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EX-32.1 - EXHIBIT 32.1 - WILSON BANK HOLDING COwbhc09302015ex321.htm
EX-31.1 - EXHIBIT 31.1 - WILSON BANK HOLDING COwbhc09302015ex311.htm
EX-32.2 - EXHIBIT 32.2 - WILSON BANK HOLDING COwbhc09302015ex322.htm
EX-31.2 - EXHIBIT 31.2 - WILSON BANK HOLDING COwbhc09302015ex312.htm

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
(Mark One)
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2015
or 
¨
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 0-20402
 

WILSON BANK HOLDING COMPANY
(Exact name of registrant as specified in its charter) 
 
 
Tennessee
 
62-1497076
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
 
623 West Main Street, Lebanon, TN
 
37087
(Address of principal executive offices)
 
(Zip Code)
 (615) 444-2265
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
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   ý    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ý    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
o
Accelerated filer
x
 
 
 
 
Non-accelerated filer
o (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  ¨    No  ý
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Common stock outstanding: 7,650,645 shares at November 9, 2015
 



Part I:
 
  
 
 
 
 
 
Item 1.
 
  
 
 
 
 
 
The unaudited consolidated financial statements of the Company and its subsidiary are as follows:
  
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
  
 
 
 
 
 
Item 2.
 
  
 
 
 
 
 
Item 3.
 
  
 
 
 
 
 
 
 
Disclosures required by Item 3 are incorporated by reference to Management’s Discussion and Analysis of Financial Condition and Results of Operations.
  
 
 
 
 
 
 
Item 4.
 
  
 
 
 
 
 
Part II:
 
  
 
 
 
 
 
Item 1.
 
  
 
 
 
 
 
Item 1A.
 
  
 
 
 
 
 
Item 2.
 
  
 
 
 
 
 
Item 3.
 
  
 
 
 
 
 
Item 4.
 
  
 
 
 
 
 
Item 5.
 
  
 
 
 
 
 
Item 6.
 
  
 
 
 
 
 
  
EX-31.1 SECTION 302 CERTIFICATION OF THE CEO
  
 
EX-31.2 SECTION 302 CERTIFICATION OF THE CFO
  
 
EX-32.1 SECTION 906 CERTIFICATION OF THE CEO
  
 
EX-32.2 SECTION 906 CERTIFICATION OF THE CFO
  
 
EX -101 INTERACTIVE DATA FILE
  
 



Part I. Financial Information
Item 1. Financial Statements
WILSON BANK HOLDING COMPANY
Consolidated Balance Sheets
September 30, 2015 and December 31, 2014
(Unaudited)
 
 
September 30,
2015
 
December 31,
2014
 
(Dollars in Thousands
Except Share Amounts)
Assets
 
 
 
Loans
$
1,467,036

 
$
1,352,437

Less: Allowance for loan losses
(22,702
)
 
(22,572
)
Net loans
1,444,334

 
1,329,865

Securities:
 
 
 
Held to maturity, at cost (market value $25,958 and $28,400, respectively)
25,790

 
28,123

Available-for-sale, at market (amortized cost $292,613 and $347,520, respectively)
293,051

 
346,420

Total securities
318,841

 
374,543

Loans held for sale
13,437

 
9,466

Restricted equity securities
3,012

 
3,012

Federal funds sold
15,405

 
16,005

Total earning assets
1,795,029

 
1,732,891

Cash and due from banks
66,191

 
52,002

Bank premises and equipment, net
41,307

 
40,123

Accrued interest receivable
5,340

 
5,463

Deferred income tax asset
9,169

 
9,171

Other real estate
6,533

 
7,298

Bank owned life insurance and annuity contracts
26,560

 
17,331

Other assets
4,442

 
4,158

Goodwill
4,805

 
4,805

Total assets
$
1,959,376

 
$
1,873,242

Liabilities and Stockholders’ Equity
 
 
 
Deposits
$
1,723,827

 
$
1,660,270

Securities sold under repurchase agreements
2,854

 
3,437

Accrued interest and other liabilities
14,153

 
8,643

Total liabilities
1,740,834

 
1,672,350

Stockholders’ equity:
 
 
 
Common stock, $2.00 par value; authorized 15,000,000 shares, issued and outstanding 7,650,645 and 7,571,968 shares, respectively
15,301

 
15,144

Additional paid-in capital
61,283

 
57,709

Retained earnings
141,688

 
128,718

Net unrealized gains (losses) on available-for-sale securities, net of income taxes of $168 and $421, respectively
270

