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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 September 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

Smaller reporting company o

(Do not check if a smaller reporting company)

 

 

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 October 31, 2014:  2,720,842.

 

 

 



Table of Contents

 

KENTUCKY BANCSHARES, INC.

 

Table of Contents

 

Part I - Financial Information

 

 

 

Item 1. Financial Statements

 

 

 

 

 

Consolidated Balance Sheets

3

 

 

 

 

Consolidated Statements of Income and Comprehensive Income (Loss)

4

 

 

 

 

Consolidated Statement of Changes in Stockholders’ Equity

6

 

 

 

 

Consolidated Statements of Cash Flows

7

 

 

 

 

Notes to Consolidated Financial Statements

8

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

37

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

49

 

 

 

Item 4.

Controls and Procedures

51

 

 

 

Part II - Other Information

51

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

51

 

 

 

Item 6.

Exhibits

52

 

 

 

Signatures

 

53

 

2



Table of Contents

 

Item 1 - Financial Statements

 

KENTUCKY BANCSHARES, INC.

 

CONSOLIDATED BALANCE SHEETS (unaudited)

(in thousands, except per share data)

 

 

 

9/30/2014

 

12/31/2013

 

Assets

 

 

 

 

 

Cash and due from banks

 

$

17,102

 

$

22,650

 

Federal funds sold

 

140

 

510

 

Cash and cash equivalents

 

17,242

 

23,160

 

Securities available for sale

 

214,143

 

230,396

 

Trading Assets

 

5,325

 

 

Mortgage loans held for sale

 

754

 

223

 

Loans

 

510,994

 

468,655

 

Allowance for loan losses

 

(5,706

)

(5,441

)

Net loans

 

505,288

 

463,214

 

Federal Home Loan Bank stock

 

5,981

 

6,731

 

Real estate owned, net

 

3,348

 

3,379

 

Bank premises and equipment, net

 

16,644

 

16,709

 

Interest receivable

 

3,519

 

3,618

 

Mortgage servicing rights

 

1,238

 

1,344

 

Goodwill

 

13,117

 

13,117

 

Other intangible assets

 

209

 

317

 

Other assets

 

7,316

 

8,371

 

Total assets

 

$

794,124

 

$

770,579

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

Deposits

 

 

 

 

 

Non-interest bearing

 

$

161,174

 

$

152,052

 

Time deposits, $100,000 and over

 

88,561

 

96,264

 

Other interest bearing

 

338,583

 

369,084

 

Total deposits

 

588,318

 

617,400

 

Repurchase agreements and other borrowings

 

11,289

 

12,867

 

Federal funds purchased

 

2,776

 

 

Short-term Federal Home Loan Bank advances

 

25,000

 

 

Long-term Federal Home Loan Bank advances

 

75,437

 

57,847

 

Subordinated debentures

 

7,217

 

7,217

 

Interest payable

 

657

 

736

 

Other liabilities

 

7,331

 

6,839

 

Total liabilities

 

718,025

 

702,906

 

Stockholders’ equity

 

 

 

 

 

Preferred stock, 300,000 shares authorized and unissued

 

 

 

Common stock, no par value; 10,000,000 shares authorized; 2,720,842 and 2,717,434 shares issued and outstanding on September 30, 2014 and December 31, 2013

 

12,636

 

12,570

 

Retained earnings

 

63,509

 

60,229

 

Accumulated other comprehensive loss

 

(46

)

(5,126

)

Total stockholders’ equity

 

76,099

 

67,673

 

Total liabilities & stockholders’ equity

 

$

794,124

 

$

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)

 

 

 

Nine Months Ending

 

 

 

9/30/2014

 

9/30/2013

 

INTEREST INCOME:

 

 

 

 

 

Loans, including fees

 

$

17,757

 

$

17,094

 

Securities

 

 

 

 

 

Taxable

 

1,941

 

1,549

 

Tax exempt

 

2,133

 

2,022

 

Trading assets

 

129

 

 

Other

 

210

 

233

 

Total interest income

 

22,170

 

20,898

 

INTEREST EXPENSE:

 

 

 

 

 

Deposits

 

1,557

 

1,725

 

Repurchase agreements and other borrowings

 

72

 

56

 

Federal Home Loan Bank advances

 

1,003

 

543

 

Subordinated debentures

 

