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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

 

o                   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:  000-52598

 

KENTUCKY BANCSHARES, INC.

(Exact name of registrant as specified in its charter)

 

Kentucky

 

61-0993464

(State or other jurisdiction of

 

(I.R.S. Employer Identification No.)

incorporation or organization)

 

 

 

P.O. Box 157, Paris, Kentucky

 

40362-0157

(Address of principal executive offices)

 

(Zip Code)

 

Registrant’s telephone number, including area code:  (859) 987-1795

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x No 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 (Section 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 definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one):

 

Large accelerated filer o

 

Accelerated filer o

 

Non-accelerated filer x (Do not check if a smaller reporting company)

 

Smaller reporting company o

 

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

 

Number of shares of Common Stock outstanding as of July 31, 2014:  2,721,142.

 

 

 




Table of Contents

 

Item 1 - Financial Statements

 

KENTUCKY BANCSHARES, INC.

 

CONSOLIDATED BALANCE SHEETS (unaudited)

(in thousands, except per share data)

 

 

 

6/30/2014

 

12/31/2013

 

Assets

 

 

 

 

 

Cash and due from banks

 

$

14,951

 

$

22,650

 

Federal funds sold

 

88

 

510

 

Cash and cash equivalents

 

15,039

 

23,160

 

Securities available for sale

 

224,168

 

230,396

 

Trading Assets

 

5,242

 

 

Mortgage loans held for sale

 

495

 

223

 

Loans

 

496,134

 

468,655

 

Allowance for loan losses

 

(5,614

)

(5,441

)

Net loans

 

490,520

 

463,214

 

Federal Home Loan Bank stock

 

5,981

 

6,731

 

Real estate owned, net

 

2,306

 

3,379

 

Bank premises and equipment, net

 

16,780

 

16,709

 

Interest receivable

 

3,254

 

3,618

 

Mortgage servicing rights

 

1,245

 

1,344

 

Goodwill

 

13,117

 

13,117

 

Other intangible assets

 

243

 

317

 

Other assets

 

6,906

 

8,371

 

Total assets

 

$

785,296

 

$

770,579

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

Deposits

 

 

 

 

 

Non-interest bearing

 

$

157,988

 

$

152,052

 

Time deposits, $100,000 and over

 

92,069

 

96,264

 

Other interest bearing

 

347,352

 

369,084

 

Total deposits

 

597,409

 

617,400

 

Repurchase agreements and other borrowings

 

11,297

 

12,867

 

Federal funds purchased

 

4,649

 

 

Short-term Federal Home Loan Bank advances

 

20,000

 

 

Long-term Federal Home Loan Bank advances

 

61,414

 

57,847

 

Subordinated debentures

 

7,217

 

7,217

 

Interest payable

 

679

 

736

 

Other liabilities

 

7,699

 

6,839

 

Total liabilities

 

710,364

 

702,906

 

 

 

 

 

 

 

Stockholders’ equity

 

 

 

 

 

Preferred stock, 300,000 shares authorized and unissued

 

 

 

Common stock, no par value; 10,000,000 shares authorized; 2,721,142 and 2,717,434 shares issued and outstanding on June 30, 2014 and December 31, 2013

 

12,608

 

12,570

 

Retained earnings

 

62,469

 

60,229

 

Accumulated other comprehensive loss

 

(145

)

(5,126

)

Total stockholders’ equity

 

74,932

 

67,673

 

Total liabilities & stockholders’ equity

 

$

785,296

 

$

770,579

 

 

See Accompanying Notes

 

3



Table of Contents

 

KENTUCKY BANCSHARES, INC.

 

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (LOSS) (unaudited)

(in thousands, except per share amounts)

 

 

 

Six Months Ending

 

 

 

6/30/2014

 

6/30/2013

 

INTEREST INCOME:

 

 

 

 

 

Loans, including fees

 

$

11,657

 

$

11,279

 

Securities

 

 

 

 

 

Taxable

 

1,355

 

1,006

 

Tax exempt

 

1,451

 

1,349

 

Trading assets

 

80

 

 

Other

 

145

 

159

 

Total interest income

 

14,688

 

13,793

 

INTEREST EXPENSE:

 

 

 

 

 

Deposits

 

1,074

 

1,162

 

Repurchase agreements and other borrowings

 

48

 

31

 

Federal Home Loan Bank advances

 

623

 

330

 

Subordinated debentures

 

115

 

115

 

Total interest expense

 

1,860

 

1,638

 

Net interest income

 

12,828

 

12,155

 

Provision for loan losses

 

200

 

600

 

Net interest income after provision

 

12,628

 

11,555

 

NON-INTEREST INCOME:

 

 

 

 

 

Service charges

 

2,073

 

2,108

 

Loan service fee income, net

 

34

 

(36

)

Trust department income

 

461

 

360

 

Gain on sale of available for sale securities, net

 

433

 

774

 

Gain on trading assets

 

162

 

 

Gain on sale of mortgage loans

 

398

 

1,140

 

Brokerage income

 

290

 

177

 

Debit card interchange income

 

1,009

 

953

 

Other

 

77

 

(46

)

Total other income

 

4,937

 

5,430

 

NON-INTEREST EXPENSE:

 

 

 

 

 

Salaries and employee benefits

 

7,263

 

6,778

 

Occupancy expenses

 

1,678

 

1,547

 

Repossession expenses, net

 

23

 

35

 

FDIC Insurance

 

268

 

262

 

Legal and professional fees

 

458

 

390

 

Data processing

 

668

 

688

 

Debit card expenses

 

496

 

468

 

Amortization

 

74

 

114

 

Advertising and marketing

 

441

 

376

 

Taxes other than payroll, property and income

 

422

 

447

 

Telephone

 

176

 

110

 

Postage

 

157

 

147

 

Loan fees

 

160

 

246

 

Other

 

945

 

1,013

 

Total other expenses

 

13,229

 

12,621

 

Income before taxes

 

4,336

 

4,364

 

Income taxes

 

661

 

870

 

Net income

 

$

3,675

 

$

3,494

 

Other Comprehensive Income (Loss), net of tax:

 

 

 

 

 

Change in Unrealized Gains (losses) on Securities

 

4,981

 

(5,976

)

Comprehensive Income (Loss)

 

$

8,656

 

$

(2,482

)

Earnings per share

 

 

 

 

 

Basic

 

$

1.36

 

$

1.29

 

Diluted

 

1.36

 

1.29

 

Dividends per share

 

0.50

 

0.48

 

 

See Accompanying Notes

 

4



Table of Contents

 

KENTUCKY BANCSHARES, INC.

 

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (LOSS) (unaudited)

(in thousands, except per share amounts)

 

 

 

Three Months Ending

 

 

 

6/30/2014

 

6/30/2013

 

INTEREST INCOME:

 

 

 

 

 

Loans, including fees

 

$

5,896

 

$

5,553

 

Securities

 

 

 

 

 

Taxable

 

680

 

527

 

Tax exempt

 

718

 

681

 

Trading assets

 

43

 

 

Other

 

69

 

76

 

Total interest income

 

7,406

 

6,837

 

INTEREST EXPENSE:

 

 

 

 

 

Deposits

 

535

 

572

 

Repurchase agreements and other borrowings

 

25

 

24

 

Federal Home Loan Bank advances

 

309

 

164

 

Subordinated debentures

 

58

 

56

 

Total interest expense

 

927

 

816

 

Net interest income

 

6,479

 

6,021

 

Provision for loan losses

 

100

 

150

 

Net interest income after provision

 

6,379

 

5,871

 

NON-INTEREST INCOME:

 

 

 

 

 

Service charges

 

1,062

 

1,088

 

Loan service fee income, net

 

5

 

16

 

Trust department income

 

239

 

183

 

Gain on sale of available for sale securities, net

 

245

 

485

 

Gain on trading assets

 

91

 

 

Gain on sale of mortgage loans

 

241

 

514

 

Brokerage income

 

210

 

109

 

Debit card interchange income

 

530

 

505

 

Other

 

45

 

(73

)

Total other income

 

2,668

 

2,827

 

NON-INTEREST EXPENSE:

 

 

 

 

 

Salaries and employee benefits

 

3,661

 

3,488

 

Occupancy expenses

 

830

 

829

 

Repossession expenses, net

 

25

 

(32

)

FDIC Insurance

 

140

 

130

 

Legal and professional fees

 

322

 

237

 

Data processing

 

331

 

340

 

Debit card expenses

 

262

 

245

 

Amortization

 

37

 

57

 

Advertising and marketing

 

232

 

192

 

Taxes other than payroll, property and income

 

197

 

222

 

Telephone

 

87

 

43

 

Postage

 

85

 

72

 

Loan fees

 

83

 

123

 

Other

 

483

 

499

 

Total other expenses

 

6,775

 

6,445

 

Income before taxes

 

2,272

 

2,253

 

Income taxes

 

368

 

468

 

Net income

 

$

1,904

 

$

1,785

 

Other Comprehensive Income (Loss), net of tax:

 

 

 

 

 

Change in Unrealized Gains (losses) on Securities

 

1,730

 

(4,724

)

Comprehensive Income (Loss)

 

$

3,634

 

$

(2,939

)

Earnings per share

 

 

 

 

 

Basic

 

$

0.70

 

$

0.66

 

Diluted

 

0.70

 

0.66

 

Dividends per share

 

0.25

 

0.24

 

 

See Accompanying Notes

 

5



Table of Contents

 

KENTUCKY BANCSHARES, INC.

 

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (unaudited)

(in thousands, except share information)

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

Other

 

Total

 

 

 

—Common Stock(1) —

 

Retained

 

Comprehensive

 

Stockholders’

 

 

 

Shares

 

Amount

 

Earnings

 

Income/(Loss)

 

Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances, January 1, 2014

 

2,717,434

 

$

12,570

 

$

60,229

 

$

(5,126

)

$

67,673

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock issued

 

7,503

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock based compensation expense

 

 

55

 

 

 

55

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock purchased and retired

 

(3,795

)

(17

)

(74

)

 

(91

)

 

 

 

 

 

 

 

 

 

 

 

 

Net change in unrealized gain (loss) on securities available for sale, net of tax and reclassifications

 

 

 

 

4,981

 

4,981

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

3,675

 

 

3,675

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends declared - $0.50 per share

 

 

 

(1,361

)

 

(1,361

)

 

 

 

 

 

 

 

 

 

 

 

 

Balances, June 30, 2014

 

2,721,142

 

$

12,608

 

$

62,469

 

$

(145

)

$

74,932

 

 


(1) Common Stock has no par value; amount includes Additional Paid-in Capital

 

See Accompanying Notes

 

6



Table of Contents

 

KENTUCKY BANCSHARES, INC.

 

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

(in thousands)

 

 

 

Six Months Ending

 

 

 

6/30/2014

 

6/30/2013

 

Cash Flows From Operating Activities

 

 

 

 

 

Net Income

 

$

3,675

 

$

3,494

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

Depreciation and amortization

 

904

 

945

 

Securities amortization (accretion), net

 

303

 

565

 

Stock based compensation expense

 

55

 

48

 

Provision for loan losses

 

200

 

600

 

Securities available for sale gains, net

 

(433

)

(774

)

Net change in trading assets

 

(5,242

)

 

Originations of loans held for sale

 

(13,757

)

(34,329

)

Proceeds from sale of loans

 

13,883

 

35,536

 

Losses (gains) on sale of fixed assets

 

 

105

 

Losses (gains) on other real estate

 

(70

)

(30

)

Gain on sale of mortgage loans

 

(398

)

(1,140

)

Changes in:

 

 

 

 

 

Interest receivable

 

364

 

373

 

Write-downs of other real estate, net

 

10

 

(10

)

Other assets

 

1,369

 

(185

)

Interest payable

 

(57

)

78

 

Other liabilities

 

(1,707

)

708

 

Net cash from operating activities

 

(901

)

5,984

 

Cash Flows From Investing Activities

 

 

 

 

 

Purchases of securities available for sale

 

(34,977

)

(55,086

)

Proceeds from principal payments, sales, maturities and calls of securities

 

48,883

 

42,583

 

Net change in loans

 

(27,925

)

(23,668

)

Proceeds from sale of Federal Home Loan Bank stock

 

750

 

 

Purchases of bank premises and equipment

 

(705

)

(897

)

Proceeds from the sale of other real estate

 

1,551

 

754

 

Net cash from investing activities

 

(12,423

)

(36,314

)

Cash Flows From Financing Activities:

 

 

 

 

 

Net change in deposits

 

(19,991

)

(14,681

)

Net change in repurchase agreements and other borrowings

 

3,079

 

17,238

 

Short-term advances from Federal Home Loan Bank

 

105,000

 

41,000

 

Payment on short-term Federal Home Loan Bank advances

 

(85,000

)

(31,000

)

Long-term advances from Federal Home Loan Bank

 

6,538

 

8,200

 

Payments on long-term Federal Home Loan Bank advances

 

(2,971

)

(5,991

)

Payments on note payable

 

 

(500

)

Purchase of common stock

 

(91

)

(87

)

Dividends paid

 

(1,361

)

(1,307

)

Net cash from financing activities

 

5,203

 

12,872

 

Net change in cash and cash equivalents

 

(8,121

)

(17,458

)

Cash and cash equivalents at beginning of period

 

23,160

 

31,764

 

Cash and cash equivalents at end of period

 

$

15,039

 

$

14,306

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information

 

 

 

 

 

Cash paid during the year for:

 

 

 

 

 

Interest expense

 

$

1,917

 

$

1,560

 

Income taxes

 

700

 

975

 

Supplemental disclosures of non-cash investing activities

 

 

 

 

 

Real estate acquired through foreclosure

 

$

419

 

$

248

 

 

See Accompanying Notes

 

7



Table of Contents

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

The financial information presented as of any date other than December 31 has been prepared from the Company’s books and records without audit.  The accompanying consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.  Certain financial information that is normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America, but is not required for interim reporting purposes, has been condensed or omitted.  There have been no significant changes to the Company’s accounting and reporting policies as disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013.  In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of such financial statements, have been included.  The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year.

 

For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013.

 

Basis of Presentation:  The consolidated financial statements include the accounts of Kentucky Bancshares, Inc. (the “Company”, “we”, “our” or “us”), its wholly-owned subsidiary, Kentucky Bank (the “Bank”), and the Bank’s wholly-owned subsidiary, KB Special Assets Unit, LLC.  Intercompany transactions and balances have been eliminated in consolidation.

 

Nature of Operations:  The Bank operates under a state bank charter and provides full banking services, including trust services, to customers located in Bourbon, Clark, Elliott, Fayette, Harrison, Jessamine, Madison, Rowan, Scott, Woodford and adjoining counties in Kentucky.  Management continues to consider opportunities for branch expansion and will also consider acquisition opportunities that help advance its strategic objectives.  As a state bank, the Bank is subject to regulation by the Kentucky Department of Financial Institutions and the Federal Deposit Insurance Corporation (“FDIC”).  The Company, a bank holding company, is regulated by the Federal Reserve.  On July 9, 2014, a new subsidiary of the Company was incorporated under the name KBI Insurance Company, Inc.  KBI Insurance Company, Inc. is a subsidiary of Kentucky Bancshares, Inc. and is located in Las Vegas, Nevada.  It is a captive insurance subsidiary which insures various liability and property damage policies for Kentucky Bancshares, Inc. and its related subsidiaries.  KBI Insurance Company, Inc. is regulated by the State of Nevada Division of Insurance.

 

Estimates in the Financial Statements:  The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates and such differences could be material to the financial statements.  The allowance for loan losses, loss contingencies, mortgage servicing rights, real estate owned, goodwill and fair value of financial instruments are particularly subject to change.

 

Trading Assets:  The Company engages in trading activities for its own account.  Securities that are held principally for resale in the near term are recorded at fair value with changes in fair value included in earnings. Interest and dividends are included in net interest income.

 

8



Table of Contents

 

Loss Contingencies:  Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated.

 

Pension Matter:  The Company terminated the Kentucky Bancshares, Inc. Retirement Plan and Trust (the “Plan”) in a standard termination, with a termination date of December 31, 2008.  Prior to such termination, the Pension Protection Act of 2006 (“PPA”) had amended Internal Revenue Code (“IRC”) Section 417(e)(3) in part by changing the definition of “applicable interest rate” in a manner that in most cases (when combined with other changes to IRC Section 417(e)(3)) would result in a decrease in the value of a participant’s or beneficiary’s plan benefits under pension plans such as the Company’s Plan with the new definition applicable (for most plans, including the Plan) to lump sums with annuity starting dates in or after the 2008 plan year.  The Plan had determined in mid-2008 to comply with IRC Section 417(e)(3), as amended by PPA, by using the assumptions governing minimum lump sums, rather than by using the pre-PPA minimum lump sum assumptions, and operated the Plan in compliance with that decision.  As permitted by the IRC, the Plan was amended on February 24, 2009 (after the termination of the Plan on December 31, 2008) to formalize that decision in accordance with Section 1107 of PPA.

 

The Internal Revenue Service issued a favorable determination as to the Plan termination in July 2010.  Subsequent to Plan termination and distributions to Plan participants, the Plan was selected for audit by the Pension Benefit Guaranty Corporation (“PBGC”).  The PBGC asserted that the February, 2009 amendment to the Plan violated PBGC Regulation Section 4041.8(a) because the amendment served to lower benefits to Plan beneficiaries.  The PBGC filed a Complaint in May 2013 in United States District Court (Eastern District of Kentucky) to require the Company to make additional distributions to Plan beneficiaries.  On March 17, 2014, the United States District Court (Eastern District of Kentucky) issued an Opinion and Order entering judgment in favor of the PBGC and ruling that the Company must comply with the PBGC’s determination respecting the Plan.  The Company is appraising its options with respect to this judgment, and has appealed the decision. The appeal is pending.  However, in light of the court’s opinion, the Company accrued approximately $1.6 million as of December 31, 2013 for this matter.  The accrued balance for this matter remains $1.6 million at June 30, 2014.  Moreover, in the event the subject court decision is not overturned, the Company believes it has claims for further contribution towards payment of this liability from professionals who assisted the Company in the termination of the Plan.

 

Reclassifications:  Some items in the prior year financial statements were reclassified to conform to the current presentation.  Reclassifications had no effect on prior period net income or stockholders’ equity.

 

9



Table of Contents

 

Adoption of New Accounting Standards

 

In January 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-04 - Receivables - Troubled Debt Restructurings by Creditors (Subtopic 310-40) - Reclassification of Residential Real Estate Collateralized Consumer Mortgage loans upon Foreclosure. This standard provides clarification when a creditor should be considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan such that the loan should be removed from the balance sheet and other real estate owned recognized. These amendments clarify that when an in-substance foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan upon either: (1) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure, or (2) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. For public business entities (PBEs) this ASU is effective for annual periods, and interim periods within those annual periods, beginning after Dec 15, 2014.  For entities that are not PBEs, this ASU is effective for annual periods beginning after Dec 15, 2014, and for interim periods within annual periods beginning after Dec 15, 2015.  Early adoption is permitted.  The effect of adopting this standard is not expected to have a material effect on the Company’s results of operations or financial condition.

 

In May 2014, FASB issued Accounting Standards Update 2014-09, Revenue from Contracts with Customers (Topic 606). The ASU creates a new topic, Topic 606, to provide guidance on revenue recognition for entities that enter into contracts with customers to transfer goods or services or enter into contracts for the transfer of nonfinancial assets. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Additional disclosures are required to provide quantitative and qualitative information regarding the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The new guidance is effective for annual reporting periods, and interim reporting periods within those annual periods, beginning after December 15, 2016. Early adoption is not permitted. Management is currently evaluating the impact of the adoption of this guidance on the Company’s financial statements.

 

2. SECURITIES

 

SECURITIES AVAILABLE FOR SALE

 

Period-end securities are as follows:

(in thousands)

 

 

 

 

 

Gross

 

Gross

 

 

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

Fair

 

 

 

Cost

 

Gains

 

Losses

 

Value

 

Available for Sale

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2014

 

 

 

 

 

 

 

 

 

U.S. government agencies

 

$

69,062

 

$

19

 

$

(1,809

)

$

67,272

 

States and political subdivisions

 

85,375

 

2,894

 

(731

)

87,538

 

Mortgage-backed - residential

 

69,681

 

315

 

(932

)

69,064

 

Equity securities

 

270

 

24

 

 

294

 

Total

 

$

224,388

 

$

3,252

 

$

(3,472

)

$

224,168

 

 

 

 

 

 

 

 

 

 

 

December 31, 2013

 

 

 

 

 

 

 

 

 

U.S. government agencies

 

$

73,930

 

$

51

 

$

(4,695

)

$

69,286

 

States and political subdivisions

 

91,043

 

1,614

 

(2,474

)

90,183

 

Mortgage-backed - residential

 

72,920

 

44

 

(2,326

)

70,638

 

Equity securities

 

270

 

19

 

 

289

 

Total

 

$

238,163

 

$

1,728

 

$

(9,495

)

$

230,396

 

 

The amortized cost and fair value of securities at June 30, 2014 by contractual maturity are shown below.  Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.  Securities not due at a single maturity are shown separately.  Further discussion concerning Fair Value Measurements can be found in Note 8.

 

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(in thousands)

 

 

 

Amortized

 

Fair

 

 

 

Cost

 

Value

 

Due in one year or less

 

$

467

 

$

469

 

Due after one year through five years

 

8,888

 

8,897

 

Due after five years through ten years

 

80,302

 

79,607

 

Due after ten years

 

64,780

 

65,837

 

 

 

154,437

 

154,810

 

Mortgage-backed - residential

 

69,681

 

69,064

 

Equity

 

270

 

294

 

Total

 

$

224,388

 

$

224,168

 

 

Proceeds from sales of securities during the first six months of 2014 and 2013 were $40.0 million and $27.2 million.  Gross gains of $785 thousand and $774 thousand and gross losses of $352 thousand and $0 were realized on those sales, respectively.  The tax provision related to these realized net gains was $147 thousand and $263 thousand, respectively.

 

Proceeds from sales of securities during the three months ending June 30, 2014 and June 30, 2013 were $23.5 million and $16.7 million.  Gross gains of $477 thousand and $485 thousand and gross losses of $232 thousand and $0 were realized on those sales, respectively.  The tax provision related to these realized gains and losses was $83 thousand and $165 thousand, respectively.

 

Securities with unrealized losses June 30, 2014 and at December 31, 2013 not recognized in income are as follows:

 

June 30, 2014

 

 

 

Less than 12 Months

 

12 Months or More

 

Total

 

 

 

Fair

 

Unrealized

 

Fair

 

Unrealized

 

Fair

 

Unrealized

 

Description of Securities

 

Value

 

Loss

 

Value

 

Loss

 

Value

 

Loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government agencies

 

$

12,771

 

$

(142

)

$

53,774

 

$

(1,667

)

$

66,545

 

$

(1,809

)

States and municipals

 

4,426

 

(66

)

13,892

 

(665

)

18,318

 

(731

)

Mortgage-backed - residential

 

10,695

 

(167

)

25,753

 

(765

)

36,448

 

(932

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total temporarily impaired

 

$

27,892

 

$

(375

)

$

93,419

 

$

(3,097

)

$

121,311

 

$

(3,472

)

 

December 31, 2013

 

 

 

Less than 12 Months

 

12 Months or More

 

Total

 

 

 

Fair

 

Unrealized

 

Fair

 

Unrealized

 

Fair

 

Unrealized

 

Description of Securities

 

Value

 

Loss

 

Value

 

Loss

 

Value

 

Loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government agencies

 

$

57,203

 

$

(3,812

)

$

8,117

 

$

(883

)

$

65,320

 

$

(4,695

)

States and municipals

 

32,289

 

(2,106

)

2,879

 

(368

)

35,168

 

(2,474

)

Mortgage-backed - residential

 

62,126

 

(2,326

)

 

 

62,126

 

(2,326

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total temporarily impaired

 

$

151,618

 

$

(8,244

)

$

10,996

 

$

(1,251

)

$

162,614

 

$

(9,495

)

 

The Company evaluates securities for other than temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation.  In analyzing an issuer’s financial condition, we may consider many factors including, (1) whether the securities are issued by the federal government or its agencies, (2) whether downgrades by bond rating agencies have occurred, (3) the results of reviews of the issuer’s financial condition and near-term prospects, (4) the length of time and the extent to which the fair value has been less than cost, and (5) whether we intend to sell the investment security or more likely than not will be required to sell the investment security before its anticipated recovery.

 

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Unrealized losses on securities included in the tables above have not been recognized into income because (1) all rated securities are investment grade and are of high credit quality, (2) management does not intend to sell and it is more likely than not that management would not be required to sell the securities prior to their anticipated recovery, (3) management believes the decline in fair value is largely due to changes in interest rates and (4) management believes the declines in fair value are temporary.  The Company believes the fair value is expected to recover as the securities approach maturity.

 

TRADING ASSETS

 

The trading assets of $5.2 million are primarily comprised of municipal securities which are held for a very short period of time.

 

3. LOANS

 

Loans at period-end are as follows:

(in thousands)

 

 

 

6/30/14

 

12/31/13

 

 

 

 

 

 

 

Commercial

 

$

33,727

 

$

34,654

 

Real estate construction

 

13,393

 

11,177

 

Real estate mortgage:

 

 

 

 

 

1-4 family residential

 

208,620

 

194,388

 

Multi-family residential

 

18,805

 

16,420

 

Non-farm & non-residential

 

131,795

 

126,791

 

Agricultural

 

72,605

 

68,002

 

Consumer

 

16,947

 

17,065

 

Other

 

242

 

158

 

Total

 

$

496,134

 

$

468,655

 

 

Activity in the allowance for loan losses for the six and three month periods indicated was as follows:

 

 

 

Six Months Ended June 30, 2014

 

 

 

(in thousands)

 

 

 

Beginning

 

 

 

 

 

 

 

Ending

 

 

 

Balance

 

Charge-offs

 

Recoveries

 

Provision

 

Balance

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

$

230

 

$

200

 

$

 

$

201

 

$

231

 

Real estate Construction

 

358

 

 

8

 

(7

)

359

 

Real estate mortgage:

 

 

 

 

 

 

 

 

 

 

 

1-4 family residential

 

2,169

 

88

 

16

 

227

 

2,324

 

Multi-family residential

 

427

 

 

 

(100

)

327

 

Non-farm & non-residential

 

564

 

 

367

 

(197

)

734

 

Agricultural

 

578

 

 

25

 

(57

)

546

 

Consumer

 

548

 

153

 

41

 

107

 

543

 

Other

 

51

 

202

 

159

 

25

 

33

 

Unallocated

 

516

 

 

 

1

 

517

 

 

 

$

5,441

 

$

643

 

$

616

 

$

200

 

$

5,614

 

 

 

 

Three Months Ended June, 30 2014

 

 

 

(in thousands)

 

 

 

Beginning

 

 

 

 

 

 

 

Ending

 

 

 

Balance

 

Charge-offs

 

Recoveries

 

Provision

 

Balance

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

$

208

 

$

 

$

 

$

23

 

$

231

 

Real estate Construction

 

329

 

 

4

 

26

 

359

 

Real estate mortgage:

 

 

 

 

 

 

 

 

 

 

 

1-4 family residential

 

2,111

 

25

 

4

 

234

 

2,324

 

Multi-family residential

 

401

 

 

 

(74

)

327

 

Non-farm & non-residential

 

930

 

 

 

(196

)

734

 

Agricultural

 

553

 

 

1

 

(8

)

546

 

Consumer

 

550

 

76

 

23

 

46

 

543

 

Other

 

11

 

105

 

72

 

55

 

33

 

Unallocated

 

523

 

 

 

(6

)

517

 

 

 

$

5,616

 

$

206

 

$

104

 

$

100

 

$

5,614

 

 

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Six Months Ended June 30, 2013

 

 

 

(in thousands)

 

 

 

Beginning

 

 

 

 

 

 

 

Ending

 

 

 

Balance

 

Charge-offs

 

Recoveries

 

Provision

 

Balance

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

$

150

 

$

11

 

$

28

 

$

(16

)

$

151

 

Real estate Construction

 

918

 

578

 

21

 

12

 

373

 

Real estate mortgage:

 

 

 

 

 

 

 

 

 

 

 

1-4 family residential

 

1,989

 

141

 

56

 

80

 

1,984

 

Multi-family residential

 

414

 

161

 

39

 

189

 

481

 

Non-farm & non-residential

 

628

 

 

18

 

31

 

677

 

Agricultural

 

845

 

86

 

3

 

(101

)

661

 

Consumer

 

517

 

252

 

18

 

265

 

548

 

Other

 

54

 

309

 

206

 

141

 

92

 

Unallocated

 

532

 

 

 

(1

)

531

 

 

 

$

6,047

 

$

1,538

 

$

389

 

$

600

 

$

5,498

 

 

 

 

Three Months Ended June 30, 2013

 

 

 

(in thousands)

 

 

 

Beginning

 

 

 

 

 

 

 

Ending

 

 

 

Balance

 

Charge-offs

 

Recoveries

 

Provision

 

Balance

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

$

135

 

$

5

 

$

 

$

21

 

$

151

 

Real estate Construction

 

497

 

 

16

 

(140

)

373

 

Real estate mortgage:

 

 

 

 

 

 

 

 

 

 

 

1-4 family residential

 

1,974

 

16

 

30

 

(4

)

1,984

 

Multi-family residential

 

493

 

161

 

39

 

110

 

481

 

Non-farm & non-residential

 

611

 

 

10

 

56

 

677

 

Agricultural

 

747

 

 

1

 

(87

)

661

 

Consumer

 

511

 

104

 

7

 

134

 

548

 

Other

 

99

 

172

 

80

 

85

 

92

 

Unallocated

 

556

 

 

 

(25

)

531

 

 

 

$

5,623

 

$

458

 

$

183

 

$

150

 

$

5,498

 

 

The following tables present the balance in the allowance for loan losses and the recorded investment (excluding accrued interest receivable amounting to $2.0 million as of June 30, 2014 and $2.3 million at December 31, 2013) in loans by portfolio segment and based on impairment method as of June 30, 2014 and December 31, 2013:

 

As of June 30, 2014

(in thousands)

 

 

 

Individually

 

Collectively

 

 

 

 

 

Evaluated for

 

Evaluated for

 

 

 

 

 

Impairment

 

Impairment

 

Total

 

Allowance for Loan Losses:

 

 

 

 

 

 

 

Commercial

 

$

 

$

231

 

$

231

 

Real estate construction

 

 

359

 

359

 

Real estate mortgage:

 

 

 

 

 

 

 

1-4 family residential

 

326

 

1,998

 

2,324

 

Multi-family residential

 

50

 

277

 

327

 

Non-farm & non-residential

 

182

 

552

 

734

 

Agricultural

 

260

 

286

 

546

 

Consumer

 

 

543

 

543

 

Other

 

 

33

 

33

 

Unallocated

 

 

517

 

517

 

 

 

$

818

 

$

4,796

 

$

5,614

 

Loans:

 

 

 

 

 

 

 

Commercial

 

$

 

$

33,727

 

$

33,727

 

Real estate construction

 

 

13,393

 

13,393

 

Real estate mortgage:

 

 

 

 

 

 

 

1-4 family residential

 

3,196

 

205,424

 

208,620

 

Multi-family residential

 

345

 

18,460

 

18,805

 

Non-farm & non-residential

 

3,937

 

127,858

 

131,795

 

Agricultural

 

9,534

 

63,071

 

72,605

 

Consumer

 

 

16,947

 

16,947

 

Other

 

 

242

 

242

 

 

 

$

 17,012

 

$

479,122

 

$

496,134

 

 

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As of December 31, 2013

(in thousands)

 

 

 

Individually

 

Collectively

 

 

 

 

 

Evaluated for

 

Evaluated for

 

 

 

 

 

Impairment

 

Impairment

 

Total

 

Allowance for Loan Losses:

 

 

 

 

 

 

 

Commercial

 

$

 

$

230

 

$

230

 

Real estate construction

 

 

358

 

358

 

Real estate mortgage:

 

 

 

 

 

 

 

1-4 family residential

 

228

 

1,941

 

2,169

 

Multi-family residential

 

76

 

351

 

427

 

Non-farm & non-residential

 

110

 

454

 

564

 

Agricultural

 

298

 

280

 

578

 

Consumer

 

 

548

 

548

 

Other

 

 

51

 

51

 

Unallocated

 

 

516

 

516

 

 

 

$

712

 

$

4,729

 

$

5,441

 

Loans:

 

 

 

 

 

 

 

Commercial

 

$

 

$

34,654

 

$

34,654

 

Real estate construction

 

 

11,177

 

11,177

 

Real estate mortgage:

 

 

 

 

 

 

 

1-4 family residential

 

2,873

 

191,515

 

194,388

 

Multi-family residential

 

274

 

16,146

 

16,420

 

Non-farm & non-residential

 

2,716

 

124,075

 

126,791

 

Agricultural

 

7,673

 

60,329

 

68,002

 

Consumer

 

 

17,065

 

17,065

 

Other

 

 

158

 

158

 

 

 

$

13,536

 

$

455,119

 

$

468,655

 

 

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The following table presents loans individually evaluated for impairment by class of loans as of and for the six months ended June 30, 2014 (in thousands):

 

 

 

Unpaid

 

 

 

Allowance for

 

Average

 

Interest

 

Cash Basis

 

 

 

Principal

 

Recorded

 

Loan Losses

 

Recorded

 

Income

 

Interest

 

 

 

Balance

 

Investment

 

Allocated

 

Investment

 

Recognized

 

Recognized

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

With no related allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

$

 

$

 

$

 

$

 

$

 

$

 

Real estate construction

 

 

 

 

 

 

 

Real estate mortgage:

 

 

 

 

 

 

 

 

 

 

 

 

 

1-4 family residential

 

1,302

 

1,302

 

 

1,002

 

 

 

Multi-family residential

 

 

 

 

 

 

 

Non-farm & non-residential

 

 

 

 

267

 

 

 

Agricultural

 

4,780

 

4,780

 

 

2,684

 

80

 

80

 

Consumer

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

With an allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

 

 

 

 

 

Real estate construction

 

 

 

 

 

 

 

Real estate mortgage:

 

 

 

 

 

 

 

 

 

 

 

 

 

1-4 family residential

 

1,894

 

1,894

 

326

 

1,991

 

44

 

44

 

Multi-family residential

 

345

 

345

 

50

 

323

 

5

 

5

 

Non-farm & non-residential

 

3,937

 

3,937

 

182

 

3,043

 

73

 

73

 

Agricultural

 

4,754

 

4,754

 

260

 

5,034

 

19

 

19

 

Consumer

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

Total

 

$

17,012

 

$

17,012

 

$

818

 

$

14,344

 

$

221

 

$

221

 

 

The recorded investment in loans excludes accrued interest receivable and loan origination fees, net due to immateriality.

 

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The following table presents loans individually evaluated for impairment by class of loans as of and for the year ended December 31, 2013 (in thousands):

 

 

 

Unpaid

 

 

 

Allowance for

 

Average

 

Interest

 

Cash Basis

 

 

 

Principal

 

Recorded

 

Loan Losses

 

Recorded

 

Income

 

Interest

 

 

 

Balance

 

Investment

 

Allocated

 

Investment

 

Recognized

 

Recognized

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

With no related allowance recorded: