Item
1. Financial Statements
ACCESS
NATIONAL CORPORATION
Consolidated
Balance Sheets
(In
Thousands, Except for Share and Per Share Data)
|
|
June
30,
|
|
|
December
31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(Unaudited)
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Cash
and due from banks
|
|
$
|
14,994
|
|
|
$
|
11,291
|
|
Interest-bearing
balances and federal funds sold
|
|
|
66,541
|
|
|
|
24,598
|
|
Total
cash and cash equivalents
|
|
|
81,535
|
|
|
|
35,889
|
|
Investment
securities:
|
|
|
|
|
|
|
|
|
Available-for-sale,
at fair value
|
|
|
173,558
|
|
|
|
160,162
|
|
Held-to-maturity,
at amortized cost (fair value of $9,560 and $14,314)
|
|
|
9,228
|
|
|
|
14,287
|
|
Total
investment securities
|
|
|
182,786
|
|
|
|
174,449
|
|
|
|
|
|
|
|
|
|
|
Restricted
stock, at amortized cost
|
|
|
7,159
|
|
|
|
7,259
|
|
Loans
held for sale - at fair value
|
|
|
55,116
|
|
|
|
44,135
|
|
Loans
|
|
|
942,729
|
|
|
|
887,478
|
|
Allowance
for loan losses
|
|
|
(13,834
|
)
|
|
|
(13,563
|
)
|
Net
loans
|
|
|
928,895
|
|
|
|
873,915
|
|
Premises,
equipment and land, net
|
|
|
6,822
|
|
|
|
6,689
|
|
Accrued
interest receivable
|
|
|
3,366
|
|
|
|
3,290
|
|
Other
assets
|
|
|
39,192
|
|
|
|
32,922
|
|
Total
assets
|
|
$
|
1,304,871
|
|
|
$
|
1,178,548
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
|
|
|
|
|
|
Noninterest-bearing
deposits
|
|
$
|
392,269
|
|
|
$
|
307,797
|
|
Savings
and interest-bearing deposits
|
|
|
365,664
|
|
|
|
293,711
|
|
Time
deposits
|
|
|
286,612
|
|
|
|
312,236
|
|
Total
deposits
|
|
|
1,044,545
|
|
|
|
913,744
|
|
Other
liabilities
|
|
|
|
|
|
|
|
|
Short-term
borrowings
|
|
|
56,763
|
|
|
|
91,129
|
|
Long-term
borrowings
|
|
|
75,000
|
|
|
|
55,000
|
|
Other
liabilities and accrued expenses
|
|
|
10,177
|
|
|
|
9,537
|
|
Total
liabilities
|
|
$
|
1,186,485
|
|
|
$
|
1,069,410
|
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS'
EQUITY
|
|
|
|
|
|
|
|
|
Common
stock $0.835 par value; 60,000,000 authorized; issued and outstanding, 10,583,594 and 10,544,751 shares, respectively
|
|
$
|
8,837
|
|
|
$
|
8,805
|
|
Additional
paid in capital
|
|
|
20,625
|
|
|
|
19,953
|
|
Retained
earnings
|
|
|
87,188
|
|
|
|
81,385
|
|
Accumulated
other comprehensive income (loss), net
|
|
|
1,736
|
|
|
|
(1,005
|
)
|
Total
shareholders' equity
|
|
|
118,386
|
|
|
|
109,138
|
|
Total
liabilities and shareholders' equity
|
|
$
|
1,304,871
|
|
|
$
|
1,178,548
|
|
See accompanying
notes to consolidated financial statements (unaudited).
ACCESS
NATIONAL CORPORATION
Consolidated
Statements of Income
(In
Thousands, Except for Share and Per Share Data)
(Unaudited)
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Interest
and Dividend Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
and fees on loans
|
|
$
|
11,354
|
|
|
$
|
9,971
|
|
|
$
|
22,230
|
|
|
$
|
19,405
|
|
Interest
on federal funds sold and bank balances
|
|
|
96
|
|
|
|
34
|
|
|
|
166
|
|
|
|
61
|
|
Interest
and dividends on securities
|
|
|
886
|
|
|
|
782
|
|
|
|
1,921
|
|
|
|
1,597
|
|
Total
interest and dividend income
|
|
|
12,336
|
|
|
|
10,787
|
|
|
|
24,317
|
|
|
|
21,063
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
on deposits
|
|
|
1,275
|
|
|
|
867
|
|
|
|
2,425
|
|
|
|
1,600
|
|
Interest
on short-term borrowings
|
|
|
91
|
|
|
|
83
|
|
|
|
218
|
|
|
|
182
|
|
Interest
on long-term borrowings
|
|
|
209
|
|
|
|
30
|
|
|
|
363
|
|
|
|
32
|
|
Total
interest expense
|
|
|
1,575
|
|
|
|
980
|
|
|
|
3,006
|
|
|
|
1,814
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income
|
|
|
10,761
|
|
|
|
9,807
|
|
|
|
21,311
|
|
|
|
19,249
|
|
Provision
for loan losses
|
|
|
120
|
|
|
|
150
|
|
|
|
120
|
|
|
|
150
|
|
Net
interest income after provision for loan losses
|
|
|
10,641
|
|
|
|
9,657
|
|
|
|
21,191
|
|
|
|
19,099
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
charges and fees
|
|
|
239
|
|
|
|
218
|
|
|
|
499
|
|
|
|
415
|
|
Gain
on sale of loans
|
|
|
7,273
|
|
|
|
5,705
|
|
|
|
11,103
|
|
|
|
9,276
|
|
Other
income
|
|
|
1,661
|
|
|
|
1,158
|
|
|
|
4,390
|
|
|
|
3,695
|
|
Total
noninterest income
|
|
|
9,173
|
|
|
|
7,081
|
|
|
|
15,992
|
|
|
|
13,386
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest
Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries
and benefits
|
|
|
8,407
|
|
|
|
6,999
|
|
|
|
16,075
|
|
|
|
13,716
|
|
Occupancy
and equipment
|
|
|
749
|
|
|
|
742
|
|
|
|
1,510
|
|
|
|
1,496
|
|
Other
operating expenses
|
|
|
3,147
|
|
|
|
2,913
|
|
|
|
5,847
|
|
|
|
5,688
|
|
Total
noninterest expense
|
|
|
12,303
|
|
|
|
10,654
|
|
|
|
23,432
|
|
|
|
20,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
|
7,511
|
|
|
|
6,084
|
|
|
|
13,751
|
|
|
|
11,585
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax expense
|
|
|
2,633
|
|
|
|
2,100
|
|
|
|
4,778
|
|
|
|
4,028
|
|
NET
INCOME
|
|
$
|
4,878
|
|
|
$
|
3,984
|
|
|
$
|
8,973
|
|
|
$
|
7,557
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per
common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.46
|
|
|
$
|
0.38
|
|
|
$
|
0.85
|
|
|
$
|
0.72
|
|
Diluted
|
|
$
|
0.46
|
|
|
$
|
0.38
|
|
|
$
|
0.85
|
|
|
$
|
0.72
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average outstanding
shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
10,576,516
|
|
|
|
10,518,939
|
|
|
|
10,564,833
|
|
|
|
10,496,152
|
|
Diluted
|
|
|
10,639,167
|
|
|
|
10,590,882
|
|
|
|
10,622,763
|
|
|
|
10,554,052
|
|
See accompanying
notes to consolidated financial statements (unaudited).
ACCESS
NATIONAL CORPORATION
Consolidated
Statements of Comprehensive Income
(In
Thousands)
(Unaudited)
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Net
income
|
|
$
|
4,878
|
|
|
$
|
3,984
|
|
|
$
|
8,973
|
|
|
$
|
7,557
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
gains (losses) on securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
holding gains (losses) arising during period
|
|
|
1,288
|
|
|
|
(915
|
)
|
|
|
4,326
|
|
|
|
160
|
|
Reclassification
adjustment for gains included in net income
|
|
|
(51
|
)
|
|
|
-
|
|
|
|
(109
|
)
|
|
|
-
|
|
Tax
effect
|
|
|
(433
|
)
|
|
|
320
|
|
|
|
(1,476
|
)
|
|
|
(57
|
)
|
Net
of tax amount
|
|
|
804
|
|
|
|
(595
|
)
|
|
|
2,741
|
|
|
|
103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
income
|
|
$
|
5,682
|
|
|
$
|
3,389
|
|
|
$
|
11,714
|
|
|
$
|
7,660
|
|
See
accompanying notes to consolidated financial statements (unaudited).
ACCESS
NATIONAL CORPORATION
Consolidated
Statements of Changes in Shareholders' Equity
(In
Thousands, Except for Share and Per Share Data)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
Common
|
|
|
Paid in
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
|
|
|
|
Stock
|
|
|
Capital
|
|
|
Earnings
|
|
|
Income (Loss)
|
|
|
Total
|
|
Balance,
December 31, 2015
|
|
$
|
8,805
|
|
|
$
|
19,953
|
|
|
$
|
81,385
|
|
|
$
|
(1,005
|
)
|
|
$
|
109,138
|
|
Net
income
|
|
|
-
|
|
|
|
-
|
|
|
|
8,973
|
|
|
|
-
|
|
|
|
8,973
|
|
Other
comprehensive income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,741
|
|
|
|
2,741
|
|
Stock
options exercised (32,638 shares)
|
|
|
27
|
|
|
|
381
|
|
|
|
-
|
|
|
|
-
|
|
|
|
408
|
|
Issuance
of restricted common stock (6,205 shares)
|
|
|
5
|
|
|
|
123
|
|
|
|
-
|
|
|
|
-
|
|
|
|
128
|
|
Cash
dividend ($0.30 per share)
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,170
|
)
|
|
|
-
|
|
|
|
(3,170
|
)
|
Stock-based
compensation expense recognized in earnings
|
|
|
-
|
|
|
|
168
|
|
|
|
-
|
|
|
|
-
|
|
|
|
168
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
June 30, 2016
|
|
$
|
8,837
|
|
|
$
|
20,625
|
|
|
$
|
87,188
|
|
|
$
|
1,736
|
|
|
$
|
118,386
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2014
|
|
$
|
8,742
|
|
|
$
|
18,538
|
|
|
$
|
72,168
|
|
|
$
|
(544
|
)
|
|
$
|
98,904
|
|
Net
income
|
|
|
-
|
|
|
|
-
|
|
|
|
7,557
|
|
|
|
-
|
|
|
|
7,557
|
|
Other
comprehensive income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
103
|
|
|
|
103
|
|
Stock
options exercised (4,600 shares)
|
|
|
4
|
|
|
|
46
|
|
|
|
-
|
|
|
|
-
|
|
|
|
50
|
|
Issuance
of restricted common stock (7,500 shares)
|
|
|
6
|
|
|
|
122
|
|
|
|
-
|
|
|
|
-
|
|
|
|
128
|
|
DRSPP
shares issued from reserve (37,707)
|
|
|
31
|
|
|
|
607
|
|
|
|
-
|
|
|
|
-
|
|
|
|
638
|
|
Cash
dividend ($0.29 per share)
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,043
|
)
|
|
|
-
|
|
|
|
(3,043
|
)
|
Stock-based
compensation expense recognized in earnings
|
|
|
-
|
|
|
|
178
|
|
|
|
-
|
|
|
|
-
|
|
|
|
178
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
June 30, 2015
|
|
$
|
8,783
|
|
|
$
|
19,491
|
|
|
$
|
76,682
|
|
|
$
|
(441
|
)
|
|
$
|
104,515
|
|
See accompanying
notes to consolidated financial statements (unaudited).
ACCESS
NATIONAL CORPORATION
Consolidated
Statements of Cash Flows
(In
Thousands)
(Unaudited)
|
|
Six Months Ended June 30,
|
|
|
|
2016
|
|
|
2015
|
|
Cash
Flows from Operating Activities
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
8,973
|
|
|
$
|
7,557
|
|
Adjustments
to reconcile net income to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Provision
for loan losses
|
|
|
120
|
|
|
|
150
|
|
Provision
for off balance sheet losses
|
|
|
-
|
|
|
|
25
|
|
Income
from bank-owned life insurance
|
|
|
(226
|
)
|
|
|
(231
|
)
|
Gain
on sale of securities
|
|
|
(109
|
)
|
|
|
-
|
|
Deferred
tax benefit
|
|
|
(13
|
)
|
|
|
(12
|
)
|
Stock-based
compensation
|
|
|
168
|
|
|
|
178
|
|
Increase
in valuation allowance on derivatives
|
|
|
(14
|
)
|
|
|
(758
|
)
|
Net
amortization on securities
|
|
|
946
|
|
|
|
467
|
|
Depreciation
and amortization
|
|
|
254
|
|
|
|
249
|
|
Originations
of loans held for sale
|
|
|
(260,511
|
)
|
|
|
(259,764
|
)
|
Sales
of loans held for sale
|
|
|
250,737
|
|
|
|
254,006
|
|
Changes
in assets and liabilities:
|
|
|
|
|
|
|
|
|
(Increase)
decrease in valuation of loans held for sale carried at fair value
|
|
|
(1,207
|
)
|
|
|
487
|
|
Increase
in other assets
|
|
|
(4,069
|
)
|
|
|
(2,176
|
)
|
Decrease
in other liabilities
|
|
|
(250
|
)
|
|
|
(4,644
|
)
|
Net
cash used in operating activities
|
|
|
(5,201
|
)
|
|
|
(4,466
|
)
|
Cash
Flows from Investing Activities
|
|
|
|
|
|
|
|
|
Proceeds
from maturities, calls, and prepayments of securities available-for-sale
|
|
|
4,132
|
|
|
|
7,201
|
|
Proceeds
from sale of securities
|
|
|
13,200
|
|
|
|
-
|
|
Purchases
of securities available-for-sale
|
|
|
(27,290
|
)
|
|
|
(21,035
|
)
|
Proceeds
from maturities and calls of securities held to maturity
|
|
|
5,000
|
|
|
|
-
|
|
Purchases
of Federal Reserve and Federal Home Loan Bank stock
|
|
|
(4,703
|
)
|
|
|
(4,918
|
)
|
Proceeds
from redemption of Federal Reserve and Federal Home Loan Bank stock
|
|
|
4,803
|
|
|
|
6,408
|
|
Purchase
of bank owned life insurance
|
|
|
(2,500
|
)
|
|
|
-
|
|
Net
increase in loans
|
|
|
(55,230
|
)
|
|
|
(57,679
|
)
|
Purchases
of premises and equipment
|
|
|
(367
|
)
|
|
|
(215
|
)
|
Net
cash used in investing activities
|
|
|
(62,955
|
)
|
|
|
(70,238
|
)
|
Cash
Flows from Financing Activities
|
|
|
|
|
|
|
|
|
Net
increase in demand, interest-bearing demand and savings deposits
|
|
|
156,426
|
|
|
|
92,678
|
|
Net
(decrease) increase in time deposits
|
|
|
(25,624
|
)
|
|
|
57,281
|
|
Decrease
in securities sold under agreement to repurchase
|
|
|
(9,366
|
)
|
|
|
(7,557
|
)
|
Decrease
in other short-term borrowings
|
|
|
(25,000
|
)
|
|
|
(40,000
|
)
|
Increase
in long-term borrowings
|
|
|
20,000
|
|
|
|
10,000
|
|
Proceeds
from issuance of common stock
|
|
|
536
|
|
|
|
816
|
|
Dividends
paid
|
|
|
(3,170
|
)
|
|
|
(3,043
|
)
|
Net
cash provided by financing activities
|
|
|
113,802
|
|
|
|
110,175
|
|
|
|
|
|
|
|
|
|
|
Increase
in cash and cash equivalents
|
|
|
45,646
|
|
|
|
35,471
|
|
Cash
and Cash Equivalents
|
|
|
|
|
|
|
|
|
Beginning
|
|
|
35,889
|
|
|
|
56,029
|
|
Ending
|
|
$
|
81,535
|
|
|
$
|
91,500
|
|
Supplemental
Disclosures of Cash Flow Information
|
|
|
|
|
|
|
|
|
Cash
payments for interest
|
|
$
|
2,981
|
|
|
$
|
1,804
|
|
Cash
payments for income taxes
|
|
$
|
4,828
|
|
|
$
|
476
|
|
Supplemental
Disclosures of Noncash Investing Activities
|
|
|
|
|
|
|
|
|
Unrealized
gain on securities available-for-sale
|
|
$
|
4,217
|
|
|
$
|
160
|
|
Transfers
of loans held for investment to other real estate owned
|
|
$
|
129
|
|
|
$
|
-
|
|
Transfers
of other real estate owned to other assets due to FHA receivable
|
|
$
|
(129
|
)
|
|
$
|
-
|
|
See accompanying
notes to consolidated financial statements (unaudited).
Notes
to Consolidated Financial Statements (Unaudited)
NOTE
1 – BASIS OF PRESENTATION
Access
National Corporation (the “Corporation”) is a bank holding company incorporated under the laws of the Commonwealth
of Virginia. The Corporation owns all of the stock of its subsidiary, Access National Bank (the “Bank”), which is
an independent commercial bank chartered under federal laws as a national banking association. The Bank has three active wholly
owned subsidiaries: Access Real Estate LLC (“Access Real Estate”), a real estate company; ACME Real Estate LLC, a
real estate holding company of foreclosed property; and Access Capital Management Holding LLC (“ACM”), a holding company
for Capital Fiduciary Advisors, L.L.C., Access Investment Services, L.L.C. and Access Insurance Group, L.L.C.
The accompanying
unaudited interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted
in the United States of America (“GAAP”) for interim financial information and with rules and regulations of the Securities
and Exchange Commission (“SEC”). The statements do not include all of the information and footnotes required by GAAP
for complete financial statements. All adjustments have been made which, in the opinion of management, are necessary for a fair
presentation of the results for the interim periods presented. Such adjustments are all of a normal and recurring nature. All
significant inter-company accounts and transactions have been eliminated in consolidation. Certain prior period amounts have been
reclassified to conform to the current period presentation. The results of operations for the three and six months ended June
30, 2016 are not necessarily indicative of the results that may be expected for the entire year ending December 31, 2016. These
consolidated financial statements should be read in conjunction with the Corporation’s audited financial statements and
the notes thereto as of December 31, 2015, included in the Corporation’s Annual Report on Form 10-K for the fiscal year
ended December 31, 2015.
The Corporation
has evaluated subsequent events for potential recognition and/or disclosure in this Quarterly Report on Form 10-Q through the
date these consolidated financial statements were issued.
NOTE
2 – STOCK-BASED COMPENSATION PLANS
During
the first six months of 2016, the Corporation granted 122,050 stock options to officers, directors, and employees under the 2009
Stock Option Plan (the “Plan”). Options granted under the Plan have an exercise price equal to the fair market value
as of the grant date. Options granted vest over various periods ranging from two and one-half years to four years and expire one
year after the full vesting date. Stock–based compensation expense recognized in other operating expense during the first
six months of 2016 and 2015 was $168 thousand and $178 thousand, respectively. The fair value of options is estimated on the date
of grant using a Black Scholes option-pricing model with the assumptions noted below.
The
total unrecognized compensation cost related to non-vested share based compensation arrangements granted under the Plan as of
June 30, 2016 was $689,423. The cost is expected to be recognized over a weighted average period of 1.34 years.
NOTE
2 – STOCK-BASED COMPENSATION PLANS (continued)
A
summary of stock option activity under the Plan for the six months ended June 30, 2016 and 2015 is presented as follows:
|
|
Six
Months Ended
|
|
|
|
June
30, 2016
|
|
|
|
|
|
Expected
life of options granted, in years
|
|
|
4.58
|
|
Risk-free
interest rate
|
|
|
1.26
|
%
|
Expected
volatility of stock
|
|
|
30
|
%
|
Annual
expected dividend yield
|
|
|
3
|
%
|
|
|
|
|
|
Fair Value
of Granted Options
|
|
$
|
433,479
|
|
Non-Vested
Options
|
|
|
303,914
|
|
|
|
|
|
|
|
|
|
Weighted Avg.
|
|
|
|
|
|
|
Number of
|
|
|
Weighted Avg.
|
|
|
Remaining Contractual
|
|
|
Aggregate Intrinsic
|
|
|
|
Options
|
|
|
Exercise Price
|
|
|
Term, in years
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at beginning of year
|
|
|
407,832
|
|
|
$
|
15.33
|
|
|
|
2.81
|
|
|
$
|
2,091,196
|
|
Granted
|
|
|
122,050
|
|
|
|
18.39
|
|
|
|
4.58
|
|
|
|
-
|
|
Exercised
|
|
|
(32,638
|
)
|
|
|
12.53
|
|
|
|
1.33
|
|
|
|
208,208
|
|
Lapsed
or Canceled
|
|
|
(7,650
|
)
|
|
$
|
16.16
|
|
|
|
2.92
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at June 30, 2016
|
|
|
489,594
|
|
|
$
|
16.27
|
|
|
|
2.93
|
|
|
$
|
1,591,210
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable
at June 30, 2016
|
|
|
185,680
|
|
|
$
|
14.27
|
|
|
|
1.87
|
|
|
$
|
973,639
|
|
|
|
Six Months Ended
|
|
|
|
June 30, 2015
|
|
|
|
|
|
Expected
life of options granted, in years
|
|
|
4.56
|
|
Risk-free
interest rate
|
|
|
1.06
|
%
|
Expected
volatility of stock
|
|
|
30
|
%
|
Annual
expected dividend yield
|
|
|
3
|
%
|
|
|
|
|
|
Fair value
of granted options
|
|
$
|
342,570
|
|
Non-vested
options
|
|
|
308,031
|
|
|
|
|
|
|
|
|
|
Weighted Avg.
|
|
|
|
|
|
|
Number of
|
|
|
Weighted Avg.
|
|
|
Remaining Contractual
|
|
|
Aggregate Intrinsic
|
|
|
|
Options
|
|
|
Exercise
Price
|
|
|
Term,
in years
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at beginning of year
|
|
|
316,423
|
|
|
$
|
14.02
|
|
|
|
3.20
|
|
|
$
|
917,215
|
|
Granted
|
|
|
121,434
|
|
|
|
17.95
|
|
|
|
4.56
|
|
|
|
-
|
|
Exercised
|
|
|
(4,600
|
)
|
|
|
10.76
|
|
|
|
1.91
|
|
|
|
35,310
|
|
Lapsed
or canceled
|
|
|
(1,325
|
)
|
|
$
|
15.32
|
|
|
|
2.73
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at June 30, 2015
|
|
|
431,932
|
|
|
$
|
15.16
|
|
|
|
3.24
|
|
|
$
|
1,849,746
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable
at June 30, 2015
|
|
|
123,901
|
|
|
$
|
13.29
|
|
|
|
2.46
|
|
|
$
|
761,942
|
|
NOTE
3 – SECURITIES
The following
table provides the amortized cost and fair value for the categories of available-for-sale securities and held-to-maturity securities
at June 30, 2016 and December 31, 2015. Held-to-maturity securities are carried at amortized cost, which reflects historical cost,
adjusted for amortization of premiums and accretion of discounts. Available-for-sale securities are carried at estimated fair
value with net unrealized gains or losses reported on an after tax basis as a component of accumulated other comprehensive income
in shareholders’ equity. The estimated fair value of available-for-sale securities is impacted by interest rates, credit
spreads, market volatility, and liquidity.
NOTE
3 – SECURITIES (continued)
|
|
June 30, 2016
|
|
|
|
Amortized Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
(Losses)
|
|
|
Estimated
Fair Value
|
|
|
|
|
(In Thousands)
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Government agencies
|
|
$
|
10,116
|
|
|
$
|
152
|
|
|
$
|
-
|
|
|
$
|
10,268
|
|
Mortgage
backed securities
|
|
|
108,827
|
|
|
|
1,736
|
|
|
|
(253
|
)
|
|
|
110,310
|
|
Corporate
bonds
|
|
|
8,801
|
|
|
|
110
|
|
|
|
-
|
|
|
|
8,911
|
|
Asset
backed securities
|
|
|
15,672
|
|
|
|
82
|
|
|
|
(219
|
)
|
|
|
15,535
|
|
Municipals
|
|
|
9,377
|
|
|
|
485
|
|
|
|
-
|
|
|
|
9,862
|
|
Municipals
- nontaxable
|
|
|
16,595
|
|
|
|
657
|
|
|
|
(8
|
)
|
|
|
17,244
|
|
CRA
Mutual fund
|
|
|
1,500
|
|
|
|
-
|
|
|
|
(72
|
)
|
|
|
1,428
|
|
|
|
$
|
170,888
|
|
|
$
|
3,222
|
|
|
$
|
(552
|
)
|
|
$
|
173,558
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Government agencies
|
|
$
|
5,000
|
|
|
$
|
118
|
|
|
$
|
-
|
|
|
$
|
5,118
|
|
Municipals
|
|
|
2,609
|
|
|
|
165
|
|
|
|
-
|
|
|
|
2,774
|
|
Municipals
- nontaxable
|
|
|
1,619
|
|
|
|
49
|
|
|
|
-
|
|
|
|
1,668
|
|
|
|
$
|
9,228
|
|
|
$
|
332
|
|
|
$
|
-
|
|
|
$
|
9,560
|
|
|
|
December 31, 2015
|
|
|
|
Amortized Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
(Losses)
|
|
|
Estimated
Fair Value
|
|
|
|
|
(In Thousands)
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Government agencies
|
|
$
|
19,124
|
|
|
$
|
5
|
|
|
$
|
(225
|
)
|
|
$
|
18,904
|
|
Mortgage
backed securities
|
|
|
97,270
|
|
|
|
31
|
|
|
|
(1,224
|
)
|
|
|
96,077
|
|
Corporate
bonds
|
|
|
8,967
|
|
|
|
20
|
|
|
|
(28
|
)
|
|
|
8,959
|
|
Asset
backed securities
|
|
|
16,288
|
|
|
|
18
|
|
|
|
(308
|
)
|
|
|
15,998
|
|
Municipals
- nontaxable
|
|
|
11,885
|
|
|
|
152
|
|
|
|
(32
|
)
|
|
|
12,005
|
|
Municipals
|
|
|
6,674
|
|
|
|
135
|
|
|
|
-
|
|
|
|
6,809
|
|
CRA
Mutual fund
|
|
|
1,500
|
|
|
|
-
|
|
|
|
(90
|
)
|
|
|
1,410
|
|
|
|
$
|
161,708
|
|
|
$
|
361
|
|
|
$
|
(1,907
|
)
|
|
$
|
160,162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Government agencies
|
|
$
|
9,987
|
|
|
$
|
50
|
|
|
$
|
(32
|
)
|
|
$
|
10,005
|
|
Municipals
|
|
|
4,300
|
|
|
|
43
|
|
|
|
(34
|
)
|
|
|
4,309
|
|
|
|
$
|
14,287
|
|
|
$
|
93
|
|
|
$
|
(66
|
)
|
|
$
|
14,314
|
|
NOTE
3 – SECURITIES (continued)
The amortized
cost and estimated fair value of securities available-for-sale and held-to-maturity as of June 30, 2016 and December 31, 2015
by contractual maturity are shown below. Actual maturities may differ from contractual maturities because some of the securities
may be called or prepaid without any penalties.
|
|
June 30, 2016
|
|
|
December 31, 2015
|
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
Estimated
|
|
|
|
Amortized
|
|
|
Fair
|
|
|
Amortized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Value
|
|
|
Cost
|
|
|
Value
|
|
|
|
|
(In
Thousands)
|
|
Available-for-sale:
|
|
|
|
|
US
Government agencies:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due
after one through five years
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
4,000
|
|
|
$
|
4,005
|
|
Due
after five through ten years
|
|
|
10,116
|
|
|
|
10,268
|
|
|
|
15,124
|
|
|
|
14,898
|
|
Mortgage
backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due
after one through five years
|
|
|
16,246
|
|
|
|
16,577
|
|
|
|
10,913
|
|
|
|
10,845
|
|
Due
after five through ten years
|
|
|
31,639
|
|
|
|
32,711
|
|
|
|
41,313
|
|
|
|
40,901
|
|
Due
after ten through fifteen years
|
|
|
15,534
|
|
|
|
15,618
|
|
|
|
14,796
|
|
|
|
14,511
|
|
Due
after fifteen years
|
|
|
45,408
|
|
|
|
45,404
|
|
|
|
30,248
|
|
|
|
29,819
|
|
Corporate
bonds:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due
after one through five years
|
|
|
8,801
|
|
|
|
8,911
|
|
|
|
8,967
|
|
|
|
8,959
|
|
Asset
backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due
after one through five years
|
|
|
1,976
|
|
|
|
2,038
|
|
|
|
1,976
|
|
|
|
1,967
|
|
Due
after five through ten years
|
|
|
3,091
|
|
|
|
2,996
|
|
|
|
3,101
|
|
|
|
3,002
|
|
Due
after fifteen years
|
|
|
10,605
|
|
|
|
10,501
|
|
|
|
11,211
|
|
|
|
11,029
|
|
Municipals:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due
after ten through fifteen years
|
|
|
2,314
|
|
|
|
2,475
|
|
|
|
2,327
|
|
|
|
2,383
|
|
Due
after fifteen years
|
|
|
7,063
|
|
|
|
7,387
|
|
|
|
4,347
|
|
|
|
4,427
|
|
Municipals
- nontaxable:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due
after one through five years
|
|
|
2,673
|
|
|
|
2,768
|
|
|
|
-
|
|
|
|
-
|
|
Due
after five through ten years
|
|
|
5,060
|
|
|
|
5,240
|
|
|
|
3,607
|
|
|
|
3,633
|
|
Due
after ten through fifteen years
|
|
|
8,862
|
|
|
|
9,236
|
|
|
|
4,882
|
|
|
|
4,980
|
|
Due
after fifteen years
|
|
|
-
|
|
|
|
-
|
|
|
|
3,396
|
|
|
|
3,393
|
|
CRA
Mutual fund
|
|
|
1,500
|
|
|
|
1,428
|
|
|
|
1,500
|
|
|
|
1,410
|
|
Total
|
|
$
|
170,888
|
|
|
$
|
173,558
|
|
|
$
|
161,708
|
|
|
$
|
160,162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US
Government agencies:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due
after one through five years
|
|
$
|
5,000
|
|
|
$
|
5,118
|
|
|
$
|
5,000
|
|
|
$
|
5,050
|
|
Due
after five through ten years
|
|
|
-
|
|
|
|
-
|
|
|
|
4,987
|
|
|
|
4,954
|
|
Municipals:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due
after five through ten years
|
|
|
1,484
|
|
|
|
1,566
|
|
|
|
1,486
|
|
|
|
1,499
|
|
Due
after ten through fifteen years
|
|
|
1,125
|
|
|
|
1,208
|
|
|
|
1,129
|
|
|
|
1,145
|
|
Municipals
- nontaxable:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due
after one through five years
|
|
|
1,619
|
|
|
|
1,668
|
|
|
|
-
|
|
|
|
-
|
|
Due
after ten through fifteen years
|
|
|
-
|
|
|
|
-
|
|
|
|
1,404
|
|
|
|
1,387
|
|
Due
after fifteen years
|
|
|
-
|
|
|
|
-
|
|
|
|
281
|
|
|
|
279
|
|
Total
|
|
$
|
9,228
|
|
|
$
|
9,560
|
|
|
$
|
14,287
|
|
|
$
|
14,314
|
|
The
estimated fair value of securities pledged to secure public funds, securities sold under agreements to repurchase, credit lines
with the Federal Reserve Bank (“FRB”), and debtor-in-possession accounts amounted to $148.4 million at June 30, 2016
and $147.9 million at December 31, 2015.
NOTE
3 – SECURITIES (continued)
Securities
available-for-sale and held-to-maturity that have an unrealized loss position at June 30, 2016 and December 31, 2015 are as follows:
|
|
Securities in a loss
|
|
|
Securities in a loss
|
|
|
|
|
|
|
|
|
|
Position for less than
|
|
|
Position for 12 Months
|
|
|
|
|
|
|
|
|
|
12 Months
|
|
|
or Longer
|
|
|
Total
|
|
June 30, 2016
|
|
Estimated
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
|
(In Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
securities available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage
backed securities
|
|
$
|
31,606
|
|
|
$
|
(224
|
)
|
|
$
|
9,369
|
|
|
$
|
(29
|
)
|
|
$
|
40,975
|
|
|
$
|
(253
|
)
|
Municipals
- nontaxable
|
|
|
2,473
|
|
|
|
(8
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
2,473
|
|
|
|
(8
|
)
|
Asset
backed securities
|
|
|
-
|
|
|
|
-
|
|
|
|
7,548
|
|
|
|
(219
|
)
|
|
|
7,548
|
|
|
|
(219
|
)
|
CRA
Mutual fund
|
|
|
-
|
|
|
|
-
|
|
|
|
1,428
|
|
|
|
(72
|
)
|
|
|
1,428
|
|
|
|
(72
|
)
|
Total
|
|
$
|
34,079
|
|
|
$
|
(232
|
)
|
|
$
|
18,345
|
|
|
$
|
(320
|
)
|
|
$
|
52,424
|
|
|
$
|
(552
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
securities held-to-maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Government agencies
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Total
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
Securities in a loss
|
|
|
Securities in a loss
|
|
|
|
|
|
|
|
|
|
Position for less than
|
|
|
Position for 12 Months
|
|
|
|
|
|
|
|
|
|
12 Months
|
|
|
or Longer
|
|
|
Total
|
|
December 31, 2015
|
|
Estimated
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
|
(In
Thousands)
|
|
Investment
securities available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage
backed securities
|
|
$
|
63,327
|
|
|
$
|
(774
|
)
|
|
$
|
29,375
|
|
|
$
|
(450
|
)
|
|
$
|
92,702
|
|
|
$
|
(1,224
|
)
|
U.S.
Government agencies
|
|
|
5,040
|
|
|
|
(85
|
)
|
|
|
9,858
|
|
|
|
(140
|
)
|
|
|
14,898
|
|
|
|
(225
|
)
|
Municipals
|
|
|
1,452
|
|
|
|
(13
|
)
|
|
|
2,244
|
|
|
|
(19
|
)
|
|
|
3,696
|
|
|
|
(32
|
)
|
Corporate
bonds
|
|
|
-
|
|
|
|
-
|
|
|
|
7,066
|
|
|
|
(28
|
)
|
|
|
7,066
|
|
|
|
(28
|
)
|
Asset
backed securities
|
|
|
1,967
|
|
|
|
(9
|
)
|
|
|
9,531
|
|
|
|
(299
|
)
|
|
|
11,498
|
|
|
|
(308
|
)
|
CRA
Mutual fund
|
|
|
-
|
|
|
|
-
|
|
|
|
1,410
|
|
|
|
(90
|
)
|
|
|
1,410
|
|
|
|
(90
|
)
|
Total
|
|
$
|
71,786
|
|
|
$
|
(881
|
)
|
|
$
|
59,484
|
|
|
$
|
(1,026
|
)
|
|
$
|
131,270
|
|
|
$
|
(1,907
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
securities held-to-maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Government agencies
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
4,954
|
|
|
$
|
(32
|
)
|
|
$
|
4,954
|
|
|
$
|
(32
|
)
|
Municipals
- nontaxable
|
|
|
-
|
|
|
|
-
|
|
|
|
3,266
|
|
|
|
(34
|
)
|
|
|
3,266
|
|
|
|
(34
|
)
|
Total
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
8,220
|
|
|
$
|
(66
|
)
|
|
$
|
8,220
|
|
|
$
|
(66
|
)
|
The Corporation
evaluates securities for other than temporary impairment (“OTTI”) on a quarterly basis and more frequently when economic
or market conditions warrant such evaluation. Consideration is given to various factors in determining whether the Corporation
anticipates a recovery in fair value such as: the length of time and extent to which the fair value has been less than cost, and
the financial condition and underlying credit quality of the issuer. When analyzing an issuer’s financial condition, the
Corporation may consider whether the securities are issued by the federal government or its agencies, the sector or industry trends
affecting the issuer, and whether any recent downgrades by bond rating agencies have occurred.
NOTE
3 – SECURITIES (continued)
Mortgage
backed securities
The Corporation’s
unrealized losses on mortgage backed securities were caused by interest rate fluctuations. At June 30, 2016, thirteen securities
had unrealized losses of $253 thousand. As these securities are Ginnie Mae and government sponsored entity securities backed by
the United States Government, the Corporation’s intent to hold these securities until a market price recovery or maturity,
and the determination that it is more likely than not that the Corporation will not be required to sell these securities before
their anticipated recoveries, the Corporation does not consider these investments other than temporarily impaired.
Asset
backed securities
The Corporation’s
unrealized losses on its asset backed securities were caused by interest rate fluctuations. At June 30, 2016, four securities
had unrealized losses of $219 thousand. Based on the credit quality of the issuers, the Corporation’s intent to hold these
securities until a market price recovery, and the determination that it is more likely than not that the Corporation will not
be required to sell the securities before their anticipated recovery, the Corporation does not consider these investments other
than temporarily impaired.
Mutual
fund
The Corporation’s
unrealized loss on its mutual fund investment was caused by interest rate fluctuations. At June 30, 2016, this one security had
an unrealized loss of $72 thousand. Based on the credit quality of the issuer, the Corporation’s intent to hold this security
until a market price recovery, and the determination that it is more likely than not that the Corporation will not be required
to sell this security before its anticipated recovery, the Corporation does not consider this investment other than temporarily
impaired.
Municipal
The Corporation’s
unrealized losses on its municipal investments were caused by interest rate fluctuations. At June 30, 2016, three available-for-sale
municipal investments had unrealized losses of $8 thousand. Based on the credit quality of the issuers, the Corporation’s
intent to hold these securities until a market price recovery, and the determination that it is more likely than not that the
Corporation will not be required to sell these securities before their anticipated recovery, the Corporation does not consider
these investments other than temporarily impaired.
NOTE
3 – SECURITIES (continued)
Restricted
Stock
The Corporation’s
restricted stock consists of Federal Home Loan Bank of Atlanta (“FHLB”) stock and FRB stock. The amortized costs of
the restricted stock as of June 30, 2016 and December 31, 2015 are as follows:
|
|
June 30, 2016
|
|
|
December 31, 2015
|
|
|
|
(In
Thousands)
|
|
|
|
|
|
|
|
|
Restricted
Stock:
|
|
|
|
|
|
|
|
|
FRB
stock
|
|
$
|
999
|
|
|
$
|
999
|
|
|
|
|
|
|
|
|
|
|
FHLB
stock
|
|
|
6,160
|
|
|
|
6,260
|
|
|
|
$
|
7,159
|
|
|
$
|
7,259
|
|
Securities
Sold Under Agreements to Repurchase (Repurchase Agreements)
The Corporation
enters into agreements under which it sells securities subject to an obligation to repurchase the same or similar securities.
Under these arrangements, the Corporation may transfer legal control over the assets but still retain effective control through
an agreement that both entitles and obligates the Corporation to repurchase the assets. As a result, these repurchase agreements
are accounted for as collateralized financing agreements (i.e., secured borrowings) and not as a sale and subsequent repurchase
of securities. The obligation to repurchase the securities is reflected as a liability in the Corporation’s consolidated
balance sheets, while the securities underlying the repurchase agreements remain in the respective investment securities asset
accounts. In other words, there is no offsetting or netting of the investment securities assets with the repurchase agreement
liabilities. In addition, as the Corporation does not enter into reverse repurchase agreements, there is no such offsetting to
be done with the repurchase agreements.
The right
of setoff for a repurchase agreement resembles a secured borrowing, whereby the collateral would be used to settle the fair value
of the repurchase agreement should the Corporation be in default (e.g., fails to make an interest payment to the counterparty).
The collateral is held by a third-party financial institution in the Corporation’s custodial account. The Corporation has
the right to sell or repledge the investment securities. The risks and rewards associated with the investment securities pledged
as collateral (e.g. a decline or rise in the fair value of the investments) remains with the Corporation. As of June 30, 2016
and December 31, 2015, the obligations outstanding under these repurchase agreements totaled $11.8 million and $21.1 million,
respectively, and were comprised of overnight sweep accounts. The fair value of the securities pledged in connection with these
repurchase agreements at June 30, 2016 was $18.8 million in total and consisted of $5.0 million in municipal securities, $3.8
in mortgage-backed securities, $6.1 million in corporate bonds, $2.5 million in asset-backed securities, and $1.4 million in mutual
funds. The fair value of the securities pledged in connection with these repurchase agreements at December 31, 2015 was $24.3
million in total and consisted of $6.7 million in municipal securities, $4.9 million in mortgage-backed securities, $6.2 million
in corporate bonds, and $6.5 million in asset-backed securities.
NOTE
4 – LOANS AND THE ALLOWANCE FOR LOAN LOSSES
The following
table presents the composition of the loans held for investment portfolio at June 30, 2016 and December 31, 2015:
|
|
Composition of Loan Portfolio
|
|
|
|
June 30, 2016
|
|
|
December 31, 2015
|
|
|
|
Amount
|
|
|
Percentage of
Total
|
|
|
Amount
|
|
|
Percentage of
Total
|
|
|
|
(Dollars
In Thousands)
|
|
Commercial
real estate-owner occupied
|
|
$
|
235,735
|
|
|
|
25.01
|
%
|
|
$
|
219,877
|
|
|
|
24.77
|
%
|
Commercial
real estate-non-owner occupied
|
|
|
153,206
|
|
|
|
16.25
|
|
|
|
147,580
|
|
|
|
16.63
|
|
Residential
real estate
|
|
|
208,311
|
|
|
|
22.10
|
|
|
|
201,447
|
|
|
|
22.70
|
|
Commercial
|
|
|
257,139
|
|
|
|
27.28
|
|
|
|
242,527
|
|
|
|
27.33
|
|
Real
estate construction
|
|
|
79,200
|
|
|
|
8.39
|
|
|
|
66,003
|
|
|
|
7.44
|
|
Consumer
|
|
|
9,138
|
|
|
|
0.97
|
|
|
|
10,044
|
|
|
|
1.13
|
|
Total
loans
|
|
$
|
942,729
|
|
|
|
100.00
|
%
|
|
$
|
887,478
|
|
|
|
100.00
|
%
|
Less
allowance for loan losses
|
|
|
13,834
|
|
|
|
|
|
|
|
13,563
|
|
|
|
|
|
|
|
$
|
928,895
|
|
|
|
|
|
|
$
|
873,915
|
|
|
|
|
|
Unearned
income and net deferred loan fees and costs totaled $2.1 million and $2.0 million at June 30, 2016 and December 31, 2015, respectively.
Loans pledged to secure borrowings at the FHLB totaled $270.5 million and $247.9 million at June 30, 2016 and December 31, 2015,
respectively.
Allowance
for Loan Losses
The allowance
for loan losses totaled $13.8 million at June 30, 2016 compared to $13.6 million at year end December 31, 2015. The allowance
for loan losses was equivalent to 1.47% and 1.53% of total loans held for investment at June 30, 2016 and December 31, 2015, respectively.
Adequacy of the allowance is assessed and the allowance is increased by provisions for loan losses charged to expense no less
than quarterly. Charge-offs are taken when a loan is identified as uncollectible.
The methodology
by which we systematically determine the amount of our allowance is set forth by the Board of Directors in our Loan Policy and
implemented by management. The results of the analysis are documented, reviewed, and approved by the Board of Directors no less
than quarterly.
The level
of the allowance for loan losses is determined by management through an ongoing, detailed analysis of historical loss rates and
risk characteristics. During each quarter, management evaluates the collectability of all loans in the portfolio and ensures an
accurate risk rating is assigned to each loan. The risk rating scale and definitions commonly adopted by the Federal Banking Agencies
is contained within the framework prescribed by the Bank’s Loan Policy. Any loan that is deemed to have potential or well
defined weaknesses that may jeopardize collection in full is then analyzed to ascertain its level of weakness. If appropriate,
the loan may be charged-off or a specific reserve may be assigned if the loan is deemed to be impaired.
During
the risk rating verification process, each loan identified as inadequately protected by the current sound worth and paying capacity
of the obligor or of the collateral pledged is considered impaired and is placed on non-accrual status. On these loans, management
analyzes the potential impairment of the individual loan and may set aside a specific reserve. Any amounts deemed uncollectible
during that analysis are charged-off.
NOTE
4 – LOANS AND THE ALLOWANCE FOR LOAN LOSSES (continued)
For the
remaining loans in each segment, the Bank calculates the probability of loss as a group using the risk rating for each of the
following loan types: Commercial Real Estate - Owner Occupied, Commercial Real Estate - Non-Owner Occupied, Residential Real Estate,
Commercial, Real Estate Construction, and Consumer. Management calculates the historical loss rate in each group by risk rating
using a period of at least six years. This historical loss rate may then be adjusted based on management’s assessment of
internal and external environmental factors. While management may consider other factors, the analysis generally includes factors
such as unemployment, office vacancy rates, and any concentrations that exist within the portfolio. This adjustment is meant to
account for changes between the historical economic environment and current conditions and for changes in the ongoing management
of the portfolio which affects the loans’ potential losses.
Once complete,
management compares the condition of the portfolio using several different characteristics, as well as its experience, to the
experience of other banks in its peer group in order to determine if it is directionally consistent with others’ experience
in our area and line of business. Based on that analysis, management aggregates the probabilities of loss of the remaining portfolio
based on the specific and general allowances and may provide additional amounts to the allowance for loan losses as needed. Since
this process involves estimates, the allowance for loan losses may also contain an amount that is non-material which is not allocated
to a specific loan or to a group of loans but is deemed necessary to absorb additional losses in the portfolio.
Management
and the Board of Directors subject the reserve adequacy and methodology to a review on a regular basis by internal auditors, external
auditors and bank regulators, and such reviews have not resulted in any material adjustment to the allowance.
NOTE
4 – LOANS AND THE ALLOWANCE FOR LOAN LOSSES (continued)
The following
tables provide detailed information about the allowance for loan losses as of and for the periods indicated.
|
|
Allowance for Loan Losses
|
|
Three
months ended June 30, 2016
|
|
Commercial real
estate - owner
occupied
|
|
|
Commercial real
estate - non-owner
occupied
|
|
|
Residential
real estate
|
|
|
Commercial
|
|
|
Real estate
construction
|
|
|
Consumer
|
|
|
Total
|
|
|
|
(In Thousands)
|
|
Allowance
for credit losses:
|
|
|
|
|
Beginning
Balance
|
|
$
|
2,953
|
|
|
$
|
1,920
|
|
|
$
|
2,831
|
|
|
$
|
4,669
|
|
|
$
|
1,114
|
|
|
$
|
127
|
|
|
$
|
13,614
|
|
Charge-offs
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Recoveries
|
|
|
-
|
|
|
|
-
|
|
|
|
10
|
|
|
|
90
|
|
|
|
-
|
|
|
|
-
|
|
|
|
100
|
|
Provisions
|
|
|
189
|
|
|
|
49
|
|
|
|
13
|
|
|
|
(185
|
)
|
|
|
64
|
|
|
|
(10
|
)
|
|
|
120
|
|
Ending
Balance
|
|
$
|
3,142
|
|
|
$
|
1,969
|
|
|
$
|
2,854
|
|
|
$
|
4,574
|
|
|
$
|
1,178
|
|
|
$
|
117
|
|
|
$
|
13,834
|
|
Six
months ended June 30, 2016
|
|
Commercial real
estate - owner
occupied
|
|
|
Commercial real
estate - non-owner
occupied
|
|
|
Residential
real estate
|
|
|
Commercial
|
|
|
Real estate
construction
|
|
|
Consumer
|
|
|
Total
|
|
|
|
(In
Thousands)
|
|
Allowance
for credit losses:
|
|
|
|
Beginning
Balance
|
|
$
|
3,042
|
|
|
$
|
1,862
|
|
|
$
|
2,862
|
|
|
$
|
4,612
|
|
|
$
|
1,056
|
|
|
$
|
129
|
|
|
$
|
13,563
|
|
Charge-offs
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Recoveries
|
|
|
-
|
|
|
|
-
|
|
|
|
21
|
|
|
|
130
|
|
|
|
-
|
|
|
|
-
|
|
|
|
151
|
|
Provisions
|
|
|
100
|
|
|
|
107
|
|
|
|
(29
|
)
|
|
|
(168
|
)
|
|
|
122
|
|
|
|
(12
|
)
|
|
|
120
|
|
Ending
Balance
|
|
$
|
3,142
|
|
|
$
|
1,969
|
|
|
$
|
2,854
|
|
|
$
|
4,574
|
|
|
$
|
1,178
|
|
|
$
|
117
|
|
|
$
|
13,834
|
|
|
|
Allowance for Loan Losses
|
|
Three
months ended June 30, 2015
|
|
Commercial real
estate - owner
occupied
|
|
|
Commercial real
estate - non-owner
occupied
|
|
|
Residential
real estate
|
|
|
Commercial
|
|
|
Real estate
construction
|
|
|
Consumer
|
|
|
Total
|
|
|
|
(In
Thousands)
|
|
Allowance
for credit losses:
|
|
|
|
Beginning
Balance
|
|
$
|
3,338
|
|
|
$
|
1,751
|
|
|
$
|
3,182
|
|
|
$
|
4,338
|
|
|
$
|
636
|
|
|
$
|
86
|
|
|
$
|
13,331
|
|
Charge-offs
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Recoveries
|
|
|
-
|
|
|
|
-
|
|
|
|
14
|
|
|
|
14
|
|
|
|
-
|
|
|
|
-
|
|
|
|
28
|
|
Provisions
|
|
|
20
|
|
|
|
108
|
|
|
|
(22
|
)
|
|
|
(19
|
)
|
|
|
29
|
|
|
|
34
|
|
|
|
150
|
|
Ending
Balance
|
|
$
|
3,358
|
|
|
$
|
1,859
|
|
|
$
|
3,174
|
|
|
$
|
4,333
|
|
|
$
|
665
|
|
|
$
|
120
|
|
|
$
|
13,509
|
|
Six
months ended June 30, 2015
|
|
Commercial real
estate - owner
occupied
|
|
|
Commercial real
estate - non-owner
occupied
|
|
|
Residential
real estate
|
|
|
Commercial
|
|
|
Real estate
construction
|
|
|
Consumer
|
|
|
Total
|
|
|
|
|
|
Allowance
for credit losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
Balance
|
|
$
|
3,229
|
|
|
$
|
1,894
|
|
|
$
|
3,308
|
|
|
$
|
4,284
|
|
|
$
|
596
|
|
|
$
|
88
|
|
|
$
|
13,399
|
|
Charge-offs
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(114
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(114
|
)
|
Recoveries
|
|
|
-
|
|
|
|
-
|
|
|
|
38
|
|
|
|
36
|
|
|
|
-
|
|
|
|
-
|
|
|
|
74
|
|
Provisions
|
|
|
129
|
|
|
|
(35
|
)
|
|
|
(172
|
)
|
|
|
127
|
|
|
|
69
|
|
|
|
32
|
|
|
|
150
|
|
Ending
Balance
|
|
$
|
3,358
|
|
|
$
|
1,859
|
|
|
$
|
3,174
|
|
|
$
|
4,333
|
|
|
$
|
665
|
|
|
$
|
120
|
|
|
$
|
13,509
|
|
|
|
Recorded Investment in Loans
|
|
June 30, 2016
|
|
Commercial real
estate - owner
occupied
|
|
|
Commercial real
estate - non-owner
occupied
|
|
|
Residential
real estate
|
|
|
Commercial
|
|
|
Real estate
construction
|
|
|
Consumer
|
|
|
Total
|
|
|
|
(In
Thousands)
|
|
Allowance
|
|
|
|
Ending
balance:
|
|
$
|
3,142
|
|
|
$
|
1,969
|
|
|
$
|
2,854
|
|
|
$
|
4,574
|
|
|
$
|
1,178
|
|
|
$
|
117
|
|
|
$
|
13,834
|
|
Ending
balance: individually evaluated for impairment
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
13
|
|
|
$
|
170
|
|
|
$
|
-
|
|
|
$
|
183
|
|
Ending
balance: collectively evaluated for impairment
|
|
$
|
3,142
|
|
|
$
|
1,969
|
|
|
$
|
2,854
|
|
|
$
|
4,561
|
|
|
$
|
1,008
|
|
|
$
|
117
|
|
|
$
|
13,651
|
|
Ending
balance: loans acquired with deteriorated credit quality
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending
balance
|
|
$
|
235,735
|
|
|
$
|
153,206
|
|
|
$
|
208,311
|
|
|
$
|
257,139
|
|
|
$
|
79,200
|
|
|
$
|
9,138
|
|
|
$
|
942,729
|
|
Ending
balance: individually evaluated for impairment
|
|
$
|
339
|
|
|
$
|
-
|
|
|
$
|
213
|
|
|
$
|
816
|
|
|
$
|
1,016
|
|
|
$
|
-
|
|
|
$
|
2,384
|
|
Ending
balance: collectively evaluated for impairment
|
|
$
|
235,396
|
|
|
$
|
153,206
|
|
|
$
|
208,098
|
|
|
$
|
256,323
|
|
|
$
|
78,184
|
|
|
$
|
9,138
|
|
|
$
|
940,345
|
|
Ending
balance: loans acquired with deteriorated credit quality
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
December 31, 2015
|
|
Commercial real
estate - owner
occupied
|
|
|
Commercial real
estate - non-owner
occupied
|
|
|
Residential
real estate
|
|
|
Commercial
|
|
|
Real estate
construction
|
|
|
Consumer
|
|
|
Total
|
|
|
|
(In
Thousands)
|
|
Allowance
|
|
|
|
Ending
balance:
|
|
$
|
3,042
|
|
|
$
|
1,862
|
|
|
$
|
2,862
|
|
|
$
|
4,612
|
|
|
$
|
1,056
|
|
|
$
|
129
|
|
|
$
|
13,563
|
|
Ending
balance: individually evaluated for impairment
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
200
|
|
|
$
|
-
|
|
|
$
|
200
|
|
Ending
balance: collectively evaluated for impairment
|
|
$
|
3,042
|
|
|
$
|
1,862
|
|
|
$
|
2,862
|
|
|
$
|
4,612
|
|
|
$
|
856
|
|
|
$
|
129
|
|
|
$
|
13,363
|
|
Ending
balance: loans acquired with deteriorated credit quality
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending
balance:
|
|
$
|
219,877
|
|
|
$
|
147,580
|
|
|
$
|
201,447
|
|
|
$
|
242,527
|
|
|
$
|
66,003
|
|
|
$
|
10,044
|
|
|
$
|
887,478
|
|
Ending
balance: individually evaluated for impairment
|
|
$
|
349
|
|
|
$
|
5,487
|
|
|
$
|
346
|
|
|
$
|
1,389
|
|
|
$
|
1,046
|
|
|
$
|
-
|
|
|
$
|
8,617
|
|
Ending
balance: collectively evaluated for impairment
|
|
$
|
219,528
|
|
|
$
|
142,093
|
|
|
$
|
201,101
|
|
|
$
|
241,138
|
|
|
$
|
64,957
|
|
|
$
|
10,044
|
|
|
$
|
878,861
|
|
Ending
balance: loans acquired with deteriorated credit quality
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
NOTE
4 – LOANS AND THE ALLOWANCE FOR LOAN LOSSES (continued)
Identifying
and Classifying Portfolio Risks by Risk Rating
At origination,
loans are categorized into risk categories based upon original underwriting. Subsequent to origination, management evaluates the
collectability of all loans in the portfolio and assigns a proprietary risk rating. Ratings range from the highest to lowest quality
based on factors including measurements of ability to pay, collateral type and value, borrower stability, management experience,
and credit enhancements. These ratings are consistent with the bank regulatory rating system.
A loan
may have portions of its balance in one rating and other portions in a different rating. The Bank may use these “split ratings”
when factors cause loan loss risk to exist for part but not all of the principal balance. Split ratings may also be used where
cash collateral or a government agency has provided a guaranty that partially covers a loan.
For clarity
of presentation, the Corporation’s loan portfolio is profiled below in accordance with the risk rating framework that has
been commonly adopted by the federal banking agencies. The definitions of the various risk rating categories are as follows:
Pass -
The condition of the borrower and the performance of the loan is satisfactory or better.
Special
mention - A special mention asset has one or more potential weaknesses that deserve management’s close attention. If left
uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the institution’s
credit position at some future date.
Substandard
- A substandard asset is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral
pledged, if any. Assets so classified must have a well-defined weakness, or weaknesses, that jeopardize the liquidation of the
debt. They are characterized by the distinct possibility that the bank will sustain some loss if the deficiencies are not corrected.
Doubtful
- An asset classified doubtful has all the weaknesses inherent in one classified substandard with the added characteristic that
the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly
questionable and improbable.
Loss -
Assets classified loss are considered uncollectible and their continuance as bankable assets is not warranted. This classification
does not mean that the asset has absolutely no recovery or salvage value, and a partial recovery may be effected in the future.
The Bank
did not have any loans classified as loss at June 30, 2016 or December 31, 2015. It is the Bank’s policy to charge-off any
loan once the risk rating is classified as loss.
NOTE
4 – LOANS AND THE ALLOWANCE FOR LOAN LOSSES (continued)
The profile
of the loan portfolio, as indicated by risk rating, as of June 30, 2016 and December 31, 2015 is shown below.
|
|
June 30, 2016
|
|
Credit
Risk Profile by Risk Rating
|
|
Pass
|
|
|
Special Mention
|
|
|
Substandard
|
|
|
Doubtful
|
|
|
Loss
|
|
|
Unearned
Income
|
|
|
Total
Loans
|
|
|
|
(In
Thousands)
|
|
Commercial
real estate - owner occupied
|
|
$
|
230,298
|
|
|
$
|
1,574
|
|
|
$
|
4,479
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(616
|
)
|
|
$
|
235,735
|
|
Commercial
real estate - non-owner occupied
|
|
|
153,296
|
|
|
|
308
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(398
|
)
|
|
|
153,206
|
|
Residential
real estate
|
|
|
207,039
|
|
|
|
1,452
|
|
|
|
34
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(214
|
)
|
|
|
208,311
|
|
Commercial
|
|
|
227,422
|
|
|
|
7,004
|
|
|
|
23,191
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(478
|
)
|
|
|
257,139
|
|
Real
estate construction
|
|
|
78,619
|
|
|
|
-
|
|
|
|
1,016
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(435
|
)
|
|
|
79,200
|
|
Consumer
|
|
|
9,138
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
9,138
|
|
Total
|
|
$
|
905,812
|
|
|
$
|
10,338
|
|
|
$
|
28,720
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(2,141
|
)
|
|
$
|
942,729
|
|
|
|
December 31, 2015
|
|
Credit
Risk Profile by Risk Rating
|
|
Pass
|
|
|
Special Mention
|
|
|
Substandard
|
|
|
Doubtful
|
|
|
Loss
|
|
|
Unearned
Income
|
|
|
Total
Loans
|
|
|
|
(In
Thousands)
|
|
Commercial
real estate - owner occupied
|
|
$
|
214,613
|
|
|
$
|
2,506
|
|
|
$
|
3,245
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(487
|
)
|
|
$
|
219,877
|
|
Commercial
real estate - non-owner occupied
|
|
|
142,146
|
|
|
|
316
|
|
|
|
5,487
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(369
|
)
|
|
|
147,580
|
|
Residential
real estate
|
|
|
201,308
|
|
|
|
-
|
|
|
|
346
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(207
|
)
|
|
|
201,447
|
|
Commercial
|
|
|
213,559
|
|
|
|
11,653
|
|
|
|
17,732
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(417
|
)
|
|
|
242,527
|
|
Real
estate construction
|
|
|
65,476
|
|
|
|
-
|
|
|
|
1,046
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(519
|
)
|
|
|
66,003
|
|
Consumer
|
|
|
10,042
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2
|
|
|
|
10,044
|
|
Total
|
|
$
|
847,144
|
|
|
$
|
14,475
|
|
|
$
|
27,856
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(1,997
|
)
|
|
$
|
887,478
|
|
Loans
listed as non-performing are also placed on non-accrual status. The accrual of interest is discontinued at the time a loan is
90 days delinquent or when the credit deteriorates and there is doubt that the credit will be paid as agreed, unless the credit
is well-secured and in process of collection. Once the loan is on non-accrual status, all accrued but unpaid interest is also
charged-off, and all payments are used to reduce the principal balance. Once the principal balance is repaid in full, additional
payments are taken into income. A loan may be returned to accrual status if the borrower shows renewed willingness and ability
to repay under the term of the loan agreement. The risk profile based upon payment activity is shown below.
NOTE
4 – LOANS AND THE ALLOWANCE FOR LOAN LOSSES (continued)
|
|
For the Period Ended, June 30, 2016
|
|
Credit Risk Profile Based on Payment Activity
|
|
Performing
|
|
|
Non-Performing
|
|
|
Total Loans
|
|
Commercial
real estate - owner occupied
|
|
$
|
235,735
|
|
|
$
|
-
|
|
|
$
|
235,735
|
|
Commercial
real estate - non-owner occupied
|
|
|
153,206
|
|
|
|
-
|
|
|
|
153,206
|
|
Residential
real estate
|
|
|
208,277
|
|
|
|
34
|
|
|
|
208,311
|
|
Commercial
|
|
|
256,323
|
|
|
|
816
|
|
|
|
257,139
|
|
Real
estate construction
|
|
|
78,184
|
|
|
|
1,016
|
|
|
|
79,200
|
|
Consumer
|
|
|
9,138
|
|
|
|
-
|
|
|
|
9,138
|
|
Total
|
|
$
|
940,863
|
|
|
$
|
1,866
|
|
|
$
|
942,729
|
|
|
|
For the Period Ended, December 31, 2015
|
|
Credit Risk Profile Based on Payment Activity
|
|
Performing
|
|
|
Non-Performing
|
|
|
Total Loans
|
|
Commercial
real estate - owner occupied
|
|
$
|
219,877
|
|
|
$
|
-
|
|
|
$
|
219,877
|
|
Commercial
real estate - non-owner occupied
|
|
|
142,094
|
|
|
|
5,486
|
|
|
|
147,580
|
|
Residential
real estate
|
|
|
201,284
|
|
|
|
163
|
|
|
|
201,447
|
|
Commercial
|
|
|
241,805
|
|
|
|
722
|
|
|
|
242,527
|
|
Real
estate construction
|
|
|
64,957
|
|
|
|
1,046
|
|
|
|
66,003
|
|
Consumer
|
|
|
10,044
|
|
|
|
-
|
|
|
|
10,044
|
|
Total
|
|
$
|
880,061
|
|
|
$
|
7,417
|
|
|
$
|
887,478
|
|
Loans
are considered past due if a contractual payment is not made by the calendar day after the payment is due. However, for reporting
purposes loans past due 1 to 29 days are excluded from loans past due and are included in the total for current loans in the table
below. The delinquency status of the loans in the portfolio is shown below as of June 30, 2016 and December 31, 2015. Loans that
were on non-accrual status are not included in any past due amounts.
|
|
Age Analysis of Past Due Loans
|
|
|
|
June 30, 2016
|
|
|
|
30-59
Days
Past Due
|
|
|
60-89
Days
Past Due
|
|
|
Greater
than
90 Days
|
|
|
Total
Past
Due
|
|
|
Non-accrual
Loans
|
|
|
Current
Loans
|
|
|
Total
Loans
|
|
|
|
(In
Thousands)
|
|
Commercial
real estate - owner occupied
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
235,735
|
|
|
$
|
235,735
|
|
Commercial
real estate - non-owner occupied
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
153,206
|
|
|
|
153,206
|
|
Residential
real estate
|
|
|
61
|
|
|
|
-
|
|
|
|
-
|
|
|
|
61
|
|
|
|
34
|
|
|
|
208,216
|
|
|
|
208,311
|
|
Commercial
|
|
|
24
|
|
|
|
102
|
|
|
|
-
|
|
|
|
126
|
|
|
|
816
|
|
|
|
256,197
|
|
|
|
257,139
|
|
Real
estate construction
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,016
|
|
|
|
78,184
|
|
|
|
79,200
|
|
Consumer
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
9,138
|
|
|
|
9,138
|
|
Total
|
|
$
|
85
|
|
|
$
|
102
|
|
|
$
|
-
|
|
|
$
|
187
|
|
|
$
|
1,866
|
|
|
$
|
940,676
|
|
|
$
|
942,729
|
|
|
|
December 31, 2015
|
|
|
|
30-59 Days
Past Due
|
|
|
60-89 Days
Past Due
|
|
|
Greater than
90 Days
|
|
|
Total Past
Due
|
|
|
Non-accrual
Loans
|
|
|
Current
Loans
|
|
|
Total
Loans
|
|
|
|
(In
Thousands)
|
|
Commercial
real estate - owner occupied
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
219,877
|
|
|
$
|
219,877
|
|
Commercial
real estate - non-owner occupied
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,486
|
|
|
|
142,094
|
|
|
|
147,580
|
|
Residential
real estate
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
163
|
|
|
|
201,284
|
|
|
|
201,447
|
|
Commercial
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
722
|
|
|
|
241,805
|
|
|
|
242,527
|
|
Real
estate construction
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,046
|
|
|
|
64,957
|
|
|
|
66,003
|
|
Consumer
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
10,044
|
|
|
|
10,044
|
|
Total
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
7,417
|
|
|
$
|
880,061
|
|
|
$
|
887,478
|
|
NOTE
4 – LOANS AND THE ALLOWANCE FOR LOAN LOSSES (continued)
Troubled
Debt Restructurings
A troubled
debt restructuring ("TDR") is a formal restructure of a loan when the Bank, for economic or legal reasons related to
the borrower's financial difficulties, grants a concession to a borrower. The Bank classifies these transactions as a TDR if the
transaction meets the following conditions: an existing credit agreement must be formally renewed, extended and/or modified; the
borrower must be experiencing financial difficulty; and the Bank has granted a concession that it would not otherwise consider.
Once identified
as a TDR, a loan is considered to be impaired, and an impairment analysis is performed for the loan individually, rather than
under a general loss allowance based on the loan type and risk rating. Any resulting shortfall is charged-off. This method is
used consistently for all segments of the portfolio.
Normally,
loans identified as TDRs would be placed on non-accrual status and considered non-performing until sufficient history of timely
collection or payment has occurred that allows them to return to performing status, generally 6 months.
No loans
were modified in connection with a troubled debt restructuring during the six month period ended June 30, 2016. One real estate
construction loan was modified during the first six months ended June 30, 2015 with an outstanding balance at June 30, 2016 of
$1.0 million.
Impaired
Loans
A loan
is classified as impaired when it is deemed probable by management’s analysis that the Bank will be unable to collect all
amounts due according to the contractual terms of the loan agreement, or the recorded investment in the impaired loan is greater
than the present value of expected future cash flows, discounted at the loan's effective interest rate. In the case of an impaired
loan, management conducts an analysis which identifies if a quantifiable potential loss exists, and takes the necessary steps
to record that loss when it has been identified as uncollectible.
As the
ultimate collectability of the total principal of an impaired loan is in doubt, the loan is placed on nonaccrual status with all
payments applied to principal under the cost-recovery method. As the Bank does not utilize the cash-basis method of accounting
for impaired loans, the Bank did not recognize interest income in association with its impaired loans during 2016.
NOTE
4 – LOANS AND THE ALLOWANCE FOR LOAN LOSSES (continued)
The table
below shows the results of management’s analysis of impaired loans as of June 30, 2016 and December 31, 2015.
|
|
Impaired Loans
|
|
|
|
|
|
|
June 30, 2016
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
|
|
|
Recorded
investment
|
|
|
Unpaid principal
balance
|
|
|
Related
allowance
|
|
|
Recorded
investment
|
|
|
Unpaid principal
balance
|
|
|
Related
allowance
|
|
|
|
(In
Thousands)
|
|
With
no specific related allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
real estate - owner occupied
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Commercial
real estate - non-owner occupied
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,486
|
|
|
|
5,783
|
|
|
|
-
|
|
Residential
real estate
|
|
|
34
|
|
|
|
34
|
|
|
|
-
|
|
|
|
163
|
|
|
|
163
|
|
|
|
-
|
|
Commercial
|
|
|
804
|
|
|
|
1,821
|
|
|
|
-
|
|
|
|
722
|
|
|
|
1,743
|
|
|
|
-
|
|
Real
estate construction
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Consumer
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
With
a specific related allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
real estate - owner occupied
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Commercial
real estate - non-owner occupied
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Residential
real estate
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Commercial
|
|
|
12
|
|
|
|
122
|
|
|
|
13
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Real
estate construction
|
|
|
1,016
|
|
|
|
1,035
|
|
|
|
170
|
|
|
|
1,046
|
|
|
|
1,046
|
|
|
|
200
|
|
Consumer
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
real estate - owner occupied
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Commercial
real estate - non-owner occupied
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,486
|
|
|
|
5,783
|
|
|
|
-
|
|
Residential
real estate
|
|
|
34
|
|
|
|
34
|
|
|
|
-
|
|
|
|
163
|
|
|
|
163
|
|
|
|
-
|
|
Commercial
|
|
|
816
|
|
|
|
1,943
|
|
|
|
13
|
|
|
|
722
|
|
|
|
1,743
|
|
|
|
-
|
|
Real
estate construction
|
|
|
1,016
|
|
|
|
1,035
|
|
|
|
170
|
|
|
|
1,046
|
|
|
|
1,046
|
|
|
|
200
|
|
Consumer
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
$
|
1,866
|
|
|
$
|
3,012
|
|
|
$
|
183
|
|
|
$
|
7,417
|
|
|
$
|
8,735
|
|
|
$
|
200
|
|
The table
below shows the average recorded investment in impaired loans for the periods presented.
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30, 2016
|
|
|
June 30, 2015
|
|
|
June 30, 2016
|
|
|
June 30, 2015
|
|
|
|
Average Recorded
Investment
|
|
|
Average Recorded
Investment
|
|
|
Average Recorded
Investment
|
|
|
Average Recorded
Investment
|
|
|
|
(In
Thousands)
|
|
Commercial
real estate - owner occupied
|
|
$
|
-
|
|
|
$
|
1,115
|
|
|
$
|
-
|
|
|
$
|
1,116
|
|
Commercial
real estate - non-owner occupied
|
|
|
3,015
|
|
|
|
5,966
|
|
|
|
4,251
|
|
|
|
6,033
|
|
Residential
real estate
|
|
|
34
|
|
|
|
393
|
|
|
|
34
|
|
|
|
394
|
|
Commercial
|
|
|
905
|
|
|
|
2,048
|
|
|
|
843
|
|
|
|
2,073
|
|
Real
estate construction
|
|
|
1,022
|
|
|
|
1,121
|
|
|
|
1,031
|
|
|
|
1,127
|
|
Consumer
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
$
|
4,976
|
|
|
$
|
10,643
|
|
|
$
|
6,159
|
|
|
$
|
10,743
|
|
NOTE
5 – SEGMENT REPORTING
The Corporation
has three reportable segments: traditional commercial banking, mortgage banking, and wealth management. Revenues from commercial
banking operations consist primarily of interest earned on loans and securities and fees from deposit services. Mortgage banking
operating revenues consist principally of interest earned on mortgage loans held for sale, gains on sales of loans in the secondary
mortgage market, and loan origination fee income. Wealth management operating revenues consist principally of transactional fees
charged to clients as well as fees for portfolio asset management.
NOTE
5 – SEGMENT REPORTING (continued)
The commercial
banking segment provides the mortgage banking segment (“Mortgage Division”) with the short-term funds needed to originate
mortgage loans through a warehouse line of credit and charges the mortgage banking segment interest based on the prime rate. These
transactions are eliminated in the consolidation process.
The “Other”
column in the following table includes the operations of the Corporation and Access Real Estate. The primary source of income
for the Corporation is derived from dividends from the Bank and its primary expense relates to costs incurred by the Corporation
in connection with its annual audits and directors fees. The primary source of income for Access Real Estate is derived from rents
received from the Bank.
The following
table presents segment information as of and for the three months ended June 30, 2016 and 2015:
|
|
Commercial
|
|
|
Mortgage
|
|
|
Wealth
|
|
|
|
|
|
|
|
|
Consolidated
|
|
June 30, 2016
|
|
Banking
|
|
|
Banking
|
|
|
Management
|
|
|
Other
|
|
|
Eliminations
|
|
|
Totals
|
|
|
|
(In
Thousands)
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
$
|
12,092
|
|
|
$
|
437
|
|
|
$
|
-
|
|
|
$
|
6
|
|
|
$
|
(199
|
)
|
|
$
|
12,336
|
|
Gain
on sale of loans
|
|
|
-
|
|
|
|
7,273
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
7,273
|
|
Other
revenues
|
|
|
1,290
|
|
|
|
(134
|
)
|
|
|
718
|
|
|
|
342
|
|
|
|
(316
|
)
|
|
|
1,900
|
|
Total
revenues
|
|
|
13,382
|
|
|
|
7,576
|
|
|
|
718
|
|
|
|
348
|
|
|
|
(515
|
)
|
|
|
21,509
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
1,580
|
|
|
|
127
|
|
|
|
-
|
|
|
|
67
|
|
|
|
(199
|
)
|
|
|
1,575
|
|
Salaries
and employee benefits
|
|
|
4,165
|
|
|
|
3,714
|
|
|
|
528
|
|
|
|
-
|
|
|
|
-
|
|
|
|
8,407
|
|
Other
expenses
|
|
|
1,867
|
|
|
|
1,567
|
|
|
|
259
|
|
|
|
639
|
|
|
|
(316
|
)
|
|
|
4,016
|
|
Total
operating expenses
|
|
|
7,612
|
|
|
|
5,408
|
|
|
|
787
|
|
|
|
706
|
|
|
|
(515
|
)
|
|
|
13,998
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) before income taxes
|
|
$
|
5,770
|
|
|
$
|
2,168
|
|
|
$
|
(69
|
)
|
|
$
|
(358
|
)
|
|
$
|
-
|
|
|
$
|
7,511
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
1,245,441
|
|
|
$
|
60,831
|
|
|
$
|
2,861
|
|
|
$
|
17,772
|
|
|
$
|
(22,034
|
)
|
|
$
|
1,304,871
|
|
|
|
Commercial
|
|
|
Mortgage
|
|
|
Wealth
|
|
|
|
|
|
|
|
|
Consolidated
|
|
June 30, 2015
|
|
Banking
|
|
|
Banking
|
|
|
Management
|
|
|
Other
|
|
|
Eliminations
|
|
|
Totals
|
|
|
|
(In
Thousands)
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
$
|
10,533
|
|
|
$
|
564
|
|
|
$
|
-
|
|
|
$
|
4
|
|
|
$
|
(314
|
)
|
|
$
|
10,787
|
|
Gain
on sale of loans
|
|
|
-
|
|
|
|
5,705
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,705
|
|
Other
revenues
|
|
|
732
|
|
|
|
(79
|
)
|
|
|
679
|
|
|
|
360
|
|
|
|
(316
|
)
|
|
|
1,376
|
|
Total
revenues
|
|
|
11,265
|
|
|
|
6,190
|
|
|
|
679
|
|
|
|
364
|
|
|
|
(630
|
)
|
|
|
17,868
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
983
|
|
|
|
241
|
|
|
|
(6
|
)
|
|
|
76
|
|
|
|
(314
|
)
|
|
|
980
|
|
Salaries
and employee benefits
|
|
|
3,268
|
|
|
|
3,182
|
|
|
|
549
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6,999
|
|
Other
expenses
|
|
|
1,880
|
|
|
|
1,384
|
|
|
|
260
|
|
|
|
597
|
|
|
|
(316
|
)
|
|
|
3,805
|
|
Total
operating expenses
|
|
|
6,131
|
|
|
|
4,807
|
|
|
|
803
|
|
|
|
673
|
|
|
|
(630
|
)
|
|
|
11,784
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) before income taxes
|
|
$
|
5,134
|
|
|
$
|
1,383
|
|
|
$
|
(124
|
)
|
|
$
|
(309
|
)
|
|
$
|
-
|
|
|
$
|
6,084
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
1,113,304
|
|
|
$
|
53,884
|
|
|
$
|
1,290
|
|
|
$
|
16,095
|
|
|
$
|
(18,451
|
)
|
|
$
|
1,166,122
|
|
NOTE
5 – SEGMENT REPORTING (continued)
The following
table presents segment information as of and for the six months ended June 30, 2016 and 2015:
|
|
Commercial
|
|
|
Mortgage
|
|
|
Wealth
|
|
|
|
|
|
|
|
|
Consolidated
|
|
June 30, 2016
|
|
Banking
|
|
|
Banking
|
|
|
Management
|
|
|
Other
|
|
|
Eliminations
|
|
|
Totals
|
|
|
|
(In
Thousands)
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
$
|
23,848
|
|
|
$
|
781
|
|
|
$
|
-
|
|
|
$
|
10
|
|
|
$
|
(322
|
)
|
|
$
|
24,317
|
|
Gain
on sale of loans
|
|
|
-
|
|
|
|
11,103
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
11,103
|
|
Other
revenues
|
|
|
2,226
|
|
|
|
1,113
|
|
|
|
1,496
|
|
|
|
689
|
|
|
|
(635
|
)
|
|
|
4,889
|
|
Total
revenues
|
|
|
26,074
|
|
|
|
12,997
|
|
|
|
1,496
|
|
|
|
699
|
|
|
|
(957
|
)
|
|
|
40,309
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
3,016
|
|
|
|
178
|
|
|
|
-
|
|
|
|
134
|
|
|
|
(322
|
)
|
|
|
3,006
|
|
Salaries
and employee benefits
|
|
|
8,088
|
|
|
|
6,899
|
|
|
|
1,088
|
|
|
|
-
|
|
|
|
-
|
|
|
|
16,075
|
|
Other
expenses
|
|
|
3,707
|
|
|
|
2,636
|
|
|
|
550
|
|
|
|
1,219
|
|
|
|
(635
|
)
|
|
|
7,477
|
|
Total
operating expenses
|
|
|
14,811
|
|
|
|
9,713
|
|
|
|
1,638
|
|
|
|
1,353
|
|
|
|
(957
|
)
|
|
|
26,558
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) before income taxes
|
|
$
|
11,263
|
|
|
$
|
3,284
|
|
|
$
|
(142
|
)
|
|
$
|
(654
|
)
|
|
$
|
-
|
|
|
$
|
13,751
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
1,245,441
|
|
|
$
|
60,831
|
|
|
$
|
2,861
|
|
|
$
|
17,772
|
|
|
$
|
(22,034
|
)
|
|
$
|
1,304,871
|
|
|
|
Commercial
|
|
|
Mortgage
|
|
|
Wealth
|
|
|
|
|
|
|
|
|
Consolidated
|
|
June 30, 2015
|
|
Banking
|
|
|
Banking
|
|
|
Management
|
|
|
Other
|
|
|
Eliminations
|
|
|
Totals
|
|
|
|
(In
Thousands)
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
$
|
20,613
|
|
|
$
|
926
|
|
|
$
|
-
|
|
|
$
|
7
|
|
|
$
|
(483
|
)
|
|
$
|
21,063
|
|
Gain
on sale of loans
|
|
|
-
|
|
|
|
9,276
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
9,276
|
|
Other
revenues
|
|
|
1,451
|
|
|
|
1,346
|
|
|
|
1,224
|
|
|
|
706
|
|
|
|
(617
|
)
|
|
|
4,110
|
|
Total
revenues
|
|
|
22,064
|
|
|
|
11,548
|
|
|
|
1,224
|
|
|
|
713
|
|
|
|
(1,100
|
)
|
|
|
34,449
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
1,821
|
|
|
|
336
|
|
|
|
-
|
|
|
|
140
|
|
|
|
(483
|
)
|
|
|
1,814
|
|
Salaries
and employee benefits
|
|
|
6,495
|
|
|
|
6,208
|
|
|
|
1,013
|
|
|
|
-
|
|
|
|
-
|
|
|
|
13,716
|
|
Other
expenses
|
|
|
3,684
|
|
|
|
2,609
|
|
|
|
467
|
|
|
|
1,191
|
|
|
|
(617
|
)
|
|
|
7,334
|
|
Total
operating expenses
|
|
|
12,000
|
|
|
|
9,153
|
|
|
|
1,480
|
|
|
|
1,331
|
|
|
|
(1,100
|
)
|
|
|
22,864
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) before income taxes
|
|
$
|
10,064
|
|
|
$
|
2,395
|
|
|
$
|
(256
|
)
|
|
$
|
(618
|
)
|
|
$
|
-
|
|
|
$
|
11,585
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
1,113,304
|
|
|
$
|
53,884
|
|
|
$
|
1,290
|
|
|
$
|
16,095
|
|
|
$
|
(18,451
|
)
|
|
$
|
1,166,122
|
|
NOTE
6 – EARNINGS PER SHARE
The following
table shows the calculation of both basic and diluted earnings per share (“EPS”) for the three and six months ended
June 30, 2016 and 2015, respectively. The numerator of both the basic and diluted EPS is equivalent to net income. The weighted
average number of shares outstanding used as the denominator for diluted EPS is increased over the denominator used for basic
EPS by the effect of potentially dilutive common stock options utilizing the treasury stock method.
|
|
Three Months
|
|
|
Three Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30, 2016
|
|
|
June 30, 2015
|
|
|
|
(In
Thousands, Except for Share and Per Share Data)
|
|
|
|
|
|
|
|
|
BASIC EARNINGS
PER SHARE:
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
4,878
|
|
|
$
|
3,984
|
|
Weighted
average shares outstanding
|
|
|
10,576,516
|
|
|
|
10,518,939
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share
|
|
$
|
0.46
|
|
|
$
|
0.38
|
|
|
|
|
|
|
|
|
|
|
DILUTED EARNINGS
PER SHARE:
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
4,878
|
|
|
$
|
3,984
|
|
Weighted average
shares outstanding
|
|
|
10,576,516
|
|
|
|
10,518,939
|
|
Dilutive
stock options
|
|
|
62,651
|
|
|
|
71,943
|
|
Weighted
average diluted shares outstanding
|
|
|
10,639,167
|
|
|
|
10,590,882
|
|
|
|
|
|
|
|
|
|
|
Diluted
earnings per share
|
|
$
|
0.46
|
|
|
$
|
0.38
|
|
|
|
Six Months
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30, 2016
|
|
|
June 30, 2015
|
|
|
|
(In
Thousands, Except for Share and Per Share Data)
|
|
|
|
|
|
|
|
|
BASIC EARNINGS
PER SHARE:
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
8,973
|
|
|
$
|
7,557
|
|
Weighted
average shares outstanding
|
|
|
10,564,833
|
|
|
|
10,496,152
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share
|
|
$
|
0.85
|
|
|
$
|
0.72
|
|
|
|
|
|
|
|
|
|
|
DILUTED EARNINGS
PER SHARE:
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
8,973
|
|
|
$
|
7,557
|
|
Weighted average
shares outstanding
|
|
|
10,564,833
|
|
|
|
10,496,152
|
|
Dilutive
stock options
|
|
|
57,930
|
|
|
|
57,900
|
|
Weighted
average diluted shares outstanding
|
|
|
10,622,763
|
|
|
|
10,554,052
|
|
|
|
|
|
|
|
|
|
|
Diluted
earnings per share
|
|
$
|
0.85
|
|
|
$
|
0.72
|
|
NOTE
7 – COMMITMENTS AND CONTINGENT LIABILITIES
As part
of its mortgage banking activities, the Mortgage Division enters into interest rate lock commitments, which are commitments to
originate loans where the interest rate on the loan is determined prior to funding and the customers have locked into that interest
rate. The Mortgage Division then locks in the loan and interest rate with an investor and commits to deliver the loan if settlement
occurs (“best efforts”) or commits to deliver the locked loan in a binding (“mandatory”) delivery program
with an investor. Certain loans under interest rate lock commitments are covered under forward sales contracts of mortgage backed
securities (“MBS”). Forward sales contracts of MBS are recorded at fair value with changes in fair value recorded
in noninterest income. Interest rate lock commitments and commitments to deliver loans to investors are considered derivatives.
The market value of interest rate lock commitments and best efforts contracts are not readily ascertainable with precision because
they are not actively traded in stand-alone markets. The Mortgage Division determines the fair value of interest rate lock commitments
and delivery contracts by measuring the fair value of the underlying asset, which is impacted by current interest rates, taking
into consideration the probability that the interest rate lock commitments will close or will be funded.
Certain
additional risks arise from these forward delivery contracts in that the counterparties to the contracts may not be able to meet
the terms of the contracts. The Mortgage Division does not expect any counterparty to any MBS to fail to meet its obligation.
Additional risks inherent in mandatory delivery programs include the risk that, if the Mortgage Division does not close the loans
subject to interest rate risk lock commitments, it will still be obligated to deliver MBS to the counterparty under the forward
sales agreement. Should this be required, the Mortgage Division could incur significant costs in acquiring replacement loans or
MBS and such costs could have an adverse effect on mortgage banking operations.
Since
the Mortgage Division’s derivative instruments are not designated as hedging instruments, the fair value of the derivatives
are recorded as a freestanding asset or liability with the change in value being recognized in current earnings during the period
of change. The Corporation has not elected to apply hedge accounting to the Mortgage Division’s derivative instruments as
provided in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 815,
Derivatives and Hedging.
At June
30, 2016 and December 31, 2015, the Mortgage Division had open forward contracts with a notional value of $95.0 million and $49.0
million, respectively. At June 30, 2016 and December 31, 2015, the Mortgage Division did not have any open mandatory delivery
contracts. The open forward delivery contracts are composed of forward sales of MBS. The fair value of these open forward contracts
was ($843) thousand and ($54) thousand at June 30, 2016 and December 31, 2015, respectively.
Interest
rate lock commitments totaled $64.3 million and $26.6 million at June 30, 2016 and December 31, 2015, respectively, and included
$8.5 million and $6.2 million that were made on a best efforts basis at June 30, 2016 and December 31, 2015, respectively. Fair
values of these best efforts commitments were $51 thousand and $53 thousand at June 30, 2016 and December 31, 2015, respectively.
The remaining hedged interest rate lock commitments totaling $55.8 million and $20.4 million at June 30, 2016 and December 31,
2015 had a fair value of $1.1 million and $275 thousand, respectively.
Included
in other noninterest income for the six months ended June 30, 2016 and June 30, 2015 was a net gain of $2.4 million and a net
gain of $1.6 million, respectively, relating to derivative instruments. The amount included in other noninterest income for the
six months ended June 30, 2016 and June 30, 2015 pertaining to its hedging activities was a net realized loss of $1.3 million
and a net realized loss of $259 thousand, respectively.
NOTE
8 – RECENT ACCOUNTING PRONOUNCEMENTS
In May
2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers: Topic 606”. This ASU supersedes the revenue
recognition requirements in Topic 605, “Revenue Recognition” as well as most industry-specific guidance. The amendments
also create a new Subtopic 340-40 “Other Assets and Deferred Costs – Contracts with Customers”. In summary,
entities are 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. The provisions of ASU 2014-09
are effective for annual periods beginning after December 15, 2017 and interim periods within 2018. The adoption of this guidance
should not have a material effect on the Corporation’s financial condition or results of operations.
NOTE
8 – RECENT ACCOUNTING PRONOUNCEMENTS (continued)
In June
2014, the FASB issued ASU 2014-12, “Compensation – Stock Compensation (Topic 718)”. The amendments in this ASU
require a performance target that affects vesting and that could be achieved after the requisite service period be treated as
a performance condition. The performance target should not be reflected in estimating the grant-date fair value of the award,
and compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved
and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered.
The amendments in the ASU are effective for annual periods beginning after December 15, 2015. The adoption of this guidance did
not have a material effect on the Corporation’s financial condition or results of operations.
In January
2015, the FASB issued ASU 2015-01, “Income Statement – Extraordinary and Unusual Items (Subtopic 225-20)”. This
ASU eliminates extraordinary items from US GAAP and will align more closely with International Accounting Standards 1, “Presentation
of Financial Statements”. The amendments in the ASU are effective beginning after December 15, 2015. The adoption of this
guidance did not have a material effect on the Corporation’s financial condition or results of operations.
In February
2015, the FASB issued ASU 2015-02, “Consolidation (Topic 810)”. This ASU focuses on the consolidation evaluation for
reporting organizations that are required to evaluate consolidation of certain legal entities by reducing the number of consolidation
models from four to two and is intended to improve current GAAP. The amendments in the ASU are effective beginning after December
15, 2016. The adoption of this guidance should not have a material effect on the Corporation’s financial condition or results
of operations.
In April
2015, the FASB issued ASU 2015-03, “Interest – Imputation of Interest (Subtopic 835-30)”. This ASU requires
debt issuance costs be presented in the balance sheet as a direct deduction from the carrying amount of debt liability. The amendments
in the ASU are effective beginning after December 15, 2015. The adoption of this guidance did not have a material effect on the
Corporation’s financial condition or results of operations.
In August
2015, the FASB issued ASU 2015-15, “Interest - Imputation of Interest (Subtopic 835-30)”. This ASU adds language clarifying
the Securities and Exchange Commission’s views regarding the presentation and subsequent measurement of debt issuance costs
associated with line-of-credit arrangements. The amendments in the ASU are effective beginning after December 15, 2015. The adoption
of this guidance did not have a material effect on the Corporation’s financial condition or results of operations.
In September
2015, the FASB issued ASU 2015-16, “Business Combinations (Topic 805)”. This ASU requires an acquirer retrospectively
adjust provisional amounts recognized in a business combination during the measurement period, in the reporting period in which
the adjustment is determined as well as present separately on the face of the income statement or as a disclosure in the notes
to the financial statements the portion of the amount recorded in current period earnings that would have been recorded in previous
reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. The amendments
in the ASU are effective beginning after December 15, 2015. The adoption of this guidance did not have a material effect on the
Corporation’s financial condition or results of operations.
In January
2016, the FASB issued ASU 2016-01, “Financial Instruments – Overall (Subtopic 825-10)”. This ASU requires all
equity investments to be measured at fair value with changes in the fair value recognized through net income (other than those
accounted for under equity method of accounting or those that result in consolidation of the investee). The amendments in this
update also require an entity to present separately in other comprehensive income the portion of the total change in the fair
value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the
liability at fair value in accordance with the fair value option for financial instruments. The amendments in the ASU are effective
beginning after December 15, 2017. The adoption of this guidance should not have a material effect on the Corporation’s
financial condition or results of operations.
NOTE
8 – RECENT ACCOUNTING PRONOUNCEMENTS (continued)
In February
2016, the FASB issued ASU 2016-02, “Leases (Topic 842)”. This ASU specifies the accounting for leases in an effort
to increase transparency and comparability among organizations. The amendments in the ASU are effective beginning after December
15, 2018. While the adoption of this guidance should not have a material effect on the Corporation’s financial condition
or results of operations, management has yet to quantify the impact of this ASU.
In
March 2016, the FASB issued ASU 2016-05,“Derivatives and Hedging (Topic 815) Effect of Derivative Contract Novations on
Existing Hedge Accounting Relationships.” This ASU clarifies that a change in the counterparty to a derivative instrument
that has been designated as the hedging instrument under ASC Topic 815 does not, in and of itself, require dedesignation
of that hedging relationship provided that all other hedge accounting criteria continue to be met. The amendments in the ASU are
effective beginning after December 15, 2016 and for interim periods within that year. The adoption of this guidance should not
have a material effect on the Corporation’s financial condition or results of operations.
In
March 2016, the FASB issued ASU 2016-07, “Investments - Equity Method and Joint Ventures (Topic 323): Simplifying the Transition
to the Equity Method of Accounting.” The amendments affect all entities that have an investment that becomes qualified for
the equity method of accounting as a result of an increase in the level of ownership interest or degree of influence. This ASU simplifies
the transition to the equity method of accounting by eliminating retroactive adjustment of the investment when an investment qualifies
for use of the equity method, among other things. The amendments in the ASU are effective beginning after December 15, 2016 and
for interim periods within that year. The adoption of this guidance should not have a material effect on the Corporation’s
financial condition or results of operations.
In
March 2016, the FASB issued ASU 2016-08, “Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations
(Reporting Revenue Gross versus Net).” This ASU was issued to clarify certain principal versus agent considerations
within the implementation guidance of ASC Topic 606, “Revenue from Contracts with Customers.” The effective
date and transition of ASU 2016-08 is the same as the effective date and transition of ASU 2014-09, Revenue from Contracts
with Customers (Topic 606), as discussed above. We are currently evaluating the potential impact of ASU 2016-08 on our
financial statements.
In
March 2016, the FASB issued ASU 2016-09, “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based
Payment Accounting.” Under this ASU all excess tax benefits and tax deficiencies related to share-based payment awards
should be recognized as income tax expense or benefit in the income statement during the period in which they occur. Previously,
such amounts were recorded in the pool of excess tax benefits included in additional paid-in capital, if such pool was available.
Because excess tax benefits are no longer recognized in additional paid-in capital, the assumed proceeds from applying the treasury
stock method when computing earnings per share should exclude the amount of excess tax benefits that would have previously been
recognized in additional paid-in capital. Additionally, excess tax benefits should be classified along with other income tax cash
flows as an operating activity rather than a financing activity, as was previously the case. ASU 2016-09 also provides that
an entity can make an entity-wide accounting policy election to either estimate the number of awards that are expected to vest
(current GAAP) or account for forfeitures when they occur. ASU 2016-09 changes the threshold to qualify for equity classification
(rather than as a liability) to permit withholding up to the maximum statutory tax rates (rather than the minimum as was previously
the case) in the applicable jurisdictions. The amendments in the ASU are effective beginning after December 15, 2016 and for interim
periods within that year. The adoption of this guidance should not have a material effect on the Corporation’s financial
condition or results of operations.
In April
2016, the FASB issued ASU No. 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations
and Licensing.” This ASU was issued to clarify ASC Topic 606, “Revenue from Contracts with Customers”
related to (i) identifying performance obligations; and (ii) the licensing implementation guidance. The effective date
and transition of ASU 2016-10 is the same as the effective date and transition of ASU 2014-09, “Revenue from Contracts
with Customers (Topic 606),” as discussed above. We are currently evaluating the potential impact of ASU 2016-10
on our financial statements.
NOTE
8 – RECENT ACCOUNTING PRONOUNCEMENTS (continued)
In
June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of
Credit Losses on Financial Instruments.” This ASU amends guidance on reporting credit losses for assets held at
amortized cost basis and available-for-sale debt securities by eliminating the probable initial recognition threshold
(incurred loss methodology) and requiring entities to reflect its current estimate of all expected credit losses. The
amendments in the
ASU are effective beginning after December 15, 2019 and for interim periods within that year. Early
adoption is permitted beginning after December 15, 2018. Entities will apply the amendments in this ASU through a
cumulative-effect adjustment to retained earnings in the first period effective. Management is currently evaluating the
potential impact of ASU 2016-13 on its financial statements.
NOTE
9 – FAIR VALUE
Fair value
pursuant to FASB ASC 820-10, Fair Value Measurements and Disclosures, is the exchange price, in an orderly transaction that is
not a forced liquidation or distressed sale, between market participants to sell an asset or transfer a liability in the market
in which the reporting entity would transact for the asset or liability, that is, the principal or most advantageous market for
the asset or liability. The transaction to sell the asset or transfer the liability is a hypothetical transaction at
the measurement date, considered from the perspective of a market participant that holds the asset or liability. FASB ASC 820-10
provides a consistent definition of fair value which focuses on exit price and prioritizes, within a measurement of fair value,
the use of market-based inputs over entity specific inputs. In addition, FASB ASC 820-10 provides a framework for measuring
fair value and establishes a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation
of an asset or liability as of the measurement date. Transfers between levels of the fair value hierarchy are recognized on the
actual dates of the event or circumstances that caused the transfer, which generally coincides with the Corporation’s monthly
and/or quarterly valuation process.
The standard
describes three levels of inputs that may be used to measure fair values:
Level
1 - Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access
as of the measurement date.
Level
2 - Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities, quoted
prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.
Level
3 - Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants
would use in pricing an asset or liability.
The Corporation
used the following methods to determine the fair value of each type of financial instrument:
Investment
securities
: Fair values for securities available-for-sale are obtained from an independent pricing service. The prices are
not adjusted. The independent pricing service uses industry-standard models to price U.S. Government agency obligations and mortgage
backed securities that consider various assumptions, including time value, yield curves, volatility factors, prepayment speeds,
default rates, loss severity, current market and contractual prices for the underlying financial instruments, as well as other
relevant economic measures. Securities of obligations of state and political subdivisions are valued using a type of matrix, or
grid, pricing in which securities are benchmarked against the treasury rate based on credit rating.
Substantially
all assumptions used by the independent pricing service are observable in the marketplace, can be derived from
observable
data, or are supported by observable levels at which transactions are executed in the marketplace (Level 2).
Residential
loans held for sale
: The fair value of loans held for sale is determined using quoted prices for similar assets, adjusted
for specific attributes of that loan (Level 2).
NOTE
9 – FAIR VALUE (continued)
Derivative
financial instruments
: Derivative instruments are used to hedge residential mortgage loans held for sale and the related interest-rate
lock commitments and include forward commitments to sell mortgage loans and mortgage-backed securities as further described in
Note 7. The fair values of derivative financial instruments are based on derivative market data inputs as of the valuation date
and the underlying value of mortgage loans for interest rate lock commitments (Level 3).
Impaired
loans
: The fair values of impaired loans are measured on a nonrecurring basis as the fair value of the loan’s collateral
for collateral-dependent loans. Collateral may be in the form of real estate or business assets including equipment,
inventory, and accounts receivable. The use of discounted cash flow models and management’s best judgment are
significant inputs in arriving at the fair value measure of the underlying collateral (Level 3).
Other
real estate owned
: The fair value of other real estate owned, which consists of real estate that has been foreclosed, is recorded
at the lower of fair value less selling expenses or the book balance prior to foreclosure. Write downs are provided for subsequent
declines in value and are recorded in other operating expenses (Level 2).
Assets
and liabilities measured at fair value under FASB ASC 820-10 on a recurring and non-recurring basis, including financial assets
and liabilities for which the Corporation has elected the fair value option as of June 30, 2016 and December 31, 2015, are summarized
below:
|
|
Fair
Value Measurement
|
|
|
|
at
June 30, 2016 Using
|
|
Description
|
|
Carrying
Value
|
|
|
Quoted
Prices in
Active Markets
for Identical
Assets (Level 1)
|
|
|
Other
Observable
Inputs (Level 2)
|
|
|
Significant
Unobservable
Inputs (Level 3)
|
|
|
|
(In Thousands)
|
|
Financial
Assets-Recurring
|
|
|
|
|
|
|
|
|
|
Available-for-sale
investment securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Government agencies
|
|
$
|
10,268
|
|
|
$
|
-
|
|
|
$
|
10,268
|
|
|
$
|
-
|
|
Mortgage
backed securities
|
|
|
110,310
|
|
|
|
-
|
|
|
|
110,310
|
|
|
|
-
|
|
Corporate
bonds
|
|
|
8,911
|
|
|
|
-
|
|
|
|
8,911
|
|
|
|
-
|
|
Asset
backed securities
|
|
|
15,535
|
|
|
|
-
|
|
|
|
15,535
|
|
|
|
-
|
|
Municipals
|
|
|
9,862
|
|
|
|
-
|
|
|
|
9,862
|
|
|
|
-
|
|
Municipals
- nontaxable
|
|
|
17,244
|
|
|
|
-
|
|
|
|
17,244
|
|
|
|
-
|
|
CRA
Mutual fund
|
|
|
1,428
|
|
|
|
-
|
|
|
|
1,428
|
|
|
|
-
|
|
Total
available-for-sale investment securities
|
|
|
173,558
|
|
|
|
-
|
|
|
|
173,558
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
loans held for sale
|
|
|
55,116
|
|
|
|
-
|
|
|
|
55,116
|
|
|
|
-
|
|
Derivative
assets
|
|
|
1,427
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,427
|
|
Total
Financial Assets-Recurring
|
|
$
|
230,101
|
|
|
$
|
-
|
|
|
$
|
228,674
|
|
|
$
|
1,427
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
Liabilities-Recurring
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
liabilities
|
|
$
|
1,140
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,140
|
|
Total
Financial Liabilities-Recurring
|
|
$
|
1,140
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,140
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
Assets-Non-Recurring
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired
loans
(1)
|
|
$
|
1,866
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,866
|
|
Total
Financial Assets-Non-Recurring
|
|
$
|
1,866
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,866
|
|
(1)
Represents
the carrying value of loans for which adjustments are based on the appraised value of the collateral, if
collateral dependent, or the present value of expected future cash flows, discounted at the loan's effective interest
rate.
NOTE 9 – FAIR VALUE (continued)
|
|
Fair
Value Measurement
at December 31, 2015 Using
|
|
Description
|
|
Carrying
Value
|
|
|
Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
|
|
|
Other
Observable
Inputs (Level 2)
|
|
|
Significant
Unobservable
Inputs (Level 3)
|
|
|
|
|
(In Thousands)
|
|
Financial Assets-Recurring
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale investment securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US Government agency
|
|
$
|
18,904
|
|
|
$
|
-
|
|
|
$
|
18,904
|
|
|
$
|
-
|
|
Mortgage backed
|
|
|
96,077
|
|
|
|
-
|
|
|
|
96,077
|
|
|
|
-
|
|
Corporate bonds
|
|
|
8,959
|
|
|
|
-
|
|
|
|
8,959
|
|
|
|
-
|
|
Asset Backed Securities
|
|
|
15,998
|
|
|
|
-
|
|
|
|
15,998
|
|
|
|
-
|
|
Municipals - nontaxable
|
|
|
12,005
|
|
|
|
-
|
|
|
|
12,005
|
|
|
|
-
|
|
Municipals
|
|
|
6,809
|
|
|
|
-
|
|
|
|
6,809
|
|
|
|
-
|
|
CRA Mutual fund
|
|
|
1,410
|
|
|
|
-
|
|
|
|
1,410
|
|
|
|
-
|
|
Total available-for-sale investment
securities
|
|
|
160,162
|
|
|
|
-
|
|
|
|
160,162
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential loans held for sale
|
|
|
44,135
|
|
|
|
-
|
|
|
|
44,135
|
|
|
|
-
|
|
Derivative assets
|
|
|
523
|
|
|
|
-
|
|
|
|
-
|
|
|
|
523
|
|
Total Financial Assets-Recurring
|
|
$
|
204,820
|
|
|
$
|
-
|
|
|
$
|
204,297
|
|
|
$
|
523
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Liabilities-Recurring
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
|
$
|
250
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
250
|
|
Total Financial Liabilities-Recurring
|
|
$
|
250
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Assets-Non-Recurring
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired
loans
(1)
|
|
$
|
7,417
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
7,417
|
|
Total Financial Assets-Non-Recurring
|
|
$
|
7,417
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
7,417
|
|
(1)
Represents the carrying value of loans
for which adjustments are based on the appraised value of the collateral, if collateral dependent, or the present value of expected
future cash flows, discounted at the loan's effective interest rate.
It is the Corporation’s policy to recognize transfers between
levels as of the actual date of the event or change in circumstances that caused the transfer. There were no transfers between
Level 1 and Level 2 during the six month periods ended June 30, 2016 and 2015.
The changes in Level 3 net derivatives measured at fair value on
a recurring basis are summarized as follows:
|
|
Three Months Ended June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(In Thousands)
|
|
Balance, beginning of period
|
|
$
|
529
|
|
|
$
|
192
|
|
Realized and unrealized gains (losses) included in earnings
|
|
|
(242
|
)
|
|
|
456
|
|
Unrealized gains (losses) included in other comprehensive income
|
|
|
-
|
|
|
|
-
|
|
Purchases, settlements, paydowns, and maturities
|
|
|
-
|
|
|
|
-
|
|
Transfer into Level 3
|
|
|
-
|
|
|
|
-
|
|
Balance, end of period
|
|
$
|
287
|
|
|
$
|
648
|
|
|
|
Six Months Ended June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(In Thousands)
|
|
Balance, beginning of period
|
|
$
|
273
|
|
|
$
|
(110
|
)
|
Realized and unrealized gains (losses) included in earnings
|
|
|
14
|
|
|
|
758
|
|
Unrealized gains (losses) included in other comprehensive income
|
|
|
-
|
|
|
|
-
|
|
Purchases, settlements, paydowns, and maturities
|
|
|
-
|
|
|
|
-
|
|
Transfer into Level 3
|
|
|
-
|
|
|
|
-
|
|
Balance, end of period
|
|
$
|
287
|
|
|
$
|
648
|
|
NOTE 9 – FAIR VALUE (Continued)
The following tables present qualitative information about level
3 fair value measurements for financial instruments measured at fair value for June 30, 2016 and December 31, 2015:
|
|
June 30, 2016
|
|
Description
|
|
Fair Value Estimate
|
|
|
Valuation Techniques
|
|
Unobservable Input
|
|
Range (Weighted Average)
|
|
|
|
(In Thousands)
|
|
Financial Assets - Recurring
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative assets
|
|
$
|
1,427
|
|
|
Market pricing (3)
|
|
Estimated pullthrough
|
|
|
75%
- 90% (84.3)
|
%
|
Derivative liabilities
|
|
$
|
1,140
|
|
|
Market pricing (3)
|
|
Estimated pullthrough
|
|
|
75%
- 90% (84.3)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Assets - Non-recurring
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans - Real estate secured
|
|
$
|
1,050
|
|
|
Appraisal of collateral (1)
|
|
Liquidation expenses (2)
|
|
|
0%
- 20% (10)
|
%
|
Impaired loans - Non-real estate secured
|
|
$
|
816
|
|
|
Cash flow basis
|
|
Liquidation expenses (2)
|
|
|
0%
- 10% (0)
|
%
|
|
(1)
|
Fair value is generally determined through independent
appraisals of the underlying collateral on real estate secured loans, which generally include various level 3 inputs which are
not identifiable.
|
|
(2)
|
Valuations of impaired loans may be adjusted by management
for qualitative factors such as liquidation expenses. The range and weighted average of liquidation expense adjustments are presented
as a percent of the appraisal.
|
|
(3)
|
Market pricing on derivative assets and liabilities is
adjusted by management for the anticipated percent of derivative assets and liabilities that will create a realized gain or loss.
The range and weighted average of estimated pull-through is presented
|
|
|
December 31, 2015
|
|
Description
|
|
Fair Value Estimate
|
|
|
Valuation Techniques
|
|
Unobservable Input
|
|
Range (Weighted Average)
|
|
|
|
(In Thousands)
|
|
Financial Assets – Recurring
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative assets
|
|
$
|
523
|
|
|
Market pricing (3)
|
|
Estimated pullthrough
|
|
|
75%
- 90% (86.2)
|
%
|
Derivative liabilities
|
|
$
|
250
|
|
|
Market pricing (3)
|
|
Estimated pullthrough
|
|
|
75%
- 90% (86.2)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Assets - Non-recurring
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans - Real estate secured
|
|
$
|
6,695
|
|
|
Appraisal of collateral (1)
|
|
Liquidation expenses (2)
|
|
|
0%
- 15% (14)
|
%
|
Impaired loans - Non-real estate secured
|
|
$
|
722
|
|
|
Cash flow basis
|
|
Liquidation expenses (2)
|
|
|
0%
- 10% (4)
|
%
|
|
(1)
|
Fair value is generally determined through independent
appraisals of the underlying collateral on real estate secured loans, which generally include various level 3 inputs which are
not identifiable.
|
|
(2)
|
Valuations of impaired loans may be adjusted by management
for qualitative factors such as liquidation expenses. The range and weighted average of liquidation expense adjustments are presented
as a percent of the appraisal.
|
|
(3)
|
Market pricing on derivative assets and liabilities is
adjusted by management for the anticipated percent of derivative assets and liabilities that will create a realized gain or loss.
The range and weighted average of estimated pull-through is presented
|
NOTE 9 – FAIR VALUE (Continued)
Financial instruments recorded using FASB ASC 825-10
Under FASB ASC 825-10, Financial Instruments, the Corporation may
elect to report most financial instruments and certain other items at fair value on an instrument-by-instrument basis with changes
in fair value reported in net income. After the initial adoption the election is made at the acquisition of an eligible financial
asset, financial liability or firm commitment or when certain specified reconsideration events occur. The fair value election,
with respect to an item, may not be revoked once an election is made.
The following table reflects the differences between
the fair value carrying amount of residential mortgage loans held for sale at June 30, 2016, measured at fair value under FASB
ASC 825-10, and the aggregate unpaid principal amount the Corporation is contractually entitled to receive at maturity.
(In Thousands)
|
|
Aggregate
Fair Value
|
|
|
Difference
|
|
|
Contractual
Principal
|
|
Residential mortgage loans held for sale
|
|
$
|
55,116
|
|
|
$
|
2,880
|
|
|
$
|
52,236
|
|
The Corporation has elected to account for residential loans held
for sale at fair value to eliminate the mismatch that would occur by recording changes in market value on derivative instruments
used to hedge loans held for sale while carrying the loans at the lower of cost or market.
The following methods and assumptions not previously presented
were used in estimating the fair value of financial assets and financial liabilities that are not measured and reported at fair
value on a recurring basis or non-recurring basis:
Cash and Short-Term Investments
For those short-term instruments, the carrying amount is a reasonable
estimate of fair value. As such they are classified as Level 1 for noninterest-bearing deposits and Level 2 for interest-bearing
deposits due from banks or federal funds sold.
Restricted Stock
It is not practical to determine the fair value of restricted stock
due to the restrictions placed on its transferability.
Loans, Net of Allowance
For certain homogeneous categories of loans, such as some residential
mortgages, and other consumer loans, fair value is estimated using the quoted market prices for securities backed by similar loans,
adjusted for differences in loan characteristics resulting in a Level 3 classification. The fair value of other types of loans
is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with
similar credit ratings and for the same remaining maturities resulting in a Level 3 classification.
Accrued Interest
The carrying amounts of accrued interest approximate fair value
resulting in a Level 2 or Level 3 classification depending upon the level of the asset or liability, with which, the accrual is
associated.
Deposits and Borrowings
The fair value of demand deposits, savings accounts, and certain
money market deposits is the amount payable on demand at the reporting date resulting in a Level 1 classification. The fair value
of fixed-maturity certificates of deposit is estimated using the rates currently offered for deposits of similar remaining maturities
also resulting in a Level 1 classification. The fair value of all other deposits and borrowings is determined using the discounted
cash flow method thereby resulting in a Level 2 classification. The discount rate was equal to the rate currently offered on similar
products.
NOTE 9 – FAIR VALUE (Continued)
Off-Balance-Sheet Financial Instruments
The fair value of commitments to extend credit is estimated using
the fees currently charged to enter similar agreements, taking into account the remaining terms of the agreements and the present
creditworthiness of the counterparties. For fixed-rate loan commitments, fair value also considers the difference between current
levels of interest rates and the committed interest rates. The fair value of stand-by letters of credit is based on fees currently
charged for similar agreements or on the estimated cost to terminate them or otherwise settle the obligations with the counterparties
at the reporting date.
At June 30, 2016 and December 31, 2015, the majority of off-balance-sheet
items are variable rate instruments or convert to variable rate instruments if drawn upon. Therefore, the fair value of these
items is largely based on fees, which are nominal and immaterial.
The carrying amounts and estimated fair values of financial instruments
at June 30, 2016 and December 31, 2015 were as follows:
|
|
June
30, 2016
|
|
|
December
31, 2015
|
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
Estimated
|
|
|
|
Carrying
|
|
|
Fair
|
|
|
Carrying
|
|
|
Fair
|
|
|
|
Amount
|
|
|
Value
|
|
|
Amount
|
|
|
Value
|
|
|
|
(In Thousands)
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and short-term
investments
|
|
$
|
81,535
|
|
|
$
|
81,535
|
|
|
$
|
35,889
|
|
|
$
|
35,889
|
|
Securities available-for-sale
|
|
|
173,558
|
|
|
|
173,558
|
|
|
|
160,162
|
|
|
|
160,162
|
|
Securities held-to-maturity
|
|
|
9,228
|
|
|
|
9,560
|
|
|
|
14,287
|
|
|
|
14,314
|
|
Restricted stock
|
|
|
7,159
|
|
|
|
7,159
|
|
|
|
7,259
|
|
|
|
7,259
|
|
Loans, net of allowance
|
|
|
984,011
|
|
|
|
1,006,283
|
|
|
|
918,050
|
|
|
|
982,811
|
|
Derivatives
|
|
|
1,427
|
|
|
|
1,427
|
|
|
|
523
|
|
|
|
523
|
|
Total financial
assets
|
|
$
|
1,256,918
|
|
|
$
|
1,279,522
|
|
|
$
|
1,136,170
|
|
|
$
|
1,200,958
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
1,044,545
|
|
|
$
|
1,041,842
|
|
|
$
|
913,744
|
|
|
$
|
905,951
|
|
Short-term borrowings
|
|
|
56,763
|
|
|
|
56,704
|
|
|
|
91,129
|
|
|
|
90,269
|
|
Long-term borrowings
|
|
|
75,000
|
|
|
|
74,902
|
|
|
|
55,000
|
|
|
|
54,324
|
|
Derivatives
|
|
|
1,140
|
|
|
|
1,140
|
|
|
|
250
|
|
|
|
250
|
|
Total financial
liabilities
|
|
$
|
1,177,448
|
|
|
$
|
1,174,588
|
|
|
$
|
1,060,123
|
|
|
$
|
1,050,794
|
|
NOTE 10 – FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET
RISK
The Corporation is a party to financial instruments with off-balance-sheet
risk in the normal course of business to meet the financing needs of its customers. These financial instruments consist primarily
of commitments to extend credit. These instruments involve, to varying degrees, elements of credit risk in excess of the amount
recognized in the balance sheet. The contract or notional amounts of those instruments reflect the extent of involvement the Corporation
has in particular classes of financial instruments.
Commitments to extend credit are agreements to lend to a customer
as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates
or other termination clauses and may require payment of a fee by the customer. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Corporation
evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral, if any, deemed necessary by
the Corporation upon extension of credit is based on management’s credit evaluation of the counterparty. Collateral normally
consists of real property, liquid assets or business assets. The Corporation had $39.8 million and $53.2 million in outstanding
commitments at June 30, 2016 and December 31, 2015, respectively.
The Corporation’s exposure to credit loss in the event of
nonperformance by the other party to the financial instrument for commitments to extend credit is represented by the contractual
notional amount of those instruments. The Corporation uses the same credit policies in making commitments and conditional obligations
as it does for on-balance-sheet instruments. The Corporation had $293.6 million and $304.9 million in unfunded lines of credit
whose contract amounts represent credit risk at June 30, 2016 and December 31, 2015, respectively.
Standby letters of credit are conditional commitments issued by
the Corporation to guarantee the performance of a customer to a third party. Those letters of credit are primarily issued to support
public and private borrowing arrangements. Essentially all letters of credit issued have expiration dates within one year. The
credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers.
The Corporation generally holds collateral supporting those commitments if deemed necessary. The Corporation had standby letters
of credit outstanding in the amount of $8.2 million and $7.6 million at June 30, 2016 and December 31, 2015, respectively.
The Bank maintains a reserve for potential off-balance sheet credit
losses that is included in other liabilities on the balance sheet. At June 30, 2016 and December 31, 2015 the balance in this
reserve totaled $750 thousand.
The Mortgage Division of the Bank makes representations and warranties
that loans sold to investors meet its program’s guidelines and that the information provided by the borrowers is accurate
and complete. In the event of a default on a loan sold, the investor may make a claim for losses due to document deficiencies,
program compliance, early payment default, and fraud or borrower misrepresentations. The Mortgage Division maintains a reserve
in other liabilities for potential losses on mortgage loans sold. Management performs a quarterly analysis to determine the adequacy
of the reserve. At June 30, 2016 and December 31, 2015, the balance in this reserve totaled $1.0 million.
NOTE 10 – FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET
RISK
(Continued)
The following table shows the changes to the allowance for losses
on mortgage loans sold.
|
|
Six Months ended June 30,
|
|
|
Year ended
|
|
|
|
2016
|
|
|
2015
|
|
|
December 31, 2015
|
|
|
|
(In Thousands)
|
|
Allowance for losses on mortgage
loans sold -beginning of period
|
|
$
|
1,029
|
|
|
$
|
1,198
|
|
|
$
|
1,198
|
|
Provision released from operating expense
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Recoveries
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Charge-offs
|
|
|
-
|
|
|
|
(11
|
)
|
|
|
(169
|
)
|
Allowance for losses on mortgage loans sold
- end of period
|
|
$
|
1,029
|
|
|
$
|
1,187
|
|
|
$
|
1,029
|
|
NOTE 11 – BANK-OWNED LIFE INSURANCE POLICIES
The Corporation had $18.5 million and $15.8 million in bank-owned
life insurance (“BOLI”) at June 30, 2016 and December 31, 2015, respectively. The Corporation recognized interest
income, which is included in other noninterest income, of $226 thousand and $231 for the six months ended June 30, 2016 and June
30, 2015, respectively.
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction
with Access National Corporation’s (“Corporation”, “we”, “us”) consolidated financial
statements, and notes thereto, included in the Corporation’s Annual Report on Form 10-K for the fiscal year ended December
31, 2015. Operating results for the three and six months ended June 30, 2016 are not necessarily indicative of the results for
the year ending December 31, 2016 or any future period.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
In addition to historical information,
this Quarterly Report on Form 10-Q contains forward-looking statements. For this purpose, any statements contained herein, including
documents incorporated by reference, that are not statements of historical fact may be deemed to be forward-looking statements.
Examples of forward-looking statements include discussions as to our expectations, beliefs, plans, goals, objectives and future
financial or other performance or assumptions concerning matters discussed in this document. Forward-looking statements often
use words such as “believes,” “expects,” “plans,” “may,” “will,” “should,”
“projects,” “contemplates,” “ anticipates,” “forecasts,” “intends”
or other words of similar meaning. Forward-looking statements in this Quarterly Report on Form 10-Q include, without limitation,
statements regarding the Corporation’s beliefs regarding the future strength of the economy and labor markets and anticipated
interest rates and the effect of such rates on the Corporation’s performance and net interest margin and the volume of future
mortgage refinancing, as well as the Corporation’s expectations concerning operating losses and the profitability of its
mortgage segment. You can also identify them by the fact that they do not relate strictly to historical or current facts. Forward-looking
statements are subject to numerous assumptions, risks and uncertainties, and actual results could differ materially from historical
results or those anticipated by such statements. Factors that could have a material adverse effect on the operations and future
prospects of the Corporation include, but are not limited to, changes in: collateral values, especially in the real estate market;
continued challenging economic conditions or deterioration in general business and economic conditions and in the financial markets;
the impact of any laws, regulations, policies or programs implemented pursuant to
the
Dodd-Frank Act or other legislation or regulation; unemployment levels; branch expansion plans; interest rates; general economic
conditions; monetary and fiscal policies of the U.S. Government, including policies of the Office of the Comptroller of the Currency
(“Comptroller”), the U.S. Department of the Treasury and the Board of Governors of the Federal Reserve System and
the Federal Reserve Bank of Richmond; the economy of Northern Virginia, including governmental spending and real estate markets;
the quality or composition of the loan or investment portfolios; demand for loan products; deposit flows; competition; the liquidity
of the Corporation; and accounting principles, policies and guidelines. These risks and uncertainties should be considered in
evaluating the forward-looking statements contained herein, and readers are cautioned not to place undue reliance on such statements.
Any forward-looking statement speaks only as of the date on which it is made, and we undertake no obligation to update any forward-looking
statement to reflect events or circumstances after the date on which it is made.
For additional discussion of risk factors that may cause our actual
future results to differ materially from the results indicated within forward looking statements, please see “Item 1A –
Risk Factors” of the Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015.
CRITICAL ACCOUNTING POLICIES
The Corporation’s consolidated financial statements have
been prepared in accordance with GAAP. In preparing the Corporation’s financial statements management makes estimates and
judgments that affect the reported amounts of assets, liabilities, revenues, and expenses. Management believes that the most significant
subjective judgments that it makes include the following:
Allowance for Loan Losses
The allowance for loan losses is an estimate of the losses that
may be sustained in our loan portfolio. The allowance is based on two basic principles of accounting: (i) FASB ASC 450-10, which
requires that losses be accrued when they are probable of occurring and can be estimated, and (ii) FASB ASC 310-10, which requires
that losses be accrued based on the differences between the value of collateral, present value of future cash flows or values
that are observable in the secondary market and the loan balance. An allowance for loan losses is established through a provision
for loan losses based upon industry standards, known risk characteristics, management’s evaluation of the risk inherent
in the loan portfolio, and changes in the nature and volume of loan activity. Such evaluation considers, among other factors,
the estimated market value of the underlying collateral and current economic conditions. For further information about our practices
with respect to allowance for loan losses, please see Note 4 to the consolidated financial statements.
Other Than Temporary Impairment of Securities
Securities in the Corporation’s securities portfolio are
classified as either available-for-sale or held-to-maturity. At June 30, 2016, there were no non-agency mortgage backed securities
or trust preferred securities in the portfolio. The estimated fair value of the portfolio fluctuates due to changes in market
interest rates and other factors. Changes in estimated fair value are recorded in shareholders’ equity as a component of
other comprehensive income. Securities are monitored to determine whether a decline in their value is other than temporary. Management
evaluates the securities portfolio on a quarterly basis to determine the collectability of amounts due per the contractual terms
of each security. A decline in the fair value of an investment below its amortized cost attributable to factors that indicate
the decline will not be recovered over the anticipated holding period of the investment will cause the security to be considered
other than temporarily impaired. Other than temporary impairments result in reducing the security’s carrying value by the
amount of the estimated credit loss. The credit component of the other than temporary impairment loss is realized through the
statement of income and the remainder of the loss remains in other comprehensive income. At June 30, 2016, there were no securities
with other than temporary impairment.
Income Taxes
The Corporation uses the liability method of accounting for income
taxes. This method results in the recognition of deferred tax assets and liabilities that are reflected at currently enacted income
tax rates applicable to the period in which the deferred tax assets or liabilities are expected to be realized or settled. As
changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes.
The deferred provision for income taxes is the result of the net change in the deferred tax asset and deferred tax liability balances
during the year. This amount combined with the current taxes payable or refundable results in the income tax expense for the current
year. The Corporation’s evaluation of the deductibility or taxability of items included in the Corporation’s tax returns
has not resulted in the identification of any material, uncertain tax positions.
Fair Value
Fair values of financial instruments are estimated using relevant
market information and other assumptions. Fair value estimates involve uncertainties and matters of significant judgment regarding
interest rates, credit risk, prepayments and other factors, especially in the absence of broad markets for particular items. Changes
in assumptions or in market conditions could significantly affect the estimates. The fair value estimates of existing on and off-balance
sheet financial instruments do not include the value of anticipated future business or the values of assets and liabilities not
considered financial instruments. For additional information about our financial assets carried at fair value, please see
Note
9 to the consolidated financial statements.
FINANCIAL CONDITION
Executive Summary
At June 30, 2016, the Corporation’s assets totaled $1.3 billion
and grew $126.3 million when compared to December 31, 2015. The increase in assets was primarily due to a growth in loans held
for investment of $55.3 million and $41.9 million of growth in interest-bearing balances. The first half of 2016 reflected growth
in the following categories of loans held for investment from December 31, 2015: commercial real estate – owner occupied,
commercial real estate – non-owner occupied, residential real estate, commercial, and real estate construction. The $55.3
million increase in loans held for investment as compared to December 31, 2015 is primarily attributable to a $15.9 million or
7.21% growth in commercial real estate – owner occupied loans, a $13.2 million or 19.99% increase in residential real estate
loans, a $14.6 million or 6.02% increase in commercial loans, and a $6.9 million or 3.41% increase in residential real estate
loans. Overall, the portfolio of loans held for investment grew at an annualized rate of 12.5%. At June 30, 2016, loans secured
by real estate collateral comprised 71.75% of our total loan portfolio, with loans secured by commercial real estate contributing
41.26% of our total loan portfolio, loans secured by residential real estate contributing 22.10% and real estate construction
loans contributing 8.39%. Loans held for sale totaled $55.1 million at June 30, 2016, compared to $44.1 million at December 31,
2015. Loans held for sale fluctuates with the volume of loans originated during any given month and the length of time the loans
are held prior to selling them in the secondary market. Deposits totaled $1.045 billion at June 30, 2016, compared to $913.7 million
at December 31, 2015, an increase of $130.8 million. Noninterest-bearing deposits increased $84.5 million from $307.8 million
at December 31, 2015 to $392.3 million at June 30, 2016. Savings and interest-bearing deposits increased $72.0 million from $293.7
million at December 31, 2015 to $365.7 million at June 30, 2016. Non-wholesale time deposits increased from $136.0 million at
December 31, 2015 to $164.5 million at June 30, 2016, an increase of $28.5 million, while wholesale funding time deposits saw
a net decrease of $54.1 million, from $176.4 million at December 31, 2015 to $122.4 million at June 30, 2016.
Net income for the second quarter of 2016 totaled $4.9 million
compared to $4.0 million for the same period in 2015. Earnings per diluted share were $0.46 for the second quarter of 2016, compared
to $0.38 per diluted share in the same period of 2015. Second quarter 2016 pretax earnings increased $1.4 million or 23.45% when
compared to second quarter 2015 pretax earnings.
The banking segment had an increase in pre-tax earnings when compared
to the second quarter 2015 of $636 thousand, driven by an increase in net interest income of $962 thousand and other income of
$558 thousand due partially to the recovery on a non-performing asset. These increases were offset by an increase in salaries
and employee benefits of $897 thousand due to staffing expansion. The mortgage segment had an increase in gains on the sale of
loans of $1.6 million that resulted from an increase in the secondary margins on mortgage loans held for sale over second quarter
2015.
Net income for the six months ended June 30, 2016 totaled $9.0
million compared to $7.6 million for the same period in 2015. Earnings per diluted share were $0.85 for the first half of 2016,
compared to $0.72 per diluted share in the same period of 2015. For the six month period ended June 30, 2016, the banking segment
saw an increase in pretax income of $1.2 million when compared to the six months ended June 30, 2015 due to an increase in net
interest income of $2.0 million and an increase in non-interest income of $775 thousand which was partially offset by an increase
in salaries and employee benefits of $1.6 million due to staffing expansion. When comparing the six month period ended June 30,
2016 to the same period in 2015, the mortgage segment saw a pretax earnings increase of $889 thousand. While the mortgage segment
had an increase in gains on the sale of loans of $1.8 million when comparing the six months ended June 2016 to the same period
in 2015 due to an increase in the secondary margins on mortgage loans held for sale, the increase was offset by a $691 thousand
increase in salaries and employee benefits.
Non-performing assets (“NPAs”) totaled $1.9 million,
or 0.14%, of total assets at June 30, 2016, down from $7.3 million, or 0.60% of total assets as of March 31, 2016. The Bank did
not have other real estate owned at June 30, 2016 while Access Real Estate, LLC had other real estate owned with a carrying value
of $500 thousand. The allowance for loan loss was $13.8 million and $13.6 million at June 30, 2016 and December 31, 2015, respectively,
and represented 1.47% and 1.53% of total loans held for investment at June 30, 2016 and December 31, 2015, respectively.
The unemployment rate for Fairfax County, Virginia was at 2.9%
as of May 2016 and still well below the 3.7% unemployment rate for the state of Virginia at the end of June 2016 and 4.9% for
the nation at the end of June 2016. Information reviewed at the Federal Open Market Committee’s (FOMC) June 2016 meeting
indicated the labor market strengthened and economic activity continues to expand at a moderate rate. Labor market indicators
point to an increase in labor utilization in recent months as well. The FOMC reaffirmed its view that the current target rate
for the federal funds rate remains accommodative to support further improvement in labor market conditions and a return to 2%
inflation. The historically low interest rate environment continues to negatively impact yields of variable loans and the securities
portfolio. The Corporation’s net interest margin for the three months ended June 30, 2016 decreased to 3.51% from the three
months ended June 30, 2015 percentage of 3.67%. While there is no certainty to the magnitude of any impact, the continued extended
period of low short-term interest rates, as presently forecasted by the Federal Reserve, will continue to have an adverse effect
on the net interest margin.
The latest Case-Shiller Home Price data available shows home prices
increased 5.2% in 20 U.S. cities for the twelve months ended May 2016. The Consumer Confidence Index increased in June 2016, to
98.0, up from 92.4 in May 2016. Retail sales for June 2016 were 2.7% greater than a year earlier. As such, we remain cautious
and have generally retained more cautious loan underwriting criteria established during the financial crisis period of 2007 –
2009. In spite of these challenges, we are proactive in seeking new client relationships driven by our target market profile:
business-to-business and business-to-government companies with annual revenue of $1 million to $100 million and the various banking
services needed by the business and the professionals associated with the businesses. The Corporation is optimistic with a strong
capital base and being positioned for continued growth.
Securities
The Corporation’s securities portfolio is comprised of U.S.
government agency securities, mortgage backed securities, corporate bonds, a CRA mutual fund, and other asset backed securities
as well as municipal bonds. The portfolio does not have any non-agency mortgage backed securities or trust preferred securities.
At June 30, 2016 the fair value of the securities portfolio totaled
$183.1 million, compared to $174.5 million at December 31, 2015. Included in the fair value totals are held-to-maturity securities
with an amortized cost of $9.2 million (fair value of $9.6 million) and $14.3 million (fair value of $14.3 million) at June 30,
2016 and December 31, 2015, respectively. Securities classified as available-for-sale are accounted for at fair market value with
unrealized gains and losses recorded directly to a separate component of shareholders' equity, net of associated tax effect while
held-to-maturity securities are carried at amortized cost. Investment securities are used to provide liquidity, to generate income,
and to temporarily supplement loan growth as needed.
Restricted Stock
Restricted stock consists of FHLB stock and FRB stock. These stocks
are classified as restricted stocks because their ownership is restricted to certain types of entities and they lack a market.
Restricted stock is carried at cost on the Corporation’s financial statements. Dividends are paid semiannually on FRB stock
and quarterly on FHLB stock.
Loans
The loan portfolio constitutes the largest component of earning
assets and is comprised of commercial real estate – owner occupied, commercial real estate – non-owner occupied, residential
real estate, commercial, real estate construction, and consumer loans. All lending activities of the Bank and its subsidiaries
are subject to the regulations and supervision of the Comptroller. The loan portfolio does not have any pay option adjustable
rate mortgages, loans with teaser rates or subprime loans or any other loans considered “high risk loans”. Loans totaled
$942.7 million at June 30, 2016 compared to $887.5 million at December 31, 2015, an increase of $55.2 million or 6.2%. Comprising
the growth, commercial real estate – owner occupied loans increased $15.9 million, commercial loans increased $14.6 million,
real estate construction loans increased $13.2 million, residential real estate loans increased $6.9 million, and commercial real
estate – non-owner occupied increased $5.6 million. Offsetting the growth was a decrease in consumer loans of $906 thousand.
The overall increase in loans reflects results from our marketing outreach as well as continued improvement in loan demand by
local businesses. Please see Note 4 to the consolidated financial statements for a table that summarizes the composition of the
Corporation’s loan portfolio. The following is a summary of the loan portfolio at June 30, 2016.
Commercial Real Estate Loans – Owner Occupied:
This
category of loans represented the second largest segment of the loan portfolio and was comprised of owner occupied loans secured
by the commercial property, totaling $235.7 million, representing 25.01% of the loan portfolio at June 30, 2016. Commercial real
estate loans are secured by the subject property and underwritten to policy standards. Policy standards approved by the Board
of Directors from time to time set forth, among other considerations, loan-to-value limits, cash flow coverage ratios, and the
general creditworthiness of the obligors.
Commercial Real Estate Loans – Non-Owner Occupied:
This category of loans represented the fourth largest segment of the loan portfolio and was comprised of loans secured by income
producing commercial property, totaling $153.2 million and representing 16.25% of the loan portfolio at June 30, 2016. Commercial
real estate loans are secured by the subject property and underwritten to policy standards as listed above.
Residential Real Estate Loans:
This category represented
the third largest segment of the loan portfolio and included loans secured by first or second mortgages on one to four family
residential properties. This segment totaled $208.3 million and comprised 22.10% of the loan portfolio as of June 30, 2016. Of
this amount, the following sub-categories existed as a percentage of the whole residential real estate loan portfolio as of June
30, 2016: home equity lines of credit, 21.0%; first trust mortgage loans, 71.3%; and junior trust loans, 7.7%.
Home equity lines of credit are extended to borrowers in our target
market. Real estate equity is often the largest component of consumer wealth in our marketplace. Once approved, this consumer
finance tool allows the borrowers to access the equity in their homes or investment properties and use the proceeds for virtually
any purpose. Home equity lines of credit are most frequently secured by a second lien on residential property. The proceeds of
first trust mortgage loans are used to acquire or refinance the primary financing on owner occupied and residential investment
properties. Junior trust loans are loans to consumers wherein the proceeds have been used for a stated consumer purpose. Examples
of consumer purposes are education, refinancing debt, or purchasing consumer goods. The loans are generally extended in a single
disbursement and repaid over a specified period of time. Loans in the residential real estate portfolio are underwritten to standards
within a traditional consumer framework that is periodically reviewed and updated by management and the Board of Directors and
takes into consideration repayment source and capacity, value of the underlying property, credit history, savings pattern, and
stability.
Commercial Loans:
Commercial loans represented the largest
segment of the loan portfolio, totaling $257.1 million and representing 27.28% of the loan portfolio as of June 30, 2016. These
loans are made to businesses or individuals within our target market for business purposes. Typically the loan proceeds are used
to support working capital and the acquisition of fixed assets of an operating business. We underwrite these loans based upon
our assessment of the obligor(s)’ ability to generate operating cash flows in the future necessary to repay the loan. To
address the risks associated with the uncertainties of future cash flows, these loans are generally well secured by assets owned
by the business or its principal shareholders/owners and the principal shareholders/owners are typically required to guarantee
the loan.
Real Estate Construction Loans:
Real estate construction
loans, also known as construction and land development loans represented the fifth largest segment of the loan portfolio and totaled
$79.2 million and represented 8.39% of the loan portfolio as of June 30, 2016. These loans generally fall into one of three categories:
first, loans to individuals that are ultimately used to acquire property and construct an owner occupied residence; second, loans
to builders for the purpose of acquiring property and constructing homes for sale to consumers; and third, loans to developers
for the purpose of acquiring land that is developed into finished lots for the ultimate construction of residential or commercial
buildings. Loans of these types are generally secured by the subject property within limits established by the Board of Directors
based upon an assessment of market conditions
and updated from time to time. The loans typically carry recourse to principal
owners. In addition to the repayment risk associated with loans to individuals and businesses, loans in this category carry construction
completion risk. To address this additional risk, loans of this type are subject to additional administration procedures designed
to verify and ensure progress of the project in accordance with allocated funding, project specifications and time frames.
Consumer Loans:
Consumer loans, which were the smallest
segment of the loan portfolio, totaled $9.1 million and represented 0.97% of the loan portfolio as of June 30, 2016. Most loans
in this category are well secured with assets other than real estate, such as marketable securities or automobiles. Very few consumer
loans are unsecured. As a matter of operation, management discourages unsecured lending. Loans in this category are underwritten
to standards within a traditional consumer framework that is periodically reviewed and updated by management and the Board of
Directors and takes into consideration repayment capacity, collateral value, savings pattern, credit history, and stability.
Loans Held for Sale (“LHFS”)
LHFS are residential mortgage loans originated by the Mortgage
Division of the Bank to consumers and underwritten in accordance with standards set forth by an institutional investor to whom
we expect to sell the loans for a profit. Loan proceeds are used for the purchase or refinance of the property securing the loan.
Loans are sold with the servicing released to the investor. At June 30, 2016, LHFS at fair value totaled $55.1 million compared
to $44.1 million at December 31, 2015.
The LHFS loans are closed by the Mortgage Division and held on
average fifteen to thirty days pending their sale to government sponsored entities as well as mortgage banking subsidiaries of
large financial institutions. During the second quarter of 2016 we originated $154.0 million of loans processed in this manner,
compared to $145.2 million for the second quarter of 2015. Loans are sold without recourse and subject to industry standard representations
and warranties that may require the repurchase by the Bank of loans previously sold. The repurchase risks associated with this
activity center around early payment defaults and borrower fraud.
Allowance for Loan Losses
The allowance for loan losses totaled $13.8 million at June 30,
2016 compared to $13.6 million at December 31, 2015. The allowance for loan losses was equivalent to 1.47% and 1.53% of total
loans held for investment at June 30, 2016 and December 31, 2015, respectively. Adequacy of the allowance is assessed and increased
by provisions for loan losses charged to expense no less than quarterly. Charge-offs are taken when a loan is identified as uncollectible.
For additional information about the allowance for loan losses, please see Note 4 to the consolidated financial statements.
Non-performing Assets
At June 30, 2016 and December 31, 2015, the Bank had non-performing
assets totaling $1.9 million and $7.4 million, respectively. This decrease in NPAs since December 31, 2015 was mainly due
to the settlement of one loan on non-accrual status during the second quarter of 2016. Non-performing assets consist of non-accrual
loans. All non-performing loans are carried at the expected liquidation value of the underlying collateral.
The following table is a summary of our non-performing assets at
June 30, 2016 and December 31, 2015.
|
|
June 30, 2016
|
|
|
December
31, 2015
|
|
|
|
(Dollars In Thousands)
|
|
Non-accrual loans :
|
|
|
|
Commercial real
estate - non-owner occupied
|
|
$
|
-
|
|
|
$
|
5,486
|
|
Residential real estate
|
|
|
34
|
|
|
|
163
|
|
Commercial
|
|
|
816
|
|
|
|
722
|
|
Real estate
construction
|
|
|
1,016
|
|
|
|
1,046
|
|
Total non-accrual loans
|
|
$
|
1,866
|
|
|
$
|
7,417
|
|
|
|
|
|
|
|
|
|
|
Other real estate owned ("OREO")
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total
non-performing assets
|
|
$
|
1,866
|
|
|
$
|
7,417
|
|
|
|
|
|
|
|
|
|
|
Restructured loans included above in non-accrual
loans
|
|
$
|
1,016
|
|
|
$
|
1,046
|
|
|
|
|
|
|
|
|
|
|
Ratio of non-performing assets to:
|
|
|
|
|
|
|
|
|
Total loans plus OREO
|
|
|
0.20
|
%
|
|
|
0.84
|
%
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
|
0.14
|
%
|
|
|
0.63
|
%
|
|
|
|
|
|
|
|
|
|
Accruing Past due loans:
|
|
|
|
|
|
|
|
|
90 or more days past due
|
|
$
|
-
|
|
|
$
|
-
|
|
Not included in the table above is other real estate owned in the
amount of $500 thousand. During 2014, Access Real Estate LLC (ARE) transferred an undeveloped commercial lot that was originally
purchased for possible future banking center expansion to other assets available-for-sale when management listed the property
for sale. The land, originally purchased for $1.2 million, was recorded at its appraised value less costs to sell.
At June 30, 2016 and December 31, 2015, the Bank had no loans past
due 90 days or more and still accruing interest.
Deposits
Deposits are the primary sources of funding loan growth. At June
30, 2016, deposits totaled $1.05 billion compared to $913.7 million on December 31, 2015, an increase of $130.8 million or 14.31%.
Noninterest-bearing deposits increased $84.5 million or 27.44% from $307.8 million at December 31, 2015 to $392.3 million at June
30, 2016. Savings and interest-bearing deposits increased $52.2 million or 18.78% from $278.0 million at December 31, 2015 to
$330.2 million at June 30, 2016. Non-wholesale time deposits increased from $136.0 million at December 31, 2015 to $164.5 million
at June 30, 2016, an increase of $28.5 million or 20.92%, while wholesale funding time deposits saw a net decrease of $54.0 million
or 30.64%, from $176.4 million at December 31, 2015 to $122.4 million at June 30, 2016. Non-maturity wholesale deposits increased
$19.7 million or 127.15% from $15.5 million at December 31, 2015 to $35.2 million at June 30, 2016.
Shareholders’ Equity
Shareholders’ equity totaled $118.4 million at June 30, 2016
compared to $109.1 million at December 31, 2015. The increase in shareholders’ equity is due mainly to retained earnings
net of dividends paid. Banking regulators have defined minimum regulatory capital ratios that the Corporation and the Bank are
required to maintain. These risk based capital guidelines take into consideration risk factors, as defined by the banking regulators,
associated with various categories of assets, both on and off the balance sheet. Both the Corporation and Bank are classified
as well capitalized, which is the highest rating.
Beginning January 1, 2015, the Corporation calculates its regulatory
capital under the Basel III Final Rules which modified the definition of “well capitalized” and implemented changes
in the risk weights of assets. The following table outlines the regulatory components of the Corporation’s capital and risk
based capital ratios under these new rules.
|
|
June 30,
|
|
|
December 31,
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
(In Thousands)
|
|
|
|
|
Tier 1 Capital:
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
$
|
8,837
|
|
|
$
|
8,805
|
|
|
|
|
|
Capital surplus
|
|
|
20,625
|
|
|
|
19,953
|
|
|
|
|
|
Retained earnings
|
|
|
87,188
|
|
|
|
81,385
|
|
|
|
|
|
Less: Disallowed goodwill and
other disallowed intangible assets
|
|
|
(1,661
|
)
|
|
|
(1,380
|
)
|
|
|
|
|
Less:
Disallowed servicing assets and loss on equity security
|
|
|
(135
|
)
|
|
|
(280
|
)
|
|
|
|
|
Total Tier 1 capital
|
|
|
114,854
|
|
|
|
108,483
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for loan losses
|
|
|
12,951
|
|
|
|
12,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total risk based capital
|
|
$
|
127,805
|
|
|
$
|
120,683
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk weighted assets
|
|
$
|
1,034,456
|
|
|
$
|
973,908
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarterly average assets
|
|
$
|
1,268,504
|
|
|
$
|
1,161,080
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Regulatory
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum
|
|
Risk-Based Capital Ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
Common equity tier 1 capital ratio
|
|
|
11.10
|
%
|
|
|
11.14
|
%
|
|
|
5.125
|
%
|
Tier 1 capital ratio
|
|
|
11.10
|
%
|
|
|
11.14
|
%
|
|
|
6.625
|
%
|
Total capital ratio
|
|
|
12.35
|
%
|
|
|
12.39
|
%
|
|
|
8.625
|
%
|
Leverage Capital Ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 leverage ratio
|
|
|
9.05
|
%
|
|
|
9.34
|
%
|
|
|
4.000
|
%
|
RESULTS OF OPERATIONS
Summary
Net income for the second quarter of 2016 totaled $4.9 million
compared to $4.0 million for the same period in 2015. Earnings per diluted share were $0.46 for the second quarter of 2016, compared
to $0.38 per diluted share in the same period of 2015. Second quarter 2016 pretax earnings increased $1.4 million or 23.5% when
compared to second quarter 2015 pretax earnings. The banking segment had an increase in pre-tax earnings when compared to the
second quarter 2015 of $636 thousand, driven by an increase in net interest income over second quarter 2015 of $962 thousand and
other income of $558 thousand which was offset by an increase in salaries and employee benefits of $897 thousand due to staffing
expansion. The mortgage segment had an increase in gains on the sale of loans of $1.6 million that resulted from an increase in
the secondary margins on mortgage loans held for sale.
Net income for the six months ended June 30, 2016 totaled $9.0
million compared to $7.6 million for the same period in 2015. Earnings per diluted share were $0.85 for the first six months of
2016, compared to $0.72 per diluted share in the same period of 2015. For the six month period ended June 30, 2016, the banking
segment saw an increase in pretax income of $1.2 million when compared to the six months ended June 30, 2015 due to an increase
in net interest income of $2.0 million and an increase in non-interest income of $775 thousand which was partially offset by an
increase in salaries and employee benefits of $1.6 million due to staffing expansion. When comparing the six month period ended
June 30, 2016 to the same period in 2015, the mortgage segment saw a pretax earnings increase of $889 thousand. The mortgage segment
had an increase in gains on the sale of loans of $1.8 million when comparing the six months ended June 2016 to the same period
in 2015 due to an increase in the secondary margins on mortgage loans held for sale, the increase was offset by a $691 thousand
increase in salaries and employee benefits.
Net Interest Income
Net interest income, the principal source of earnings, is the amount
of income generated by earning assets (primarily loans and investment securities) less the interest expense incurred on interest-bearing
liabilities (primarily deposits) used to fund earning assets. Net interest income before the provision for loan losses totaled
$10.8 million for the three months ended June 30, 2016 compared to $9.8 million for the same period in 2015. The annualized yield
on earning assets was 4.03% for the quarter ended June 30, 2016 and 2015. The cost of interest-bearing deposits and borrowings
increased to 0.79% for the quarter ended June 30, 2016 compared to the quarter ended June 30, 2015 at 0.56%. Net interest margin
was 3.51% for the quarter ended June 30, 2016 compared to 3.67% for the same period in 2015.
Net interest income before the provision for loan losses totaled
$21.3 million for the first six months of 2016 compared to $19.2 million for the same period in 2015. The annualized yield on
earning assets for the first six months of 2016 was 4.06% compared to 4.04% for the same period in 2015. The cost of interest-bearing
deposits and borrowings for the first six months of 2016 was 0.76% compared to 0.53% for the same period in 2015. Net interest
margin was 3.56% for the first six months of 2016 compared to 3.69% for the same period in 2015.
Volume and Rate Analysis
The following tables present the dollar amount of changes in interest
income and interest expense for each category of interest earning assets and interest-bearing liabilities.
|
|
Three Months Ended June 30,
|
|
|
|
2016 compared to 2015
|
|
|
|
Change Due To:
|
|
|
|
Increase /
|
|
|
|
|
|
|
|
|
|
(Decrease)
|
|
|
Volume
|
|
|
Rate
|
|
|
|
(In Thousands)
|
|
Interest Earning Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments
|
|
$
|
104
|
|
|
$
|
198
|
|
|
$
|
(94
|
)
|
Loans held for sale
|
|
|
(127
|
)
|
|
|
(133
|
)
|
|
|
6
|
|
Loans
|
|
|
1,510
|
|
|
|
1,195
|
|
|
|
315
|
|
Interest-bearing deposits
|
|
|
62
|
|
|
|
25
|
|
|
|
37
|
|
Total increase (decrease) in interest income
|
|
|
1,549
|
|
|
|
1,285
|
|
|
|
264
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-Bearing Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing demand deposits
|
|
|
64
|
|
|
|
13
|
|
|
|
51
|
|
Money market deposit accounts
|
|
|
112
|
|
|
|
54
|
|
|
|
58
|
|
Savings accounts
|
|
|
33
|
|
|
|
29
|
|
|
|
4
|
|
Time deposits
|
|
|
199
|
|
|
|
(2
|
)
|
|
|
201
|
|
Total interest-bearing deposits
|
|
|
408
|
|
|
|
94
|
|
|
|
314
|
|
FHLB Short-term borrowings
|
|
|
11
|
|
|
|
(65
|
)
|
|
|
76
|
|
Securities sold under agreements to repurchase
|
|
|
(3
|
)
|
|
|
(2
|
)
|
|
|
(1
|
)
|
FHLB Long-term borrowings
|
|
|
179
|
|
|
|
181
|
|
|
|
(2
|
)
|
Subordinated debentures
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total increase (decrease) in interest expense
|
|
|
595
|
|
|
|
208
|
|
|
|
387
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in net interest income
|
|
$
|
954
|
|
|
$
|
1,077
|
|
|
$
|
(123
|
)
|
|
|
Six Months Ended June 30,
|
|
|
|
2016 compared to 2015
|
|
|
|
Change Due To:
|
|
|
|
Increase /
|
|
|
|
|
|
|
|
|
|
(Decrease)
|
|
|
Volume
|
|
|
Rate
|
|
|
|
(In Thousands)
|
|
Interest Earning Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments
|
|
$
|
324
|
|
|
$
|
364
|
|
|
$
|
(40
|
)
|
Loans held for sale
|
|
|
(145
|
)
|
|
|
(168
|
)
|
|
|
23
|
|
Loans
|
|
|
2,970
|
|
|
|
2,634
|
|
|
|
336
|
|
Interest-bearing deposits
|
|
|
105
|
|
|
|
27
|
|
|
|
78
|
|
Total increase (decrease) in interest income
|
|
|
3,254
|
|
|
|
2,857
|
|
|
|
397
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-Bearing Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing demand deposits
|
|
|
106
|
|
|
|
16
|
|
|
|
90
|
|
Money market deposit accounts
|
|
|
156
|
|
|
|
71
|
|
|
|
85
|
|
Savings accounts
|
|
|
73
|
|
|
|
63
|
|
|
|
10
|
|
Time deposits
|
|
|
490
|
|
|
|
124
|
|
|
|
366
|
|
Total interest-bearing deposits
|
|
|
825
|
|
|
|
274
|
|
|
|
551
|
|
FHLB Short-term borrowings
|
|
|
40
|
|
|
|
(122
|
)
|
|
|
162
|
|
Securities sold under agreements to repurchase
|
|
|
(4
|
)
|
|
|
(3
|
)
|
|
|
(1
|
)
|
FHLB Long-term borrowings
|
|
|
331
|
|
|
|
336
|
|
|
|
(5
|
)
|
Total increase (decrease) in interest expense
|
|
|
1,192
|
|
|
|
485
|
|
|
|
707
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in net interest income
|
|
$
|
2,062
|
|
|
$
|
2,372
|
|
|
$
|
(310
|
)
|
Average Balances, Net Interest Income, Yields Earned and
Rates Paid
The following tables present for the periods indicated the total
dollar amount of interest income from average interest earning assets and the resultant yields, as well as the interest expense
on average interest-bearing liabilities, expressed in dollars and rates.
Yield on Average Earning Assets and Rates
on Average Interest-Bearing Liabilities
Three Months Ended
|
|
June 30, 2016
|
|
|
June 30, 2015
|
|
|
|
Average
|
|
|
Income /
|
|
|
Yield /
|
|
|
Average
|
|
|
Income /
|
|
|
Yield /
|
|
(Dollars In Thousands)
|
|
Balance
|
|
|
Expense
|
|
|
Rate
|
|
|
Balance
|
|
|
Expense
|
|
|
Rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
|
|
$
|
181,327
|
|
|
$
|
886
|
|
|
|
1.95
|
%
|
|
$
|
142,443
|
|
|
$
|
782
|
|
|
|
2.20
|
%
|
Loans held for sale
|
|
|
45,357
|
|
|
|
437
|
|
|
|
3.85
|
%
|
|
|
59,154
|
|
|
|
564
|
|
|
|
3.81
|
%
|
Loans
(1)
|
|
|
915,218
|
|
|
|
10,917
|
|
|
|
4.77
|
%
|
|
|
814,393
|
|
|
|
9,407
|
|
|
|
4.62
|
%
|
Interest-bearing
balances and federal funds sold
|
|
|
84,008
|
|
|
|
96
|
|
|
|
0.46
|
%
|
|
|
54,026
|
|
|
|
34
|
|
|
|
0.25
|
%
|
Total interest-earning
assets
|
|
|
1,225,910
|
|
|
|
12,336
|
|
|
|
4.03
|
%
|
|
|
1,070,016
|
|
|
|
10,787
|
|
|
|
4.03
|
%
|
Noninterest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
|
12,513
|
|
|
|
|
|
|
|
|
|
|
|
11,244
|
|
|
|
|
|
|
|
|
|
Premises, land and equipment
|
|
|
6,959
|
|
|
|
|
|
|
|
|
|
|
|
6,971
|
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
36,774
|
|
|
|
|
|
|
|
|
|
|
|
33,246
|
|
|
|
|
|
|
|
|
|
Less: allowance
for loan losses
|
|
|
(13,652
|
)
|
|
|
|
|
|
|
|
|
|
|
(13,448
|
)
|
|
|
|
|
|
|
|
|
Total
noninterest-earning assets
|
|
|
42,594
|
|
|
|
|
|
|
|
|
|
|
|
38,013
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
1,268,504
|
|
|
|
|
|
|
|
|
|
|
$
|
1,108,029
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders'
Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing demand deposits
|
|
$
|
133,147
|
|
|
$
|
126
|
|
|
|
0.38
|
%
|
|
$
|
111,282
|
|
|
$
|
62
|
|
|
|
0.22
|
%
|
Money market deposit accounts
|
|
|
190,324
|
|
|
|
167
|
|
|
|
0.35
|
%
|
|
|
111,765
|
|
|
|
55
|
|
|
|
0.20
|
%
|
Savings accounts
|
|
|
32,520
|
|
|
|
43
|
|
|
|
0.53
|
%
|
|
|
10,098
|
|
|
|
10
|
|
|
|
0.40
|
%
|
Time deposits
|
|
|
301,372
|
|
|
|
939
|
|
|
|
1.25
|
%
|
|
|
302,526
|
|
|
|
740
|
|
|
|
0.98
|
%
|
Total interest-bearing
deposits
|
|
|
657,363
|
|
|
|
1,275
|
|
|
|
0.78
|
%
|
|
|
535,671
|
|
|
|
867
|
|
|
|
0.65
|
%
|
Borrowings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FHLB short-term borrowings
|
|
|
51,154
|
|
|
|
88
|
|
|
|
0.69
|
%
|
|
|
125,736
|
|
|
|
77
|
|
|
|
0.24
|
%
|
Securities sold under agreements
to repurchase and federal funds purchased
|
|
|
13,981
|
|
|
|
3
|
|
|
|
0.09
|
%
|
|
|
22,506
|
|
|
|
6
|
|
|
|
0.11
|
%
|
FHLB long-term
borrowings
|
|
|
74,341
|
|
|
|
209
|
|
|
|
1.12
|
%
|
|
|
10,000
|
|
|
|
30
|
|
|
|
1.20
|
%
|
Total
borrowings
|
|
|
139,476
|
|
|
|
300
|
|
|
|
0.86
|
%
|
|
|
158,242
|
|
|
|
113
|
|
|
|
0.29
|
%
|
Total interest-bearing deposits
and borrowings
|
|
|
796,839
|
|
|
|
1,575
|
|
|
|
0.79
|
%
|
|
|
693,913
|
|
|
|
980
|
|
|
|
0.56
|
%
|
Noninterest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits
|
|
|
348,056
|
|
|
|
|
|
|
|
|
|
|
|
303,364
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
8,861
|
|
|
|
|
|
|
|
|
|
|
|
8,192
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,153,756
|
|
|
|
|
|
|
|
|
|
|
|
1,005,469
|
|
|
|
|
|
|
|
|
|
Shareholders'
Equity
|
|
|
114,748
|
|
|
|
|
|
|
|
|
|
|
|
102,560
|
|
|
|
|
|
|
|
|
|
Total Liabilities
and Shareholders' Equity
|
|
$
|
1,268,504
|
|
|
|
|
|
|
|
|
|
|
$
|
1,108,029
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Spread
(2)
|
|
|
|
|
|
|
|
|
|
|
3.23
|
%
|
|
|
|
|
|
|
|
|
|
|
3.47
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Interest Margin
(3)
|
|
|
|
|
|
$
|
10,761
|
|
|
|
3.51
|
%
|
|
|
|
|
|
$
|
9,807
|
|
|
|
3.67
|
%
|
(1)
Loans placed on nonaccrual status are included in
loan balances.
(2)
Interest spread is the average yield earned on earning
assets, less the average rate incurred on interest-bearing liabilities.
(3)
Net interest margin is net interest income, expressed
as a percentage of average earning assets.
Yield on Average Earning Assets and Rates
on Average Interest-Bearing Liabilities
Six Months Ended
|
|
June 30, 2016
|
|
|
June 30, 2015
|
|
|
|
Average
|
|
|
Income /
|
|
|
Yield /
|
|
|
Average
|
|
|
Income /
|
|
|
Yield /
|
|
(Dollars In Thousands)
|
|
Balance
|
|
|
Expense
|
|
|
Rate
|
|
|
Balance
|
|
|
Expense
|
|
|
Rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
|
|
$
|
178,830
|
|
|
$
|
1,921
|
|
|
|
2.15
|
%
|
|
$
|
144,942
|
|
|
$
|
1,597
|
|
|
|
2.20
|
%
|
Loans held for sale
|
|
|
39,982
|
|
|
|
781
|
|
|
|
3.91
|
%
|
|
|
48,667
|
|
|
|
926
|
|
|
|
3.81
|
%
|
Loans
(1)
|
|
|
910,300
|
|
|
|
21,449
|
|
|
|
4.71
|
%
|
|
|
798,281
|
|
|
|
18,479
|
|
|
|
4.63
|
%
|
Interest-bearing
balances and federal funds sold
|
|
|
68,435
|
|
|
|
166
|
|
|
|
0.49
|
%
|
|
|
50,447
|
|
|
|
61
|
|
|
|
0.24
|
%
|
Total interest-earning
assets
|
|
|
1,197,547
|
|
|
|
24,317
|
|
|
|
4.06
|
%
|
|
|
1,042,337
|
|
|
|
21,063
|
|
|
|
4.04
|
%
|
Noninterest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
|
12,110
|
|
|
|
|
|
|
|
|
|
|
|
10,579
|
|
|
|
|
|
|
|
|
|
Premises, land and equipment
|
|
|
6,843
|
|
|
|
|
|
|
|
|
|
|
|
6,935
|
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
35,778
|
|
|
|
|
|
|
|
|
|
|
|
32,864
|
|
|
|
|
|
|
|
|
|
Less: allowance
for loan losses
|
|
|
(13,616
|
)
|
|
|
|
|
|
|
|
|
|
|
(13,393
|
)
|
|
|
|
|
|
|
|
|
Total
noninterest-earning assets
|
|
|
41,115
|
|
|
|
|
|
|
|
|
|
|
|
36,985
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
1,238,662
|
|
|
|
|
|
|
|
|
|
|
$
|
1,079,322
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders'
Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing demand deposits
|
|
$
|
129,064
|
|
|
$
|
233
|
|
|
|
0.36
|
%
|
|
$
|
115,958
|
|
|
$
|
127
|
|
|
|
0.22
|
%
|
Money market deposit accounts
|
|
|
166,273
|
|
|
|
265
|
|
|
|
0.32
|
%
|
|
|
111,137
|
|
|
|
109
|
|
|
|
0.20
|
%
|
Savings accounts
|
|
|
33,609
|
|
|
|
90
|
|
|
|
0.54
|
%
|
|
|
8,979
|
|
|
|
17
|
|
|
|
0.38
|
%
|
Time deposits
|
|
|
305,746
|
|
|
|
1,837
|
|
|
|
1.20
|
%
|
|
|
281,595
|
|
|
|
1,347
|
|
|
|
0.96
|
%
|
Total interest-bearing
deposits
|
|
|
634,692
|
|
|
|
2,425
|
|
|
|
0.76
|
%
|
|
|
517,669
|
|
|
|
1,600
|
|
|
|
0.62
|
%
|
Borrowings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FHLB short-term borrowings
|
|
|
68,791
|
|
|
|
211
|
|
|
|
0.61
|
%
|
|
|
141,558
|
|
|
|
171
|
|
|
|
0.24
|
%
|
Securities sold under agreements
to repurchase and federal funds purchased
|
|
|
15,712
|
|
|
|
7
|
|
|
|
0.09
|
%
|
|
|
22,600
|
|
|
|
11
|
|
|
|
0.10
|
%
|
FHLB long-term
borrowings
|
|
|
69,478
|
|
|
|
363
|
|
|
|
1.04
|
%
|
|
|
5,304
|
|
|
|
32
|
|
|
|
1.21
|
%
|
Total
borrowings
|
|
|
153,981
|
|
|
|
581
|
|
|
|
0.75
|
%
|
|
|
169,462
|
|
|
|
214
|
|
|
|
0.25
|
%
|
Total interest-bearing deposits
and borrowings
|
|
|
788,673
|
|
|
|
3,006
|
|
|
|
0.76
|
%
|
|
|
687,131
|
|
|
|
1,814
|
|
|
|
0.53
|
%
|
Noninterest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits
|
|
|
328,281
|
|
|
|
|
|
|
|
|
|
|
|
282,119
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
8,800
|
|
|
|
|
|
|
|
|
|
|
|
8,410
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,125,754
|
|
|
|
|
|
|
|
|
|
|
|
977,660
|
|
|
|
|
|
|
|
|
|
Shareholders'
Equity
|
|
|
112,908
|
|
|
|
|
|
|
|
|
|
|
|
101,662
|
|
|
|
|
|
|
|
|
|
Total Liabilities
and Shareholders' Equity
|
|
$
|
1,238,662
|
|
|
|
|
|
|
|
|
|
|
$
|
1,079,322
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Spread
(2)
|
|
|
|
|
|
|
|
|
|
|
3.30
|
%
|
|
|
|
|
|
|
|
|
|
|
3.51
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Interest Margin
(3)
|
|
|
|
|
|
$
|
21,311
|
|
|
|
3.56
|
%
|
|
|
|
|
|
$
|
19,249
|
|
|
|
3.69
|
%
|
(1)
Loans placed on nonaccrual status are included in
loan balances.
(2)
Interest spread is the average yield earned on earning
assets, less the average rate incurred on interest-bearing liabilities.
(3)
Net interest margin is net interest income, expressed
as a percentage of average earning assets.
Noninterest Income
Noninterest income consists of revenue generated from financial
services and activities other than lending and investing. The mortgage segment provides the most significant contributions to
noninterest income. Total noninterest income was $9.2 million for the second quarter of 2016 compared to $7.1 million for the
same period in 2015. Gains on the sale of loans originated by the Banks’s mortgage segment are the largest component of
noninterest income. Gains on the sale of loans totaled $7.3 million for the three month period ended June 30, 2016, compared to
$5.7 million for the same period of 2015. Gains on the sale of loans fluctuate with the volume of mortgage loans originated. During
the three months ended June 30, 2016, the Bank’s mortgage segment originated $154.0 million in mortgage and brokered loans,
up from $145.2 million for the same period in 2015.
Noninterest income was $16.0 million for the first six months of
2016 compared to $13.4 million for the same period in 2015. Gains on the sale of loans totaled $11.1 million for the six month
period ended June 30, 2016, compared to $9.3 million for the same period of 2015. During the six months ended June 30, 2016, the
Bank’s mortgage segment originated $260.6 million in mortgage and brokered loans, up from $259.8 million for the same period
in 2015. For the six months ended June 30, 2016, other income reflected an increase of $695 thousand over the six months ended
June 30, 2015 of which $270 thousand was attributable to recovered costs upon the settlement of a non-accrual loan.
Noninterest Expense
Noninterest expense totaled $12.3 million for the three months
ended June 30, 2016, compared to $10.7 million for the same period in 2015, an increase of $1.6 million. Salaries and employee
benefits totaled $8.4 million for the three months ended June 30, 2016, compared to $7.0 million for the same period last year
due to an expansion in staffing. Other operating expenses totaled $3.1 million for the three months ended June 30, 2016, compared
to $2.9 million for the same period in 2015.
Noninterest expense totaled $23.4 million for the six months ended
June 30, 2016, compared to $20.9 million for the same period in 2015, an increase of $2.5 million. Salaries and employee benefits
totaled $16.1 million for the six months ended June 30, 2016, compared to $13.7 million for the same period last year due to an
expansion in staffing. Other operating expenses totaled $5.8 million for the six months ended June 30, 2016, compared to $5.7
million for the same period in 2015.
The table below provides the composition of other operating expenses.
|
|
Six Months Ended June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(In Thousands)
|
|
|
|
|
|
|
|
|
Management fees
|
|
$
|
487
|
|
|
$
|
599
|
|
Business and franchise tax
|
|
|
479
|
|
|
|
432
|
|
Data processing
|
|
|
406
|
|
|
|
391
|
|
Advertising and promotional
|
|
|
399
|
|
|
|
377
|
|
Investor fees
|
|
|
329
|
|
|
|
295
|
|
FDIC insurance
|
|
|
307
|
|
|
|
294
|
|
Accounting and auditing
|
|
|
306
|
|
|
|
306
|
|
Consulting fees
|
|
|
300
|
|
|
|
233
|
|
Early payoff
|
|
|
211
|
|
|
|
40
|
|
Telephone
|
|
|
187
|
|
|
|
169
|
|
Director fees
|
|
|
186
|
|
|
|
222
|
|
Stock option
|
|
|
168
|
|
|
|
178
|
|
Publication and subscription
|
|
|
157
|
|
|
|
121
|
|
Regulatory examinations
|
|
|
138
|
|
|
|
124
|
|
Credit report
|
|
|
122
|
|
|
|
129
|
|
Education and training
|
|
|
109
|
|
|
|
72
|
|
Insurance
|
|
|
106
|
|
|
|
52
|
|
Disaster recovery
|
|
|
105
|
|
|
|
98
|
|
Office supplies-stationary print
|
|
|
97
|
|
|
|
105
|
|
Travel
|
|
|
97
|
|
|
|
66
|
|
FRB and bank analysis charges
|
|
|
80
|
|
|
|
76
|
|
SBA guarantee fee
|
|
|
77
|
|
|
|
84
|
|
Verification fees
|
|
|
72
|
|
|
|
54
|
|
Legal fees
|
|
|
70
|
|
|
|
273
|
|
Business development and meals
|
|
|
60
|
|
|
|
53
|
|
Dues and memberships
|
|
|
47
|
|
|
|
54
|
|
Postage
|
|
|
47
|
|
|
|
47
|
|
Common stock
|
|
|
41
|
|
|
|
32
|
|
Courier
|
|
|
29
|
|
|
|
29
|
|
Automotive
|
|
|
26
|
|
|
|
23
|
|
Appraisal fee
|
|
|
19
|
|
|
|
38
|
|
Conventions and meetings
|
|
|
18
|
|
|
|
22
|
|
Other
|
|
|
565
|
|
|
|
600
|
|
|
|
$
|
5,847
|
|
|
$
|
5,688
|
|
Liquidity Management
Liquidity is the ability of the Corporation to meet current and
future cash flow requirements. The liquidity of a financial institution reflects its ability to convert assets into cash or cash
equivalents without significant loss and to raise additional funds by increasing liabilities. Liquidity management involves maintaining
the Corporation’s ability to meet the daily cash flow requirements of both depositors and borrowers. Management monitors
liquidity through a regular review of asset and liability maturities, funding sources, and loan and deposit forecasts. Asset and
liability management functions not only serve to assure adequate liquidity in order to meet the needs of the Corporation’s
customers, but also to maintain an appropriate balance between interest sensitive assets and interest sensitive liabilities so
that the Corporation can earn an appropriate return for its shareholders.
The asset portion of the balance sheet provides liquidity primarily
through loan principal repayments and maturities of investment securities. Other short-term investments such as federal funds
sold and interest-bearing deposits with other banks provide an additional source of liquidity funding. At June 30, 2016, overnight
interest-bearing balances totaled $66.5 million and unpledged available-for-sale investment securities totaled approximately $29.1
million.
The Bank proactively manages a portfolio of time deposits
issued to local municipalities and wholesale depositors in order to fund loans held for sale and investments. As of
June 30, 2016, the portfolio of CDARS deposits, Insured Cash Sweep (ICS) deposits, and wholesale time deposits totaled $157.6
million compared to $191.9 million at December 31, 2015, respectively.
The liability portion of the balance sheet provides liquidity through
various interest-bearing and noninterest-bearing deposit accounts, federal funds purchased, securities sold under agreement to
repurchase and other borrowings. At June 30, 2016, the Bank had a line of credit with the FHLB totaling $364.9 million
and had outstanding $45 million in short-term loans at fixed rates ranging from 0.65% to 0.75% and $75 million in long-term loans
at fixed rates ranging from 0.72% to 1.54% leaving $244.9 million available on the line. In addition to the line of credit at
the FHLB, the Bank issues repurchase agreements. As of June 30, 2016, outstanding repurchase agreements totaled $11.8 million.
The interest rates on these instruments are variable and subject to change daily. The Bank also maintains federal funds lines
of credit with its correspondent banks and, at June 30, 2016, these lines totaled $60.4 million and were available as an additional
funding source.
The following table presents the composition of borrowings at June
30, 2016 and December 31, 2015 as well as the average balances for the six months ended June 30, 2016 and the twelve months ended
December 31, 2015.
Borrowed Funds Distribution
|
|
|
|
|
|
June 30, 2016
|
|
|
December 31, 2015
|
|
|
|
(Dollars In Thousands)
|
|
Borrowings:
|
|
|
|
|
|
|
|
|
At Period End
|
|
|
|
|
|
|
|
|
FHLB short-term borrowings
|
|
$
|
45,000
|
|
|
$
|
70,000
|
|
Securities sold under agreements to repurchase
|
|
|
11,763
|
|
|
|
21,129
|
|
FHLB long-term borrowings
|
|
|
75,000
|
|
|
|
55,000
|
|
Total at period end
|
|
$
|
131,763
|
|
|
$
|
146,129
|
|
|
|
June 30, 2016
|
|
|
December 31, 2015
|
|
|
|
(Dollars In Thousands)
|
|
Borrowings:
|
|
|
|
|
|
|
|
|
Average Balances
|
|
|
|
|
|
|
|
|
FHLB short-term borrowings
|
|
$
|
68,791
|
|
|
$
|
91,992
|
|
Securities sold under agreements to repurchase
|
|
|
15,712
|
|
|
|
21,853
|
|
FHLB long-term borrowings
|
|
|
69,478
|
|
|
|
18,890
|
|
Federal funds purchased
|
|
|
-
|
|
|
|
164
|
|
Total average balance
|
|
$
|
153,981
|
|
|
$
|
132,899
|
|
|
|
|
|
|
|
|
|
|
Average rate paid on all borrowed funds
|
|
|
0.76
|
%
|
|
|
0.35
|
%
|
Management believes the Corporation is well positioned with liquid
assets, the ability to generate liquidity through liability funding and the availability of borrowed funds, to meet the liquidity
needs of depositors and customers’ borrowing needs. The Corporation’s ability to maintain sufficient liquidity may
be affected by numerous factors, including economic conditions nationally and in our markets. Depending on the Corporation’s
liquidity levels, its capital position, conditions in the capital markets and other factors, the Corporation may from time to
time consider the issuance of debt, equity or other securities, or other possible capital markets transactions, the proceeds of
which could provide additional liquidity for its operations.
Contractual Obligations
There have been no material changes outside the ordinary course
of business to the contractual obligations disclosed in the
Corporation’s Annual Report on Form 10-K for the fiscal year
ended December 31, 2015.