172

 

174

 

Total interest expense

 

2,804

 

2,498

 

Net interest income

 

19,366

 

18,400

 

Provision for loan losses

 

500

 

850

 

Net interest income after provision

 

18,866

 

17,550

 

NON-INTEREST INCOME:

 

 

 

 

 

Service charges

 

3,223

 

3,240

 

Loan service fee income, net

 

63

 

64

 

Trust department income

 

717

 

548

 

Gain on sale of available for sale securities, net

 

514

 

774

 

Gain on trading assets

 

196

 

 

Gain on sale of mortgage loans

 

715

 

1,431

 

Brokerage income

 

422

 

279

 

Debit card interchange income

 

1,543

 

1,444

 

Other

 

34

 

(8

)

Total other income

 

7,427

 

7,772

 

NON-INTEREST EXPENSE:

 

 

 

 

 

Salaries and employee benefits

 

11,013

 

10,438

 

Occupancy expenses

 

2,526

 

2,358

 

Repossession expenses, net

 

163

 

53

 

FDIC Insurance

 

403

 

385

 

Legal and professional fees

 

765

 

668

 

Data processing

 

1,005

 

1,021

 

Debit card expenses

 

698

 

718

 

Amortization

 

104

 

171

 

Advertising and marketing

 

653

 

650

 

Taxes other than payroll, property and income

 

647

 

670

 

Telephone

 

256

 

172

 

Postage

 

236

 

227

 

Loan fees

 

273

 

333

 

Other

 

1,452

 

1,485

 

Total other expenses

 

20,194

 

19,349

 

Income before taxes

 

6,099

 

5,973

 

Income taxes

 

704

 

1,112

 

Net income

 

$

5,395

 

$

4,861

 

Other Comprehensive Income (Loss), net of tax:

 

 

 

 

 

Change in Unrealized Gains (losses) on Securities

 

5,080

 

(7,531

)

Comprehensive Income (Loss)

 

$

10,475

 

$

(2,670

)

Earnings per share

 

 

 

 

 

Basic

 

$

1.99

 

$

1.80

 

Diluted

 

1.99

 

1.80

 

Dividends per share

 

0.75

 

0.72

 

 

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

 

 

 

9/30/2014

 

9/30/2013

 

INTEREST INCOME:

 

 

 

 

 

Loans, including fees

 

$

6,100

 

$

5,815

 

Securities

 

 

 

 

 

Taxable

 

586

 

543

 

Tax exempt

 

682

 

673

 

Trading assets

 

49

 

 

Other

 

65

 

74

 

Total interest income

 

7,482

 

7,105

 

INTEREST EXPENSE:

 

 

 

 

 

Deposits

 

483

 

563

 

Repurchase agreements and other borrowings

 

24

 

25

 

Federal Home Loan Bank advances

 

380

 

213

 

Subordinated debentures

 

57

 

59

 

Total interest expense

 

944

 

860

 

Net interest income

 

6,538

 

6,245

 

Provision for loan losses

 

300

 

250

 

Net interest income after provision

 

6,238

 

5,995

 

NON-INTEREST INCOME:

 

 

 

 

 

Service charges

 

1,150

 

1,132

 

Loan service fee income, net

 

29

 

100

 

Trust department income

 

256

 

188

 

Gain on sale of available for sale securities, net

 

81

 

 

Gain on trading assets

 

34

 

 

Gain on sale of mortgage loans

 

317

 

291

 

Brokerage income

 

132

 

102

 

Debit card interchange income

 

534

 

491

 

Other

 

(43

)

38

 

Total other income

 

2,490

 

2,342

 

NON-INTEREST EXPENSE:

 

 

 

 

 

Salaries and employee benefits

 

3,750

 

3,660

 

Occupancy expenses

 

848

 

811

 

Repossession expenses, net

 

140

 

18

 

FDIC Insurance

 

135

 

123

 

Legal and professional fees

 

307

 

278

 

Data processing

 

337

 

333

 

Debit card expenses

 

202

 

250

 

Amortization

 

30

 

57

 

Advertising and marketing

 

212

 

274

 

Taxes other than payroll, property and income

 

225

 

223

 

Telephone

 

80

 

62

 

Postage

 

79

 

80

 

Loan fees

 

113

 

87

 

Other

 

507

 

472

 

Total other expenses

 

6,965

 

6,728

 

Income before taxes

 

1,763

 

1,609

 

Income taxes

 

43

 

242

 

Net income

 

$

1,720

 

$

1,367

 

Other Comprehensive Income (Loss), net of tax:

 

 

 

 

 

Change in Unrealized Gains (losses) on Securities

 

99

 

(1,555

)

Comprehensive Income (Loss)

 

$

1,819

 

$

(188

)

Earnings per share

 

 

 

 

 

Basic

 

$

0.63

 

$

0.51

 

Diluted

 

0.63

 

0.51

 

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, net of forfeitures

 

7,203

 

 

 

 

 

Stock based compensation expense

 

 

83

 

 

 

83

 

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

 

 

 

 

5,080

 

5,080

 

Net income

 

 

 

5,395

 

 

5,395

 

Dividends declared - $0.75 per share

 

 

 

(2,041

)

 

(2,041

)

Balances, September 30, 2014

 

2,720,842

 

$

12,636

 

$

63,509

 

$

(46

)

$

76,099

 

 


(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)

 

 

 

Nine Months Ending

 

 

 

9/30/2014

 

9/30/2013

 

Cash Flows From Operating Activities

 

 

 

 

 

Net Income

 

$

5,395

 

$

4,861

 

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

 

 

 

 

 

Depreciation and amortization

 

1,357

 

1,331

 

Securities amortization (accretion), net

 

476

 

724

 

Stock based compensation expense

 

83

 

72

 

Provision for loan losses

 

500

 

850

 

Securities available for sale gains, net

 

(514

)

(774

)

Net change in trading assets

 

(5,325

)

 

Originations of loans held for sale

 

(26,655

)

(45,878

)

Proceeds from sale of loans

 

26,839

 

46,883

 

Losses (gains) on sale of fixed assets

 

 

100

 

Losses (gains) on other real estate

 

(134

)

(25

)

Gain on sale of mortgage loans

 

(715

)

(1,431

)

Changes in:

 

 

 

 

 

Interest receivable

 

99

 

191

 

Write-downs of other real estate, net

 

64

 

(79

)

Other assets

 

872

 

(1,092

)

Interest payable

 

(79

)

134

 

Other liabilities

 

(2,125

)

1,612

 

Net cash from operating activities

 

138

 

7,479

 

Cash Flows From Investing Activities

 

 

 

 

 

Purchases of securities available for sale

 

(41,495

)

(89,456

)

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

 

65,483

 

60,533

 

Net change in loans

 

(44,225

)

(36,759

)

Proceeds from redemption of Federal Home Loan Bank stock

 

750

 

 

Purchases of bank premises and equipment

 

(895

)

(1,366

)

Proceeds from sale of bank premises and equipment

 

 

258

 

Proceeds from the sale of other real estate

 

1,752

 

1,056

 

Net cash from investing activities

 

(18,630

)

(65,734

)

Cash Flows From Financing Activities:

 

 

 

 

 

Net change in deposits

 

(29,082

)

(16,939

)

Net change in repurchase agreements and other borrowings

 

1,198

 

13,563

 

Short-term advances from Federal Home Loan Bank

 

175,000

 

192,500

 

Payment on short-term Federal Home Loan Bank advance

 

(150,000

)

(177,500

)

Long-term advances from Federal Home Loan Bank

 

27,277

 

42,660

 

Payments on long-term Federal Home Loan Bank advances

 

(9,687

)

(6,530

)

Payments on note payable

 

 

(500

)

Purchase of common stock

 

(91

)

(135

)

Dividends paid

 

(2,041

)

(1,961

)

Net cash from financing activities

 

12,574

 

45,158

 

Net change in cash and cash equivalents

 

(5,918

)

(13,097

)

Cash and cash equivalents at beginning of period

 

23,160

 

31,764

 

Cash and cash equivalents at end of period

 

$

17,242

 

$

18,667

 

Supplemental disclosures of cash flow information

 

 

 

 

 

Cash paid during the year for:

 

 

 

 

 

Interest expense

 

$

2,883

 

$

2,364

 

Income taxes

 

1,000

 

1,275

 

Supplemental disclosures of non-cash investing activities

 

 

 

 

 

Real estate acquired through foreclosure

 

$

1,651

 

$

472

 

 

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 subsidiaries, Kentucky Bank (the “Bank”) and KBI Insurance Company, Inc.,  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.  Our transfer, registrar and dividend agent, Registrar and Transfer Company, was recently acquired by Computershare.  The migration to Computershare occurred October 31, 2014.

