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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 June 30, 2015

 

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, 2015:  2,988,205.

 

 

 



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

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

35

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

48

 

 

 

Item 4.

Controls and Procedures

50

 

 

 

Part II - Other Information

50

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

50

 

 

 

Item 6.

Exhibits

51

 

 

 

Signatures

 

52

 

2



Table of Contents

 

Item 1 - Financial Statements

 

KENTUCKY BANCSHARES, INC.

 

CONSOLIDATED BALANCE SHEETS (unaudited)

(in thousands, except per share data)

 

 

 

6/30/2015

 

12/31/2014

 

Assets

 

 

 

 

 

Cash and due from banks

 

$

16,143

 

$

16,771

 

Federal funds sold

 

205

 

398

 

Cash and cash equivalents

 

16,348

 

17,169

 

Interest bearing time deposits

 

1,280

 

1,280

 

Securities available for sale

 

237,476

 

246,861

 

Trading Assets

 

5,400

 

5,370

 

Mortgage loans held for sale

 

1,719

 

776

 

Loans

 

546,085

 

538,305

 

Allowance for loan losses

 

(5,950

)

(6,012

)

Net loans

 

540,135

 

532,293

 

Federal Home Loan Bank stock

 

5,981

 

5,981

 

Real estate owned, net

 

3,595

 

4,603

 

Bank premises and equipment, net

 

16,270

 

16,479

 

Interest receivable

 

3,661

 

3,299

 

Mortgage servicing rights

 

1,261

 

1,209

 

Goodwill

 

13,117

 

13,117

 

Other intangible assets

 

116

 

177

 

Other assets

 

6,595

 

6,595

 

Total assets

 

$

852,954

 

$

855,209

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

Deposits

 

 

 

 

 

Non-interest bearing

 

$

179,909

 

$

176,743

 

Time deposits, $250,000 and over

 

55,229

 

52,913

 

Other interest bearing

 

408,878

 

425,213

 

Total deposits

 

644,016

 

654,869

 

Repurchase agreements and other borrowings

 

13,690

 

12,457

 

Federal funds purchased

 

2,456

 

 

Short-term Federal Home Loan Bank advances

 

15,000

 

10,000

 

Long-term Federal Home Loan Bank advances

 

85,417

 

83,785

 

Subordinated debentures

 

7,217

 

7,217

 

Interest payable

 

658

 

642

 

Other liabilities

 

5,503

 

8,297

 

Total liabilities

 

773,957

 

777,267

 

Stockholders’ equity

 

 

 

 

 

Preferred stock, 300,000 shares authorized and unissued

 

 

 

Common stock, no par value; 10,000,000 shares authorized; 2,725,631 and 2,720,098 shares issued and outstanding on June 30, 2015 and December 31, 2014

 

12,728

 

12,662

 

Retained earnings

 

66,701

 

64,489

 

Accumulated other comprehensive income (loss)

 

(432

)

791

 

Total stockholders’ equity

 

78,997

 

77,942

 

Total liabilities & stockholders’ equity

 

$

852,954

 

$

855,209

 

 

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

 

 

 

6/30/2015

 

6/30/2014

 

INTEREST INCOME:

 

 

 

 

 

Loans, including fees

 

$

12,555

 

$

11,657

 

Securities

 

 

 

 

 

Taxable

 

1,425

 

1,355

 

Tax exempt

 

1,366

 

1,451

 

Trading assets

 

83

 

80

 

Other

 

137

 

145

 

Total interest income

 

15,566

 

14,688

 

INTEREST EXPENSE:

 

 

 

 

 

Deposits

 

979

 

1,074

 

Repurchase agreements and other borrowings

 

47

 

48

 

Federal Home Loan Bank advances

 

799

 

623

 

Subordinated debentures

 

115

 

115

 

Total interest expense

 

1,940

 

1,860

 

Net interest income

 

13,626

 

12,828

 

Provision for loan losses

 

650

 

200

 

Net interest income after provision

 

12,976

 

12,628

 

NON-INTEREST INCOME:

 

 

 

 

 

Service charges

 

1,995

 

2,073

 

Loan service fee income, net

 

108

 

34

 

Trust department income

 

536

 

461

 

Gain on sale of available for sale securities, net

 

251

 

433

 

Gain (loss) on trading assets

 

(53

)

162

 

Gain on sale of mortgage loans

 

768

 

398

 

Brokerage income

 

242

 

290

 

Debit card interchange income

 

1,164

 

1,009

 

Other

 

881

 

77

 

Total other income

 

5,892

 

4,937

 

NON-INTEREST EXPENSE:

 

 

 

 

 

Salaries and employee benefits

 

7,944

 

7,263

 

Occupancy expenses

 

1,786

 

1,678

 

Repossession expenses, net

 

282

 

23

 

FDIC Insurance

 

301

 

268

 

Legal and professional fees

 

578

 

458

 

Data processing

 

753

 

668

 

Debit card expenses

 

549

 

496

 

Amortization

 

61

 

74

 

Advertising and marketing

 

425

 

441

 

Taxes other than payroll, property and income

 

459

 

422

 

Telephone

 

145

 

176

 

Postage

 

171

 

157

 

Loan fees

 

197

 

160

 

Other

 

1,274

 

945

 

Total other expenses

 

14,925

 

13,229

 

Income before taxes

 

3,943

 

4,336

 

Income taxes

 

306

 

661

 

Net income

 

$

3,637

 

$

3,675

 

Other Comprehensive Income (Loss), net of tax:

 

 

 

 

 

Change in Unrealized Gains on Securities

 

(1,223

)

4,981

 

Comprehensive Income (Loss)

 

$

2,414

 

$

8,656

 

Earnings per share

 

 

 

 

 

Basic

 

$

1.33

 

$

1.36

 

Diluted

 

1.33

 

1.36

 

Dividends per share

 

0.52

 

0.50

 

 

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

 

 

 

6/30/2015

 

6/30/2014

 

INTEREST INCOME:

 

 

 

 

 

Loans, including fees

 

$

6,346

 

$

5,896

 

Securities

 

 

 

 

 

Taxable

 

692

 

680

 

Tax exempt

 

690

 

718

 

Trading assets

 

39

 

43

 

Other

 

68

 

69

 

Total interest income

 

7,835

 

7,406

 

INTEREST EXPENSE:

 

 

 

 

 

Deposits

 

493

 

535

 

Repurchase agreements and other borrowings

 

24

 

25

 

Federal Home Loan Bank advances

 

397

 

309

 

Subordinated debentures

 

58

 

58

 

Total interest expense

 

972

 

927

 

Net interest income

 

6,863

 

6,479

 

Provision for loan losses

 

350

 

100

 

Net interest income after provision

 

6,513

 

6,379

 

NON-INTEREST INCOME:

 

 

 

 

 

Service charges

 

1,091

 

1,062

 

Loan service fee income, net

 

55

 

5

 

Trust department income

 

259

 

239

 

Gain on sale of available for sale securities, net

 

243

 

245

 

Gain (loss) on trading assets

 

(48

)

91

 

Gain on sale of mortgage loans

 

441

 

241

 

Brokerage income

 

136

 

210

 

Debit card interchange income

 

623

 

530

 

Other

 

822

 

45

 

Total other income

 

3,622

 

2,668

 

NON-INTEREST EXPENSE:

 

 

 

 

 

Salaries and employee benefits

 

4,150

 

3,661

 

Occupancy expenses

 

854

 

830

 

Repossession expenses, net

 

237

 

25

 

FDIC Insurance

 

145

 

140

 

Legal and professional fees

 

293

 

322

 

Data processing

 

386

 

331

 

Debit card expenses

 

293

 

262

 

Amortization

 

30

 

37

 

Advertising and marketing

 

212

 

232

 

Taxes other than payroll, property and income

 

229

 

197

 

Telephone

 

77

 

87

 

Postage

 

90

 

85

 

Loan fees

 

104

 

83

 

Other

 

608

 

483

 

Total other expenses

 

7,708

 

6,775

 

Income before taxes

 

2,427

 

2,272

 

Income taxes

 

305

 

368

 

Net income

 

$

2,122

 

$

1,904

 

Other Comprehensive Income (Loss), net of tax:

 

 

 

 

 

Change in Unrealized Gains on Securities

 

(2,160

)

1,730

 

Comprehensive Income (Loss)

 

$

(38

)

$

3,634

 

Earnings per share

 

 

 

 

 

Basic

 

$

0.77

 

$

0.70

 

Diluted

 

0.77

 

0.70

 

Dividends per share

 

0.26

 

0.25

 

 

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, 2015

 

2,720,098

 

$

12,662

 

$

64,489

 

$

791

 

$

77,942

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock issued, net of forfeitures

 

5,872

 

2

 

 

 

2

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock based compensation expense

 

 

66

 

 

 

66

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock purchased and retired

 

(339

)

(2

)

(8

)

 

(10

)

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

(1,223

)

(1,223

)

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

3,637

 

 

3,637

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends declared - $0.52 per share

 

 

 

(1,417

)

 

(1,417

)

 

 

 

 

 

 

 

 

 

 

 

 

Balances, June 30, 2015

 

2,725,631

 

$

12,728

 

$

66,701

 

$

(432

)

$

78,997

 

 


(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

 

 

 

6/30/2015

 

6/30/2014

 

Cash Flows From Operating Activities

 

 

 

 

 

Net Income

 

$

3,637

 

$

3,675

 

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

 

 

 

 

 

Depreciation and amortization

 

843

 

904

 

Securities amortization (accretion), net

 

494

 

303

 

Stock based compensation expense

 

66

 

55

 

Provision for loan losses

 

650

 

200

 

Securities available for sale gains, net

 

(251

)

(433

)

Net change in trading assets

 

(30

)

(5,242

)

Originations of loans held for sale

 

(24,562

)

(13,757

)

Proceeds from sale of loans

 

24,387

 

13,883

 

Losses (gains) on other real estate

 

59

 

(70

)

Gain on sale of mortgage loans

 

(768

)

(398

)

Write-downs of other real estate, net

 

227

 

10

 

Changes in:

 

 

 

 

 

Interest receivable

 

(362

)

364

 

Other assets

 

(469

)

1,369

 

Interest payable

 

16

 

(57

)

Other liabilities

 

(2,165

)

(1,707

)

Net cash from operating activities

 

1,772

 

(901

)

Cash Flows From Investing Activities

 

 

 

 

 

Purchases of securities available for sale

 

(20,074

)

(34,977

)

Proceeds from sales of securities

 

9,051

 

40,030

 

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

 

18,313

 

8,853

 

Net change in loans

 

(11,543

)

(27,925

)

Proceeds from redemption of Federal Home Loan Bank stock

 

 

750

 

Purchases of bank premises and equipment

 

(440

)

(705

)

Proceeds from the sale of other real estate

 

4,057

 

1,551

 

Net cash from investing activities

 

(636

)

(12,423

)

Cash Flows From Financing Activities:

 

 

 

 

 

Net change in deposits

 

(10,853

)

(19,991

)

Net change in repurchase agreements and other borrowings

 

3,689

 

3,079

 

Short-term advances from Federal Home Loan Bank

 

15,000

 

105,000

 

Payment on short-term Federal Home Loan Bank advances

 

(10,000

)

(85,000

)

Long-term advances from Federal Home Loan Bank

 

4,682

 

6,538

 

Payments on long-term Federal Home Loan Bank advances

 

(3,050

)

(2,971

)

Proceeds from issuance of common stock

 

2

 

 

Purchase of common stock

 

(10

)

(91

)

Dividends paid

 

(1,417

)

(1,361

)

Net cash from financing activities

 

(1,957

)

5,203

 

Net change in cash and cash equivalents

 

(821

)

(8,121

)

Cash and cash equivalents at beginning of period

 

17,169

 

23,160

 

Cash and cash equivalents at end of period

 

$

16,348

 

$

15,039

 

Supplemental disclosures of cash flow information

 

 

 

 

 

Cash paid during the year for:

 

 

 

 

 

Interest expense

 

$

1,924

 

$

1,917

 

Income taxes

 

 

700

 

Supplemental disclosures of non-cash investing activities

 

 

 

 

 

Real estate acquired through foreclosure

 

$

3,334

 

$

419

 

 

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, 2014.  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, 2014.

 

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 provides various liability and property damage insurance 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.

 

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.

 

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.

 

Adoption of New Accounting Standards

 

In January 2014, FASB issued Accounting Standards Update 2014-04, Receivables—Troubled Debt Restructurings by Creditors (Subtopic 310-40): Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure (a consensus of the FASB Emerging Issues Task Force). The ASU clarifies when an insubstance repossession or foreclosure occurs and a creditor is considered to have received physical possession of real estate property collateralizing a consumer mortgage loan. Specifically, the new ASU requires a creditor to reclassify a collateralized consumer mortgage loan to real estate property upon obtaining legal title to the real estate collateral, or the borrower voluntarily conveying all interest in the real estate property to the lender to satisfy the loan through a deed in lieu of foreclosure or similar legal agreement. Additional disclosures are required detailing the amount of foreclosed residential real estate property held by the creditor and the recorded investment in consumer mortgages collateralized by real estate property that are in the process of foreclosure. The new guidance is effective for annual periods, and interim reporting periods within those annual periods, beginning after December 15, 2014. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements, but will result in additional disclosures.

 

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.  However, in April 2015, the FASB voted to defer the effective date of ASU 2014-09 by one year making the amendments effective for public entities for annual reporting periods beginning after December 15, 2017, including interim periods within those reporting periods.  Companies have the option to apply ASU 2014-09 as of the original effective date.

 

In June 2014, FASB issued Accounting Standards Update 2014-11, Transfers and Servicing (Topic 860): Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures.  The amendments in this update require two accounting changes.  First, the amendments in this update change the accounting for repurchase-to-maturity transactions to secured borrowing accounting.

 

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Second, for repurchase financing arrangements, the amendments require separate accounting for a transfer of a financial asset executed contemporaneously with a repurchase agreement with the same counter-party, which will result in secured borrowing accounting for the repurchase agreement.  This update also requires certain disclosures for these types of transactions.  This ASU became effective for the Company on January 1, 2015.  The adoption of ASU 2014-11 did not have a material impact 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, 2015

 

 

 

 

 

 

 

 

 

U.S. government agencies

 

$

55,817

 

$

27

 

$

(766

)

$

55,078

 

States and political subdivisions

 

87,055

 

2,105

 

(965

)

88,195

 

Mortgage-backed - residential

 

94,988

 

176

 

(1,256

)

93,908

 

Equity securities

 

270

 

25

 

 

295

 

Total

 

$

238,130

 

$

2,333

 

$

(2,987

)

$

237,476

 

 

 

 

 

 

 

 

 

 

 

December 31, 2014

 

 

 

 

 

 

 

 

 

U.S. government agencies

 

$

61,721

 

$

1

 

$

(1,136

)

$

60,586

 

States and political subdivisions

 

86,322

 

3,234

 

(275

)

89,281

 

Mortgage-backed - residential

 

97,349

 

267

 

(918

)

96,698

 

Equity securities

 

270

 

26

 

 

296

 

Total

 

$

245,662

 

$

3,528

 

$

(2,329

)

$

246,861

 

 

The amortized cost and fair value of securities at June 30, 2015 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.

 

(in thousands)

 

 

 

Amortized

 

Fair

 

 

 

Cost

 

Value

 

Due in one year or less

 

$

40

 

$

40

 

Due after one year through five years

 

17,392

 

17,299

 

Due after five years through ten years

 

75,717

 

75,588

 

Due after ten years

 

49,723

 

50,346

 

 

 

142,872

 

143,273

 

Mortgage-backed - residential

 

94,988

 

93,908

 

Equity

 

270

 

295

 

Total

 

$

238,130

 

$

237,476

 

 

Proceeds from sales of securities during the first six months of 2015 and 2014 were $9.1 million and $40.0 million.  Gross gains of $251 thousand and $785 thousand and gross losses of $0 and $352 thousand were realized on those sales, respectively.  The tax provision related to these realized net gains was $85 and $147 thousand, respectively.

 

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Proceeds from sales of securities during the three months ending June 30, 2015 and June 30, 2014 were $9.1 million and $23.5 million.  Gross gains of $243 thousand and $477 thousand and gross losses of $0 and $232 were realized on those sales, respectively.  The tax provision related to these realized gains and losses was $83 thousand for both periods, respectively.

 

Securities with unrealized losses June 30, 2015 and at December 31, 2014 not recognized in income are as follows:

 

June 30, 2015

 

 

 

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

 

$

8,873

 

$

(66

)

$

36,854

 

$

(700

)

$

45,727

 

$

(766

)

States and municipals

 

19,875

 

(414

)

9,126

 

(551

)

29,001

 

(965

)

Mortgage-backed - residential

 

59,964

 

(772

)

14,788

 

(484

)

74,752

 

(1,256

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total temporarily impaired

 

$

88,712

 

$

(1,252

)

$

60,768

 

$

(1,735

)

$

149,480

 

$

(2,987

)

 

December 31, 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

 

$

12,528

 

$

(176

)

$

45,066

 

$

(960

)

$

57,594

 

$

(1,136

)

States and municipals

 

5,011

 

(27

)

9,738

 

(248

)

14,749

 

(275

)

Mortgage-backed - residential

 

46,685

 

(572

)

18,747

 

(346

)

65,432

 

(918

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total temporarily impaired

 

$

64,224

 

$

(775

)

$

73,551

 

$

(1,554

)

$

137,775

 

$

(2,329

)

 

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 $5.4 million are primarily comprised of municipal securities which are held for a minimal period of time.

 

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3. LOANS

 

Loans at period-end are as follows:

(in thousands)

 

 

 

6/30/15

 

12/31/14

 

 

 

 

 

 

 

Commercial

 

$

50,236

 

$

47,185

 

Real estate construction

 

21,320

 

16,938

 

Real estate mortgage:

 

 

 

 

 

1-4 family residential

 

196,215

 

189,458

 

Multi-family residential

 

34,121

 

34,415

 

Non-farm & non-residential

 

158,041

 

161,822

 

Agricultural

 

68,921

 

71,345

 

Consumer

 

17,031

 

16,863

 

Other

 

200

 

279

 

Total

 

$

546,085

 

$

538,305

 

 

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

 

 

 

Six Months Ended June 30, 2015

 

 

 

(in thousands)

 

 

 

Beginning

 

 

 

 

 

 

 

Ending

 

 

 

Balance

 

Charge-offs

 

Recoveries

 

Provision

 

Balance

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

$

339

 

$

25

 

$

 

$

85

 

$

399

 

Real estate Construction

 

446

 

 

2

 

28

 

476

 

Real estate mortgage:

 

 

 

 

 

 

 

 

 

 

 

1-4 family residential

 

1,829

 

152

 

5

 

125

 

1,807

 

Multi-family residential

 

495

 

94

 

2

 

39

 

442

 

Non-farm & non-residential

 

813

 

 

 

261

 

1,074

 

Agricultural

 

998

 

242

 

12

 

(190

)

578

 

Consumer

 

520

 

163

 

27

 

150

 

534

 

Other

 

32

 

493

 

409

 

107

 

55

 

Unallocated

 

540

 

 

 

45

 

585

 

 

 

$

6,012

 

$

1,169

 

$

457

 

$

650

 

$

5,950

 

 

 

 

Three Months Ended June 30, 2015

 

 

 

(in thousands)

 

 

 

Beginning

 

 

 

 

 

 

 

Ending

 

 

 

Balance

 

Charge-offs

 

Recoveries

 

Provision

 

Balance

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

$

340

 

$

 

$

 

$

59

 

$

399

 

Real estate Construction

 

438

 

 

 

38

 

476

 

Real estate mortgage:

 

 

 

 

 

 

 

 

 

 

 

1-4 family residential

 

1,825

 

120

 

2

 

100

 

1,807

 

Multi-family residential

 

499

 

94

 

2

 

35

 

442

 

Non-farm & non-residential

 

1,030

 

 

 

44

 

1,074

 

Agricultural

 

723

 

 

11

 

(156

)

578

 

Consumer

 

497

 

82

 

12

 

107

 

534

 

Other

 

34

 

251

 

200

 

72

 

55

 

Unallocated

 

534

 

 

 

51

 

585

 

 

 

$

5,920

 

$

547

 

$

227

 

$

350

 

$

5,950

 

 

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Table of Contents

 

 

 

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

 

 

The following tables present the balance in the allowance for loan losses and the recorded investment (excluding accrued interest receivable amounting to $2.4 million as of June 30, 2015 and $2.0 million at December 31, 2014) in loans by portfolio segment and based on impairment method as of June 30, 2015 and December 31, 2014:

 

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Table of Contents

 

As of June 30, 2015

(in thousands)

 

 

 

Individually

 

Collectively

 

 

 

 

 

Evaluated for

 

Evaluated for

 

 

 

 

 

Impairment

 

Impairment

 

Total

 

Allowance for Loan Losses:

 

 

 

 

 

 

 

Commercial

 

$

 

$

399

 

$

399

 

Real estate construction

 

 

476

 

476

 

Real estate mortgage

 

 

 

 

 

 

 

1-4 family residential

 

170

 

1,637

 

1,807

 

Multi-family residential

 

 

442

 

442

 

Non-farm & non-residential

 

259

 

815

 

1,074

 

Agricultural

 

269

 

309

 

578

 

Consumer

 

 

534

 

534

 

Other

 

 

55

 

55

 

Unallocated

 

 

585

 

585

 

 

 

$

698

 

$

5,252

 

$

5,950

 

Loans:

 

 

 

 

 

 

 

Commercial

 

$

 

$

50,236

 

$

50,236

 

Real estate construction

 

 

21,320

 

21,320

 

Real estate mortgage:

 

 

 

 

 

 

 

1-4 family residential

 

1,979

 

194,236

 

196,215

 

Multi-family residential

 

 

34,121

 

34,121

 

Non-farm & non-residential

 

2,922

 

155,119

 

158,041

 

Agricultural

 

4,265

 

64,656

 

68,921

 

Consumer

 

 

17,031

 

17,031

 

Other

 

 

200

 

200

 

 

 

$

9,166

 

$

536,919

 

$

546,085

 

 

As of December 31, 2014

(in thousands)

 

 

 

Individually

 

Collectively

 

 

 

 

 

Evaluated for

 

Evaluated for

 

 

 

 

 

Impairment

 

Impairment

 

Total

 

Allowance for Loan Losses:

 

 

 

 

 

 

 

Commercial

 

$

 

$

339

 

$

339

 

Real estate construction

 

 

446

 

446

 

Real estate mortgage:

 

 

 

 

 

 

 

1-4 family residential

 

56

 

1,773

 

1,829

 

Multi-family residential

 

94

 

401

 

495

 

Non-farm & non-residential

 

136

 

677

 

813

 

Agricultural

 

712

 

286

 

998

 

Consumer

 

 

520

 

520

 

Other

 

 

32

 

32

 

Unallocated

 

 

540

 

540

 

 

 

$

998

 

$

5,014

 

$

6,012

 

Loans:

 

 

 

 

 

 

 

Commercial

 

$

 

$

47,185

 

$

47,185

 

Real estate construction

 

 

16,938

 

16,938

 

Real estate mortgage:

 

 

 

 

 

 

 

1-4 family residential

 

2,098

 

187,360

 

189,458

 

Multi-family residential

 

264

 

34,151

 

34,415

 

Non-farm & non-residential

 

2,958

 

158,864

 

161,822

 

Agricultural

 

8,479

 

62,866

 

71,345

 

Consumer

 

 

16,863

 

16,863

 

Other

 

 

279

 

279

 

 

 

$

13,799

 

$

524,506

 

$

538,305

 

 

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Table of Contents

 

The following table presents loans individually evaluated for impairment by class of loans as of and for the six months ended June 30, 2015 (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:

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate mortgage:

 

 

 

 

 

 

 

 

 

 

 

 

 

1-4 family residential

 

1,345

 

1,345

 

 

1,524

 

42

 

42

 

Agricultural

 

205

 

205

 

 

362

 

27

 

27

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

With an allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate mortgage:

 

 

 

 

 

 

 

 

 

 

 

 

 

1-4 family residential

 

634

 

634

 

170

 

556

 

10

 

10

 

Non-farm & non-residential

 

2,922

 

2,922

 

259

 

2,940

 

59

 

59

 

Multi-family residential

 

 

 

 

119

 

 

 

Agricultural

 

4,060

 

4,060

 

269

 

5,215

 

 

 

Consumer

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

Total

 

$

9,166

 

$

9,166

 

$

698

 

$

10,716

 

$

138

 

$

138

 

 

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

 

15



Table of Contents

 

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

 

 

 

 

 

Year to Date

 

Year to Date

 

 

 

Average

 

Interest

 

Cash Basis

 

 

 

Recorded

 

Income

 

Interest

 

 

 

Investment

 

Recognized

 

Recognized

 

 

 

 

 

 

 

 

 

With no related allowance recorded:

 

 

 

 

 

 

 

Real estate mortgage:

 

 

 

 

 

 

 

1-4 family residential

 

1,002

 

 

 

Non-farm & non-residential

 

267

 

 

 

 

Agricultural

 

2,684

 

80

 

80

 

 

 

 

 

 

 

 

 

With an allowance recorded:

 

 

 

 

 

 

 

Real estate mortgage:

 

 

 

 

 

 

 

1-4 family residential

 

1,991

 

44

 

44

 

Multi-family residential

 

323

 

5

 

5

 

Non-farm & non-residential

 

3,043

 

73

 

73

 

Agricultural

 

5,034

 

19

 

19

 

 

 

 

 

 

 

 

 

Total

 

$

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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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, 2014 (in thousands):

 

 

 

Unpaid

 

 

 

Allowance for

 

Average

 

Interest

 

Cash Basis

 

 

 

Principal

 

Recorded

 

Loan Losses

 

Recorded

 

Income

 

Interest

 

 

 

Balance

 

Investment

 

Allocated

 

Investment

 

Recognized

 

Recognized