 
(679
)
Total stockholders’ equity
218,542

 
200,892

Total liabilities and stockholders’ equity
$
1,959,376

 
$
1,873,242


See accompanying notes to consolidated financial statements (unaudited)

3



WILSON BANK HOLDING COMPANY
Consolidated Statements of Earnings
Three Months and Nine Months Ended September 30, 2015 and 2014
(Unaudited)
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2015
 
2014
 
2015
 
2014
 
(Dollars in Thousands
Except Per Share Amounts)
Interest income:
 
 
 
 
 
 
 
Interest and fees on loans
$
18,262

 
$
17,069

 
$
53,123

 
$
49,456

Interest and dividends on securities:
 
 
 
 
 
 
 
Taxable securities
1,356

 
1,592

 
4,492

 
4,832

Exempt from Federal income taxes
208

 
173

 
551

 
505

Interest on loans held for sale
104

 
83

 
269

 
196

Interest on Federal funds sold
22

 
33

 
100

 
120

Interest and dividends on restricted securities
30

 
30

 
91

 
91

Total interest income
19,982

 
18,980

 
58,626

 
55,200

Interest expense:
 
 
 
 
 
 
 
Interest on negotiable order of withdrawal accounts
389

 
406

 
1,143

 
1,197

Interest on money market and savings accounts
449

 
588

 
1,447

 
1,756

Interest on time deposits
1,275

 
1,426

 
3,925

 
4,398

Interest on federal funds purchased

 
1

 
1

 
1

Interest on securities sold under repurchase agreements
1

 
5

 
5

 
19

Total interest expense
2,114

 
2,426

 
6,521

 
7,371

Net interest income before provision for loan losses
17,868

 
16,554

 
52,105

 
47,829

Provision for loan losses
109

 
87

 
265

 
364

Net interest income after provision for loan losses
17,759

 
16,467

 
51,840

 
47,465

Non-interest income:
 
 
 
 
 
 
 
Service charges on deposit accounts
1,401

 
1,174

 
3,755

 
3,139

Other fees and commissions
2,768

 
2,314

 
7,758

 
6,693

Gain on sale of loans
1,061

 
796

 
3,057

 
1,926

Gain on sale of premises and equipment

 

 

 
7

Gain on sale of other real estate
259

 

 
305

 

Gain on sale of securities
19

 
5

 
185

 
293

Total non-interest income
5,508

 
4,289

 
15,060

 
12,058

Non-interest expense:
 
 
 
 
 
 
 
Salaries and employee benefits
7,802

 
6,926

 
23,348

 
20,462

Occupancy expenses, net
944

 
858

 
2,542

 
2,250

Furniture and equipment expense
538

 
447

 
1,535

 
1,286

Data processing expense
685

 
574

 
1,773

 
1,713

Directors’ fees
169

 
166

 
526

 
512

Other operating expenses
3,245

 
2,979

 
8,239

 
8,908

Loss on the sale of premises and equipment
22

 

 
30

 

Loss on sale of other assets

 

 
2

 
3

Loss on sale of other real estate

 
34

 

 
190

Total non-interest expense
13,405

 
11,984

 
37,995

 
35,324

Earnings before income taxes
9,862

 
8,772

 
28,905

 
24,199

Income taxes
3,774

 
3,421

 
11,000

 
9,522

Net earnings
$
6,088

 
$
5,351

 
$
17,905

 
$
14,677

Weighted average number of shares outstanding-basic
7,637,448

 
7,559,136

 
7,615,096

 
7,538,860

Weighted average number of shares outstanding-diluted
7,640,796

 
7,563,354

 
7,618,530

 
7,543,210

Basic earnings per common share
$
0.80

 
$
0.71

 
$
2.35

 
$
1.95

Diluted earnings per common share
$
0.80

 
$
0.71

 
$
2.35

 
$
1.95

Dividends per share
$
0.35

 
$
0.30

 
$
0.65

 
$
0.60

See accompanying notes to consolidated financial statements (unaudited)

4



WILSON BANK HOLDING COMPANY
Consolidated Statements of Comprehensive Earnings
Three Months and Nine Months Ended September 30, 2015 and 2014
(Unaudited)
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2015
 
2014
 
2015
 
2014
 
(In Thousands)
Net earnings
$
6,088

 
$
5,351

 
$
17,905

 
$
14,677

Other comprehensive earnings (loss), net of tax:
 
 
 
 
 
 
 