 

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.

 

8



Table of Contents

 

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.

 

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 has appealed the decision and 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 September 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

 

ASU 2014-14 — Receivables — Troubled Debt Restructurings by Creditors (Subtopic 310-40): Classification of Certain Government-Guaranteed Mortgage Loans upon Foreclosure.

 

The amendments in this ASU require that a mortgage loan be derecognized and that a separate other receivable be recognized upon foreclosure if: a) the loan has a government guarantee that is not separable from the loan before foreclosure; b) at the time of foreclosure, the creditor has the intent to convey the real estate property to the guarantor and make a claim on the guarantee, and the creditor has the ability to recover under that claim; and c) at the time of foreclosure, any amount of the claim that is determined on the basis of the fair value of the real estate is fixed. The separate other receivable recognized upon foreclosure should be measured based on the amount of the loan balance (principal and interest) expected to be received from the guarantor. The amendments in this ASU are effective for the Company beginning January 1, 2015 and are not expected to have a material impact on the Company’s financial statements.

 

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Table of Contents

 

2.              SECURITIES

 

SECURITIES AVAILABLE FOR SALE

 

Period-end securities are as follows:

(in thousands)

 

 

 

 

 

Gross

 

Gross

 

 

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

Fair

 

Available for Sale

 

Cost

 

Gains

 

Losses

 

Value

 

 

 

 

 

 

 

 

 

 

 

September 30, 2014

 

 

 

 

 

 

 

 

 

U.S. government agencies

 

$

68,139

 

$

46

 

$

(1,713

)

$

66,472

 

States and political subdivisions

 

80,886

 

3,019

 

(528

)

83,377

 

Mortgage-backed - residential

 

64,918

 

118

 

(1,035

)

64,001

 

Equity securities

 

270

 

23

 

 

293

 

Total

 

$

214,213

 

$

3,206

 

$

(3,276

)

$

214,143

 

 

 

 

 

 

 

 

 

 

 

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 September 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.

 

 

 

Amortized

 

Fair

 

(in thousands)

 

Cost

 

Value

 

 

 

 

 

 

 

Due in one year or less

 

$

617

 

$

617

 

Due after one year through five years

 

9,125

 

9,074

 

Due after five years through ten years

 

77,983

 

77,403

 

Due after ten years

 

61,300

 

62,755

 

 

 

149,025

 

149,849

 

Mortgage-backed - residential

 

64,918

 

64,001

 

Equity

 

270

 

293

 

Total

 

$

214,213

 

$

214,143

 

 

Proceeds from sales of securities during the first nine months of 2014 and 2013 were $53.6 million and $27.2 million.  Gross gains of $914 thousand and $774 thousand and gross losses of $400 thousand and $0 were realized on those sales, respectively.  The tax provision related to these realized net gains was $175 thousand and $263 thousand, respectively.

 

Proceeds from sales of securities during the three months ending September 30, 2014 and September 30, 2013 were $13.5 million and $0.  Gross gains of $129 thousand and $0 and gross losses of $48 thousand and $0 were realized on those sales, respectively.  The tax provision related to these realized gains and losses was $28 thousand and $0, respectively.

 

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Table of Contents

 

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

 

September 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

 

$

9,541

 

$

(157

)

$

51,060

 

$

(1,556

)

$

60,601

 

$

(1,713

)

States and municipals

 

5,577

 

(73

)

10,922

 

(455

)

16,499

 

(528

)

Mortgage-backed - residential

 

26,598

 

(332

)

21,554

 

(703

)

48,152

 

(1,035

)

Total temporarily impaired

 

$

41,716

 

$

(562

)

$

83,536

 

$

(2,714

)

$

125,252

 

$

(3,276

)

 

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.

 

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 $5.3 million are primarily comprised of municipal securities which are held for a very short period of time.

 

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Table of Contents

 

3. LOANS

 

Loans at period-end are as follows:

(in thousands)

 

 

 

9/30/14

 

12/31/13

 

 

 

 

 

 

 

Commercial

 

$

34,457

 

$

34,654

 

Real estate construction

 

14,366

 

11,177

 

Real estate mortgage:

 

 

 

 

 

1-4 family residential

 

196,175

 

194,388

 

Multi-family residential

 

28,808

 

16,420

 

Non-farm & non-residential

 

144,888

 

126,791

 

Agricultural

 

75,163

 

68,002

 

Consumer

 

16,925

 

17,065

 

Other

 

212

 

158

 

Total

 

$

510,994

 

$

468,655

 

 

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

 

 

 

Nine Months Ended September 30, 2014

 

 

 

(in thousands)

 

 

 

Beginning

 

 

 

 

 

 

 

Ending

 

 

 

Balance

 

Charge-offs

 

Recoveries

 

Provision

 

Balance

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

$

230

 

$

200

 

$

 

$

213

 

$

243

 

Real estate Construction

 

358

 

 

11

 

18

 

387

 

Real estate mortgage:

 

 

 

 

 

 

 

 

 

 

 

1-4 family residential

 

2,169

 

179

 

55

 

(27

)

2,018

 

Multi-family residential

 

427

 

42

 

 

86

 

471

 

Non-farm & non-residential

 

564

 

 

367

 

(167

)

764

 

Agricultural

 

578

 

18

 

27

 

103

 

690

 

Consumer

 

548

 

201

 

58

 

139

 

544

 

Other

 

51

 

398

 

285

 

139

 

77

 

Unallocated

 

516

 

 

 

(4

)

512

 

 

 

$

5,441

 

$

1,038

 

$

803

 

$

500

 

$

5,706

 

 

 

 

Three Months Ended September,30 2014

 

 

 

(in thousands)

 

 

 

Beginning

 

 

 

 

 

 

 

Ending

 

 

 

Balance

 

Charge-offs

 

Recoveries

 

Provision

 

Balance

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

$

231

 

$

 

$

 

$

12

 

$

243

 

Real estate Construction

 

359

 

 

3

 

25

 

387

 

Real estate mortgage:

 

 

 

 

 

 

 

 

 

 

 

1-4 family residential

 

2,324

 

91

 

39

 

(254

)

2,018

 

Multi-family residential

 

327

 

42

 

 

186

 

471

 

Non-farm & non-residential

 

734

 

 

 

30

 

764

 

Agricultural

 

546

 

18

 

2

 

160

 

690

 

Consumer

 

543

 

48

 

17

 

32

 

544

 

Other

 

33

 

196

 

126

 

114

 

77

 

Unallocated

 

517

 

 

 

(5

)

512

 

 

 

$

5,614

 

$

395

 

$

187

 

$

300

 

$

5,706

 

 

13



Table of Contents

 

 

 

Nine Months Ended September 30, 2013

 

 

 

(in thousands)

 

 

 

Beginning

 

 

 

 

 

 

 

Ending

 

 

 

Balance

 

Charge-offs

 

Recoveries

 

Provision

 

Balance

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

$

150

 

$

12

 

$

28

 

$

(14

)

$

152

 

Real estate Construction

 

918

 

578

 

21

 

55

 

416

 

Real estate mortgage:

 

 

 

 

 

 

 

 

 

 

 

1-4 family residential

 

1,989

 

186

 

58

 

210

 

2,071

 

Multi-family residential

 

414

 

161

 

103

 

89

 

445

 

Non-farm & non-residential

 

628

 

99

 

18

 

37

 

584

 

Agricultural

 

845

 

109

 

22

 

(135

)

623

 

Consumer

 

517

 

298

 

9

 

306

 

534

 

Other

 

54

 

513

 

301

 

284

 

126

 

Unallocated

 

532

 

 

 

18

 

550

 

 

 

$

6,047

 

$

1,956

 

$

560

 

$

850

 

$

5,501

 

 

 

 

Three Months Ended September 30, 2013

 

 

 

(in thousands)

 

 

 

Beginning

 

 

 

 

 

 

 

Ending

 

 

 

Balance

 

Charge-offs

 

Recoveries

 

Provision

 

Balance

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

$

150

 

$

 

$

 

$

2

 

$

152

 

Real estate Construction

 

373

 

 

 

43

 

416

 

Real estate mortgage:

 

 

 

 

 

 

 

 

 

 

 

1-4 family residential

 

1,984

 

45

 

2

 

130

 

2,071

 

Multi-family residential

 

481

 

 

64

 

(100

)

445

 

Non-farm & non-residential

 

677

 

99

 

 

6

 

584

 

Agricultural

 

661

 

23

 

19

 

(34

)

623

 

Consumer

 

548

 

46

 

(9

)

41

 

534

 

Other

 

92

 

204

 

95

 

143

 

126

 

Unallocated

 

531

 

 

 

19

 

550

 

 

 

$

5,497

 

$

417

 

$

171

 

$

250

 

$

5,501

 

 

14



Table of Contents

 

The following tables present the balance in the allowance for loan losses and the recorded investment (excluding accrued interest receivable amounting to $2.2 million as of September 30, 2014 and $2.3 million at December 31, 2013) in loans by portfolio segment and based on impairment method as of September 30, 2014 and December 31, 2013:

 

As of September 30, 2014

    (in thousands)

 

 

 

Individually

 

Collectively

 

 

 

 

 

Evaluated for

 

Evaluated for

 

 

 

 

 

Impairment

 

Impairment

 

Total

 

Allowance for Loan Losses:

 

 

 

 

 

 

 

Commercial

 

$

 

$

243

 

$

243

 

Real estate construction

 

 

387

 

387

 

Real estate mortgage

 

 

 

 

 

 

 

1-4 family residential

 

137

 

1,881

 

2,018

 

Multi-family residential

 

91

 

380

 

471

 

Non-farm & non-residential

 

164

 

600

 

764

 

Agricultural

 

391

 

299

 

690

 

Consumer

 

 

544

 

544

 

Other

 

 

77

 

77

 

Unallocated

 

 

512

 

512

 

 

 

$

783

 

$

4,923

 

$

5,706

 

Loans:

 

 

 

 

 

 

 

Commercial

 

$

 

$

34,457

 

$

34,457

 

Real estate construction

 

 

14,366

 

14,366

 

Real estate mortgage:

 

 

 

 

 

 

 

1-4 family residential

 

2,364

 

193,811

 

196,175

 

Multi-family residential

 

260

 

28,548

 

28,808

 

Non-farm & non-residential

 

5,844

 

139,044

 

144,888

 

Agricultural

 

9,740

 

65,423

 

75,163

 

Consumer

 

 

16,925

 

16,925

 

Other

 

 

212

 

212

 

 

 

$

18,208

 

$

492,786

 

$

510,994

 

 

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

 

 

15



Table of Contents

 

The following table presents loans individually evaluated for impairment by class of loans as of and for the nine months ended September 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

 

1,113

 

1,113

 

 

1,109

 

43

 

43

 

Multi-family residential

 

 

 

 

 

 

 

Non-farm & non-residential

 

1,960

 

1,960

 

 

653

 

68

 

68

 

Agricultural

 

4,985

 

4,985

 

 

3,404

 

96

 

96

 

Consumer

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

With an allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

 

 

 

 

 

Real estate construction

 

 

 

 

 

 

 

Real estate mortgage:

 

 

 

 

 

 

 

 

 

 

 

 

 

1-4 family residential

 

1,251

 

1,251

 

137

 

1,442

 

26

 

26

 

Multi-family residential

 

260

 

260

 

91

 

289

 

5

 

5

 

Non-farm & non-residential

 

3,884

 

3,884

 

164

 

3,263

 

100

 

100

 

Agricultural

 

4,755

 

4,755

 

391

 

4,633

 

 

 

Consumer

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

Total

 

$

18,208

 

$

18,208

 

$

783

 

$

14,793

 

$

338

 

$

338

 

 

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

 

16



Table of Contents

 

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:

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

$

 

$

 

$

 

$

 

$

 

$

 

Real estate construction

 

 

 

 

 

 

 

Real estate mortgage:

 

 

 

 

 

 

 

 

 

 

 

 

 

1-4 family residential

 

824

 

793

 

 

1,217

 

28

 

28

 

Multi-family residential

 

 

 

 

 

 

 

Non-farm & non-residential

 

1,650

 

803

 

 

1,471

 

81

 

81

 

Agricultural

 

2,912

 

2,826

 

 

2,802

 

123

 

123

 

Consumer

 

 

 

 

 

 

 

Other