Attached files
| file | filename |
|---|---|
| EXCEL - IDEA: XBRL DOCUMENT - HILLS BANCORPORATION | Financial_Report.xls |
| EX-31 - EXHIBIT - HILLS BANCORPORATION | exhibit311.htm |
| EX-32 - EXHIBIT - HILLS BANCORPORATION | exhibit321.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2014
Commission file number: 0-12668
Hills Bancorporation
Incorporated in Iowa | I.R.S. Employer Identification |
No. 42-1208067 | |
131 MAIN STREET, HILLS, IOWA 52235
Telephone number: (319) 679-2291
Indicate by checkmark 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.
þ Yes o No
Indicate by checkmark whether the Registrant has submitted electronically and posted on its corporate website, 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).
þ Yes o No
Indicate by checkmark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “small reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer o | Accelerated Filer þ |
Non-accelerated filer o | Small Reporting Company o |
Indicate by checkmark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
o Yes þ No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practical date.
SHARES OUTSTANDING | |
CLASS | October 31, 2014 |
Common Stock, no par value | 4,694,840 |
HILLS BANCORPORATION
Index to Form 10-Q
Part I
FINANCIAL INFORMATION
Page | ||
Number | ||
Item 1. | Financial Statements | |
Item 2. | ||
Item 3. | ||
Item 4. | ||
Part II | ||
OTHER INFORMATION | ||
Item 1. | ||
Item 1A. | ||
Item 2. | ||
Item 3. | ||
Item 4. | ||
Item 5. | ||
Item 6. | ||
Page 2
HILLS BANCORPORATION CONSOLIDATED BALANCE SHEETS (Amounts In Thousands, Except Share Amounts)
September 30, 2014 | December 31, 2013 | ||||||
ASSETS | (Unaudited) | ||||||
Cash and cash equivalents | $ | 68,864 | $ | 43,702 | |||
Investment securities available for sale at fair value (amortized cost September 30, 2014 $241,159; December 31, 2013 $236,702) | 243,818 | 238,510 | |||||
Stock of Federal Home Loan Bank | 7,651 | 7,579 | |||||
Loans held for sale | 2,484 | 4,927 | |||||
Loans, net of allowance for loan losses (September 30, 2014 $24,500; December 31, 2013 $25,550) | 1,914,139 | 1,801,247 | |||||
Property and equipment, net | 28,623 | 29,836 | |||||
Tax credit real estate | 17,498 | 18,180 | |||||
Accrued interest receivable | 8,980 | 7,676 | |||||
Deferred income taxes, net | 9,090 | 8,605 | |||||
Other real estate | 1,084 | 541 | |||||
Goodwill | 2,500 | 2,500 | |||||
Other assets | 3,550 | 4,492 | |||||
Total Assets | $ | 2,308,281 | $ | 2,167,795 | |||
LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||
Liabilities | |||||||
Noninterest-bearing deposits | $ | 270,139 | $ | 256,788 | |||
Interest-bearing deposits | 1,569,357 | 1,453,089 | |||||
Total deposits | $ | 1,839,496 | $ | 1,709,877 | |||
Short-term borrowings | 36,033 | 42,016 | |||||
Federal Home Loan Bank borrowings | 125,000 | 125,000 | |||||
Accrued interest payable | 906 | 1,102 | |||||
Other liabilities | 20,877 | 16,437 | |||||
Total Liabilities | $ | 2,022,312 | $ | 1,894,432 | |||
Redeemable Common Stock Held by Employee Stock Ownership Plan (ESOP) | $ | 32,500 | $ | 29,574 | |||
STOCKHOLDERS' EQUITY | |||||||
Common stock, no par value; authorized 10,000,000 shares; issued September 30, 2014 5,081,004 shares; December 31, 2013 5,074,894 shares | $ | — | $ | — | |||
Paid in capital | 42,660 | 42,194 | |||||
Retained earnings | 266,774 | 250,370 | |||||
Accumulated other comprehensive income | 748 | 1,591 | |||||
Unearned ESOP shares | (1,008 | ) | (1,008 | ) | |||
Treasury stock at cost (September 30, 2014 391,351 shares; December 31, 2013 347,269 shares) | (23,205 | ) | (19,784 | ) | |||
Total Stockholders' Equity | $ | 285,969 | $ | 273,363 | |||
Less maximum cash obligation related to ESOP shares | 32,500 | 29,574 | |||||
Total Stockholders' Equity Less Maximum Cash Obligations Related to ESOP Shares | $ | 253,469 | $ | 243,789 | |||
Total Liabilities & Stockholders' Equity | $ | 2,308,281 | $ | 2,167,795 | |||
See Notes to Consolidated Financial Statements.
Page 3
HILLS BANCORPORATION CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(Amounts In Thousands, Except Per Share Amounts)
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||||
Interest income: | |||||||||||||||
Loans, including fees | $ | 20,676 | $ | 19,886 | $ | 60,775 | $ | 59,353 | |||||||
Investment securities: | |||||||||||||||
Taxable | 275 | 303 | 815 | 957 | |||||||||||
Nontaxable | 840 | 823 | 2,513 | 2,497 | |||||||||||
Federal funds sold | 3 | 11 | 29 | 57 | |||||||||||
Total interest income | $ | 21,794 | $ | 21,023 | $ | 64,132 | $ | 62,864 | |||||||
Interest expense: | |||||||||||||||
Deposits | $ | 2,245 | $ | 2,684 | $ | 7,036 | $ | 8,488 | |||||||
Short-term borrowings | 50 | 41 | 97 | 102 | |||||||||||
FHLB borrowings | 1,409 | 1,409 | 4,181 | 4,181 | |||||||||||
Total interest expense | $ | 3,704 | $ | 4,134 | $ | 11,314 | $ | 12,771 | |||||||
Net interest income | $ | 18,090 | $ | 16,889 | $ | 52,818 | $ | 50,093 | |||||||
Provision for loan losses | (1,008 | ) | 112 | (1,209 | ) | (309 | ) | ||||||||
Net interest income after provision for loan losses | $ | 19,098 | $ | 16,777 | $ | 54,027 | $ | 50,402 | |||||||
Noninterest income: | |||||||||||||||
Net gain on sale of loans | $ | 338 | $ | 531 | $ | 638 | $ | 1,793 | |||||||
Trust fees | 1,595 | 1,185 | 4,494 | 3,740 | |||||||||||
Service charges and fees | 2,152 | 2,240 | 6,001 | 6,616 | |||||||||||
Rental revenue on tax credit real estate | 377 | 398 | 1,112 | 1,114 | |||||||||||
Net gain on sale of other real estate owned and other repossessed assets | 186 | 18 | 426 | 168 | |||||||||||
Other noninterest income | 599 | 591 | 1,944 | 1,939 | |||||||||||
$ | 5,247 | $ | 4,963 | $ | 14,615 | $ | 15,370 | ||||||||
Noninterest expenses: | |||||||||||||||
Salaries and employee benefits | $ | 6,400 | $ | 6,158 | $ | 19,042 | $ | 18,312 | |||||||
Occupancy | 947 | 907 | 2,900 | 2,780 | |||||||||||
Furniture and equipment | 1,212 | 1,183 | 3,685 | 3,650 | |||||||||||
Office supplies and postage | 390 | 445 | 1,157 | 1,163 | |||||||||||
Advertising and business development | 775 | 624 | 2,216 | 1,895 | |||||||||||
Outside services | 1,773 | 1,819 | 4,981 | 5,437 | |||||||||||
Rental expenses on tax credit real estate | 552 | 614 | 1,635 | 1,571 | |||||||||||
FDIC insurance assessment | 282 | 229 | 823 | 760 | |||||||||||
Other noninterest expense | 490 | 432 | 1,177 | 1,298 | |||||||||||
$ | 12,821 | $ | 12,411 | $ | 37,616 | $ | 36,866 | ||||||||
Income before income taxes | $ | 11,524 | $ | 9,329 | $ | 31,026 | $ | 28,906 | |||||||
Income taxes | 3,625 | 2,705 | 9,202 | 8,558 | |||||||||||
Net income | $ | 7,899 | $ | 6,624 | $ | 21,824 | $ | 20,348 | |||||||
Earnings per share: | |||||||||||||||
Basic | $ | 1.69 | $ | 1.41 | $ | 4.65 | $ | 4.32 | |||||||
Diluted | $ | 1.68 | $ | 1.40 | $ | 4.64 | $ | 4.31 | |||||||
See Notes to Consolidated Financial Statements.
Page 4
HILLS BANCORPORATION CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited) (Amounts In Thousands)
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||||
Net income | $ | 7,899 | $ | 6,624 | $ | 21,824 | $ | 20,348 | |||||||
Other comprehensive loss | |||||||||||||||
Securities: | |||||||||||||||
Net change in unrealized gain (loss) on securities available for sale | $ | 26 | $ | (1,084 | ) | $ | 851 | $ | (4,236 | ) | |||||
Reclassification adjustment for net gains realized in net income | — | — | — | (17 | ) | ||||||||||
Income taxes | (10 | ) | 414 | (325 | ) | 1,627 | |||||||||
Other comprehensive income (loss) on securities available for sale | $ | 16 | $ | (670 | ) | $ | 526 | $ | (2,626 | ) | |||||
Derivatives used in cash flow hedging relationships: | |||||||||||||||
Unrealized loss on derivatives | $ | (37 | ) | $ | — | $ | (2,216 | ) | $ | — | |||||
Income taxes | 14 | — | 847 | — | |||||||||||
Other comprehensive loss on cash flow hedges | $ | (23 | ) | $ | — | $ | (1,369 | ) | $ | — | |||||
Other comprehensive loss, net of tax | $ | (7 | ) | $ | (670 | ) | $ | (843 | ) | $ | (2,626 | ) | |||
Comprehensive income | $ | 7,892 | $ | 5,954 | $ | 20,981 | $ | 17,722 | |||||||
See Notes to Consolidated Financial Statements.
Page 5
HILLS BANCORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited) (Amounts In Thousands, Except Share Amounts)
Paid In Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Unearned ESOP Shares | Treasury Stock | Maximum Cash Obligation Related To ESOP Shares | Total | |||||||||||||||||||||
Balance, December 31, 2012 | $ | 42,241 | $ | 229,625 | $ | 3,955 | $ | (1,513 | ) | $ | (18,397 | ) | $ | (30,715 | ) | $ | 225,196 | ||||||||||
Issuance of 6,180 shares of common stock | 240 | — | — | — | — | — | 240 | ||||||||||||||||||||
Issuance of 1,592 shares of common stock under the employee stock purchase plan | 111 | — | — | — | — | — | 111 | ||||||||||||||||||||
Unearned restricted stock compensation | (660 | ) | — | — | — | — | — | (660 | ) | ||||||||||||||||||
Forfeiture of 375 shares of common stock | (25 | ) | — | — | — | — | — | (25 | ) | ||||||||||||||||||
Share-based compensation | 21 | — | — | — | — | — | 21 | ||||||||||||||||||||
Income tax benefit related to share-based compensation | 85 | — | — | — | — | — | 85 | ||||||||||||||||||||
Change related to ESOP shares | — | — | — | — | — | 2,575 | 2,575 | ||||||||||||||||||||
Net income | — | 20,348 | — | — | — | — | 20,348 | ||||||||||||||||||||
Cash dividends ($1.10 per share) | — | (5,186 | ) | — | — | — | — | (5,186 | ) | ||||||||||||||||||
Purchase of 13,601 shares of common stock | — | — | — | — | (976 | ) | — | (976 | ) | ||||||||||||||||||
Other comprehensive loss | — | — | (2,626 | ) | — | — | — | (2,626 | ) | ||||||||||||||||||
Balance, September 30, 2013 | $ | 42,013 | $ | 244,787 | $ | 1,329 | $ | (1,513 | ) | $ | (19,373 | ) | $ | (28,140 | ) | $ | 239,103 | ||||||||||
Balance, December 31, 2013 | $ | 42,194 | $ | 250,370 | $ | 1,591 | $ | (1,008 | ) | $ | (19,784 | ) | $ | (29,574 | ) | $ | 243,789 | ||||||||||
Issuance of 5,064 shares of common stock | 266 | — | — | — | — | — | 266 | ||||||||||||||||||||
Issuance of 1,617 shares of common stock under the employee stock purchase plan | 121 | — | — | — | — | — | 121 | ||||||||||||||||||||
Unearned restricted stock compensation | 48 | — | — | — | — | — | 48 | ||||||||||||||||||||
Forfeiture of 571 shares of common stock | (40 | ) | — | — | — | — | — | (40 | ) | ||||||||||||||||||
Share-based compensation | 21 | — | — | — | — | — | 21 | ||||||||||||||||||||
Income tax benefit related to share-based compensation | 50 | — | — | — | — | — | 50 | ||||||||||||||||||||
Change related to ESOP shares | — | — | — | — | — | (2,926 | ) | (2,926 | ) | ||||||||||||||||||
Net income | — | 21,824 | — | — | — | — | 21,824 | ||||||||||||||||||||
Cash dividends ($1.15 per share) | — | (5,420 | ) | — | — | — | — | (5,420 | ) | ||||||||||||||||||
Purchase of 44,082 shares of common stock | — | — | — | — | (3,421 | ) | — | (3,421 | ) | ||||||||||||||||||
Other comprehensive loss | — | — | (843 | ) | — | — | — | (843 | ) | ||||||||||||||||||
Balance, September 30, 2014 | $ | 42,660 | $ | 266,774 | $ | 748 | $ | (1,008 | ) | $ | (23,205 | ) | $ | (32,500 | ) | $ | 253,469 | ||||||||||
See Notes to Consolidated Financial Statements.
Page 6
HILLS BANCORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Amounts In Thousands)
Nine Months Ended September 30, | |||||||
2014 | 2013 | ||||||
Cash Flows from Operating Activities | |||||||
Net income | $ | 21,824 | $ | 20,348 | |||
Adjustments to reconcile net income to net cash and cash equivalents provided by operating activities: | |||||||
Depreciation | 1,916 | 2,176 | |||||
Provision for loan losses | (1,209 | ) | (309 | ) | |||
Net gain on sale of investment securities | — | (17 | ) | ||||
Share-based compensation | 21 | 21 | |||||
Forfeiture of common stock | (40 | ) | (25 | ) | |||
Compensation expensed through issuance of common stock | 286 | 176 | |||||
Excess tax benefits from share-based compensation | (50 | ) | (85 | ) | |||
Provision for deferred income taxes | 37 | (103 | ) | ||||
Net gain on sale of other real estate owned and other repossessed assets | (426 | ) | (168 | ) | |||
Increase in accrued interest receivable | (1,304 | ) | (609 | ) | |||
Amortization of discount on investment securities, net | 654 | 834 | |||||
Decrease in prepaid FDIC insurance | — | 2,957 | |||||
Decrease in other assets | 222 | 3,175 | |||||
Increase in accrued interest payable and other liabilities | 2,845 | 1,287 | |||||
Loans originated for sale | (80,798 | ) | (178,872 | ) | |||
Proceeds on sales of loans | 83,879 | 206,110 | |||||
Net gain on sales of loans | (638 | ) | (1,793 | ) | |||
Net cash and cash equivalents provided by operating activities | $ | 27,219 | $ | 55,103 | |||
Cash Flows from Investing Activities | |||||||
Proceeds from maturities of investment securities available for sale | $ | 46,252 | $ | 21,070 | |||
Proceeds from sales of investment securities available for sale | — | 566 | |||||
Purchases of investment securities available for sale | (51,434 | ) | (27,721 | ) | |||
Loans made to customers, net of collections | (113,409 | ) | (71,241 | ) | |||
Proceeds on sale of other real estate owned and other repossessed assets | 1,609 | 1,275 | |||||
Purchases of property and equipment | (703 | ) | (1,428 | ) | |||
Income from tax credit real estate, net | 682 | 478 | |||||
Net cash and cash equivalents used in investing activities | $ | (117,003 | ) | $ | (77,001 | ) | |
Cash Flows from Financing Activities | |||||||
Net increase in deposits | $ | 129,619 | $ | 30,761 | |||
Net decrease in short-term borrowings | (5,983 | ) | (9,620 | ) | |||
Stock options exercised | 101 | 175 | |||||
Excess tax benefits related to share-based compensation | 50 | 85 | |||||
Purchase of treasury stock | (3,421 | ) | (976 | ) | |||
Dividends paid | (5,420 | ) | (5,186 | ) | |||
Net cash and cash equivalents provided by financing activities | $ | 114,946 | $ | 15,239 | |||
(Continued)
Page 7
HILLS BANCORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Continued) (Amounts In Thousands) | |||||||
Nine Months Ended September 30, | |||||||
2014 | 2013 | ||||||
Increase (decrease) in cash and cash equivalents | $ | 25,162 | $ | (6,659 | ) | ||
Cash and cash equivalents: | |||||||
Beginning of year | 43,702 | 63,582 | |||||
End of period | $ | 68,864 | $ | 56,923 | |||
Supplemental Disclosures | |||||||
Cash payments for: | |||||||
Interest paid to depositors | $ | 7,232 | $ | 8,757 | |||
Interest paid on other obligations | 4,278 | 4,283 | |||||
Income taxes paid | 8,072 | 6,800 | |||||
Noncash activities: | |||||||
Increase (decrease) in maximum cash obligation related to ESOP shares | $ | 2,926 | $ | (2,575 | ) | ||
Transfers to other real estate owned | 1,726 | 949 | |||||
See Notes to Consolidated Financial Statements.
Page 8
HILLS BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. | Summary of Significant Accounting Policies |
Basis of Presentation:
The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial reporting and with instructions for Form 10-Q and Regulation S-X. These financial statements include all adjustments (consisting of normal recurring accruals) which in the opinion of management are considered necessary for the fair presentation of the financial position and results of operations for the periods shown. Certain prior year amounts have been reclassified to conform to the current year presentation. The Company considers that it operates as one business segment, a commercial bank.
Operating results for the nine month period ended September 30, 2014 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2014. For further information, refer to the consolidated financial statements and footnotes thereto included in the Form 10-K Annual Report of Hills Bancorporation and subsidiary (the “Company”) for the year ended December 31, 2013 filed with the Securities Exchange Commission on March 11, 2014. The consolidated balance sheet as of December 31, 2013, has been derived from the audited consolidated financial statements for that period.
The Company evaluated subsequent events through the filing date of its quarterly report on Form 10-Q with the SEC.
Effect of New Financial Accounting Standards:
In January 2014, the FASB issued ASU No. 2014-01, Accounting for Investments in Qualified Affordable Housing Projects", to amend FASB ASC Topic 323, Investments – Equity Method and Joint Ventures. The objective of this standard is to provide guidance on accounting for investments by a reporting entity in flow-through limited liability entities that manage or invest in affordable housing projects that qualify for the low-income housing tax credit. The amendments in the standard permit, but do not require, reporting entities to make an accounting policy election to account for their investments in qualified affordable housing projects using the proportional amortization method if certain conditions are met. Under the proportional amortization method, an entity amortizes the initial cost of the investment in proportion to the tax credits and other tax benefits received and recognizes the net investment performance in the income statement as a component of income tax expense (benefit). The standard will be effective for the Company beginning January 1, 2015; however, early adoption is permitted. The Company does have significant investments in such qualified affordable housing projects and is currently reviewing the provisions of this standard to determine what, if any, impacts it may have on the Company’s financial position or results of operations.
In January 2014, the FASB issued ASU No. 2014-04, Receivables – Troubled Debt Restructurings by Creditors (Subtopic 310-40): Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure. ASU 2014-4 clarifies that an in substance foreclosure repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either the creditor obtaining legal title to the residential real estate property upon foreclosure or the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. Additional disclosures are required. ASU 2014-4 is effective for annual periods and interim periods within those annual periods beginning after December 15, 2014. The adoption of ASU 2014-4 by the Company is not expected to have a material impact.
In May 2014, The FASB and International Accounting Standards Board (IASB) issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). The core principle of ASU 2014-09 is that a company should recognize revenue to depict the transfer of promised good or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. For financial institutions, significant changes are not expected given that most financial instruments are not in the scope of the accounting standard update. ASU 2014-09 is effective for annual periods and interim periods within those annual periods beginning after December 15, 2016. Early adoption is not permitted. The Company is currently reviewing the provisions of this standard to determine the application to financial institutions. The adoption of ASU 2014-09 by the Company is not expected to have a material impact.
Page 9
Note 2. | Earnings Per Share |
Basic earnings per share is computed using the weighted average number of actual common shares outstanding during the period. Diluted earnings per share reflects the potential dilution that would occur from the exercise of common stock options outstanding. ESOP shares are considered outstanding for this calculation unless unearned.
The computation of basic and diluted earnings per share for the periods presented is as follows:
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||||
Common shares outstanding at the beginning of the period | 4,696,591 | 4,708,910 | 4,711,995 | 4,712,328 | |||||||||||
Weighted average number of net shares redeemed | (10,673 | ) | (720 | ) | (12,490 | ) | (364 | ) | |||||||
Weighted average shares outstanding (basic) | 4,685,918 | 4,708,190 | 4,699,505 | 4,711,964 | |||||||||||
Weighted average of potential dilutive shares attributable to stock options granted, computed under the treasury stock method | 2,139 | 3,220 | 2,365 | 3,755 | |||||||||||
Weighted average number of shares (diluted) | 4,688,057 | 4,711,410 | 4,701,870 | 4,715,719 | |||||||||||
Net income (In thousands) | $ | 7,899 | $ | 6,624 | $ | 21,824 | $ | 20,348 | |||||||
Earnings per share: | |||||||||||||||
Basic | $ | 1.69 | $ | 1.41 | $ | 4.65 | $ | 4.32 | |||||||
Diluted | $ | 1.68 | $ | 1.40 | $ | 4.64 | $ | 4.31 | |||||||
Page 10
Note 3. | Other Comprehensive Income |
The following table summarizes the balances of each component of accumulated other comprehensive income (AOCI), included in stockholders’ equity, at September 30, 2014 and December 31, 2013:
September 30, 2014 | December 31, 2013 | ||||||
(amounts in thousands) | |||||||
Net unrealized gain on available-for-sale securities | $ | 2,659 | $ | 1,808 | |||
Net unrealized (loss) gain on derivatives used for cash flow hedges | (1,447 | ) | 769 | ||||
Tax effect | (464 | ) | (986 | ) | |||
Net-of-tax amount | $ | 748 | $ | 1,591 | |||
Amounts reclassified from AOCI and the affected line items in the statement of income during the three and nine months ended September 30, 2014 and 2013, were as follows:
Amounts reclassifed from AOCI | |||||||||
Three Months Ended September 30, | |||||||||
2014 | 2013 | Affected Line Item in the Statements of Income | |||||||
(amounts in thousands) | |||||||||
Unrealized gains on available-for-sale securities | $ | — | $ | — | Other noninterest income | ||||
Tax effect | — | — | Tax (expense) benefit | ||||||
Total reclassification out of AOCI | $ | — | $ | — | |||||
Nine Months Ended September 30, | |||||||||
2014 | 2013 | Affected Line Item in the Statements of Income | |||||||
(amounts in thousands) | |||||||||
Unrealized gains on available-for-sale securities | $ | — | $ | 17 | Other noninterest income | ||||
Tax effect | — | (7 | ) | Tax (expense) benefit | |||||
Total reclassification out of AOCI | $ | — | $ | 10 | |||||
Page 11
Note 4. | Securities |
The carrying values of investment securities at September 30, 2014 and December 31, 2013 are summarized in the following table (dollars in thousands):
September 30, 2014 | December 31, 2013 | ||||||||||||
Amount | Percent | Amount | Percent | ||||||||||
Securities available for sale | |||||||||||||
U.S. Treasury | $ | 19,794 | 8.12 | % | $ | — | — | % | |||||
State and political subdivisions | 154,198 | 63.24 | 151,366 | 63.46 | |||||||||
Other securities (FHLB, FHLMC and FNMA) | 69,826 | 28.64 | 87,144 | 36.54 | |||||||||
Total securities available for sale | $ | 243,818 | 100.00 | % | $ | 238,510 | 100.00 | % | |||||
Investment securities have been classified in the consolidated balance sheets according to management’s intent. Available-for-sale securities consist of debt securities not classified as trading or held to maturity. Available-for-sale securities are stated at fair value, and unrealized holding gains and losses, net of the related deferred tax effect, are reported as a separate component of stockholders' equity. There were no trading or held to maturity securities as of September 30, 2014 or December 31, 2013. The carrying amount of available-for-sale securities and their approximate fair values were as follows as of September 30, 2014 and December 31, 2013 (in thousands):
Amortized Cost | Gross Unrealized Gains | Gross Unrealized (Losses) | Estimated Fair Value | ||||||||||||
September 30, 2014: | |||||||||||||||
U.S. Treasury | $ | 19,828 | $ | 6 | $ | (40 | ) | $ | 19,794 | ||||||
State and political subdivisions | 151,632 | 2,969 | (403 | ) | 154,198 | ||||||||||
Other securities (FHLB, FHLMC and FNMA) | 69,699 | 191 | (64 | ) | 69,826 | ||||||||||
Total | $ | 241,159 | $ | 3,166 | $ | (507 | ) | $ | 243,818 | ||||||
December 31, 2013: | |||||||||||||||
U.S. Treasury | $ | — | $ | — | $ | — | $ | — | |||||||
State and political subdivisions | 149,704 | 3,182 | (1,520 | ) | 151,366 | ||||||||||
Other securities (FHLB, FHLMC and FNMA) | 86,998 | 316 | (170 | ) | 87,144 | ||||||||||
Total | $ | 236,702 | $ | 3,498 | $ | (1,690 | ) | $ | 238,510 | ||||||
The amortized cost and estimated fair value of available-for-sale securities classified according to their contractual maturities at September 30, 2014, were as follows (in thousands):
Amortized Cost | Fair Value | ||||||
Due in one year or less | $ | 35,464 | $ | 35,621 | |||
Due after one year through five years | 136,084 | 138,213 | |||||
Due after five years through ten years | 69,611 | 69,984 | |||||
Due over ten years | — | — | |||||
Total | $ | 241,159 | $ | 243,818 | |||
As of September 30, 2014 investment securities with a carrying value of $36.03 million were pledged to collateralize short-term borrowings.
Page 12
The following table shows the fair value, gross unrealized losses and the percentage of fair value represented by gross unrealized losses of applicable investment securities owned by the Company, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at September 30, 2014 and December 31, 2013 (in thousands):
Less than 12 months | 12 months or more | Total | |||||||||||||||||||||||||||||||||||||||
September 30, 2014 Description of Securities | # | Fair Value | Unrealized Loss | % | # | Fair Value | Unrealized Loss | % | # | Fair Value | Unrealized Loss | % | |||||||||||||||||||||||||||||
U.S. Treasury | 4 | $ | 9,876 | $ | (40 | ) | 0.41 | % | — | $ | — | $ | — | — | % | 4 | $ | 9,876 | $ | (40 | ) | 0.41 | % | ||||||||||||||||||
State and political subdivisions | 57 | 14,490 | (76 | ) | 0.52 | % | 95 | 19,873 | (327 | ) | 1.65 | % | 152 | 34,363 | (403 | ) | 1.17 | % | |||||||||||||||||||||||
Other securities (FHLB, FHLMC and FNMA) | 5 | 10,505 | (46 | ) | 0.44 | % | 2 | 4,359 | (18 | ) | 0.41 | % | 7 | 14,864 | (64 | ) | 0.43 | % | |||||||||||||||||||||||
Total temporarily impaired securities | 66 | $ | 34,871 | $ | (162 | ) | 0.46 | % | 97 | $ | 24,232 | $ | (345 | ) | 1.42 | % | 163 | $ | 59,103 | $ | (507 | ) | 0.86 | % | |||||||||||||||||
Less than 12 months | 12 months or more | Total | |||||||||||||||||||||||||||||||||||||||
December 31, 2013 Description of Securities | # | Fair Value | Unrealized Loss | % | # | Fair Value | Unrealized Loss | % | # | Fair Value | Unrealized Loss | % | |||||||||||||||||||||||||||||
U.S. Treasury | — | $ | — | $ | — | — | % | — | $ | — | $ | — | — | % | — | $ | — | $ | — | — | % | ||||||||||||||||||||
State and political subdivisions | 164 | 36,212 | (1,259 | ) | 3.48 | % | 25 | 5,565 | (261 | ) | 4.69 | % | 189 | 41,777 | (1,520 | ) | 3.64 | % | |||||||||||||||||||||||
Other securities (FHLB, FHLMC and FNMA) | 10 | 21,810 | (149 | ) | 0.68 | % | 1 | 2,557 | (21 | ) | 0.82 | % | 11 | 24,367 | (170 | ) | 0.70 | % | |||||||||||||||||||||||
Total temporarily impaired securities | 174 | $ | 58,022 | $ | (1,408 | ) | 2.43 | % | 26 | $ | 8,122 | $ | (282 | ) | 3.47 | % | 200 | $ | 66,144 | $ | (1,690 | ) | 2.56 | % | |||||||||||||||||
The Company considered the following information in reaching the conclusion that the impairments disclosed in the table above are temporary and not other-than-temporary impairments. None of the unrealized losses in the above table was due to the deterioration in the credit quality of any of the issues that might result in the non-collection of contractual principal and interest. The unrealized losses are due to changes in interest rates. The Company has not recognized any unrealized loss in income because management does not have the intent to sell the securities included in the previous table. Management has concluded that it is more likely than not that the Company will not be required to sell these securities prior to recovery of the amortized cost basis.
Page 13
Note 5. | Loans |
Classes of loans are as follows:
September 30, 2014 | December 31, 2013 | ||||||
(Amounts In Thousands) | |||||||
Agricultural | $ | 86,243 | $ | 82,138 | |||
Commercial and financial | 179,872 | 166,102 | |||||
Real estate: | |||||||
Construction, 1 to 4 family residential | 39,551 | 30,309 | |||||
Construction, land development and commercial | 80,273 | 69,182 | |||||
Mortgage, farmland | 145,070 | 142,685 | |||||
Mortgage, 1 to 4 family first liens | 658,766 | 605,687 | |||||
Mortgage, 1 to 4 family junior liens | 107,443 | 105,785 | |||||
Mortgage, multi-family | 241,768 | 244,090 | |||||
Mortgage, commercial | 322,714 | 315,187 | |||||
Loans to individuals | 20,324 | 19,824 | |||||
Obligations of state and political subdivisions | 55,940 | 45,167 | |||||
$ | 1,937,964 | $ | 1,826,156 | ||||
Net unamortized fees and costs | 675 | 641 | |||||
$ | 1,938,639 | $ | 1,826,797 | ||||
Less allowance for loan losses | 24,500 | 25,550 | |||||
$ | 1,914,139 | $ | 1,801,247 | ||||
Page 14
Changes in the allowance for loan losses, the allowance for loan losses applicable to impaired loans and the related loan balance of impaired loans for the three and nine months ended September 30, 2014 were as follows:
Three Months Ended September 30, 2014 | |||||||||||||||||||||||||||||||
Agricultural | Commercial and Financial | Real Estate: Construction and land development | Real Estate: Mortgage, farmland | Real Estate: Mortgage, 1 to 4 family | Real Estate: Mortgage, multi- family and commercial | Other | Total | ||||||||||||||||||||||||
(Amounts In Thousands) | |||||||||||||||||||||||||||||||
Allowance for loan losses: | |||||||||||||||||||||||||||||||
Beginning balance | $ | 3,036 | $ | 4,832 | $ | 3,431 | $ | 2,749 | $ | 6,831 | $ | 3,739 | $ | 732 | $ | 25,350 | |||||||||||||||
Charge-offs | — | (60 | ) | — | — | (471 | ) | — | (50 | ) | (581 | ) | |||||||||||||||||||
Recoveries | 60 | 258 | 37 | — | 244 | 99 | 41 | 739 | |||||||||||||||||||||||
Provision | (402 | ) | (328 | ) | (483 | ) | (173 | ) | 497 | (98 | ) | (21 | ) | (1,008 | ) | ||||||||||||||||
Ending balance | $ | 2,694 | $ | 4,702 | $ | 2,985 | $ | 2,576 | $ | 7,101 | $ | 3,740 | $ | 702 | $ | 24,500 | |||||||||||||||
Nine Months Ended September 30, 2014 | |||||||||||||||||||||||||||||||
Agricultural | Commercial and Financial | Real Estate: Construction and land development | Real Estate: Mortgage, farmland | Real Estate: Mortgage, 1 to 4 family | Real Estate: Mortgage, multi- family and commercial | Other | Total | ||||||||||||||||||||||||
(Amounts In Thousands) | |||||||||||||||||||||||||||||||
Allowance for loan losses: | |||||||||||||||||||||||||||||||
Beginning balance | $ | 2,852 | $ | 4,733 | $ | 2,918 | $ | 2,557 | $ | 7,064 | $ | 4,787 | $ | 639 | $ | 25,550 | |||||||||||||||
Charge-offs | (125 | ) | (515 | ) | (247 | ) | — | (963 | ) | (48 | ) | (255 | ) | (2,153 | ) | ||||||||||||||||
Recoveries | 65 | 867 | 311 | — | 696 | 259 | 114 | 2,312 | |||||||||||||||||||||||
Provision | (98 | ) | (383 | ) | 3 | 19 | 304 | (1,258 | ) | 204 | (1,209 | ) | |||||||||||||||||||
Ending balance | $ | 2,694 | $ | 4,702 | $ | 2,985 | $ | 2,576 | $ | 7,101 | $ | 3,740 | $ | 702 | $ | 24,500 | |||||||||||||||
Ending balance, individually evaluated for impairment | $ | 2 | $ | 10 | $ | 28 | $ | 21 | $ | 73 | $ | 11 | $ | — | $ | 145 | |||||||||||||||
Ending balance, collectively evaluated for impairment | $ | 2,692 | $ | 4,692 | $ | 2,957 | $ | 2,555 | $ | 7,028 | $ | 3,729 | $ | 702 | $ | 24,355 | |||||||||||||||
Loans: | |||||||||||||||||||||||||||||||
Ending balance | $ | 86,243 | $ | 179,872 | $ | 119,824 | $ | 145,070 | $ | 766,209 | $ | 564,482 | $ | 76,264 | $ | 1,937,964 | |||||||||||||||
Ending balance, individually evaluated for impairment | $ | 1,772 | $ | 2,737 | $ | 475 | $ | 2,267 | $ | 5,117 | $ | 17,847 | $ | — | $ | 30,215 | |||||||||||||||
Ending balance, collectively evaluated for impairment | $ | 84,471 | $ | 177,135 | $ | 119,349 | $ | 142,803 | $ | 761,092 | $ | 546,635 | $ | 76,264 | $ | 1,907,749 | |||||||||||||||
Page 15
Changes in the allowance for loan losses for the three and nine months ended September 30, 2013 were as follows:
Three Months Ended September 30, 2013 | |||||||||||||||||||||||||||||||
Agricultural | Commercial and Financial | Real Estate: Construction and land development | Real Estate: Mortgage, farmland | Real Estate: Mortgage, 1 to 4 family | Real Estate: Mortgage, multi- family and commercial | Other | Total | ||||||||||||||||||||||||
(Amounts In Thousands) | |||||||||||||||||||||||||||||||
Allowance for loan losses: | |||||||||||||||||||||||||||||||
Beginning balance | $ | 2,379 | $ | 4,878 | $ | 2,988 | $ | 2,150 | $ | 6,984 | $ | 4,370 | $ | 651 | $ | 24,400 | |||||||||||||||
Charge-offs | — | (283 | ) | — | — | (103 | ) | (44 | ) | (19 | ) | (449 | ) | ||||||||||||||||||
Recoveries | 12 | 220 | 76 | — | 85 | 258 | 36 | 687 | |||||||||||||||||||||||
Provision | 150 | 58 | |||||||||||||||||||||||||||||