Unrealized gains (losses) on available-for-sale securities arising during period, net of taxes of $623, $417, $660 and $1,320, respectively
1,005

 
(674
)
 
1,063

 
2,126

Reclassification adjustment for net gains included in net earnings, net of taxes of $7, $2, $71, and $112, respectively
(12
)
 
(3
)
 
(114
)
 
(181
)
Other comprehensive earnings (loss)
993

 
(677
)
 
949

 
1,945

Comprehensive earnings
$
7,081

 
$
4,674

 
$
18,854

 
$
16,622


See accompanying notes to consolidated financial statements (unaudited)


5



WILSON BANK HOLDING COMPANY
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 2015 and 2014
Increase (Decrease) in Cash and Cash Equivalents
(Unaudited) 
 
Nine Months Ended September 30,
 
2015
 
2014
 
(In Thousands)
Cash flows from operating activities:
 
 
 
Interest received
$
60,239

 
$
56,628

Fees and commissions received
11,513

 
9,832

Proceeds from sale of loans held for sale
120,450

 
74,251

Origination of loans held for sale
(121,364
)
 
(74,084
)
Interest paid
(6,755
)
 
(7,666
)
Cash paid to suppliers and employees
(31,432
)
 
(29,076
)
Income taxes paid
(11,499
)
 
(10,132
)
Net cash provided by operating activities
21,152

 
19,753

Cash flows from investing activities:
 
 
 
Proceeds from maturities, calls, and principal payments of held-to-maturity securities
2,663

 
1,452

Proceeds from maturities, calls, and principal payments of available-for-sale securities
64,972

 
51,317

Proceeds from the sale of available-for-sale securities
42,844

 
49,021

Purchase of held-to-maturity securities
(527
)
 
(3,609
)
Purchase of available-for-sale securities
(54,017
)
 
(107,535
)
Loans made to customers, net of repayments
(114,875
)
 
(101,315
)
Purchase of Bank owned life insurance
(8,464
)
 
(5,000
)
Purchase of premises and equipment
(3,118
)
 
(3,024
)
Proceeds from sale of premises and equipment

 
7

Proceeds from sale of other real estate
1,207

 
2,419

Proceeds from sale of other assets
12

 
1

Net cash used in investing activities
(69,303
)
 
(116,266
)
Cash flows from financing activities:
 
 
 
Net increase in non-interest bearing, savings and NOW deposit accounts
83,403

 
103,666

Net decrease in time deposits
(19,846
)
 
(33,649
)
Net decrease in securities sold under repurchase agreements
(583
)
 
(4,230
)
Dividends paid
(4,935
)
 
(4,510
)
Proceeds from sale of common stock pursuant to dividend reinvestment
3,511

 
3,204

Repurchase of common stock

 
(94
)
Proceeds from exercise of stock options
190

 
156

Net cash provided by financing activities
61,740

 
64,543

Net increase (decrease) in cash and cash equivalents
13,589

 
(31,970
)
Cash and cash equivalents at beginning of period
68,007

 
111,504

Cash and cash equivalents at end of period
$
81,596

 
$
79,534

 
See accompanying notes to consolidated financial statements (unaudited)





6



WILSON BANK HOLDING COMPANY
Consolidated Statements of Cash Flows, Continued
Nine Months Ended September 30, 2015 and 2014
Increase (Decrease) in Cash and Cash Equivalents
(Unaudited) 
 
Nine Months Ended September 30,
 
2015
 
2014
 
(In Thousands)
Reconciliation of net earnings to net cash provided by operating activities:
 
 
 
Net earnings
$
17,905

 
$
14,677

Adjustments to reconcile net earnings to net cash provided by operating activities:
 
 
 
Depreciation, amortization, and accretion
3,394

 
3,159

Provision for loan losses
265

 
364

Loss (gain) on sale and writedown of other real estate
(305
)
 
190

Security gains
(185
)
 
(293
)
Stock option compensation
30

 
32

Increase in taxes payable
88

 
89

Loss on the sale of other assets
2

 
3

Loss (gain) on the sale of premises and equipment
30

 
(7
)
Increase in loans held for sale
(3,971
)
 
(1,759
)
Increase in deferred tax assets
(587
)
 
(699
)
Increase in other assets, net
(1,059
)
 
(1,191
)
Decrease (increase) in interest receivable
123

 
(123
)
Increase in other liabilities
5,656

 
5,606

Decrease in interest payable
(234
)
 
(295
)
Total adjustments
$
3,247

 
$
5,076

Net cash provided by operating activities
$
21,152

 
$
19,753

Supplemental schedule of non-cash activities:
 
 
 
Unrealized gain (loss) in values of securities available-for-sale, net of taxes of $589 and $1,208 for the nine months ended September 30, 2015 and 2014, respectively
$
949

 
$
1,945

Non-cash transfers from loans to other real estate
$
1,317

 
$
424

Non-cash transfers from other real estate to loans
$
1,180

 
$
1,080

Non-cash transfers from loans to other assets
$
4

 
$
8

See accompanying notes to consolidated financial statements (unaudited)

7



WILSON BANK HOLDING COMPANY
Notes to Consolidated Financial Statements
(Unaudited)
Note 1. Summary of Significant Accounting Policies
Nature of Business — Wilson Bank Holding Company (the “Company”) is a bank holding company whose primary business is conducted by its wholly-owned subsidiary, Wilson Bank & Trust (the “Bank”). The Bank is a commercial bank headquartered in Lebanon, Tennessee. The Bank provides a full range of banking services in its primary market areas of Wilson, Davidson, Rutherford, Trousdale, Sumner, Dekalb, Putnam and Smith Counties, Tennessee.
Basis of Presentation — The accompanying unaudited, consolidated financial statements have been prepared in accordance with instructions to Form 10-Q and therefore do not include all information and footnotes necessary for a fair presentation of financial position, results of operations, and cash flows in conformity with U.S. generally accepted accounting principles. All adjustments consisting of normally recurring accruals that, in the opinion of management, are necessary for a fair presentation of the financial position and results of operations for the periods covered by the report have been included. The accompanying unaudited consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements and related notes appearing in the 2014 Annual Report previously filed on Form 10-K.
These consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary. Significant intercompany transactions and accounts are eliminated in consolidation.
Use of Estimates — The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the balance sheet date and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term include the determination of the allowance for loan losses, the valuation of deferred tax assets, determination of any impairment of intangibles, other-than-temporary impairment of securities, the valuation of other real estate, and the fair value of financial instruments. These financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2014. There have been no significant changes to the Company’s significant accounting policies as disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014.
Loans — Loans are reported at their outstanding principal balances less unearned income, the allowance for loan losses and any deferred fees or costs on originated loans. Interest income on loans is accrued based on the principal balance outstanding. Loan origination fees, net of certain loan origination costs, are deferred and recognized as an adjustment to the related loan yield using a method which approximates the interest method.
Loans are charged off when management believes that the full collectability of the loan is unlikely. As such, a loan may be partially charged-off after a “confirming event” has occurred which serves to validate that full repayment pursuant to the terms of the loan is unlikely.
Loans are placed on nonaccrual status when there is a significant deterioration in the financial condition of the borrower, which often is determined when the principal or interest is more than 90 days past due, unless the loan is both well-secured and in the process of collection. Generally, all interest accrued but not collected for loans that are placed on nonaccrual status, is reversed against current income. Interest income is subsequently recognized only to the extent cash payments are received while the loan is classified as nonaccrual, but interest income recognition is reviewed on a case-by-case basis. A nonaccrual loan is returned to accruing status once the loan has been brought current and collection is reasonably assured or the loan has been “well-secured” through other techniques. Past due status is determined based on the contractual due date per the underlying loan agreement.

All loans that are placed on nonaccrual are further analyzed to determine if they should be classified as impaired loans. At December 31, 2014 and at September 30, 2015, there were no loans classified as nonaccrual that were not also deemed to be impaired except for those loans not individually evaluated for impairment as described below. A loan is considered to be impaired when it is probable the Company will be unable to collect all principal and interest payments due in accordance with the contractual terms of the loan. This determination is made using a variety of techniques, which include a review of the borrower’s financial condition, debt-service coverage ratios, global cash flow analysis, guarantor support, other loan file information, meetings with borrowers, inspection or reappraisal of collateral and/or consultation with legal counsel as well as results of reviews of other similar industry credits (e.g. builder loans, development loans, church loans, etc). Prior to January 1, 2015, loans with an identified weakness and principal balance of $100,000 or more were subject to individual identification for impairment. During the first quarter of 2015, the Company increased the threshold for identification of individually impaired loans to $500,000, based on regulatory developments, continued improvement in loan quality

8



trends and ratios and strengthening local economies in which the Company operates. Management believes that increasing the threshold will not materially impact the calculation of the allowance for loan losses. Individually identified impaired loans are measured based on the present value of expected payments using the loan’s original effective rate as the discount rate, the loan’s observable market price, or the fair value of the collateral if the loan is collateral dependent. If the recorded investment in the impaired loan exceeds the measure of fair value, a specific valuation allowance is established as a component of the allowance for loan losses or, in the case of collateral dependent loans, the excess may be charged off. Changes to the valuation allowance are recorded as a component of the provision for loan losses. Any subsequent adjustments to present value calculations for impaired loan valuations as a result of the passage of time, such as changes in the anticipated payback period for repayment, are recorded as a component of the provision for loan losses. For loans less than $500,000, the Company assigns a valuation allowance to these loans utilizing an allocation rate equal to the allocation rate calculated for non-impaired loans of a similar type.
Allowance for Loan Losses — The allowance for loan losses is maintained at a level that management believes to be adequate to absorb probable losses in the loan portfolio. Loan losses are charged against the allowance when they are known. Subsequent recoveries are credited to the allowance. Management’s determination of the adequacy of the allowance is based on an evaluation of the portfolio, current economic conditions, volume, growth, composition of the loan portfolio, homogeneous pools of loans, risk ratings of specific loans, historical loan loss factors, loss experience of various loan segments, identified impaired loans and other factors related to the portfolio. This evaluation is performed quarterly and is inherently subjective, as it requires material estimates that are susceptible to significant change including the amounts and timing of future cash flows expected to be received on any impaired loans.
In assessing the adequacy of the allowance, we also consider the results of our ongoing independent loan review process. We undertake this process both to ascertain whether there are loans in the portfolio whose credit quality has weakened over time and to assist in our overall evaluation of the risk characteristics of the entire loan portfolio. Our loan review process includes the judgment of management, independent loan reviewers, and reviews that may have been conducted by third-party reviewers. We incorporate relevant loan review results in the loan impairment determination. In addition, regulatory agencies, as an integral part of their examination process, will periodically review the Company’s allowance for loan losses, and may require the Company to record adjustments to the allowance based on their judgment about information available to them at the time of their examinations.

Recently Adopted Accounting Pronouncements    

There were no recently issued accounting pronouncements that are expected to materially impact the Company.

9



Note 2. Loans and Allowance for Loan Losses
For financial reporting purposes, the Company classifies its loan portfolio based on the underlying collateral utilized to secure each loan. This classification is consistent with those utilized in the Quarterly Report of Condition and Income filed by the Bank with the Federal Deposit Insurance Corporation (“FDIC”).
The following schedule details the loans of the Company at September 30, 2015 and December 31, 2014:
 
(In Thousands)
 
September 30,
2015
 
December 31,
2014
Mortgage loans on real estate
 
 
 
       Residential 1-4 family
$
357,360

 
$
350,758

Multifamily
53,956

 
31,242

Commercial
603,283

 
564,965

Construction and land development
286,381

 
245,830

Farmland
34,911

 
30,236

Second mortgages
8,053

 
9,026

Equity lines of credit
47,958

 
41,496

Total mortgage loans on real estate
1,391,902

 
1,273,553

Commercial loans
27,278

 
30,000

Agricultural loans
1,524

 
1,670

Consumer installment loans
 
 
 
Personal
38,768

 
37,745

Credit cards
3,002

 
3,280

Total consumer installment loans
41,770

 
41,025

Other loans
9,700

 
10,530

 
1,472,174

 
1,356,778

Net deferred loan fees
(5,138
)
 
(4,341
)
Total loans
1,467,036

 
1,352,437

Less: Allowance for loan losses
(22,702
)
 
(22,572
)
Net Loans
$
1,444,334

 
$
1,329,865

The adequacy of the allowance for loan losses is assessed at the end of each calendar quarter. The level of the allowance is based upon evaluation of the loan portfolio, past loan loss experience, current asset quality trends, known and inherent risks in the portfolio, adverse situations that may affect the borrowers’ ability to repay (including the timing of future payment), the estimated value of any underlying collateral, composition of the loan portfolio, economic conditions, historical loss experience, industry and peer bank loan quality indications and other pertinent factors, including regulatory recommendations.


10



Transactions in the allowance for loan losses for the nine months ended September 30, 2015 and year ended December 31, 2014 are summarized as follows:

 
(In Thousands)
 
Residential
1-4 Family
 
Multifamily
 
Commercial
Real Estate
 
Construction
 
Farmland
 
Second
Mortgages
 
Equity Lines
of Credit
 
Commercial
 
Agricultural
 
Installment
and Other
 
Total
September 30, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Allowance for loan losses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
$
5,582

 
172

 
9,578

 
5,578

 
795

 
61

 
304

 
176

 
2

 
324

 
22,572

Provision
225

 
125

 
(1,259
)
 
900

 
(185
)
 
72

 
49

 
32

 
4

 
302

 
265

Charge-offs
(156
)
 

 
(43
)
 
(1
)
 

 
(45
)
 
(6
)
 

 
(2
)
 
(465
)
 
(718
)
Recoveries
37

 

 
315

 
32

 
1

 

 
1

 
6

 
2

 
189

 
583

Ending balance
$
5,688

 
297

 
8,591

 
6,509

 
611

 
88

 
348

 
214

 
6

 
350

 
22,702

Ending balance individually evaluated for impairment
$
208

 

 
711

 

 

 

 

 

 

 

 
919

Ending balance collectively evaluated for impairment
$
5,480

 
297

 
7,880

 
6,509

 
611

 
88

 
348

 
214

 
6

 
350

 
21,783

Ending balance loans acquired with deteriorated credit quality
$

 

 

 

 

 

 

 

 

 

 

Loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ending balance
$
357,360

 
53,956

 
603,283

 
286,381

 
34,911

 
8,053

 
47,958

 
27,278

 
1,524

 
51,470

 
1,472,174

Ending balance individually evaluated for impairment
$
1,378

 

 
8,703

 

 
575

 

 

 

 

 

 
10,656

Ending balance collectively evaluated for impairment
$
355,982

 
53,956

 
594,580

 
286,381

 
34,336

 
8,053

 
47,958

 
27,278

 
1,524

 
51,470

 
1,461,518

Ending balance loans acquired with deteriorated credit quality
$

 

 

 

 

 

 

 

 

 

 


11



 
Residential
1-4 Family
 
Multifamily
 
Commercial
Real Estate
 
Construction
 
Farmland
 
Second
Mortgages
 
Equity Lines
of Credit
 
Commercial
 
Agricultural
 
Installment
and Other
 
Total
December 31, 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Allowance for loan losses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
$
4,935

 
77

 
10,918

 
5,159

 
618

 
205

 
300

 
395

 
7

 
321

 
22,935

Provision
1,059

 
95

 
(378
)
 
102

 
176

 
(164
)
 
3

 
(641
)
 
(10
)
 
256

 
498

Charge-offs
(468
)
 

 
(968
)
 
(7
)
 

 

 

 
(37
)
 

 
(387
)
 
(1,867
)
Recoveries
56

 

 
6

 
324

 
1

 
20

 
1

 
459

 
5

 
134

 
1,006

Ending balance
$
5,582

 
172

 
9,578

 
5,578

 
795

 
61

 
304

 
176

 
2

 
324

 
22,572

Ending balance individually evaluated for impairment
$
376

 

 
1,135

 

 
120

 

 

 

 

 

 
1,631

Ending balance collectively evaluated for impairment
$
5,206

 
172

 
8,443

 
5,578

 
675

 
61

 
304

 
176

 
2

 
324

 
20,941

Ending balance loans acquired with deteriorated credit quality
$

 

 

 

 

 

 

 

 

 

 

Loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ending balance
$
350,758

 
31,242

 
564,965

 
245,830

 
30,236

 
9,026

 
41,496

 
30,000

 
1,670

 
51,555

 
1,356,778

Ending balance individually evaluated for impairment
$
3,061

 

 
6,455

 

 
701

 
280

 

 

 

 

 
10,497

Ending balance collectively evaluated for impairment
$
347,697

 
31,242

 
558,510

 
245,830

 
29,535

 
8,746

 
41,496

 
30,000

 
1,670

 
51,555

 
1,346,281

Ending balance loans acquired with deteriorated credit quality
$

 

 

 

 

 

 

 

 

 

 


Impaired Loans
At September 30, 2015, the Company had certain impaired loans of $4,868,000 which were on non-accruing interest status. At December 31, 2014, the Company had certain impaired loans of $574,000 which were on non-accruing interest status. In each case, at the date such loans were placed on nonaccrual status, the Company reversed all previously accrued interest income against current year earnings. The following table presents the Company’s impaired loans at September 30, 2015 and December 31, 2014.
 











12



 
In Thousands
 
Recorded
Investment
 
Unpaid
Principal
Balance
 
Related
Allowance
 
Average
Recorded
Investment
 
Interest
Income
Recognized
September 30, 2015
 
 
 
 
 
 
 
 
 
With no related allowance recorded:
 
 
 
 
 
 
 
 
 
Residential 1-4 family
$
629

 
622

 

 
754

 
29

Multifamily

 

 

 

 

Commercial real estate
4,293

 
4,293

 

 
5,183

 
5

Construction

 

 

 

 

Farmland
575

 
575

 

 
383

 

Second mortgages

 

 

 

 

Equity lines of credit

 

 

 

 

Commercial

 

 

 

 

Agricultural

 

 

 

 

 
$
5,497

 
5,490

 

 
6,320

 
34

With allowance recorded:
 
 
 
 
 
 
 
 
 
Residential 1-4 family
$
764

 
756

 
208

 
768

 
32

Multifamily

 

 

 

 

Commercial real estate
4,420

 
6,113

 
711

 
4,558

 
147

Construction

 

 

 

 

Farmland

 

 

 
191

 

Second mortgages

 

 

 

 

Equity lines of credit

 

 

 

 

Commercial

 

 

 

 

Agricultural

 

 

 

 

 
$
5,184

 
6,869

 
919

 
5,517

 
179

Total
 
 
 
 
 
 
 
 
 
Residential 1-4 family
$
1,393

 
1,378

 
208

 
1,522

 
61

Multifamily

 

 

 

 

Commercial real estate
8,713

 
10,406

 
711

 
9,741

 
152

Construction

 

 

 

 

Farmland
575

 
575

 

 
574

 

Second mortgages

 

 

 

 

Equity lines of credit

 

 

 

 

Commercial

 

 

 

 

Agricultural

 

 

 

 

 
$
10,681

 
12,359

 
919

 
11,837

 
213


13



 
In Thousands
 
Recorded
Investment
 
Unpaid
Principal
Balance
 
Related
Allowance
 
Average
Recorded
Investment
 
Interest
Income
Recognized
December 31, 2014
 
 
 
 
 
 
 
 
 
With no related allowance recorded:
 
 
 
 
 
 
 
 
 
Residential 1-4 family
$
1,891

 
1,854

 

 
1,081

 
114

Multifamily

 

 

 

 

Commercial real estate
1,352

 
2,188

 

 
5,984

 
95

Construction

 

 

 
673

 

Farmland

 

 

 

 

Second mortgages
281

 
280

 

 
222

 
3

Equity lines of credit

 

 

 

 

Commercial

 

 

 

 

Agricultural, installment and other

 

 

 

 

 
$
3,524

 
4,322

 

 
7,960

 
212

With allowance recorded:
 
 
 
 
 
 
 
 
 
Residential 1-4 family
$
1,219

 
1,207

 
376

 
1,363

 
61

Multifamily

 

 

 

 

Commercial real estate
5,131

 
6,811

 
1,135

 
5,755

 
202

Construction

 

 

 
1,815

 

Farmland
702

 
701

 
120

 
767

 
7

Second mortgages

 

 

 

 

Equity lines of credit

 

 

 

 

Commercial

 

 

 

 

Agricultural, installment and other

 

 

 

 

 
$
7,052

 
8,719

 
1,631

 
9,700

 
270

Total:
 
 
 
 
 
 
 
 
 
Residential 1-4 family
$
3,110

 
3,061

 
376

 
2,444

 
175

Multifamily

 

 

 

 

Commercial real estate
6,483

 
8,999

 
1,135

 
11,739

 
297

Construction

 

 

 
2,488

 

Farmland
702

 
701

 
120

 
767

 
7

Second mortgages
281

 
280

 

 
222

 
3

Equity lines of credit

 

 

 

 

Commercial

 

 

 

 

Agricultural, installment and other

 

 

 

 

 
$
10,576

 
13,041

 
1,631

 
17,660

 
482


14



Impaired loans also include loans that the Company may elect to formally restructure due to the weakening credit status of a borrower such that the restructuring may facilitate a repayment plan that minimizes the potential losses that the Company may have to otherwise incur. These loans are classified as impaired loans and, if on non-accruing status as of the date of restructuring, the loans are included in the nonperforming loan balances. Not included in nonperforming loans are loans that have been restructured that were performing as of the restructure date.

Troubled Debt Restructuring
The Bank’s loan portfolio includes certain loans that have been modified in a troubled debt restructuring (TDR), where economic concessions have been granted to borrowers who have experienced or are expected to experience financial difficulties. These concessions typically result from the Bank’s loss mitigation activities and could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance or other actions. Certain TDRs are classified as nonperforming at the time of restructure and may only be returned to performing status after considering the borrower’s sustained repayment performance for a reasonable period, generally six months.
The following table summarizes the carrying balances of TDR’s at September 30, 2015 and December 31, 2014.
 
 
September 30, 2015
 
December 31, 2014
 
(In thousands)
Performing TDRs
$
4,246

 
$
4,443

Nonperforming TDRs
1,968

 
3,597

Total TDRS
$
6,214

 
$
8,040


The following table outlines the amount of each troubled debt restructuring categorized by loan classification for the nine months ended September 30, 2015 and the year ended December 31, 2014 (in thousands, except for number of contracts): 
 
September 30, 2015
 
December 31, 2014
 
Number
of
Contracts
 
Pre
Modification
Outstanding
Recorded
Investment
 
Post
Modification
Outstanding
Recorded
Investment,
Net of Related
Allowance
 
Number
of
Contracts
 
Pre
Modification
Outstanding
Recorded
Investment
 
Post
Modification
Outstanding
Recorded
Investment,
Net of Related
Allowance
Residential 1-4 family
1

 
$
56

 
$
56

 
6

 
$
1,346

 
$
1,218

Multifamily

 

 

 

 

 

Commercial real estate

 

 

 
2

 
1,020

 
1,020

Construction

 

 

 

 

 

Farmland

 

 

 

 

 

Second mortgages

 

 

 

 

 

Equity lines of credit

 

 

 

 

 

Commercial

 

 

 
1

 
3

 
3

Agricultural, installment and other
1

 
2

 
2

 
1

 
1

 
1

Total
2

 
$
58

 
$
58

 
10

 
$
2,370

 
$
2,242


15



As of September 30, 2015, the Company had one large loan relationship in the amount of $1.0 million that had been previously classified as troubled debt restructuring subsequently default within twelve months of restructuring. As of December 31, 2014, the Company did not have any loans previously classified as troubled debt restructuring subsequently default within twelve months of restructuring. A default is defined as an occurrence which violates the terms of the receivable’s contract.

As of September 30, 2015 and December 31, 2014, the Company’s recorded investment in consumer mortgage loans in the process of foreclosure amounted to $432,000 and $639,000, respectively.
Potential problem loans, which include nonperforming loans, amounted to approximately $28.6 million at September 30, 2015 compared to $35.8 million at December 31, 2014. Potential problem loans represent those loans with a well-defined weakness and where information about possible credit problems of borrowers has caused management to have serious doubts about the borrower’s ability to comply with present repayment terms. This definition is believed to be substantially consistent with the standards established by the FDIC, the Bank’s primary federal regulator, for loans classified as special mention, substandard, or doubtful.
The following summary presents our loan balances by primary loan classification and the amount classified within each risk rating category. Pass rated loans include all credits other than those included in special mention, substandard and doubtful which are defined as follows:
 
Special mention loans have potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the Bank’s credit position at some future date.
Substandard loans are inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Assets so classified must have a well-defined weakness or weaknesses that jeopardize liquidation of the debt. Substandard loans are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.
Doubtful loans have all the characteristics of substandard loans with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. The Bank considers all doubtful loans to be impaired and places the loan on nonaccrual status.
The following table is a summary of the Bank’s loan portfolio by risk rating: 

16



 
(In Thousands)
 
Residential
1-4 Family
 
Multifamily
 
Commercial
Real Estate
 
Construction
 
Farmland
 
Second
Mortgages
 
Equity
Lines
of Credit
 
Commercial
 
Agricultural
 
Installment
and Other
 
Total
September 30, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Credit Risk Profile by Internally Assigned Rating
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Pass
$
347,897

 
53,956

 
586,317

 
285,934

 
33,888

 
7,488

 
47,949

 
27,267

 
1,524

 
51,372

 
1,443,592

Special Mention
5,500

 

 
7,721

 
401

 
32

 
290

 

 
11

 

 
6

 
13,961

Substandard
3,963

 

 
9,245

 
46

 
991

 
275

 
9

 

 

 
92

 
14,621

Doubtful

 

 

 

 

 

 

 

 

 

 

Total
$
357,360

 
53,956

 
603,283

 
286,381

 
34,911

 
8,053

 
47,958

 
27,278

 
1,524

 
51,470

 
1,472,174

December 31, 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Credit Risk Profile by Internally Assigned Rating
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Pass
$
339,529

 
31,242

 
545,301

 
243,416

 
29,260

 
8,007

 
41,274

 
29,893