

994

 

(6

)

Total temporarily impaired

 

$

22,841

 

$

(506

)

$

3,181

 

$

(672

)

$

26,022

 

$

(1,178

)

 

11



Table of Contents

 

Other-Than-Temporary-Impairment

 

Management evaluates securities for other-than-temporary impairment (“OTTI”) at least on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation.  Investment securities classified as available-for-sale are generally evaluated for OTTI under ASC Topic 320, “Investments - Debt and Equity Securities.”

 

In determining OTTI under the ASC Topic 320 model, management considers many factors, including: (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, (3) whether the market decline was affected by macroeconomic conditions, and (4) whether the entity has the intent to sell the debt security or more likely than not will be required to sell the debt security before its anticipated recovery.  The assessment of whether an other-than-temporary decline exists involves a high degree of subjectivity and judgment and is based on the information available to management at a point in time.

 

As of June 30, 2014, our securities portfolio consisted of $55.4 million fair value of securities, $22.3 million, or 23 securities, of which were in an unrealized loss position.

 

All rated securities are investment grade.  For those that are not rated, the financial condition has been evaluated and no adverse conditions were identified related to repayment.  Declines in fair value are a function of rate differences in the market and market illiquidity.  The Company does not intend or is not expected to be required to sell these securities before recovery of their amortized cost basis.

 

Approximately 60% of the Company’s unrealized losses 12 months or more relate to its investment in a single trust preferred security.  The security is a single-issuer trust preferred that is not rated.  While market conditions have allowed some increase in the fair market value of the trust preferred security at June 30, 2014, a full recovery has not yet occurred.  No impairment charge is being taken as no loss of principal or interest is anticipated.  All principal and interest payments are being received as scheduled.  On a quarterly basis, we evaluate the creditworthiness of the issuer, a bank holding company with operations in the state of Kentucky.  Based on the issuer’s continued profitability and well-capitalized position, we do not deem that there is credit loss.  The decline in fair value is primarily attributable to illiquidity affecting these markets and not the expected cash flows of the individual securities.  We have evaluated the financial condition and near term prospects of the issuer and expect to fully recover our cost basis.  This security continues to pay interest as agreed and future payments are expected to be made as agreed.  This security is not considered to be other-than-temporarily impaired.

 

12



Table of Contents

 

Note 4 - Loans and Allowance for Loan Losses

 

Categories of loans include:

 

 

 

(Dollars in Thousands)

 

 

 

June
30,
2014

 

December
31,
2013

 

 

 

 

 

 

 

Commercial

 

$

45,712

 

$

45,254

 

Commercial real estate:

 

 

 

 

 

Construction

 

15,668

 

15,052

 

Other

 

167,271

 

154,975

 

Residential real estate

 

77,267

 

74,040

 

Consumer:

 

 

 

 

 

Auto

 

2,088

 

2,544

 

Other

 

3,449

 

3,203

 

Total loans

 

311,455

 

295,068

 

Less allowance for loan losses

 

(4,953

)

(4,653

)

Net loans

 

$

306,502

 

$

290,415

 

 

The following table sets forth an analysis of our allowance for loan losses for the three months ending June 30, 2014 and 2013.

 

 

 

(Dollars In Thousands)

 

 

 

Commercial

 

Commercial
Real Estate

 

Residential
Real Estate

 

Consumer

 

Unallocated

 

Total

 

June 30, 2014 Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

937

 

$

3,013

 

$

699

 

$

71

 

$

107

 

$

4,827

 

Provision for loan losses

 

(77

)

165

 

15

 

5

 

42

 

150

 

Loans charged-off

 

 

 

(71

)

(10

)

 

(81

)

Recoveries

 

42

 

11

 

3

 

1

 

 

57

 

Total ending allowance balance

 

$

902

 

$

3,189

 

$

646

 

$

67

 

$

149

 

$

4,953

 

 

 

 

(Dollars In Thousands)

 

 

 

Commercial

 

Commercial
Real Estate

 

Residential
Real Estate

 

Consumer

 

Unallocated

 

Total

 

June 30, 2013 Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

3,282

 

$

2,584

 

$

507

 

$

81

 

$

196

 

$

6,650

 

Provision for loan losses

 

(714

)

656

 

30

 

(3

)

81

 

50

 

Loans charged-off

 

(653

)

 

(19

)

(6

)

 

(678

)

Recoveries

 

7

 

31

 

3

 

1

 

 

42

 

Total ending allowance balance

 

$

1,922

 

$

3,271

 

$

521

 

$

73

 

$

277

 

$

6,064

 

 

13



Table of Contents

 

The following table sets forth an analysis of our allowance for loan losses for the six months ending June 30, 2014 and 2013.

 

 

 

(Dollars In Thousands)

 

 

 

Commercial

 

Commercial
Real Estate

 

Residential
Real Estate

 

Consumer

 

Unallocated

 

Total

 

June 30, 2014 Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

1,420

 

$

2,079

 

$

703

 

$

86

 

$

365

 

$

4,653

 

Provision for loan losses

 

(577

)

1,052

 

24

 

(8

)

(216

)

275

 

Loans charged-off

 

 

 

(90

)

(13

)

 

(103

)

Recoveries

 

59

 

58

 

9

 

2

 

 

128

 

Total ending allowance balance

 

$

902

 

$

3,189

 

$

646

 

$

67

 

$

149

 

$

4,953

 

 

 

 

(Dollars In Thousands)

 

 

 

Commercial

 

Commercial
Real Estate

 

Residential
Real Estate

 

Consumer

 

Unallocated

 

Total

 

June 30, 2013 Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

2,156

 

$

2,635

 

$

589

 

$

90

 

$

251

 

$

5,721

 

Provision for loan losses

 

746

 

590

 

(60

)

(2

)

26

 

1,300

 

Loans charged-off

 

(987

)

(14

)

(19

)

(17

)

 

(1,037

)

Recoveries

 

7

 

60

 

11

 

2

 

 

80

 

Total ending allowance balance

 

$

1,922

 

$

3,271

 

$

521

 

$

73

 

$

277

 

$

6,064

 

 

The following tables present the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on the impairment method as of June 30, 2014 and December 31, 2013.  As of June 30, 2014 and December 31, 2013, accrued interest receivable of $1.3 million is not considered significant and therefore not included in the recorded investment in loans presented in the following tables. Net deferred loan fees of $355,000 and $280,000, respectively, are included in the following tables.

 

 

 

(Dollars In Thousands)

 

 

 

Commercial

 

Commercial
Real Estate

 

Residential
Real Estate

 

Consumer

 

Unallocated

 

Total

 

June 30, 2014 Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending allowance balance attributable to loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for impairment

 

$

147

 

$

389

 

$

60

 

$

17

 

$

 

$

613

 

Collectively evaluated

 

755

 

2,800

 

586

 

50

 

149

 

4,340

 

Total ending allowance balance

 

$

902

 

$

3,189

 

$

646

 

$

67

 

$

149

 

$

4,953

 

Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for impairment

 

$

2,617

 

$

1,561

 

$

1,261

 

$

30

 

$

 

$

5,469

 

Collectively evaluated

 

43,095

 

181,378

 

76,006

 

5,507

 

 

305,986

 

Total ending loans balance

 

$

45,712

 

$

182,939

 

$

77,267

 

$

5,537

 

$

 

$

311,455

 

 

14



Table of Contents

 

 

 

(Dollars In Thousands)

 

 

 

Commercial

 

Commercial
Real Estate

 

Residential
Real Estate

 

Consumer

 

Unallocated

 

Total

 

December 31, 2013 Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending allowance balance attributable to loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for impairment

 

$

676

 

$

369

 

$

307

 

$

35

 

$

 

$

1,387

 

Collectively evaluated

 

744

 

1,710

 

396

 

51

 

365

 

3,266

 

Total ending allowance balance

 

$

1,420

 

$

2,079

 

$

703

 

$

86

 

$

365

 

$

4,653

 

Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for impairment

 

$

3,085

 

$

2,021

 

$

1,383

 

$

36

 

$

 

$

6,525

 

Collectively evaluated

 

42,169

 

168,006

 

72,657

 

5,711

 

 

288,543

 

Total ending loans balance

 

$

45,254

 

$

170,027

 

$

74,040

 

$

5,747

 

$

 

$

295,068

 

 

The following table presents information related to impaired loans by class of loans as of June 30, 2014 and December 31, 2013. In this table presentation the unpaid principal balance of the loans has not been reduced by partial net charge-offs. In this table presentation the recorded investment of the loans was reduced by partial net charge-offs.

 

 

 

(Dollars in Thousands)
June 30, 2014

 

(Dollars in Thousands)
December 31, 2013

 

 

 

Unpaid
Principal
Balance

 

Recorded
Investment

 

Allowance
for Loan
Losses
Allocated

 

Unpaid
Principal
Balance

 

Recorded
Investment

 

Allowance
for Loan
Losses
Allocated

 

With no related allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

$

783

 

$

783

 

$

 

$

1,880

 

$

1,880

 

$

 

Commercial real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction

 

 

 

 

 

 

 

Other

 

111

 

111

 

 

843

 

843

 

 

Residential real estate

 

1,037

 

1,037

 

 

337

 

337

 

 

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

Auto

 

 

 

 

1

 

1

 

 

Other

 

 

 

 

 

 

 

Subtotal

 

1,931

 

1,931

 

 

3,061

 

3,061

 

 

With an allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

1,834

 

1,834

 

147

 

1,205

 

1,205

 

676

 

Commercial real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction

 

 

 

 

 

 

 

Other

 

1,450

 

1,450

 

389

 

1,178

 

1,178

 

369

 

Residential real estate

 

224

 

224

 

60

 

1,046

 

1,046

 

307

 

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

Auto

 

17

 

17

 

17

 

21

 

21

 

21

 

Other

 

13

 

13

 

 

14

 

14

 

14

 

Subtotal

 

3,538

 

3,538

 

613

 

3,464

 

3,464

 

1,387

 

Total

 

$

5,469

 

$

5,469

 

$

613

 

$

6,525

 

$

6,525

 

$

1,387

 

 

15



Table of Contents

 

Information on impaired loans for the three months ending June 30, 2014 and 2013 is as follows:

 

 

 

(Dollars in Thousands)
June 30, 2014

 

(Dollars in Thousands)
June 30, 2013

 

 

 

Average
Recorded
Investment

 

Interest
Income
Recognized

 

Cash Basis
Interest
Recognized

 

Average
Recorded
Investment

 

Interest
Income
Recognized

 

Cash Basis
Interest
Recognized

 

Commercial

 

$

2,710

 

37

 

26

 

$

6,287

 

99

 

52

 

Commercial real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction

 

 

 

 

 

 

 

Other

 

1,547

 

20

 

15

 

7,607

 

120

 

13

 

Residential real estate

 

1,305

 

16

 

11

 

682

 

13

 

8

 

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

Auto

 

18

 

 

 

27

 

 

 

Other

 

13

 

 

 

4

 

 

 

Total

 

$

5,593

 

$

73

 

$

52

 

$

14,607

 

$

232

 

$

73

 

 

Information on impaired loans for the six months ending June 30, 2014 and 2013 is as follows:

 

 

 

(Dollars in Thousands)
June 30, 2014

 

(Dollars in Thousands)
June 30, 2013

 

 

 

Average
Recorded
Investment

 

Interest
Income
Recognized

 

Cash Basis
Interest
Recognized

 

Average
Recorded
Investment

 

Interest
Income
Recognized

 

Cash Basis
Interest
Recognized

 

Commercial

 

$

2,851

 

68

 

53

 

$

5,851

 

161

 

94

 

Commercial real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction

 

 

 

 

 

 

 

Other

 

1,791

 

40

 

29

 

7,128

 

208

 

44

 

Residential real estate

 

1,322

 

31

 

20

 

528

 

16

 

9

 

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

Auto

 

19

 

1

 

 

28

 

1

 

 

Other

 

14

 

 

 

3

 

 

 

Total

 

$

5,997

 

$

140

 

$

102

 

$

13,538

 

$

386

 

$

147

 

 

16



Table of Contents

 

The recorded investment in nonaccrual and loans past due over 90 days still on accrual by class of loans as of June 30, 2014 and December 31, 2013 are summarized below:

 

 

 

(Dollars in Thousands)
As of June 30, 2014

 

(Dollars in Thousands)
As of December 31, 2013

 

 

 

Loans Past Due
Over 90 Days and
Still Accruing

 

Nonaccrual

 

Loans Past Due
Over 90 Days and
Still Accruing

 

Nonaccrual

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

$

 

$

816

 

$

 

$

153

 

Commercial real estate:

 

 

 

 

 

 

 

 

 

Construction

 

 

 

 

 

Other

 

 

535

 

 

362

 

Residential real estate

 

42

 

473

 

 

643

 

Consumer:

 

 

 

 

 

 

 

 

 

Auto

 

 

17

 

 

22

 

Other

 

 

 

 

 

Total

 

$

42

 

$

1,841

 

$

 

$

1,180

 

 

Nonaccrual loans and loans past due 90 days still on accrual include individually classified impaired loans.

 

The following tables present the aging of the recorded investment in past due loans as of June 30, 2014 and December 31, 2013 by class of loans.  Non-accrual loans are included and have been categorized based on their payment status:

 

 

 

(Dollars In Thousands)

 

 

 

30-59
Days
Past Due

 

60-89
Days
Past Due

 

Over 90
Days
Past Due

 

Total
Past Due

 

Loans Not
Past Due

 

Total

 

June 30, 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

$

181

 

$

 

$

688

 

$

869

 

$

44,843

 

$

45,712

 

Commercial real estate: