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Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 


 

FORM 10-Q

 


 

(Mark One)

 

x      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Quarterly Period Ended June 30, 2016

 

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: 001-33126

 


 

CITIZENS FIRST CORPORATION

(Exact name of registrant as specified in its charter)

 


 

Kentucky

 

61-0912615

(State or other jurisdiction of
incorporation or organization)

 

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

 

 

 

1065 Ashley Street, Bowling Green, Kentucky

 

42103

(Address of principal executive offices)

 

(Zip Code)

 

(270) 393-0700

(Registrant’s telephone number, including area code)

 


 

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 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 (§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 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  o

 

 

 

Non-accelerated filer  o

 

Smaller reporting company  x

 

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

 

Indicate the number of shares outstanding of each of the issuer’s class of common stock, as of the latest practicable date.

 

2,000,087 shares of Common Stock, no par value, were outstanding at August 11, 2016.

 

 

 




Table of Contents

 

Part 1. Financial Information

Item 1. Financial Statements

 

Citizens First Corporation

Consolidated Balance Sheets

 

 

 

(In Thousands, Except Share Data)

 

 

 

June 30,
2016

 

December 31,
2015

 

 

 

Unaudited

 

 

 

Assets

 

 

 

 

 

Cash and due from financial institutions

 

$

6,259

 

$

8,865

 

Federal funds sold

 

1,095

 

6,390

 

Cash and cash equivalents

 

7,354

 

15,255

 

Interest-bearing deposits in other financial institutions

 

2,728

 

2,728

 

Available-for-sale securities

 

58,541

 

60,200

 

Loans held for sale

 

118

 

 

Loans, net of allowance for loan losses of $4,949 and $4,916 at June 30, 2016 and December 31, 2015, respectively

 

342,064

 

325,866

 

Premises and equipment, net

 

9,543

 

9,998

 

Bank owned life insurance (BOLI)

 

8,262

 

8,174

 

Federal Home Loan Bank (FHLB) stock, at cost

 

2,025

 

2,025

 

Accrued interest receivable

 

1,536

 

1,680

 

Deferred income taxes

 

1,177

 

1,328

 

Goodwill

 

4,097

 

4,097

 

Core deposit intangible

 

230

 

265

 

Other real estate owned

 

66

 

100

 

Other assets

 

514

 

465

 

Total Assets

 

$

438,255

 

$

432,181

 

Liabilities

 

 

 

 

 

Deposits

 

 

 

 

 

Noninterest bearing

 

$

49,623

 

$

48,522

 

Savings, NOW and money market

 

163,951

 

168,335

 

Time

 

139,859

 

153,531

 

Total deposits

 

353,433

 

370,388

 

FHLB advances and other borrowings

 

36,000

 

15,000

 

Subordinated debentures

 

5,000

 

5,000

 

Accrued interest payable

 

223

 

213

 

Other liabilities

 

2,152

 

2,056

 

Total Liabilities

 

396,808

 

392,657

 

Stockholders’ Equity

 

 

 

 

 

6.5% cumulative convertible preferred stock; no par value, authorized 250 shares, aggregate liquidation preference of $7,998; issued and outstanding 237 and 250 shares at June 30, 2016 and December 31, 2015, respectively

 

7,261

 

7,659

 

Common stock, no par value, authorized 5,000,000 shares; issued and outstanding 1,999,587 and 1,968,777 shares at June 30, 2016 and December 31, 2015, respectively

 

25,862

 

25,406

 

Retained earnings

 

7,876

 

6,304

 

Accumulated other comprehensive income

 

448

 

155

 

Total stockholders’ equity

 

41,447

 

39,524

 

Total liabilities and stockholders’ equity

 

$

438,255

 

$

432,181

 

 

See Notes to Unaudited Consolidated Financial Statements

 

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Table of Contents

 

Citizens First Corporation

Unaudited Consolidated Statements of Income

 

 

 

Three months ended

 

 

 

(In Thousands, Except Per Share Data)

 

 

 

June 30, 2016

 

June 30, 2015

 

Interest and dividend income

 

 

 

 

 

Loans

 

$

4,162

 

$

4,108

 

Taxable securities

 

177

 

154

 

Non-taxable securities

 

159

 

173

 

Federal funds sold and other

 

38

 

34

 

Total interest and dividend income

 

4,536

 

4,469

 

Interest expense

 

 

 

 

 

Deposits

 

514

 

580

 

FHLB advances and other

 

81

 

74

 

Subordinated debentures

 

29

 

24

 

Total interest expense

 

624

 

678

 

Net interest income

 

3,912

 

3,791

 

Provision (credit) for loan losses

 

(85

)

120

 

Net interest income after provision (credit) for loan losses

 

3,997

 

3,671

 

Non-interest income

 

 

 

 

 

Service charges on deposit accounts

 

339

 

358

 

Other service charges and fees

 

179

 

176

 

Gain on sale of mortgage loans

 

91

 

79

 

Non-deposit brokerage fees

 

75

 

87

 

Lease income

 

49

 

70

 

BOLI income

 

44

 

46

 

Gain on sale of available-for-sale securities

 

55

 

10

 

Total non-interest income

 

832

 

826

 

Non-interest expenses

 

 

 

 

 

Salaries and employee benefits

 

1,676

 

1,589

 

Net occupancy expense

 

492

 

493

 

Advertising and public relations

 

98

 

123

 

Professional fees

 

137

 

187

 

Data processing services

 

263

 

238

 

Franchise shares and deposit tax

 

132

 

145

 

FDIC insurance

 

59

 

63

 

Core deposit intangible amortization

 

18

 

17

 

Postage and office supplies

 

45

 

52

 

Other real estate owned expenses

 

23

 

29

 

Other

 

354

 

310

 

Total non-interest expenses

 

3,297

 

3,246

 

Income before income taxes

 

1,532

 

1,251

 

 

 

 

 

 

 

Income taxes

 

458

 

352

 

Net income

 

1,074

 

899

 

Dividends on preferred stock

 

123

 

130

 

Net income available for common stockholders

 

$

951

 

$

769

 

Basic earnings per common share

 

$

0.48

 

$

0.39

 

Diluted earnings per common share

 

$

0.42

 

$

0.35

 

 

See Notes to Unaudited Consolidated Financial Statements

 

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Table of Contents

 

Citizens First Corporation

Unaudited Consolidated Statements of Income

 

 

 

Six months ended

 

 

 

(In Thousands, Except Per Share Data)

 

 

 

June 30, 2016

 

June 30, 2015

 

Interest and dividend income

 

 

 

 

 

Loans

 

$

8,265

 

$

8,058

 

Taxable securities

 

354

 

306

 

Non-taxable securities

 

318

 

349

 

Federal funds sold and other

 

75

 

62

 

Total interest and dividend income

 

9,012

 

8,775

 

Interest expense

 

 

 

 

 

Deposits

 

1,042

 

1,129

 

FHLB advances and other

 

138

 

145

 

Subordinated debentures

 

57

 

48

 

Total interest expense

 

1,237

 

1,322

 

Net interest income

 

7,775

 

7,453

 

Provision (credit) for loan losses

 

(85

)

200

 

Net interest income after provision (credit) for loan losses

 

7,860

 

7,253

 

Non-interest income

 

 

 

 

 

Service charges on deposit accounts

 

664

 

675

 

Other service charges and fees

 

343

 

311

 

Gain on sale of mortgage loans

 

168

 

110

 

Non-deposit brokerage fees

 

147

 

179

 

Lease income

 

94

 

143

 

BOLI income

 

88

 

91

 

Gain on sale of available-for-sale securities

 

106

 

10

 

Total non-interest income

 

1,610

 

1,519

 

Non-interest expenses

 

 

 

 

 

Salaries and employee benefits

 

3,460

 

3,237

 

Net occupancy expense

 

975

 

1,021

 

Advertising and public relations

 

159

 

175

 

Professional fees

 

317

 

351

 

Data processing services

 

519

 

477

 

Franchise shares and deposit tax

 

264

 

291

 

FDIC insurance

 

118

 

122

 

Core deposit intangible amortization

 

35

 

35

 

Postage and office supplies

 

91

 

92

 

Other real estate owned expenses

 

24

 

36

 

Loss on branch disposal

 

27

 

 

Other

 

678

 

612

 

Total non-interest expenses

 

6,667

 

6,449

 

Income before income taxes

 

2,803

 

2,323

 

Income taxes

 

824

 

642

 

Net income

 

1,979

 

1,681

 

Dividends and accretion on preferred stock

 

247

 

258

 

Net income available for common stockholders

 

$

1,732

 

$

1,423

 

Basic earnings per common share

 

$

0.87

 

$

0.72

 

Diluted earnings per common share

 

$

0.78

 

$

0.64

 

 

See Notes to Unaudited Consolidated Financial Statements

 

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Table of Contents

 

Citizens First Corporation

Unaudited Consolidated Statements of Comprehensive Income

In thousands, except share data

 

 

 

Three months ended

 

 

 

(In Thousands, Except Per Share Data)

 

 

 

June 30, 2016

 

June 30, 2015

 

Comprehensive income, net of tax

 

 

 

 

 

Net income

 

$

1,074

 

$

899

 

Other comprehensive income (loss)

 

 

 

 

 

Reclassification adjustment for gains included in net income, net of taxes

 

(36

)

(7

)

Change in unrealized gain on available for sale securities, net of taxes

 

207

 

(371

)

Total other comprehensive income (loss)

 

171

 

(378

)

Comprehensive income

 

$

1,245

 

$

521

 

 

 

 

 

 

 

Six months ended

 

 

 

(In Thousands, Except Per Share Data)

 

 

 

June 30, 2016

 

June 30, 2015

 

Comprehensive income, net of tax

 

 

 

 

 

Net income

 

$

1,979

 

$

1,681

 

Other comprehensive income (loss)

 

 

 

 

 

Reclassification adjustment for gains included in net income, net of taxes

 

(70

)

(7

)

Change in unrealized gain (loss) on available for sale securities, net of taxes

 

363

 

(122

)

Total other comprehensive income (loss)

 

293

 

(129

)

Comprehensive income

 

$

2,272

 

$

1,552

 

 

See Notes to Unaudited Consolidated Financial Statements

 

5



Table of Contents

 

Citizens First Corporation

Unaudited Consolidated Statements of Changes in Stockholders’ Equity

In thousands, except share data

 

 

 

Preferred
Stock

 

Common
Stock

 

Retained
Earnings

 

Accumulated Other
Comprehensive
Income

 

Total

 

Balance, January 1, 2016

 

$

7,659

 

$

25,406

 

$

6,304

 

$

155

 

$

39,524

 

Net income

 

 

 

 

 

1,979

 

 

 

1,979

 

Conversion of cumulative preferred

 

(398

)

398

 

 

 

 

 

 

Exercise of director stock options

 

 

 

16

 

 

 

 

 

16

 

Stock based compensation

 

 

 

42

 

 

 

 

 

42

 

Change in accumulated other comprehensive income

 

 

 

 

 

 

 

293

 

293

 

Dividend declared and paid on common stock ($.08 per share)

 

 

 

 

 

(160

)

 

 

(160

)

Dividend declared and paid on preferred stock

 

 

 

 

 

(247

)

 

 

(247

)

 

 

 

 

 

 

 

 

 

 

 

 

Balance, June 30, 2016

 

$

7,261

 

$

25,862

 

$

7,876

 

$

448

 

$

41,447

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred
Stock

 

Common
Stock

 

Retained
Earnings

 

Accumulated Other
Comprehensive
Income (Loss)

 

Total

 

Balance, January 1, 2015

 

$

7,659

 

$

27,072

 

$

3,373

 

$

344

 

$

38,448

 

Net income

 

 

 

 

 

1,681

 

 

 

1,681

 

Change in accumulated other comprehensive income

 

 

 

 

 

 

 

(129

)

(129

)

Dividend declared and paid on preferred stock

 

 

 

 

 

(258

)

 

 

(258

)

Repurchase of TARP Warrants

 

 

 

(1,706

)

 

 

 

 

(1,706

)

 

 

 

 

 

 

 

 

 

 

 

 

Balance, June 30, 2015

 

$

7,659

 

$

25,366

 

$

4,797

 

$

215

 

$

38,037

 

 

See Notes to Unaudited Consolidated Financial Statements

 

6



Table of Contents

 

Citizens First Corporation

Unaudited Consolidated Statements of Cash Flows

 

 

 

Six months ended

 

 

 

(In Thousands)

 

 

 

June 30, 2016

 

June 30, 2015

 

Operating Activities

 

 

 

 

 

Net income

 

$

1,979

 

$

1,681

 

Items not requiring (providing) cash:

 

 

 

 

 

Depreciation and amortization

 

274

 

276

 

Provision(credit) for loan losses

 

(85

)

200

 

Amortization of premiums and discounts on securities

 

158

 

170

 

Amortization of core deposit intangible

 

35

 

35

 

Stock based compensation

 

42

 

 

BOLI income

 

(88

)

(91

)

Proceeds from sale of mortgage loans

 

7,408

 

5,225

 

Origination of mortgage loans held for sale

 

(7,359

)

(5,195

)

Gains on sales of available-for-sale securities

 

(106

)

(10

)

Gains on sales of mortgage loans

 

(168

)

(110

)

Write-downs and losses on sale of other real estate owned

 

 

35

 

Loss/(gain) on sale of premises and equipment

 

4

 

(8

)

Loss on branch disposal

 

27

 

 

Changes in:

 

 

 

 

 

Accrued interest receivable

 

144

 

28

 

Other assets

 

(48

)

(86

)

Accrued interest payable and other liabilities

 

106

 

187

 

Net cash provided by operating activities

 

2,323

 

2,337

 

Investing Activities

 

 

 

 

 

Loan originations and payments, net

 

(16,179

)

4,149

 

Purchase of premises and equipment

 

(48

)

(158

)

Proceeds from maturities of available-for-sale securities

 

5,373

 

3,468

 

Proceeds from sales of available-for-sale securities

 

3,839

 

1,010

 

Proceeds from sales of other real owned

 

100

 

62

 

Proceeds from branch disposal

 

197

 

 

Purchase of available-for-sale securities

 

(7,160

)

(4,199

)

Net cash (used in) provided by investing activities

 

(13,878

)

4,332

 

Financing Activities

 

 

 

 

 

Net change in demand deposits, money market, NOW and savings accounts

 

(3,283

)

12,003

 

Net change in time deposits

 

(13,672

)

15,008

 

Repayment of FHLB advances

 

(5,000

)

(11,000

)

Proceeds from FHLB advances

 

27,000

 

 

 

Repurchase of TARP warrants

 

 

(1,706

)

Proceeds (payments) from other borrowings

 

(1,000

)

1,500

 

Exercise of stock options

 

16

 

 

Dividends paid on common stock

 

(160

)

 

Dividends paid on preferred stock

 

(247

)

(258

)

Net cash provided by financing activities

 

3,654

 

15,547

 

Increase in Cash and Cash Equivalents

 

(7,901

)

22,216

 

Cash and Cash Equivalents, Beginning of Year

 

15,255

 

11,322

 

Cash and Cash Equivalents, End of Quarter

 

$

7,354

 

$

33,538

 

Supplemental Cash Flows Information

 

 

 

 

 

Interest paid

 

$

1,227

 

$

1,311

 

Income taxes paid

 

$

650

 

$

525

 

Conversion of cumulative preferred stock

 

$

398

 

$

 

Loans transferred to other real estate owned

 

$

66

 

$

111

 

 

See Notes to Unaudited Consolidated Financial Statements

 

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Table of Contents

 

Citizens First Corporation

Notes to Unaudited Consolidated Financial Statements

 

Note 1 — Nature of Operations and Summary of Significant Accounting Policies

 

The accounting and reporting policies of Citizens First Corporation (the “Company”) and its wholly owned subsidiary, Citizens First Bank, Inc. (the “Bank”), conform to U.S. generally accepted accounting principles and general practices within the banking industry.  The consolidated financial statements include the accounts of the Company and the Bank.  All significant intercompany transactions and accounts have been eliminated in consolidation.

 

Certain information and note disclosures normally included in the Company’s annual financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted.  These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s 2015 Annual Report on Form 10-K filed with the Securities and Exchange Commission.

 

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 disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Estimates used in the preparation of the financial statements are based on various factors including the current interest rate environment and the general strength of the local economy.  Changes in the overall interest rate environment can significantly affect the Company’s net interest income and the value of its recorded assets and liabilities.  Actual results could differ from those estimates used in the preparation of the financial statements.

 

In the opinion of management, all adjustments considered necessary for a fair presentation have been reflected in the accompanying unaudited financial statements.  Those adjustments consist only of normal recurring adjustments. Results of interim periods are not necessarily indicative of results to be expected for the full year.

 

Recent Accounting PronouncementsIn May 2014 the FASB amended existing guidance related to revenue from contracts with customers. This amendment supersedes and replaces nearly all existing revenue recognition guidance, including industry-specific guidance, establishes a new control-based revenue recognition model, changes the basis for deciding when revenue is recognized over time or at a point in time, provides new and more detailed guidance on specific topics and expands and improves disclosures about revenue. In addition, this amendment specifies the accounting for some costs to obtain or fulfill a contract with a customer. These

 

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amendments are effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. In March 2016, the FASB issued ASU 2016-08 that clarifies how to apply revenue recognition guidance related to whether an entity is a principal or an agent.  The amendments in this update affect this guidance issued in 2014 that is not yet effective.  The Company is currently evaluating the impact of this new accounting standard on the consolidated financial statements.

 

In January 2016 the FASB issued ASU 2016-01 which amends existing guidance on the classification and measurement of financial instruments.  This new standard revises and entity’s accounting related to the classification and measurement of investments in equity securities and the presentation of certain fair value changes for financial liabilities measured at fair value.  The new standard is effective for reporting periods beginning after December 15, 2017.  The Company is currently evaluating the impact of this new accounting standard on the consolidated financial statements.

 

In February 2016 the FASB issued ASU 2016-02 which establishes the principles to report information about the assets and liabilities that arise from leases.  This new standard changes the way operating leases are account for and reflected on the lessee’s balance sheet.  The new standard is intended to increase transparency and comparability by requiring lessees to recognize the financial obligation and right-of-use asset associated with operating leases that have a lease term of more than 12 months on the balance sheet.  The new standard is effective for reporting periods beginning after December 15, 2018.  The Company is currently evaluating the impact of this new accounting standard on the consolidated financial statements.

 

In March 2016 the FASB issued ASU 2016-09 which provides guidance on share-based payment accounting.  The new standard includes multiple provision intended to simplify various aspects of the accounting for share-based payments.  The new standard is effective for reporting periods beginning after December 15, 2016.  The Company is currently evaluating the impact of this new accounting standard on the consolidated financial statements.

 

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which introduces the current expected credit loss (CECL) model and replaces the incurred loss model.  The most significant impact for financial institutions will be to the allowance for loan and lease losses (ALLL).  The standard allows for various expected credit loss estimation methods and is scalable.  This standard is effective for reporting periods beginning after December 15, 2019.  The Company is currently evaluating the impact of this new accounting standard on the consolidated financial statements.

 

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Note 2 -  Reclassifications

 

Certain reclassifications have been made to the consolidated financial statements of prior periods to conform to the current period presentation.  These reclassifications do not affect net income or total stockholders’ equity as previously reported.

 

Note 3 - Available-For-Sale Securities

 

The following table summarizes the amortized cost and fair value of the available-for-sale securities portfolio at June 30, 2016 and December 31, 2015 and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive income:

 

 

 

(Dollars in Thousands)

 

 

 

 

 

Gross

 

Gross

 

 

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

Fair

 

 

 

Cost

 

Gains

 

Losses

 

Value

 

June 30, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U. S. government agencies and government sponsored entities

 

$

2,998

 

$

2

 

$

 

$

3,000

 

Agency mortgage-backed securities: residential

 

28,250

 

549

 

(16

)

28,783

 

State and municipal

 

23,732

 

774

 

(2

)

24,504

 

Trust preferred security

 

1,882

 

 

(622

)

1,260

 

Corporate bonds

 

1,000

 

 

(6

)

994

 

 

 

 

 

 

 

 

 

 

 

Total Available-for-Sale Securities

 

$

57,862

 

$

1,325

 

$

(646

)

$

58,541

 

December 31, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U. S. government agencies and government sponsored entities

 

$

2,998

 

$

3

 

$

(7

)

$

2,994

 

Agency mortgage-backed securities: residential

 

29,446

 

259

 

(48

)

29,657

 

State and municipal

 

24,641

 

615

 

(34

)

25,222

 

Trust preferred security

 

1,880

 

 

(540

)

1,340

 

Corporate bonds

 

1,000

 

 

(13

)

987

 

 

 

 

 

 

 

 

 

 

 

Total Available-for-Sale Securities

 

$

59,965

 

$

877

 

$

(642

)

$

60,200

 

 

10



Table of Contents

 

The amortized cost and fair value of investment securities at June 30, 2016 by contractual maturity were as follows.  Securities not due at a single maturity date, primarily mortgage-backed securities, are shown separately.

 

 

 

June 30, 2016

 

 

 

(Dollars in Thousands)

 

 

 

Available-For-Sale

 

 

 

Amortized Cost

 

Fair Value

 

Due in one year or less

 

$

1,532

 

$

1,543

 

Due from one to five years

 

12,375

 

12,582

 

Due from five to ten years

 

11,219

 

11,616

 

Due after ten years

 

4,486

 

4,017

 

Agency mortgage-backed: residential

 

28,250

 

28,783

 

 

 

 

 

 

 

Total

 

$

57,862

 

$

58,541

 

 

The following table summarizes the investment securities with unrealized losses by portfolio segment at June 30, 2016 and December 31, 2015, aggregated by investment category and length of time that individual securities have been in continuous unrealized loss position:

 

 

 

(Dollars in Thousands)

 

 

 

Less than 12 Months

 

12 Months or More

 

Total

 

Description of
Securities

 

Fair Value

 

Unrealized
Losses

 

Fair Value

 

Unrealized
Losses

 

Fair Value

 

Unrealized
Losses

 

June 30, 2016:

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government agencies and government sponsored entities

 

$

 

$

 

$

 

$

 

$

 

$

 

Agency mortgage-backed: residential

 

1,951

 

(16

)

 

 

1,951

 

(16

)

State and municipal

 

1,468

 

(2

)

 

 

1,468

 

(2

)

Trust preferred security

 

 

 

1,260

 

(622

)

1,260

 

(622

)

Corporate Bonds

 

994

 

(6

)

 

 

994

 

(6

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total temporarily impaired

 

$

4,413

 

$

(24

)

$

1,260

 

$

(622

)

$

5,673

 

$

(646

)

 

11



Table of Contents

 

 

 

(Dollars in Thousands)

 

 

 

Less than 12 Months

 

12 Months or More

 

Total

 

Description of
Securities

 

Fair Value

 

Unrealized
Losses

 

Fair Value

 

Unrealized
Losses

 

Fair Value

 

Unrealized
Losses

 

December 31, 2015:

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government agencies and government sponsored entities

 

$

 

$

 

$

992

 

$

(7

)

$

992

 

$

(7

)

Agency mortgage-backed: residential

 

7,009

 

(25

)

1,475

 

(23

)

8,484

 

(48

)

State and municipal

 

3,797

 

(19

)

617

 

(15

)

4,414

 

(34

)

Trust preferred security

 

 

 

1,340

 

(540

)

1,340

 

(540

)

Corporate bonds

 

987

 

(13

)

 

 

987

 

(13

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total temporarily impaired

 

$

11,793

 

$

(57

)

$

4,424

 

$

(585

)

$

16,217

 

$

(642

)

 

Other-Than-Temporary-Impairment

 

Management evaluates securities for other-than-temporary impairment (“OTTI”) at least on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation.  Investment securities classified as available-for-sale are generally evaluated for OTTI under ASC Topic 320, “Investments - Debt and Equity Securities.”

 

In determining OTTI under the ASC Topic 320 model, management considers many factors, including: (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, (3) whether the market decline was affected by macroeconomic conditions, and (4) whether the entity has the intent to sell the debt security or more likely than not will be required to sell the debt security before its anticipated recovery.  The assessment of whether an other-than-temporary decline exists involves a high degree of subjectivity and judgment and is based on the information available to management at a point in time.

 

All rated securities are investment grade.  For those that are not rated, the financial condition has been evaluated and no adverse conditions were identified related to repayment.  Declines in fair value are a function of rate differences in the market and market illiquidity.  The Company does not intend or is not expected to be required to sell these securities before recovery of their amortized cost basis.

 

All of the Company’s unrealized losses 12 months or more relate to its investment in a single trust preferred security.  The security is a single-issuer trust preferred that is not rated. No impairment charge is being taken as no loss of principal or interest is anticipated. All principal and interest payments are being received as scheduled.  On a quarterly basis, we evaluate the creditworthiness of the issuer, a bank holding company with operations in the state of Kentucky.  Based on the issuer’s continued profitability and well-capitalized position, we do not deem that there is credit loss.  The decline in

 

12



Table of Contents

 

fair value is primarily attributable to illiquidity affecting these markets and not the expected cash flows of the individual securities.  We have evaluated the financial condition and near term prospects of the issuer and expect to fully recover our cost basis.  This security continues to pay interest as agreed and future payments are expected to be made as agreed.  This security is not considered to be other-than-temporarily impaired.

 

Note 4 - Loans and Allowance for Loan Losses

 

Categories of loans include:

 

 

 

(Dollars in Thousands)

 

 

 

June 30, 2016

 

December 31, 2015

 

Commercial

 

$

55,132

 

$

53,516

 

Commercial real estate:

 

 

 

 

 

Construction

 

28,511

 

24,167

 

Other

 

178,337

 

169,290

 

Residential real estate

 

81,306

 

79,680

 

Consumer:

 

 

 

 

 

Auto

 

1,242

 

1,425

 

Other

 

2,485

 

2,704

 

Total loans

 

347,013

 

330,782

 

Less allowance for loan losses

 

(4,949

)

(4,916

)

Net loans

 

$

342,064

 

$

325,866

 

 

13



Table of Contents

 

The following table sets forth an analysis of our allowance for loan losses for the three months ending June 30, 2016 and 2015.

 

 

 

(Dollars in Thousands)

 

 

 

Commercial

 

Commercial
Real Estate

 

Residential
Real Estate

 

Consumer

 

Unallocated

 

Total

 

June 30, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

745

 

$

3,585

 

$

602

 

$

24

 

$

88

 

$

5,044

 

Provision (credit) for loan losses

 

(301

)

257

 

4

 

(5

)

(40

)

(85

)

Loans charged-off

 

(5

)

(52

)

(15

)

 

 

(72

)

Recoveries

 

25

 

25

 

9

 

3

 

 

62

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total ending allowance balance

 

$

464

 

$

3,815

 

$

600

 

$

22

 

$

48

 

$

4,949

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in Thousands)

 

 

 

Commercial

 

Commercial
Real Estate

 

Residential
Real Estate

 

Consumer

 

Unallocated

 

Total

 

June 30, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

1,035

 

$

3,206

 

$

519

 

$

41

 

$

146

 

$

4,947

 

Provision for loan losses

 

(233

)

398

 

(43

)

8

 

(10

)

120

 

Loans charged-off

 

(75

)

 

(32

)

(16

)

 

(123

)

Recoveries

 

30

 

1

 

3

 

5

 

 

39

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total ending allowance balance

 

$

757

 

$

3,605

 

$

447

 

$

38

 

$

136

 

$

4,983

 

 

14



Table of Contents

 

The following table sets forth an analysis of our allowance for loan losses for the six months ending June 30, 2016 and 2015.

 

 

 

(Dollars in Thousands)

 

 

 

Commercial

 

Commercial
Real Estate

 

Residential
Real Estate

 

Consumer

 

Unallocated

 

Total

 

June 30, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

812

 

$

3,431

 

$

524

 

$

28

 

$

121

 

$

4,916

 

Provision (credit) for loan losses

 

(475

)

386

 

86

 

(10

)

(73

)

(85

)

Loans charged-off

 

(5

)

(52

)

(23

)

 

 

(80

)

Recoveries

 

132

 

50

 

13

 

4

 

 

199

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total ending allowance balance

 

$

464

 

$

3,815

 

$

600

 

$

22

 

$

48

 

$

4,949

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in Thousands)

 

 

 

Commercial

 

Commercial
Real Estate

 

Residential
Real Estate

 

Consumer

 

Unallocated

 

Total

 

June 30, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

1,029

 

$

3,088

 

$

582

 

$

45

 

$

141

 

$

4,885

 

Provision for loan losses

 

(248

)

533

 

(86

)

6

 

(5

)

200

 

Loans charged-off

 

(75

)

(17

)

(56

)

(19

)

 

(167

)

Recoveries

 

51

 

1

 

7

 

6

 

 

65

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total ending allowance balance

 

$

757

 

$

3,605

 

$

447

 

$

38

 

$

136

 

$

4,983

 

 

The following tables present the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on the impairment method as of June 30, 2016 and December 31, 2015, which includes net deferred loan fees.  As of June 30, 2016 and December 31, 2015, accrued interest receivable of $1.2 million and $1.3 million, respectively, are not considered significant and therefore not included in the recorded investment in loans presented in the following tables.

 

15



Table of Contents

 

 

 

(Dollars in Thousands)

 

 

 

Commercial

 

Commercial
Real Estate

 

Residential
Real Estate

 

Consumer

 

Unallocated

 

Total

 

June 30, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending allowance balance attributable to loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for impairment

 

$

35

 

$

195

 

$

25

 

$

1

 

$

 

$

256

 

Collectively evaluated

 

429

 

3,620

 

575

 

21

 

48

 

4,693

 

Total ending allowance balance

 

$

464

 

$

3,815

 

$

600

 

$

22

 

$

48

 

$

4,949

 

Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for impairment

 

$

133

 

$

1,580

 

$

744

 

$

28

 

$

 

$

2,485

 

Collectively evaluated

 

54,999

 

205,268

 

80,562

 

3,699

 

 

344,528

 

Total ending loans balance

 

$

55,132

 

$

206,848

 

$

81,306

 

$

3,727

 

$

 

$

347,013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in Thousands)

 

 

 

Commercial

 

Commercial
Real Estate

 

Residential
Real Estate

 

Consumer

 

Unallocated

 

Total

 

December 31, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending allowance balance attributable to loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for impairment

 

$

36

 

$

377

 

$

20

 

$

 

$

 

$

433

 

Collectively evaluated

 

776

 

3,054

 

504

 

28

 

121

 

4,483

 

Total ending allowance balance

 

$

812

 

$

3,431

 

$

524

 

$

28

 

$

121

 

$

4,916

 

Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for impairment

 

$

145

 

$

2,066

 

$

807

 

$

9

 

$

 

$

3,027

 

Collectively evaluated

 

53,371

 

191,391

 

78,873

 

4,120

 

 

327,755

 

Total ending loans balance

 

$

53,516

 

$

193,457

 

$

79,680

 

$

4,129

 

$

 

$

330,782

 

 

16



Table of Contents

 

The following table presents information related to impaired loans by class of loans as of June 30, 2016 and December 31, 2015. In this table presentation the unpaid principal balance of the loans has not been reduced by partial net charge-offs and the recorded investment of the loans was reduced by partial net charge-offs.

 

 

 

(Dollars in Thousands)

 

(Dollars in Thousands)

 

 

 

June 30, 2016

 

December 31, 2015

 

 

 

Unpaid
Principal
Balance

 

Recorded
Investment

 

Allowance
for Loan
Losses
Allocated

 

Unpaid
Principal
Balance

 

Recorded
Investment

 

Allowance
for Loan
Losses
Allocated

 

With no related allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

$

58

 

$

58

 

$

 

$

61

 

$

61

 

$

 

Commercial real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

611

 

611

 

 

643

 

643

 

 

Residential real estate

 

692

 

692

 

 

700

 

700

 

 

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

Subtotal

 

$

1,361

 

$

1,361

 

$

 

$

1,404

 

$

1,404

 

$

 

With an allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

$

75

 

$

75

 

$

35

 

$

84

 

$

84

 

$

36

 

Commercial real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

969

 

969

 

195

 

1,423

 

1,423

 

377

 

Residential real estate

 

52

 

52

 

25

 

107

 

107

 

20

 

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

28

 

28

 

1

 

9

 

9

 

 

Subtotal

 

$

1,124

 

$

1,124

 

$

256

 

$

1,623

 

$

1,623

 

$

433

 

Total

 

$

2,485

 

$

2,485

 

$

256

 

$

3,027

 

$

3,027

 

$

433

 

 

17



Table of Contents

 

Information on impaired loans for the three months ending June 30, 2016 and 2015 is as follows:

 

 

 

(Dollars in Thousands)

 

(Dollars in Thousands)

 

 

 

June 30, 2016

 

June 30, 2015

 

 

 

Average
Recorded
Investment

 

Interest
Income
Recognized

 

Cash Basis
Interest
Recognized

 

Average
Recorded
Investment

 

Interest
Income
Recognized

 

Cash Basis
Interest
Recognized

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

$

135

 

$

3

 

$

3

 

$

1,893

 

$

24

 

$

22

 

Commercial real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction

 

 

 

 

 

 

 

Other

 

1,584

 

21

 

21

 

1,916

 

17

 

13

 

Residential real estate

 

747

 

8

 

8

 

1,014

 

12

 

9

 

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

Auto

 

 

 

 

 

 

 

Other

 

25

 

 

 

11

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

2,491

 

$

32

 

$

32

 

$

4,834

 

$

53

 

$

44

 

 

Information on impaired loans for the six months ending June 30, 2016 and 2015 is as follows:

 

 

 

(Dollars in Thousands)

 

(Dollars in Thousands)

 

 

 

June 30, 2016

 

June 30, 2015

 

 

 

Average
Recorded
Investment

 

Interest
Income
Recognized

 

Cash Basis
Interest
Recognized

 

Average
Recorded
Investment

 

Interest
Income
Recognized

 

Cash Basis
Interest
Recognized

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

$

139

 

$

6

 

$

6

 

$

1,972

 

$

49

 

$

45

 

Commercial real estate: