Attached files
| file | filename |
|---|---|
| EX-32 - EXHIBIT 32 - HILLS BANCORPORATION | exhibit3293016.htm |
| EX-31 - EXHIBIT 31 - HILLS BANCORPORATION | exhibit3193016.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2016
Commission file number: 0-12668
Hills Bancorporation
Incorporated in Iowa | I.R.S. Employer Identification |
No. 42-1208067 | |
131 MAIN STREET, HILLS, IOWA 52235
Telephone number: (319) 679-2291
Indicate by checkmark 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.
þ Yes o No
Indicate by checkmark whether the Registrant has submitted electronically and posted on its corporate website, 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).
þ Yes o No
Indicate by checkmark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “small reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer o | Accelerated Filer þ |
Non-accelerated filer o | Small Reporting Company o |
Indicate by checkmark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
o Yes þ No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practical date.
SHARES OUTSTANDING | |
CLASS | October 31, 2016 |
Common Stock, no par value | 9,284,819 |
HILLS BANCORPORATION
Index to Form 10-Q
Part I
FINANCIAL INFORMATION
Page | ||
Number | ||
Item 1. | Financial Statements | |
Item 2. | ||
Item 3. | ||
Item 4. | ||
Part II | ||
OTHER INFORMATION | ||
Item 1. | ||
Item 1A. | ||
Item 2. | ||
Item 3. | ||
Item 4. | ||
Item 5. | ||
Item 6. | ||
Page 3
HILLS BANCORPORATION CONSOLIDATED BALANCE SHEETS (Amounts In Thousands, Except Share Amounts)
September 30, 2016 | December 31, 2015 | ||||||
ASSETS | (Unaudited) | ||||||
Cash and cash equivalents | $ | 49,025 | $ | 35,427 | |||
Investment securities available for sale at fair value (amortized cost September 30, 2016 $247,267; December 31, 2015 $261,991) | 250,615 | 264,235 | |||||
Stock of Federal Home Loan Bank | 11,414 | 11,834 | |||||
Loans held for sale | 8,489 | 5,554 | |||||
Loans, net of allowance for loan losses (September 30, 2016 $26,140; December 31, 2015 $26,510) | 2,201,608 | 2,099,174 | |||||
Property and equipment, net | 35,520 | 33,522 | |||||
Tax credit real estate investment | 10,893 | 16,314 | |||||
Accrued interest receivable | 10,539 | 8,672 | |||||
Deferred income taxes, net | 11,956 | 11,695 | |||||
Other real estate | 361 | 439 | |||||
Goodwill | 2,500 | 2,500 | |||||
Other assets | 2,686 | 4,241 | |||||
Total Assets | $ | 2,595,606 | $ | 2,493,607 | |||
LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||
Liabilities | |||||||
Noninterest-bearing deposits | $ | 323,348 | $ | 314,968 | |||
Interest-bearing deposits | 1,673,064 | 1,575,734 | |||||
Total deposits | $ | 1,996,412 | $ | 1,890,702 | |||
Other borrowings | 39,903 | 44,051 | |||||
Federal Home Loan Bank borrowings | 210,000 | 225,000 | |||||
Accrued interest payable | 812 | 846 | |||||
Other liabilities | 22,642 | 23,271 | |||||
Total Liabilities | $ | 2,269,769 | $ | 2,183,870 | |||
Redeemable Common Stock Held by Employee Stock Ownership Plan (ESOP) | $ | 39,782 | $ | 37,562 | |||
STOCKHOLDERS' EQUITY | |||||||
Common stock, no par value; authorized 20,000,000 shares; issued September 30, 2016 10,209,507 shares; December 31, 2015 10,199,643 shares | $ | — | $ | — | |||
Paid in capital | 44,345 | 43,697 | |||||
Retained earnings | 313,270 | 294,487 | |||||
Accumulated other comprehensive loss | (1,707 | ) | (1,195 | ) | |||
Treasury stock at cost (September 30, 2016 939,855 shares; December 31, 2015 877,589 shares) | (30,071 | ) | (27,252 | ) | |||
Total Stockholders' Equity | $ | 325,837 | $ | 309,737 | |||
Less maximum cash obligation related to ESOP shares | 39,782 | 37,562 | |||||
Total Stockholders' Equity Less Maximum Cash Obligations Related to ESOP Shares | $ | 286,055 | $ | 272,175 | |||
Total Liabilities & Stockholders' Equity | $ | 2,595,606 | $ | 2,493,607 | |||
See Notes to Consolidated Financial Statements.
Page 4
HILLS BANCORPORATION CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(Amounts In Thousands, Except Per Share Amounts)
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||
Interest income: | |||||||||||||||
Loans, including fees | $ | 23,626 | $ | 22,159 | $ | 68,974 | $ | 65,139 | |||||||
Investment securities: | |||||||||||||||
Taxable | 362 | 321 | 1,080 | 907 | |||||||||||
Nontaxable | 786 | 813 | 2,414 | 2,473 | |||||||||||
Federal funds sold | 6 | 2 | 124 | 17 | |||||||||||
Total interest income | $ | 24,780 | $ | 23,295 | $ | 72,592 | $ | 68,536 | |||||||
Interest expense: | |||||||||||||||
Deposits | $ | 1,917 | $ | 1,973 | $ | 5,742 | $ | 6,247 | |||||||
Short-term borrowings | 70 | 55 | 127 | 114 | |||||||||||
FHLB borrowings | 1,935 | 1,686 | 6,224 | 4,647 | |||||||||||
Total interest expense | $ | 3,922 | $ | 3,714 | $ | 12,093 | $ | 11,008 | |||||||
Net interest income | $ | 20,858 | $ | 19,581 | $ | 60,499 | $ | 57,528 | |||||||
Provision for loan losses | (1,832 | ) | (95 | ) | (2,004 | ) | 360 | ||||||||
Net interest income after provision for loan losses | $ | 22,690 | $ | 19,676 | $ | 62,503 | $ | 57,168 | |||||||
Noninterest income: | |||||||||||||||
Net gain on sale of loans | $ | 602 | $ | 396 | $ | 1,437 | $ | 1,144 | |||||||
Trust fees | 1,731 | 1,672 | 5,185 | 4,920 | |||||||||||
Service charges and fees | 2,243 | 2,124 | 6,516 | 6,151 | |||||||||||
Rental revenue on tax credit real estate | — | 392 | — | 1,296 | |||||||||||
Net gain on sale of other real estate owned and other repossessed assets | 342 | 22 | 376 | 139 | |||||||||||
Other noninterest income | 396 | 612 | 1,541 | 2,064 | |||||||||||
$ | 5,314 | $ | 5,218 | $ | 15,055 | $ | 15,714 | ||||||||
Noninterest expenses: | |||||||||||||||
Salaries and employee benefits | $ | 8,158 | $ | 7,125 | $ | 22,617 | $ | 20,700 | |||||||
Occupancy | 1,017 | 919 | 3,001 | 2,887 | |||||||||||
Furniture and equipment | 1,350 | 1,304 | 4,111 | 3,911 | |||||||||||
Office supplies and postage | 436 | 457 | 1,282 | 1,311 | |||||||||||
Advertising and business development | 800 | 854 | 2,426 | 2,547 | |||||||||||
Outside services | 1,845 | 1,770 | 5,386 | 5,203 | |||||||||||
Rental expenses on tax credit real estate | — | 558 | — | 1,719 | |||||||||||
FDIC insurance assessment | 315 | 293 | 938 | 866 | |||||||||||
Other noninterest expense | 510 | 392 | 1,585 | 1,231 | |||||||||||
$ | 14,431 | $ | 13,672 | $ | 41,346 | $ | 40,375 | ||||||||
Income before income taxes | $ | 13,573 | $ | 11,222 | $ | 36,212 | $ | 32,507 | |||||||
Income taxes | 4,397 | 3,537 | 11,369 | 9,972 | |||||||||||
Net income | $ | 9,176 | $ | 7,685 | $ | 24,843 | $ | 22,535 | |||||||
Earnings per share: | |||||||||||||||
Basic | $ | 0.99 | $ | 0.82 | $ | 2.67 | $ | 2.41 | |||||||
Diluted | $ | 0.99 | $ | 0.82 | $ | 2.67 | $ | 2.41 | |||||||
See Notes to Consolidated Financial Statements.
Page 5
HILLS BANCORPORATION CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited) (Amounts In Thousands)
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||
Net income | $ | 9,176 | $ | 7,685 | $ | 24,843 | $ | 22,535 | |||||||
Other comprehensive loss | |||||||||||||||
Securities: | |||||||||||||||
Net change in unrealized (loss) gain on securities available for sale | $ | (1,090 | ) | $ | 1,026 | $ | 1,104 | $ | 438 | ||||||
Reclassification adjustment for net gains realized in net income | — | — | — | — | |||||||||||
Income taxes | 417 | (392 | ) | (423 | ) | (167 | ) | ||||||||
Other comprehensive (loss) income on securities available for sale | $ | (673 | ) | $ | 634 | $ | 681 | $ | 271 | ||||||
Derivatives used in cash flow hedging relationships: | |||||||||||||||
Net change in unrealized gain (loss) on derivatives | $ | 500 | $ | (1,637 | ) | $ | (1,931 | ) | $ | (1,889 | ) | ||||
Income taxes | (192 | ) | 626 | 738 | 723 | ||||||||||
Other comprehensive income (loss) on cash flow hedges | $ | 308 | $ | (1,011 | ) | $ | (1,193 | ) | $ | (1,166 | ) | ||||
Other comprehensive loss, net of tax | $ | (365 | ) | $ | (377 | ) | $ | (512 | ) | $ | (895 | ) | |||
Comprehensive income | $ | 8,811 | $ | 7,308 | $ | 24,331 | $ | 21,640 | |||||||
See Notes to Consolidated Financial Statements.
Page 6
HILLS BANCORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited) (Amounts In Thousands, Except Share Amounts)
Paid In Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Unearned ESOP Shares | Treasury Stock | Maximum Cash Obligation Related To ESOP Shares | Total | |||||||||||||||||||||
Balance, December 31, 2014 | $ | 42,925 | $ | 271,924 | $ | (448 | ) | $ | (504 | ) | $ | (23,798 | ) | $ | (34,571 | ) | $ | 255,528 | |||||||||
Issuance of 3,260 shares of common stock | 136 | — | — | — | — | — | 136 | ||||||||||||||||||||
Issuance of 4,155 shares of common stock under the employee stock purchase plan | 172 | — | — | — | — | — | 172 | ||||||||||||||||||||
Unearned restricted stock compensation | 171 | — | — | — | — | — | 171 | ||||||||||||||||||||
Forfeiture of 1,042 shares of common stock | (37 | ) | — | — | — | — | — | (37 | ) | ||||||||||||||||||
Share-based compensation | 21 | — | — | — | — | — | 21 | ||||||||||||||||||||
Income tax benefit related to share-based compensation | 7 | — | — | — | — | — | 7 | ||||||||||||||||||||
Change related to ESOP shares | — | — | — | — | — | (1,359 | ) | (1,359 | ) | ||||||||||||||||||
Net income | — | 22,535 | — | — | — | — | 22,535 | ||||||||||||||||||||
Cash dividends ($0.625 per share) | — | (5,855 | ) | — | — | — | — | (5,855 | ) | ||||||||||||||||||
Purchase of 53,710 shares of common stock | — | — | — | — | (2,297 | ) | — | (2,297 | ) | ||||||||||||||||||
Other comprehensive loss | — | — | (895 | ) | — | — | — | (895 | ) | ||||||||||||||||||
Balance, September 30, 2015 | $ | 43,395 | $ | 288,604 | $ | (1,343 | ) | $ | (504 | ) | $ | (26,095 | ) | $ | (35,930 | ) | $ | 268,127 | |||||||||
Balance, December 31, 2015 | $ | 43,697 | $ | 294,487 | $ | (1,195 | ) | $ | — | $ | (27,252 | ) | $ | (37,562 | ) | $ | 272,175 | ||||||||||
Issuance of 7,646 shares of common stock | 348 | — | — | — | — | — | 348 | ||||||||||||||||||||
Issuance of 3,482 shares of common stock under the employee stock purchase plan | 154 | — | — | — | — | — | 154 | ||||||||||||||||||||
Unearned restricted stock compensation | 112 | — | — | — | — | — | 112 | ||||||||||||||||||||
Forfeiture of 1,264 shares of common stock | (52 | ) | — | — | — | — | — | (52 | ) | ||||||||||||||||||
Share-based compensation | 22 | — | — | — | — | — | 22 | ||||||||||||||||||||
Income tax benefit related to share-based compensation | 64 | — | — | — | — | — | 64 | ||||||||||||||||||||
Change related to ESOP shares | — | — | — | — | — | (2,220 | ) | (2,220 | ) | ||||||||||||||||||
Net income | — | 24,843 | — | — | — | — | 24,843 | ||||||||||||||||||||
Cash dividends ($0.65 per share) | — | (6,060 | ) | — | — | — | — | (6,060 | ) | ||||||||||||||||||
Purchase of 62,266 shares of common stock | — | — | — | — | (2,819 | ) | — | (2,819 | ) | ||||||||||||||||||
Other comprehensive loss | — | — | (512 | ) | — | — | — | (512 | ) | ||||||||||||||||||
Balance, September 30, 2016 | $ | 44,345 | $ | 313,270 | $ | (1,707 | ) | $ | — | $ | (30,071 | ) | $ | (39,782 | ) | $ | 286,055 | ||||||||||
See Notes to Consolidated Financial Statements.
Page 7
HILLS BANCORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Amounts In Thousands)
Nine Months Ended September 30, | |||||||
2016 | 2015 | ||||||
Cash Flows from Operating Activities | |||||||
Net income | $ | 24,843 | $ | 22,535 | |||
Adjustments to reconcile net income to net cash and cash equivalents provided by operating activities: | |||||||
Depreciation | 2,182 | 2,055 | |||||
Provision for loan losses | (2,004 | ) | 360 | ||||
Share-based compensation | 22 | 21 | |||||
Forfeiture of common stock | (52 | ) | (37 | ) | |||
Compensation expensed through issuance of common stock | 348 | 136 | |||||
Excess tax benefits from share-based compensation | (64 | ) | (7 | ) | |||
Provision for deferred income taxes | 54 | (1,033 | ) | ||||
Net gain on sale of other real estate owned and other repossessed assets | (376 | ) | (139 | ) | |||
Increase in accrued interest receivable | (1,867 | ) | (1,424 | ) | |||
Amortization of premium on investment securities, net | 452 | 498 | |||||
Decrease in other assets | 650 | 246 | |||||
(Decrease) increase in accrued interest payable and other liabilities | (92 | ) | 2,479 | ||||
Loans originated for sale | (151,545 | ) | (133,522 | ) | |||
Proceeds on sales of loans | 150,047 | 134,747 | |||||
Net gain on sales of loans | (1,437 | ) | (1,144 | ) | |||
Net cash and cash equivalents provided by operating activities | $ | 21,161 | $ | 25,771 | |||
Cash Flows from Investing Activities | |||||||
Proceeds from maturities of investment securities available for sale | $ | 46,148 | $ | 45,901 | |||
Purchases of investment securities available for sale | (31,456 | ) | (35,847 | ) | |||
Loans made to customers, net of collections | (97,285 | ) | (90,695 | ) | |||
Proceeds on sale of other real estate owned and other repossessed assets | 764 | 1,134 | |||||
Purchases of property and equipment | (4,180 | ) | (6,678 | ) | |||
Income from tax credit real estate, net | 545 | 666 | |||||
Net cash and cash equivalents used in investing activities | $ | (85,464 | ) | $ | (85,519 | ) | |
Cash Flows from Financing Activities | |||||||
Net increase in deposits | $ | 105,710 | $ | 53,907 | |||
Net decrease in other borrowings | (4,148 | ) | (11,375 | ) | |||
Net (decrease) increase in FHLB borrowings | (15,000 | ) | 30,000 | ||||
Excess tax benefits related to share-based compensation | 64 | 7 | |||||
Purchase of treasury stock | (2,819 | ) | (2,297 | ) | |||
Proceeds from the issuance of common stock through the employee stock purchase plan | 154 | 172 | |||||
Dividends paid | (6,060 | ) | (5,855 | ) | |||
Net cash and cash equivalents provided by financing activities | $ | 77,901 | $ | 64,559 | |||
(Continued)
Page 8
HILLS BANCORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Continued) (Amounts In Thousands) | |||||||
Nine Months Ended September 30, | |||||||
2016 | 2015 | ||||||
Increase in cash and cash equivalents | $ | 13,598 | $ | 4,811 | |||
Cash and cash equivalents: | |||||||
Beginning of period | 35,427 | 29,174 | |||||
End of period | $ | 49,025 | $ | 33,985 | |||
Supplemental Disclosures | |||||||
Cash payments for: | |||||||
Interest paid to depositors | $ | 5,776 | $ | 6,399 | |||
Interest paid on other obligations | 6,351 | 4,761 | |||||
Income taxes paid | 10,201 | 10,072 | |||||
Noncash activities: | |||||||
Increase in maximum cash obligation related to ESOP shares | $ | 2,220 | $ | 1,359 | |||
Transfers to other real estate owned | 310 | 355 | |||||
Sale and financing of other real estate owned | 135 | 452 | |||||
See Notes to Consolidated Financial Statements.
Page 9
HILLS BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. | Summary of Significant Accounting Policies |
Basis of Presentation:
The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial reporting and with instructions for Form 10-Q and Regulation S-X. These financial statements include all adjustments (consisting of normal recurring accruals) which in the opinion of management are considered necessary for the fair presentation of the financial position and results of operations for the periods shown. Certain prior year amounts have been reclassified to conform to the current year presentation. The Company considers that it operates as one business segment, a commercial bank.
Operating results for the nine month period ended September 30, 2016 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2016. For further information, refer to the consolidated financial statements and footnotes thereto included in the Form 10-K Annual Report of Hills Bancorporation and subsidiary (the “Company”) for the year ended December 31, 2015 filed with the Securities Exchange Commission on March 9, 2016. The consolidated balance sheet as of December 31, 2015, has been derived from the audited consolidated financial statements for that period.
The Company evaluated subsequent events through the filing date of its quarterly report on Form 10-Q with the SEC.
Effect of New Financial Accounting Standards:
In May 2014, the FASB and International Accounting Standards Board (IASB) issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). The core principle of ASU 2014-09 is that a company should recognize revenue to depict the transfer of promised good or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. For financial institutions, significant changes are not expected given that most financial instruments are not in the scope of the accounting standard update. ASU 2014-09 is effective for annual periods and interim periods within those annual periods beginning after December 15, 2016. In August 2015, FASB issued ASU 2015-14 deferring the effective date for annual periods and interim periods within those annual periods after December 15, 2017. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The adoption of ASU 2014-09 by the Company is not expected to have a material impact.
In February 2015, the FASB issued ASU No. 2015-02 (Topic 810), Consolidation. The ASU modifies the evaluation of whether limited partnerships and similar legal entities are variable interest entities (VIE) or voting interest entities (VOE). The standard relaxes existing criteria for determining when fees paid to a decision maker or service provider do not represent a variable interest by focusing on whether those fees are "at market". The ASU eliminates both the consolidation model specific to limited partnerships and the current presumption that a general partner controls a limited partnership. For public companies, ASU 2015-02 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. The Company adopted the accounting standard for the period ending March 31, 2016 and have changed the accounting for its tax credit limited partnership investments to the equity method. The impact of the change was determined to not be material.
In April 2015, the FASB issued ASU No. 2015-03, Interest - Imputation of Interest (Subtopic 835-30), Simplifying the Presentation of Debt Issuance Costs. ASU 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this update. For public companies, ASU 2015-03 is effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Early adoption is permitted. The Company adopted ASU 2015-03 for the period ending March 31, 2016. There was no material impact on the financial statements.
In April 2015, the FASB issued ASU No. 2015-05, Intangibles – Goodwill and Other Internal-Use Software (Subtopic 350-40), Customer's Accounting for Fees Paid in a Cloud Computing Arrangement. ASU 2015-05 provides guidance to customers about whether a cloud computing arrangement includes a software license. If it does, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. ASU 2015-05 is effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. The adoption of ASU 2015-05 by the Company did not have a material impact.
Page 10
In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments - Overall (Subtopic 825-10), Recognition and Measurement of Financial Assets and Financial Liabilities. ASU 2016-01 created Subtopic 321-10, Investments-Equity Securities which is applicable to all entities except those in industries that account for substantially all investments at fair value through earnings or the change in net assets. Under this new subtopic, equity securities are generally required to be measured at fair value with unrealized holding gains and losses reflected in net income. ASU 2016-01 is effective for annual periods and interim periods within those annual periods beginning after December 15, 2017. The adoption of ASU 2016-01 by the Company is not expected to have a material impact.
In February 2016, the FASB issued ASU No. 2016-02 (Topic 842), Leases. The ASU provides guidance requiring lessees to recognize right-of-use assets and lease liabilities for all leases other than those that meet the definition of short-term leases. For short-term leases, lessees may elect an accounting policy by class of underlying asset under which these assets and liabilities are not recognized and lease payments are generally recognized over the lease term on a straight-line basis. Under this new ASU, lessees will recognize right-of use assets and lease liabilities for most leases currently accounted for as operating leases under generally accepted accounting principles. For public companies, ASU 2016-02 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The adoption of ASU 2016-02 by the Company is not expected to have a material impact.
In March 2016, the FASB issued ASU No. 2016-04, Liabilities - Extinguishments of Liabilities (Subtopic 405-20), Recognition of Breakage for Certain Prepaid Stored-Value Products. ASU 2016-04 applies to all entities that offer certain prepaid stored - value products. The ASU provides guidance for the derecognition of financial liabilities related to the issuance of these products and aligns the recognition of breakage to current authoritative guidance. For public companies, ASU 2016-04 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. The adoption of ASU 2016-04 by the Company is not expected to have a material impact.
In March 2016, the FASB issued ASU No. 2016-09, Compensation - Stock Compensation (Topic 718), Improvements to Employee Share-Based Payment Accounting. The ASU simplifies several aspects of the accounting for share-based payment transaction, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. For public companies, ASU 2016-09 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. The adoption of ASU 2016-09 by the Company is not expected to have a material impact.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. The ASU changes the way entities recognize impairment of financial assets by requiring immediate recognition of estimated credit losses expected to occur over the remaining life of many financial assets. For public companies, ASU 2016-13 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company is currently analyzing the provisions of this standard to determine the potential impact on the Company's financial statements. It is too early in this analysis to assess the impact that ASU No. 2016-13 will have on the Company's financial statements.
Page 11
Note 2. | Earnings Per Share |
Basic earnings per share is computed using the weighted average number of actual common shares outstanding during the period. Diluted earnings per share reflects the potential dilution that would occur from the exercise of common stock options outstanding. ESOP shares are considered outstanding for this calculation unless unearned.
On March 24, 2015, the Company declared a payment of a 2-for-1 stock split of each issued and unissued share of the Company's common stock outstanding as of April 27, 2015. The additional shares were issued as a result of the stock split and were mailed to the shareholders as of May 4, 2015. All shares and earnings per share numbers have been restated for the stock split.
The computation of basic and diluted earnings per share for the periods presented is as follows:
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||
Common shares outstanding at the beginning of the period | 9,283,341 | 9,351,859 | 9,322,054 | 9,365,176 | |||||||||||
Weighted average number of net shares redeemed | (7,633 | ) | (10,342 | ) | (31,950 | ) | (11,936 | ) | |||||||
Weighted average shares outstanding (basic) | 9,275,708 | 9,341,517 | 9,290,104 | 9,353,240 | |||||||||||
Weighted average of potential dilutive shares attributable to stock options granted, computed under the treasury stock method | 6,584 | 5,590 | 6,357 | 5,285 | |||||||||||
Weighted average number of shares (diluted) | 9,282,292 | 9,347,107 | 9,296,461 | 9,358,525 | |||||||||||
Net income (In thousands) | $ | 9,176 | $ | 7,685 | $ | 24,843 | $ | 22,535 | |||||||
Earnings per share: | |||||||||||||||
Basic | $ | 0.99 | $ | 0.82 | $ | 2.67 | $ | 2.41 | |||||||
Diluted | $ | 0.99 | $ | 0.82 | $ | 2.67 | $ | 2.41 | |||||||
Note 3. | Other Comprehensive Income (Loss) |
The following table summarizes the balances of each component of accumulated other comprehensive income (AOCI), included in stockholders’ equity, at September 30, 2016 and December 31, 2015:
September 30, 2016 | December 31, 2015 | ||||||
(amounts in thousands) | |||||||
Net unrealized gain on available-for-sale securities | $ | 3,348 | $ | 2,244 | |||
Net unrealized loss on derivatives used for cash flow hedges | (6,111 | ) | (4,180 | ) | |||
Tax effect | $ | 1,056 | $ | 741 | |||
Net-of-tax amount | $ | (1,707 | ) | $ | (1,195 | ) | |
Page 12
Note 4. | Securities |
The carrying values of investment securities at September 30, 2016 and December 31, 2015 are summarized in the following table (dollars in thousands):
September 30, 2016 | December 31, 2015 | ||||||||||||
Amount | Percent | Amount | Percent | ||||||||||
Securities available for sale | |||||||||||||
U.S. Treasury | $ | 25,243 | 10.07 | % | $ | 24,978 | 9.45 | % | |||||
Other securities (FHLB, FHLMC and FNMA) | 63,731 | 25.43 | 65,328 | 24.72 | |||||||||
State and political subdivisions | 161,641 | 64.50 | 173,929 | 65.83 | |||||||||
Total securities available for sale | $ | 250,615 | 100.00 | % | $ | 264,235 | 100.00 | % | |||||
Investment securities have been classified in the consolidated balance sheets according to management’s intent. Available-for-sale securities consist of debt securities not classified as trading or held to maturity. Available-for-sale securities are stated at fair value, and unrealized holding gains and losses, net of the related deferred tax effect, are reported as a separate component of stockholders' equity. There were no trading or held to maturity securities as of September 30, 2016 or December 31, 2015. The carrying amount of available-for-sale securities and their approximate fair values were as follows as of September 30, 2016 and December 31, 2015 (in thousands):
Amortized Cost | Gross Unrealized Gains | Gross Unrealized (Losses) | Estimated Fair Value | ||||||||||||
September 30, 2016: | |||||||||||||||
U.S. Treasury | $ | 24,929 | $ | 314 | $ | — | $ | 25,243 | |||||||
Other securities (FHLB, FHLMC and FNMA) | 63,357 | 396 | (22 | ) | 63,731 | ||||||||||
State and political subdivisions | 158,981 | 2,735 | (75 | ) | 161,641 | ||||||||||
Total | $ | 247,267 | $ | 3,445 | $ | (97 | ) | $ | 250,615 | ||||||
December 31, 2015: | |||||||||||||||
U.S. Treasury | $ | 24,893 | $ | 92 | $ | (7 | ) | $ | 24,978 | ||||||
Other securities (FHLB, FHLMC and FNMA) | 65,400 | 81 | (153 | ) | 65,328 | ||||||||||
State and political subdivisions | 171,698 | 2,375 | (144 | ) | 173,929 | ||||||||||
Total | $ | 261,991 | $ | 2,548 | $ | (304 | ) | $ | 264,235 | ||||||
The amortized cost and estimated fair value of available-for-sale securities classified according to their contractual maturities at September 30, 2016, were as follows (in thousands):
Amortized Cost | Fair Value | ||||||
Due in one year or less | $ | 39,421 | $ | 39,562 | |||
Due after one year through five years | 140,476 | 142,177 | |||||
Due after five years through ten years | 66,055 | 67,561 | |||||
Due over ten years | 1,315 | 1,315 | |||||
Total | $ | 247,267 | $ | 250,615 | |||
As of September 30, 2016 investment securities with a carrying value of $62.33 million were pledged to collateralize repurchase agreements, derivative financial instruments, and other borrowings.
Page 13
The following table shows the fair value, gross unrealized losses and the percentage of fair value represented by gross unrealized losses of applicable investment securities owned by the Company, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at September 30, 2016 and December 31, 2015 (in thousands):
Less than 12 months | 12 months or more | Total | |||||||||||||||||||||||||||||||||||||||
September 30, 2016 Description of Securities | # | Fair Value | Unrealized Loss | % | # | Fair Value | Unrealized Loss | % | # | Fair Value | Unrealized Loss | % | |||||||||||||||||||||||||||||
U.S. Treasury | — | $ | — | $ | — | — | % | — | $ | — | $ | — | — | % | — | $ | — | $ | — | — | % | ||||||||||||||||||||
Other securities (FHLB, FHLMC and FNMA) | 3 | 6,910 | (22 | ) | 0.32 | — | — | — | — | 3 | 6,910 | (22 | ) | 0.32 | |||||||||||||||||||||||||||
State and political subdivisions | 57 | 14,049 | (61 | ) | 0.43 | 10 | 1,363 | (14 | ) | 1.03 | 67 | 15,412 | (75 | ) | 0.49 | ||||||||||||||||||||||||||
Total temporarily impaired securities | 60 | $ | 20,959 | $ | (83 | ) | 0.40 | % | 10 | $ | 1,363 | $ | (14 | ) | 1.03 | % | 70 | $ | 22,322 | $ | (97 | ) | 0.43 | % | |||||||||||||||||
Less than 12 months | 12 months or more | Total | |||||||||||||||||||||||||||||||||||||||
December 31, 2015 Description of Securities | # | Fair Value | Unrealized Loss | % | # | Fair Value | Unrealized Loss | % | # | Fair Value | Unrealized Loss | % | |||||||||||||||||||||||||||||
U.S. Treasury | 3 | $ | 7,455 | $ | (7 | ) | 0.09 | % | — | $ | — | $ | — | — | % | 3 | $ | 7,455 | $ | (7 | ) | 0.09 | % | ||||||||||||||||||
Other securities (FHLB, FHLMC and FNMA) | 15 | 36,830 | (153 | ) | 0.42 | — | — | — | — | 15 | 36,830 | (153 | ) | 0.42 | |||||||||||||||||||||||||||
State and political subdivisions | 56 | 13,557 | (70 | ) | 0.52 | 27 | 5,633 | (74 | ) | 1.31 | 83 | 19,190 | (144 | ) | 0.75 | ||||||||||||||||||||||||||
Total temporarily impaired securities | 74 | $ | 57,842 | $ | (230 | ) | 0.40 | % | 27 | $ | 5,633 | $ | (74 | ) | 1.31 | % | 101 | $ | 63,475 | $ | (304 | ) | 0.48 | % | |||||||||||||||||
The Company considered the following information in reaching the conclusion that the impairments disclosed in the table above are temporary and not other-than-temporary impairments. None of the unrealized losses in the above table was due to the deterioration in the credit quality of any of the issues that might result in the non-collection of contractual principal and interest. The unrealized losses are due to changes in interest rates. The Company has not recognized any unrealized loss in income because management does not have the intent to sell the securities included in the previous table. Management has concluded that it is more likely than not that the Company will not be required to sell these securities prior to recovery of the amortized cost basis.
Page 14
Note 5. | Loans |
Classes of loans are as follows:
September 30, 2016 | December 31, 2015 | ||||||
(Amounts In Thousands) | |||||||
Agricultural | $ | 88,104 | $ | 101,588 | |||
Commercial and financial | 188,365 | 184,199 | |||||
Real estate: | |||||||
Construction, 1 to 4 family residential | 59,273 | 51,346 | |||||
Construction, land development and commercial | 119,547 | 83,121 | |||||
Mortgage, farmland | 193,819 | 187,856 | |||||
Mortgage, 1 to 4 family first liens | 761,105 | 727,160 | |||||
Mortgage, 1 to 4 family junior liens | 122,588 | 117,873 | |||||
Mortgage, multi-family | 292,190 | 271,974 | |||||
Mortgage, commercial | 327,024 | 323,409 | |||||
Loans to individuals | 24,355 | 24,019 | |||||
Obligations of state and political subdivisions | 50,562 | 52,371 | |||||
$ | 2,226,932 | $ | 2,124,916 | ||||
Net unamortized fees and costs | 816 | 768 | |||||
$ | 2,227,748 | $ | 2,125,684 | ||||
Less allowance for loan losses | 26,140 | 26,510 | |||||
$ | 2,201,608 | $ | 2,099,174 | ||||
Page 15
Changes in the allowance for loan losses, the allowance for loan losses applicable to impaired loans and the related loan balance of impaired loans for the three and nine months ended September 30, 2016 were as follows:
Three Months Ended September 30, 2016 | |||||||||||||||||||||||||||||||
Agricultural | Commercial and Financial | Real Estate: Construction and land development | Real Estate: Mortgage, farmland | Real Estate: Mortgage, 1 to 4 family | Real Estate: Mortgage, multi- family and commercial | Other | Total | ||||||||||||||||||||||||
(Amounts In Thousands) | |||||||||||||||||||||||||||||||
Allowance for loan losses: | |||||||||||||||||||||||||||||||
Beginning balance | $ | 2,997 | $ | 4,011 | $ | 2,898 | $ | 3,927 | $ | 8,226 | $ | 4,201 | $ | 1,030 | $ | 27,290 | |||||||||||||||
Charge-offs | (19 | ) | (38 | ) | — | (105 | ) | (176 | ) | — | (140 | ) | (478 | ) | |||||||||||||||||
Recoveries | — | 289 | 186 | — | 276 | 358 | 51 | 1,160 | |||||||||||||||||||||||
Provision | (201 | ) | (252 | ) | (75 | ) | (204 | ) | (425 | ) | (589 | ) | (86 | ) | (1,832 | ) | |||||||||||||||
Ending balance | $ | 2,777 | $ | 4,010 | $ | 3,009 | $ | 3,618 | $ | 7,901 | $ | 3,970 | $ | 855 | $ | 26,140 | |||||||||||||||
Nine Months Ended September 30, 2016 | |||||||||||||||||||||||||||||||
Agricultural | Commercial and Financial | Real Estate: Construction and land development | Real Estate: Mortgage, farmland | Real Estate: Mortgage, 1 to 4 family | Real Estate: Mortgage, multi- family and commercial | Other | Total | ||||||||||||||||||||||||
(Amounts In Thousands) | |||||||||||||||||||||||||||||||
Allowance for loan losses: | |||||||||||||||||||||||||||||||
Beginning balance | $ | 3,082 | $ | 4,517 | $ | 2,280 | $ | 3,342 | $ | 8,172 | $ | 4,223 | $ | 894 | $ | 26,510 | |||||||||||||||
Charge-offs | (44 | ) | (172 | ) | — | (116 | ) | (704 | ) | (66 | ) | (416 | ) | (1,518 | ) | ||||||||||||||||
Recoveries | 173 | 910 | 792 | — | 767 | 379 | 132 | 3,153 | |||||||||||||||||||||||
Provision | (434 | ) | (1,245 | ) | (63 | ) | 392 | (334 | ) | (566 | ) | 246 | (2,004 | ) | |||||||||||||||||
Ending balance | $ | 2,777 | $ | 4,010 | $ | 3,009 | $ | 3,618 | $ | 7,901 | $ | 3,970 | $ | 855 | $ | 26,140 | |||||||||||||||
Ending balance, individually evaluated for impairment | $ | 746 | $ | 221 | $ | 223 | $ | 549 | $ | 283 | $ | 62 | $ | 29 | $ | 2,113 | |||||||||||||||
Ending balance, collectively evaluated for impairment | $ | 2,031 | $ | 3,789 | $ | 2,786 | $ | 3,069 | $ | 7,618 | $ | 3,908 | $ | 826 | $ | 24,027 | |||||||||||||||
Loans: | |||||||||||||||||||||||||||||||
Ending balance | $ | 88,104 | $ | 188,365 | $ | 178,820 | $ | 193,819 | $ | 883,693 | $ | 619,214 | $ | 74,917 | $ | 2,226,932 | |||||||||||||||
Ending balance, individually evaluated for impairment | $ | 12,276 | $ | 2,529 | $ | 2,877 | $ | 8,371 | $ | 6,497 | $ | 3,356 | $ | 29 | $ | 35,935 | |||||||||||||||
Ending balance, collectively evaluated for impairment | $ | 75,828 | $ | 185,836 | $ | 175,943 | $ | 185,448 | $ | 877,196 | $ | 615,858 | $ | 74,888 | $ | 2,190,997 | |||||||||||||||
Page 16
Changes in the allowance for loan losses for the three and nine months ended September 30, 2015 were as follows:
Three Months Ended September 30, 2015 | |||||||||||||||||||||||||||||||
Agricultural | Commercial and Financial | Real Estate: Construction and land development | Real Estate: Mortgage, farmland | Real Estate: Mortgage, 1 to 4 family | Real Estate: Mortgage, multi- family and commercial | Other | Total | ||||||||||||||||||||||||
(Amounts In Thousands) | |||||||||||||||||||||||||||||||
Allowance for loan losses: | |||||||||||||||||||||||||||||||
Beginning balance | $ | 2,783 | $ | 4,698 | $ | 3,025 | $ | 2,825 | $ | 7,396 | $ | 4,111 | $ | 962 | $ | 25,800 | |||||||||||||||
Charge-offs | (69 | ) | (18 | ) | (100 | ) | — | (135 | ) | (305 | ) | (137 | ) | (764 | ) | ||||||||||||||||
Recoveries | 32 | 318 | 40 | — | 92 | 4 | 53 | 539 | |||||||||||||||||||||||
Provision | 117 | (303 | ) | (379 | ) | 107 | 70 | 320 | (27 | ) | (95 | ) | |||||||||||||||||||
Ending balance | $ | 2,863 | $ | 4,695 | |||||||||||||||||||||||||||