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EX-32 - EX-32 - KENTUCKY BANCSHARES INC /KY/ktyb-20160630xex32.htm
EX-31.2 - EX-31.2 - KENTUCKY BANCSHARES INC /KY/ktyb-20160630ex3120e80bd.htm
EX-31.1 - EX-31.1 - KENTUCKY BANCSHARES INC /KY/ktyb-20160630ex311e796e5.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

FORM 10-Q

(Mark One)

 

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

 

For the quarterly period June 30, 2016

 

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:  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 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 (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 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 definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one):

 

Large accelerated filer 

Accelerated filer

Non-accelerated filer   (Do not check if a smaller reporting company)

Smaller reporting company

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

 

Number of shares of Common Stock outstanding as of July 31, 2016:  2,993,851.

 

 

 

 


 

KENTUCKY BANCSHARES, INC.

 

Table of Contents

 

 

 

2


 

Item 1 – Financial Statements

KENTUCKY BANCSHARES, INC.

CONSOLIDATED BALANCE SHEETS (unaudited)

(in thousands, except per share amounts)

 

 

 

 

 

 

 

 

 

    

6/30/2016

    

12/31/2015

 

ASSETS

 

 

 

 

 

 

 

Cash and due from banks

 

$

15,459

 

$

26,546

 

Federal funds sold

 

 

1,169

 

 

1,502

 

Cash and cash equivalents

 

 

16,628

 

 

28,048

 

Interest bearing time deposits

 

 

4,829

 

 

4,874

 

Securities available for sale

 

 

266,722

 

 

264,212

 

Trading Assets

 

 

5,704

 

 

5,531

 

Mortgage loans held for sale

 

 

1,485

 

 

624

 

Loans

 

 

653,277

 

 

624,121

 

Allowance for loan losses

 

 

(7,259)

 

 

(6,521)

 

Net loans

 

 

646,018

 

 

617,600

 

Federal Home Loan Bank stock

 

 

7,034

 

 

7,034

 

Real estate owned, net

 

 

2,440

 

 

2,347

 

Bank premises and equipment, net

 

 

16,345

 

 

16,597

 

Interest receivable

 

 

3,641

 

 

3,681

 

Mortgage servicing rights

 

 

1,233

 

 

1,277

 

Goodwill

 

 

14,001

 

 

14,001

 

Other intangible assets

 

 

617

 

 

773

 

Other assets

 

 

7,371

 

 

8,085

 

Total assets

 

$

994,068

 

$

974,684

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

Deposits

 

 

 

 

 

 

 

Non-interest bearing

 

$

205,693

 

$

209,289

 

Time deposits, $250,000 and over

 

 

67,927

 

 

61,199

 

Other interest bearing

 

 

477,776

 

 

488,493

 

Total deposits

 

 

751,396

 

 

758,981

 

Repurchase agreements

 

 

26,057

 

 

18,514

 

Long-term Federal Home Loan Bank advances

 

 

99,617

 

 

87,833

 

Note payable

 

 

4,695

 

 

4,794

 

Subordinated debentures

 

 

7,217

 

 

7,217

 

Interest payable

 

 

693

 

 

659

 

Other liabilities

 

 

8,594

 

 

7,273

 

Total liabilities

 

 

898,269

 

 

885,271

 

 

 

 

 

 

 

 

 

Stockholders’ equity

 

 

 

 

 

 

 

Preferred stock, 300,000 shares authorized and unissued

 

 

 —

 

 

 —

 

Common stock, no par value; 10,000,000 shares authorized; 2,993,851 and 2,989,205 shares issued and outstanding in June 2016 and December 2015

 

 

20,829

 

 

20,730

 

Retained earnings

 

 

70,568

 

 

68,324

 

Accumulated other comprehensive income

 

 

4,402

 

 

359

 

Total stockholders’ equity

 

 

95,799

 

 

89,413

 

Total liabilities and stockholders’ equity

 

$

994,068

 

$

974,684

 

 

 

See Accompanying Notes

 

 

3


 

KENTUCKY BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (LOSS) (unaudited)

(in thousands, except per share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

    

6/30/2016

    

6/30/2015

    

6/30/2016

    

6/30/2015

 

INTEREST INCOME:

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans, including fees

 

$

7,423

 

$

6,346

 

$

14,802

 

$

12,555

 

Securities

 

 

 

 

 

 

 

 

 

 

 

 

 

Taxable

 

 

866

 

 

692

 

 

1,773

 

 

1,425

 

Tax exempt

 

 

661

 

 

690

 

 

1,318

 

 

1,366

 

Trading assets

 

 

31

 

 

39

 

 

73

 

 

83

 

Other

 

 

105

 

 

68

 

 

218

 

 

137

 

Total interest income

 

 

9,086

 

 

7,835

 

 

18,184

 

 

15,566

 

INTEREST EXPENSE:

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

 

555

 

 

493

 

 

1,112

 

 

979

 

Repurchase agreements

 

 

27

 

 

24

 

 

53

 

 

47

 

Federal Home Loan Bank advances

 

 

393

 

 

397

 

 

777

 

 

799

 

Note payable

 

 

59

 

 

 —

 

 

120

 

 

 —

 

Subordinated debentures

 

 

67

 

 

58

 

 

128

 

 

115

 

Total interest expense

 

 

1,101

 

 

972

 

 

2,190

 

 

1,940

 

Net interest income

 

 

7,985

 

 

6,863

 

 

15,994

 

 

13,626

 

Provision for loan losses

 

 

225

 

 

350

 

 

600

 

 

650

 

Net interest income after provision

 

 

7,760

 

 

6,513

 

 

15,394

 

 

12,976

 

NON-INTEREST INCOME:

 

 

 

 

 

 

 

 

 

 

 

 

 

Service charges

 

 

1,264

 

 

1,091

 

 

2,381

 

 

1,995

 

Loan service fee income, net

 

 

(2)

 

 

55

 

 

49

 

 

108

 

Trust department income

 

 

261

 

 

259

 

 

524

 

 

536

 

Gain on sale of available for sale securities, net

 

 

151

 

 

243

 

 

277

 

 

251

 

Gain (loss) on trading assets

 

 

60

 

 

(48)

 

 

100

 

 

(53)

 

Gain on sale of mortgage loans

 

 

457

 

 

441

 

 

756

 

 

768

 

Brokerage income

 

 

250

 

 

136

 

 

434

 

 

242

 

Debit card interchange income

 

 

710

 

 

623

 

 

1,354

 

 

1,164

 

Other

 

 

135

 

 

822

 

 

158

 

 

881

 

Total other income

 

 

3,286

 

 

3,622

 

 

6,033

 

 

5,892

 

NON-INTEREST EXPENSE:

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

4,562

 

 

4,150

 

 

8,932

 

 

7,944

 

Occupancy expenses

 

 

939

 

 

854

 

 

1,857

 

 

1,786

 

Repossession expenses, net

 

 

31

 

 

237

 

 

143

 

 

282

 

FDIC Insurance

 

 

164

 

 

145

 

 

338

 

 

301

 

Legal and professional fees

 

 

513

 

 

293

 

 

891

 

 

578

 

Data processing

 

 

427

 

 

386

 

 

853

 

 

753

 

Debit card expenses

 

 

368

 

 

293

 

 

687

 

 

549

 

Amortization expense of intangible assets, excluding mortgage servicing right

 

 

77

 

 

30

 

 

156

 

 

61

 

Advertising and marketing

 

 

225

 

 

212

 

 

450

 

 

425

 

Taxes other than payroll, property and income

 

 

279

 

 

229

 

 

554

 

 

459

 

Telephone

 

 

94

 

 

77

 

 

185

 

 

145

 

Postage

 

 

101

 

 

90

 

 

190

 

 

171

 

Loan fees

 

 

46

 

 

104

 

 

91

 

 

197

 

Other

 

 

782

 

 

608

 

 

1,609

 

 

1,274

 

Total other expenses

 

 

8,608

 

 

7,708

 

 

16,936

 

 

14,925

 

Income before taxes

 

 

2,438

 

 

2,427

 

 

4,491

 

 

3,943

 

Income taxes

 

 

356

 

 

305

 

 

572

 

 

306

 

Net income

 

$

2,082

 

$

2,122

 

$

3,919

 

$

3,637

 

Other Comprehensive Income, net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in Unrealized Gains on Securities

 

 

1,656

 

 

(2,160)

 

 

4,043

 

 

(1,223)

 

Comprehensive Income (Loss)

 

$

3,738

 

$

(38)

 

$

7,962

 

$

2,414

 

Earnings per share

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.70

 

$

0.77

 

$

1.31

 

$

1.33

 

Diluted

 

 

0.70

 

 

0.77

 

 

1.31

 

 

1.33

 

Dividends per share

 

 

0.27

 

 

0.26

 

 

0.54

 

 

0.52

 

See Accompanying Notes

 

 

4


 

KENTUCKY BANCSHARES, INC.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (unaudited)

(in thousands, except share information)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

    

    

 

    

 

    

Accumulated

    

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

Total

 

 

 

Common Stock

 

Retained

 

Comprehensive

 

Stockholders’

 

(Dollars in thousands)

 

Shares

 

Amount

 

Earnings

 

Income 

 

Equity

 

Balances, January 1, 2016

 

2,989,205

 

$

20,730

 

$

68,324

 

$

359

 

$

89,413

 

Common stock issued (including employee stock grants of  6,170 shares and director stock awards of 1,352 shares)

 

7,522

 

 

49

 

 

 —

 

 

 —

 

 

49

 

Stock compensation expense

 

 —

 

 

80

 

 

 —

 

 

 —

 

 

80

 

Common stock purchased and retired

 

(2,876)

 

 

(30)

 

 

(57)

 

 

 —

 

 

(87)

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

4,043

 

 

4,043

 

Net income

 

 —

 

 

 —

 

 

3,919

 

 

 —

 

 

3,919

 

Dividends declared - $0.54 per share

 

 —

 

 

 —

 

 

(1,618)

 

 

 —

 

 

(1,618)

 

Balances, June 30, 2016

 

2,993,851

 

$

20,829

 

$

70,568

 

$

4,402

 

$

95,799

 


(1)

Common Stock has no par value; amount includes Additional Paid-in Capital

 

See Accompanying Notes

 

 

5


 

KENTUCKY BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

(in thousands)

 

 

 

 

 

 

 

 

 

    

Six Months Ended

 

 

 

6/30/2016

    

6/30/2015

 

Cash Flows From Operating Activities

 

 

 

 

 

 

 

Net Income

 

$

3,919

 

$

3,637

 

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

 

 

 

 

 

 

 

Depreciation and amortization

 

 

819

 

 

843

 

Securities amortization (accretion), net

 

 

527

 

 

494

 

Stock based compensation expense

 

 

80

 

 

66

 

Provision for loan losses

 

 

600

 

 

650

 

Securities available for sale gains, net

 

 

(277)

 

 

(251)

 

Net change in trading assets

 

 

(173)

 

 

(30)

 

Originations of loans held for sale

 

 

(23,913)

 

 

(24,562)

 

Proceeds from sale of loans

 

 

23,808

 

 

24,387

 

Losses (gains) on other real estate

 

 

 —

 

 

59

 

Gain on sale of mortgage loans

 

 

(756)

 

 

(768)

 

Write-downs of other real estate, net

 

 

85

 

 

227

 

Changes in:

 

 

 

 

 

 

 

Interest receivable

 

 

40

 

 

(362)

 

Other assets

 

 

714

 

 

(469)

 

Interest payable

 

 

34

 

 

16

 

Other liabilities

 

 

(735)

 

 

(2,165)

 

Net cash from operating activities

 

 

4,772

 

 

1,772

 

Cash Flows From Investing Activities

 

 

 

 

 

 

 

Net change in interest bearing time deposits

 

 

45

 

 

 —

 

Purchases of securities available for sale

 

 

(48,094)

 

 

(20,074)

 

Proceeds from sales of securities

 

 

21,388

 

 

9,051

 

Proceeds from principal payments, maturities and calls of securities

 

 

30,087

 

 

18,313

 

Net change in loans

 

 

(29,073)

 

 

(11,543)

 

Purchases of bank premises and equipment

 

 

(547)

 

 

(440)

 

Proceeds from the sale of other real estate

 

 

15

 

 

4,057

 

Net cash from investing activities

 

 

(26,179)

 

 

(636)

 

Cash Flows From Financing Activities:

 

 

 

 

 

 

 

Net change in deposits

 

 

(7,585)

 

 

(10,853)

 

Net change in repurchase agreements and other borrowings

 

 

7,543

 

 

3,689

 

Proceeds from short-term Federal Home Loan Bank advances

 

 

30,000

 

 

15,000

 

Repayment of short-term Federal Home Loan Bank advances

 

 

(30,000)

 

 

(10,000)

 

Proceeds from long-term Federal Home Loan Bank advances

 

 

15,000

 

 

4,682

 

Repayment of long-term Federal Home Loan Bank advances

 

 

(3,216)

 

 

(3,050)

 

Repayment of note payable

 

 

(99)

 

 

 —

 

Proceeds from issuance of common stock

 

 

49

 

 

2

 

Purchase of common stock

 

 

(87)

 

 

(10)

 

Dividends paid

 

 

(1,618)

 

 

(1,417)

 

Net cash from financing activities

 

 

9,987

 

 

(1,957)

 

Net change in cash and cash equivalents

 

 

(11,420)

 

 

(821)

 

Cash and cash equivalents at beginning of period

 

 

28,048

 

 

17,169

 

Cash and cash equivalents at end of period

 

$

16,628

 

$

16,348

 

Supplemental disclosures of cash flow information Cash paid during the year for:

 

 

 

 

 

 

 

Interest expense

 

$

2,156

 

$

1,924

 

Supplemental disclosures of non-cash investing activities

 

 

 

 

 

 

 

Real estate acquired through foreclosure

 

$

235

 

$

3,334

 

 

See Accompanying Notes

6


 

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, 2015.  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, 2015.

 

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:  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. 

 

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. 

 

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.

 

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.

 

 

 

 

7


 

Adoption of New Accounting Standards

 

Accounting Standards Update (“ASU”) ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606)

 

In May 2014, FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). This 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 encourages an entity to 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.

 

Accounting Standards Update (“ASU”) ASU No. 2016-1, Financial Instruments-Overall:  Recognition and Measurement of Financial Assets and Financial Liabilities

 

In January 2016, the FASB issued an update (ASU 2016-1, Financial Instruments-Overall: Recognition and Measurement of Financial Assets and Financial Liabilities) which will require entities to measure many equity investments at fair value and recognize changes in fair value in net income.  This update does not apply to equity investments that result in consolidation, those accounted for under the equity method and certain others, and will eliminate use of the available for sale classification for equity securities while providing a new measurement alternative for equity investments that do not have readily determinable fair values and do not qualify for the net asset value practical expedient.  The guidance in this ASU will become effective for interim and annual reporting periods beginning after December 15, 2017, with early adoption permitted.  The Company does not anticipate this update will have a material impact on its Consolidated Financial Statements.

 

Accounting Standards Update (“ASU”) ASU No. 2016-2, Leases (Topic 842)

 

This ASU is a standard that applies to all lease contracts. A lease contract is defined as a contract, or part of a contract, that conveys the right to control the use of an asset for a period in exchange for consideration. Most leases are considered operating leases, which are not accounted for on the lessees’ balance sheets. The significant change under this ASU is that those operating leases will be recorded on the balance sheet. 

 

Under this ASU, after determining that a contract contains a lease, a lessee will need to evaluate whether the lease is a finance or an operating lease at the commencement of a new lease and upon change in the lease term or change in the lessee’s option to purchase the asset. The classification criteria for distinguishing between finance leases and operating leases under this ASU are substantially similar to the classification criteria for distinguishing between capital leases and operating leases under previous GAAP. All leases, whether finance or operating, will be on balance sheet unless they are subject to a short-term (12 months or less) lease accounting policy election. The lease term includes periods subject to an option to extend the lease if the lessee is reasonably certain to exercise that option. This means leases of 12 months or less with extension options that meet that criteria will be recorded on the balance sheet.

 

Finance leases under this ASU will recognize amortization expense on the asset separately from interest expense on the liability, similar to capital lease guidance under existing GAAP. Operating leases under this ASU will recognize lease expense that includes amortization expense on the leased asset and interest on the liability.

 

The amendments in this ASU are effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. The Company is a lessee for a material level of operating leases and is analyzing the impact of this ASU on its consolidated financial statements.

 

 

 

8


 

Accounting Standards Update (“ASU”) ASU No. 2016-09, Compensation-Stock Compensation (Topic 718)

 

In March 2016, the FASB issued ASU No. 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to Employee Shared-Based Payment Accounting. The amendments are intended to improve the accounting for employee shared-based payments and affects all organizations that issue share-based payment awards to their employees. Several aspects of the accounting for share-based payment award transactions are simplified, including the income tax consequences, the classification of awards as either equity or liabilities, and the classification on the statement of cash flows. The amendments in this update become effective for annual periods and interim periods within those annual periods beginning after December 15, 2016. We are currently evaluating the impact of adopting the new guidance on the consolidated financial statements, but the Company does not expect these ammendments to have a material impact.

 

Accounting Standards Update (“ASU”) ASU No. 2016-13, Financial Instruments (Topic 326)

 

In June 2016, the FASB issued ASU No. 2016-13, .  The final standard will change estimates for credit losses related to financial assets measured at amortized cost such as loans, held-to-maturity debt securities, and certain other contracts.  For estimating credit losses, the FASB is replacing the incurred loss model with an expected loss model, which is referred to as the current expected credit loss (CECL) model. The largest impact will be on the allowance for loan and lease losses.  The standard will become effective for fiscal years beginning after December 15, 2019 for public companies.  We are currently evaluating the impact of adopting the new guidance on the consolidated 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, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

U. S. government agencies

 

$

35,736

 

$

588

 

$

 —

 

$

36,324

 

States and political subdivisions

 

 

90,751

 

 

4,659

 

 

 —

 

 

95,410

 

Mortgage-backed - residential

 

 

133,245

 

 

1,703

 

 

(310)

 

 

134,638

 

Equity securities

 

 

320

 

 

30

 

 

 —

 

 

350

 

Total

 

$

260,052

 

$

6,980

 

$

(310)

 

$

266,722

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

U. S. government agencies

 

$

49,012

 

$

51

 

$

(200)

 

$

48,863

 

States and political subdivisions

 

 

89,501

 

 

2,644

 

 

(183)

 

 

91,962

 

Mortgage-backed - residential

 

 

124,834

 

 

210

 

 

(2,001)

 

 

123,043

 

Equity securities

 

 

320

 

 

24

 

 

 —

 

 

344

 

Total

 

$

263,667

 

$

2,929

 

$

(2,384)

 

$

264,212

 

 

9


 

The amortized cost and fair value of securities at June 30, 2016 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 9.

 

 

 

 

 

 

 

 

 

 

    

Amortized

    

Fair

 

 

 

Cost

 

Value

 

 

 

 

 

 

 

 

 

Due in one year or less

 

$

 —

 

$

 —

 

Due after one year through five years

 

 

23,522

 

 

24,190

 

Due after five years through ten years

 

 

56,998

 

 

58,900

 

Due after ten years

 

 

45,967

 

 

48,644

 

 

 

 

126,487

 

 

131,734

 

Mortgage-backed - residential

 

 

133,245

 

 

134,638

 

Equity

 

 

320

 

 

350

 

Total

 

$

260,052

 

$

266,722

 

 

Proceeds from sales of securities during the first six months of 2016 and 2015 were $21.4 million and $9.1 million.  Gross gains of $277 thousand and $251 thousand and gross losses of $0 and $0 were realized on those sales, respectively.  The tax provision related to these realized net gains was $94 thousand and $85 thousand, respectively. 

 

Proceeds from sales of securities during the three months ended June 30, 2016 and June 30, 2015 were $12.1 million and $9.1 million.  Gross gains of $151 thousand and $243 thousand and gross losses of $0 and $0 were realized on those sales, respectively.  The tax provision related to these realized net gains was $51 thousand and $83 thousand, respectively.

 

Securities with unrealized losses June 30, 2016 and at December 31, 2015 not recognized in income are as follows:

 

June 30, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

$

 —

 

$

 —

 

$

 —

 

$

 —

 

$

 —

 

$

 —

 

States and municipals

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

Mortgage-backed - residential

 

 

22,211

 

 

(168)

 

 

10,390

 

 

(142)

 

 

32,601

 

 

(310)

 

Total temporarily impaired

 

$

22,211

 

$

(168)

 

$

10,390

 

$

(142)

 

$

32,601

 

$

(310)

 

 

December 31, 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

 

$

15,243

 

$

(56)

 

$

30,293

 

$

(144)

 

$

45,536

 

$

(200)

 

States and municipals

 

 

10,938

 

 

(102)

 

 

4,065

 

 

(81)

 

 

15,003

 

 

(183)

 

Mortgage-backed - residential

 

 

77,898

 

 

(1,231)

 

 

23,488

 

 

(770)

 

 

101,386

 

 

(2,001)

 

Total temporarily impaired

 

$

104,079

 

$

(1,389)

 

$

57,846

 

$

(995)

 

$

161,925

 

$

(2,384)

 

 

10


 

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 $5.7 million are primarily comprised of cash and cash equivalents and municipal securities which are generally held for 60 days or less.

 

3.LOANS

 

Loans at period-end are as follows:

(in thousands)

 

 

 

 

 

 

 

 

 

 

    

6/30/2016

    

12/31/2015

 

 

 

 

 

 

 

 

 

Commercial

 

$

72,450

 

$

55,929

 

Real estate construction

 

 

31,197

 

 

29,320

 

Real estate mortgage:

 

 

 

 

 

 

 

1-4 family residential

 

 

242,462

 

 

230,721

 

Multi-family residential

 

 

39,082

 

 

38,281

 

Non-farm & non-residential

 

 

180,729

 

 

183,692

 

Agricultural

 

 

68,236

 

 

66,782

 

Consumer

 

 

18,894

 

 

18,880

 

Other

 

 

227

 

 

516

 

Total

 

$

653,277

 

$

624,121

 

 

The above loan balances include loans purchased in the Madison Financial Corporation acquisition. Loan balances acquired in the Madison Financial Corporation acquisition have no allocated allowance for loan losses.  The composition of loans acquired as of June 30, 2016 is as follows:

 

 

 

 

 

 

 

 

 

 

    

6/30/2016

 

12/31/2015

 

Commercial

 

$

1,371

 

$

1,505

 

Real estate construction

 

 

1,170

 

 

1,616

 

Real estate mortgage:

 

 

 

 

 

 

 

1-4 family residential

 

 

14,102

 

 

16,376

 

Multi-family residential

 

 

5,521

 

 

5,652

 

Non-farm & non-residential

 

 

20,630

 

 

29,029

 

Agricultural

 

 

1,982

 

 

2,194

 

Consumer

 

 

189

 

 

379

 

Total

 

$

44,965

 

$

56,751

 

 

 

11


 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30, 2016

 

 

 

(in thousands)

 

 

 

Beginning

 

 

 

 

 

 

 

 

 

 

Ending

 

 

    

Balance

    

Charge-offs 

    

Recoveries 

    

Provision

    

Balance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

$

486

 

$

 —

 

$

34

 

$

146

 

$

666

 

Real estate Construction

 

 

411

 

 

 —

 

 

13

 

 

128

 

 

552

 

Real estate mortgage:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1-4 family residential

 

 

2,081

 

 

(64)