UNITED STATES

SECURITIES AND EXCHANGE COMMISSION      

Washington, D.C. 20549

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2019

OR

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______________to______________________

Commission file number: 001-38229

FIDELITY D & D BANCORP, INC.

STATE OF INCORPORATION:  IRS EMPLOYER IDENTIFICATION NO:

PENNSYLVANIA                                     23-3017653

Address of principal executive offices:

BLAKELY & DRINKER ST.

DUNMORE, PENNSYLVANIA 18512

TELEPHONE: 570-342-8281

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

Title of each class	Trading Symbols(s)	Name of each exchange on which registered
Common stock, without par value	FDBC	The NASDAQ Stock Market, LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subjected to such filing requirements for the past 90 days.  [X] YES [  ] NO

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).       [X] YES [  ] NO

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐ Non-accelerated filer ☐ Accelerated filer ☒ Smaller reporting company ☒ Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  [  ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  [  ] YES [X] NO

The number of outstanding shares of Common Stock of Fidelity D & D Bancorp, Inc. on July 31, 2019, the latest practicable date, was 3,781,500 shares.

FIDELITY D & D BANCORP, INC.

Form 10-Q June 30, 2019

Index

Part I.  Financial Information		Page
Item 1.	Financial Statements (unaudited):
	Consolidated Balance Sheets as of June 30, 2019 and December 31, 2018	3
	Consolidated Statements of Income for the three and six months ended June 30, 2019 and 2018	4
	Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2019 and 2018	5
	Consolidated Statements of Changes in Shareholders’ Equity for the three and six months ended June 30, 2019 and 2018	6
	Consolidated Statements of Cash Flows for the six months ended June 30, 2019 and 2018	8
	Notes to Consolidated Financial Statements (Unaudited)	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	36
Item 3.	Quantitative and Qualitative Disclosure about Market Risk	55
Item 4.	Controls and Procedures	60
Part II.  Other Information
Item 1.	Legal Proceedings	61
Item 1A.	Risk Factors	61
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	61
Item 3.	Defaults upon Senior Securities	61
Item 4.	Mine Safety Disclosures	61
Item 5.	Other Information	61
Item 6.	Exhibits	61
Signatures		63

2

PART I – Financial Information

Item 1: Financial Statements

Fidelity D & D Bancorp, Inc. and Subsidiary
Consolidated Balance Sheets
(Unaudited)
(dollars in thousands)	June 30, 2019		December 31, 2018
Assets:
Cash and due from banks	$	17,148	$	16,025
Interest-bearing deposits with financial institutions		2,042		1,460
Total cash and cash equivalents		19,190		17,485
Available-for-sale securities		189,899		182,810
Federal Home Loan Bank stock		4,396		6,339
Loans and leases, net (allowance for loan losses of
$9,495 in 2019; $9,747 in 2018)		724,658		718,317
Loans held-for-sale (fair value $1,561 in 2019, $5,789 in 2018)		1,532		5,707
Foreclosed assets held-for-sale		726		190
Bank premises and equipment, net		18,353		18,289
Leased property under finance leases, net		312		333
Right-of-use assets		4,068		-
Cash surrender value of bank owned life insurance		22,926		20,615
Accrued interest receivable		3,426		3,271
Goodwill		209		209
Other assets		7,344		7,537
Total assets	$	997,039	$	981,102
Liabilities:
Deposits:
Interest-bearing	$	623,650	$	575,452
Non-interest-bearing		215,973		194,731
Total deposits		839,623		770,183
Accrued interest payable and other liabilities		7,079		8,956
Finance lease obligation		317		336
Operating lease liabilities		4,489		-
Short-term borrowings		29,105		76,366
FHLB advances		15,000		31,704
Total liabilities		895,613		887,545
Shareholders' equity:
Preferred stock authorized 5,000,000 shares with no par value; none issued		-		-
Capital stock, no par value (10,000,000 shares authorized; shares issued and outstanding; 3,781,500 in 2019; and 3,759,426 in 2018)		30,419		29,715
Retained earnings		68,653		64,937
Accumulated other comprehensive income (loss)		2,354		(1,095)
Total shareholders' equity		101,426		93,557
Total liabilities and shareholders' equity	$	997,039	$	981,102
See notes to unaudited consolidated financial statements

3

Fidelity D & D Bancorp, Inc. and Subsidiary
Consolidated Statements of Income
(Unaudited)	Three months ended				Six months ended
(dollars in thousands except per share data)	June 30, 2019		June 30, 2018		June 30, 2019		June 30, 2018
Interest income:
Loans and leases:
Taxable	$	7,945	$	7,029	$	15,836	$	13,728
Nontaxable		248		221		515		433
Interest-bearing deposits with financial institutions		13		42		28		84
Restricted regulatory securities		85		38		185		78
Investment securities:
U.S. government agency and corporations		921		803		1,881		1,578
States and political subdivisions (nontaxable)		445		396		867		766
Other securities		-		6		-		11
Total interest income		9,657		8,535		19,312		16,678
Interest expense:
Deposits		1,474		886		2,806		1,690
Securities sold under repurchase agreements		-		3		-		10
Other short-term borrowings and other		262		57		532		64
FHLB advances		127		66		270		132
Total interest expense		1,863		1,012		3,608		1,896
Net interest income		7,794		7,523		15,704		14,782
Provision for loan losses		255		425		510		725
Net interest income after provision for loan losses		7,539		7,098		15,194		14,057
Other income:
Service charges on deposit accounts		563		540		1,102		1,093
Interchange fees		551		506		1,045		975
Fees from trust fiduciary activities		377		326		671		727
Fees from financial services		230		195		465		372
Service charges on loans		207		136		487		307
Fees and other revenue		236		247		492		479
Earnings on bank-owned life insurance		165		146		311		298
Gain (loss) on write-down, sale or disposal of:
Loans		160		168		378		354
Available-for-sale debt securities		-		-		(4)		6
Equity securities		-		107		-		44
Premises and equipment		-		-		(1)		(1)
Total other income		2,489		2,371		4,946		4,654
Other expenses:
Salaries and employee benefits		3,584		3,420		7,288		6,787
Premises and equipment		1,034		929		2,110		1,897
Advertising and marketing		292		217		691		621
Professional services		156		480		541		882
Data processing and communication		481		368		892		722
Automated transaction processing		254		193		439		378
Office supplies and postage		97		104		202		208
FDIC assessment		62		65		129		133
PA shares tax		217		195		257		236
Loan collection		142		28		183		51
Other real estate owned		(35)		5		16		65
Other		151		158		457		390
Total other expenses		6,435		6,162		13,205		12,370
Income before income taxes		3,593		3,307		6,935		6,341
Provision for income taxes		591		539		1,131		1,045
Net income	$	3,002	$	2,768	$	5,804	$	5,296
Per share data :
Net income - basic	$	0.79	$	0.74	$	1.53	$	1.41
Net income - diluted	$	0.79	$	0.73	$	1.52	$	1.40
Dividends	$	0.26	$	0.24	$	0.52	$	0.48
See notes to unaudited consolidated financial statements

4

Fidelity D & D Bancorp, Inc. and Subsidiary
Consolidated Statements of Comprehensive Income	Three months ended				Six months ended
(Unaudited)	June 30,				June 30,
(dollars in thousands)	2019		2018		2019		2018
Net income	$	3,002	$	2,768	$	5,804	$	5,296
Other comprehensive income (loss), before tax:
Unrealized holding gain (loss) on available-for-sale debt securities		1,845		(892)		4,362		(3,369)
Reclassification adjustment for net losses (gains) realized in income		-		-		4		(6)
Net unrealized gain (loss)		1,845		(892)		4,366		(3,375)
Tax effect		(387)		188		(917)		709
Unrealized gain (loss), net of tax		1,458		(704)		3,449		(2,666)
Other comprehensive income (loss), net of tax		1,458		(704)		3,449		(2,666)
Total comprehensive income, net of tax	$	4,460	$	2,064	$	9,253	$	2,630
See notes to unaudited consolidated financial statements

5

Fidelity D & D Bancorp, Inc. and Subsidiary
Consolidated Statements of Changes in Shareholders' Equity
For the six months ended June 30, 2019 and 2018
(Unaudited)							Accumulated
							other
	Capital stock				Retained		comprehensive
(dollars in thousands)	Shares		Amount		earnings		income (loss)		Total
Balance, December 31, 2017		3,734,478	$	28,361	$	57,218	$	1,804	$	87,383
Net income						5,296				5,296
Other comprehensive loss								(2,666)		(2,666)
Effect of adopting ASU 2016-01						421		(421)		-
Issuance of common stock through Employee Stock Purchase Plan		6,783		149						149
Issuance of common stock from vested restricted share grants through stock compensation plans		9,994
Issuance of common stock through exercise of stock options		750		14						14
Stock-based compensation expense				492						492
Cash dividends declared						(1,816)				(1,816)
Balance, June 30, 2018		3,752,005	$	29,016	$	61,119	$	(1,283)	$	88,852
Balance, December 31, 2018		3,759,426	$	29,715	$	64,937	$	(1,095)	$	93,557
Net income						5,804				5,804
Other comprehensive income								3,449		3,449
Effect of adopting ASU 2016-02						(107)				(107)
Issuance of common stock through Employee Stock Purchase Plan		4,535		175						175
Issuance of common stock from vested restricted share grants through stock compensation plans		15,574
Issuance of common stock through exercise of SSARs		1,965
Stock-based compensation expense				529						529
Cash dividends declared						(1,981)				(1,981)
Balance, June 30, 2019		3,781,500	$	30,419	$	68,653	$	2,354	$	101,426

6

For the three months ended June 30, 2019 and 2018
(Unaudited)							Accumulated
							other
	Capital stock				Retained		comprehensive
(dollars in thousands)	Shares		Amount		earnings		income (loss)		Total
Balance, March 31, 2018		3,751,480	$	28,822	$	59,259	$	(579)	$	87,502
Net income						2,768				2,768
Other comprehensive loss								(704)		(704)
Issuance of common stock from vested restricted share grants through stock compensation plans		525
Stock-based compensation expense				194						194
Cash dividends declared						(908)				(908)
Balance, June 30, 2018		3,752,005	$	29,016	$	61,119	$	(1,283)	$	88,852
Balance, March 31, 2019		3,780,975	$	30,204	$	66,642	$	896	$	97,742
Net income						3,002				3,002
Other comprehensive loss								1,458		1,458
Issuance of common stock from vested restricted share grants through stock compensation plans		525
Stock-based compensation expense				215						215
Cash dividends declared						(991)				(991)
Balance, June 30, 2019		3,781,500	$	30,419	$	68,653	$	2,354	$	101,426
See notes to unaudited consolidated financial statements

7

Fidelity D & D Bancorp, Inc. and Subsidiary
Consolidated Statements of Cash Flows
(Unaudited)	Six months ended June 30,
(dollars in thousands)	2019		2018
Cash flows from operating activities:
Net income	$	5,804	$	5,296
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation, amortization and accretion		1,548		1,504
Provision for loan losses		510		725
Deferred income tax expense		332		511
Stock-based compensation expense		459		432
Excess tax benefit from exercise of stock options		23		4
Proceeds from sale of loans held-for-sale		23,152		16,452
Originations of loans held-for-sale		(15,952)		(15,134)
Earnings from bank-owned life insurance		(311)		(298)
Net gain from sales of loans		(378)		(354)
Net loss (gain) from sales of investment securities		4		(50)
Net (gain) loss from sale and write-down of foreclosed assets held-for-sale		(25)		13
Net loss from write-down and disposal of bank premises and equipment		1		1
Operating lease payments		15		-
Change in:
Accrued interest receivable		(155)		(344)
Other assets		(675)		(2,104)
Accrued interest payable and other liabilities		(1,506)		892
Net cash provided by operating activities		12,846		7,546
Cash flows from investing activities:
Available-for-sale securities:
Proceeds from sales		4,705		11,425
Proceeds from maturities, calls and principal pay-downs		17,604		10,397
Purchases		(25,510)		(32,734)
Decrease (increase) in FHLB stock		1,943		(658)
Net increase in loans and leases		(11,756)		(49,115)
Principal portion of lease payments received under direct finance leases		1,100		-
Purchase of life insurance policies		(2,000)		-
Purchases of bank premises and equipment		(1,244)		(821)
Proceeds from sale of foreclosed assets held-for-sale		384		1,097
Net cash used in investing activities		(14,774)		(60,409)
Cash flows from financing activities:
Net increase in deposits		69,440		48,112
Net (decrease) increase in short-term borrowings		(47,261)		11,051
Repayment of FHLB advances		(16,704)		(2,500)
Repayment of finance lease obligation		(36)		-
Proceeds from employee stock purchase plan participants		175		149
Exercise of stock options		-		14
Dividends paid		(1,981)		(1,816)
Net cash provided by financing activities		3,633		55,010
Net increase in cash and cash equivalents		1,705		2,147
Cash and cash equivalents, beginning		17,485		15,825
Cash and cash equivalents, ending	$	19,190	$	17,972
See notes to unaudited consolidated financial statements

8

Fidelity D & D Bancorp, Inc. and Subsidiary
Consolidated Statements of Cash Flows (continued)
(Unaudited)	Six months ended June 30,
(dollars in thousands)	2019		2018
Supplemental Disclosures of Cash Flow Information
Cash payments for:
Interest	$	3,429	$	1,838
Income tax		800		-
Supplemental Disclosures of Non-cash Investing Activities:
Net change in unrealized gains on available-for-sale securities		4,366		(3,375)
Transfers from loans to foreclosed assets held-for-sale		894		676
Transfers from loans to loans held-for-sale		2,926		320
Right-of-use asset		4,133		-
See notes to unaudited consolidated financial statements

9

FIDELITY D & D BANCORP, INC.

Notes to Consolidated Financial Statements

(Unaudited)

1.   Nature of operations and critical accounting policies

Nature of operations

Fidelity D & D Bancorp, Inc. (the Company) is a bank holding company and the parent of Fidelity Deposit and Discount Bank (the Bank).  The Bank is a commercial bank chartered under the law of the Commonwealth of Pennsylvania and a wholly-owned subsidiary of the Company.  Having commenced operations in 1903, the Bank is committed to provide superior customer service, while offering a full range of banking products and financial and trust services to both our consumer and commercial customers from our main office located in Dunmore and other branches located throughout Lackawanna and Luzerne Counties.

Principles of consolidation

The accompanying unaudited consolidated financial statements of the Company and the Bank have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information and with the instructions to this Form 10-Q and Rule 8-03 of Regulation S-X.  Accordingly, they do not include all of the information and footnote disclosures required by GAAP for complete financial statements.  In the opinion of management, all normal recurring adjustments necessary for a fair presentation of the financial condition and results of operations for the periods have been included.  All significant inter-company balances and transactions have been eliminated in consolidation.

For additional information and disclosures required under GAAP, refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.

Management is responsible for the fairness, integrity and objectivity of the unaudited financial statements included in this report.  Management prepared the unaudited financial statements in accordance with GAAP.  In meeting its responsibility for the financial statements, management depends on the Company's accounting systems and related internal controls.  These systems and controls are designed to provide reasonable but not absolute assurance that the financial records accurately reflect the transactions of the Company, the Company’s assets are safeguarded and that the financial statements present fairly the financial condition and results of operations of the Company.

In the opinion of management, the consolidated balance sheets as of June 30, 2019 and December 31, 2018 and the related consolidated statements of income, consolidated statements of comprehensive income and consolidated statements of changes in shareholders’ equity for the three and six months ended June 30, 2019 and 2018, and consolidated statements of cash flows for the six months ended June 30, 2019 and 2018 present fairly the financial condition and results of operations of the Company.  All material adjustments required for a fair presentation have been made.  These adjustments are of a normal recurring nature.  Certain reclassifications have been made to the 2018 financial statements to conform to the 2019 presentation. 

In preparing these consolidated financial statements, the Company evaluated the events and transactions that occurred after June 30, 2019 through the date these consolidated financial statements were issued.

This Quarterly Report on Form 10-Q should be read in conjunction with the Company’s audited financial statements for the year ended December 31, 2018, and the notes included therein, included within the Company’s Annual Report filed on Form 10-K.

Critical accounting policies

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported periods.  Actual results could differ from those estimates.

A material estimate that is particularly susceptible to significant change relates to the determination of the allowance for loan losses.  Management believes that the allowance for loan losses at June 30, 2019 is adequate and reasonable to cover incurred losses.  Given the subjective nature of identifying and estimating loan losses, it is likely that well-informed individuals could make different assumptions and could, therefore, calculate a materially different allowance amount.  While management uses available information to recognize losses on loans, changes in economic conditions may necessitate revisions in the future.  In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance for loan losses.  Such agencies may require the Company to recognize adjustments to the allowance based on their judgment of information available to them at the time of their examination.

Another material estimate is the calculation of fair values of the Company’s investment securities.  Fair values of investment securities are determined by pricing provided by a third-party vendor, who is a provider of financial market data, analytics and related services to financial institutions.  Based on experience, management is aware that estimated fair values of investment securities tend to vary among valuation services.  Accordingly, when selling investment securities, price quotes may be obtained from more than one source.  All of the Company’s debt securities are classified as available-for-sale (AFS).  AFS debt securities are carried at fair value on the

10

consolidated balance sheets, with unrealized gains and losses, net of income tax, reported separately within shareholders’ equity as a component of accumulated other comprehensive income (AOCI). 

The fair value of residential mortgage loans, classified as held-for-sale (HFS), is obtained from the Federal National Mortgage Association (FNMA) or the Federal Home Loan Bank (FHLB).  Generally, the market to which the Company sells residential mortgages it originates for sale is restricted and price quotes from other sources are not typically obtained.  On occasion, the Company may transfer loans from the loan portfolio to loans HFS.  Under these circumstances, pricing may be obtained from other entities and the residential mortgage loans are transferred at the lower of cost or market value and simultaneously sold.  For other loans transferred to HFS, pricing may be obtained from other entities or modeled and the other loans are transferred at the lower of cost or market value and then sold.  As of June 30, 2019 and December 31, 2018, loans classified as HFS consisted of residential mortgage loans.

Financing of automobiles, provided to customers under lease arrangements of varying terms, are accounted for as direct finance leases.  Interest income on automobile direct finance leasing is determined using the interest method to arrive at a level effective yield over the life of the lease.

Foreclosed assets held-for-sale includes other real estate acquired through foreclosure (ORE) and may, from time-to-time, include repossessed assets such as automobiles.  ORE is carried at the lower of cost (principal balance at date of foreclosure) or fair value less estimated cost to sell.  Any write-downs at the date of foreclosure are charged to the allowance for loan losses.  Expenses incurred to maintain ORE properties, subsequent write downs to the asset’s fair value, any rental income received and gains or losses on disposal are included as components of other real estate owned expense in the consolidated statements of income.   

Goodwill is recorded on the consolidated balance sheets as the excess of liabilities assumed over identifiable assets acquired on the acquisition date.  Goodwill is recorded at its net carrying value which represents estimated fair value.  The goodwill is deductible for tax purposes over a 15 year period.

The Company holds separate supplemental executive retirement (SERP) agreements for certain officers and an amount is credited to each participant’s SERP account monthly while they are actively employed by the bank until retirement.  A deferred tax asset is provided for the non-deductible SERP expense.  The Company also entered into separate split dollar life insurance arrangements with four executives providing post-retirement benefits and accrues monthly expense for this benefit.  The split dollar life insurance expense is not deductible for tax purposes.  Monthly expenses for the SERP and post-retirement split dollar life benefit are recorded as components of salaries and employee benefit expense on the consolidated statements of income.

For purposes of the consolidated statements of cash flows, cash and cash equivalents includes cash on hand, amounts due from banks and interest-bearing deposits with financial institutions.  Expenditures for construction in process, a component of other assets in the consolidated balance sheets, are included in acquisition of premises and equipment.

2.  New accounting pronouncements

In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) 2016-13, Financial Instruments – Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments (CECL).  The amendments in this update require financial assets measured at amortized cost basis to be presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis.  Previously, when credit losses were measured under GAAP, an entity only considered past events and current conditions when measuring the incurred loss.  The amendments in this update broaden the information that an entity must consider in developing its expected credit loss estimate for assets measured either collectively or individually.  The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount.  An entity must use judgement in determining the relevant information and estimation methods that are appropriate under the circumstances.  The amendments in this update also require that credit losses on available-for-sale debt securities be presented as an allowance for credit losses rather than a writedown. 

In November 2018, the FASB issued ASU 2018-19, Codification Improvements to Topic 326, which clarifies that receivables arising from operating leases are not within the scope of Topic 326.  In December 2018, regulators issued a final rule related to regulatory capital (Regulatory Capital Rule: Implementation and Transition of the Current Expected Credit Losses Methodology for Allowances and Related Adjustments to the Regulatory Capital Rule and Conforming Amendments to Other Regulations) which is intended to provide regulatory capital relief for entities transitioning to CECL.  In April 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging and Topic 825, Financial Instruments.  As it relates to CECL, this guidance amends certain provisions contained in ASU 2016-13, particularly in regards to the inclusion of accrued interest in the definition of amortized cost, as well as clarifying that extension and renewal options that are not unconditionally cancelable by the entity that are included in the original or modified contract should be considered in the entity’s determination of expected credit losses.  The amendments in this update are effective for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2019 for public companies.  Early adoption is permitted beginning after December 15, 2018, including interim periods within those fiscal years.  An entity will apply the amendments in this update through a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption (modified-retrospective approach).  Upon adoption, the change in this accounting guidance could result in an increase in the Company's allowance for loan losses and

11

require the Company to record loan losses more rapidly.  The Company has engaged the services of a qualified third-party service provider to assist management in estimating credit allowances under this standard and is currently evaluating the impact of ASU 2016-13 on its consolidated financial statements. 

On July 17, 2019, the FASB voted to issue a proposal for public comment that would potentially result in a postponement of the required implementation date for ASU 2016-13.  Management will continue to monitor any new developments regarding this possible delay.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements.  ASU 2016-02 requires the recognition of a right-of-use asset and related lease liability by lessees for leases classified as operating leases under GAAP.  The Company made an election to exclude leases less than 12 months from the provisions of this ASU.  The Company also elected the “package of practical expedients” which allowed us not to reassess, under the new standard, lease classification, lease identification and initial direct costs.  The Company had several lease agreements, such as branch locations,which were considered operating leases, and therefore not recognized on the Company’s consolidated balance sheets.  The Company adopted this standard on January 1 2019 and made an adjustment to add $4.1 million to the consolidated balance sheet as a right-of-use-asset, $4.6 million as a lease liability and reduced equity by ($0.1 million).  There was not any significant effect on the consolidated statements of income.  See Footnote 11, Leases, for more information regarding the adoption of this standard.

In July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases and ASU 2018-11, Leases (Topic 842) Targeted Improvements to clarify how to apply certain aspects of ASU 2016-02 and to simplify adoption and reduce costs.  ASU 2018-11 allows companies the option to apply the provisions of the new lease standard prospectively as of the effective date, without adjusting comparative periods, and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption.  The Company used this additional transition method.  The amendments in this update are effective upon adoption of Topic 842.

In December 2018, the FASB issued ASU 2018-20, Leases (Topic 842): Narrow-Scope Improvements for Lessors to assist stakeholders with implementation questions and issues on certain issues. The amendments in this update are effective upon adoption of Topic 842.

In March 2019, the FASB issued ASU 2019-01, Leases (Topic 842): Codification Improvements to clarify three issues brought to the FASB’s attention through interactions with stakeholders: Determining the fair value of the underlying assets by lessors that are not manufacturers or dealers; presentation on the statement of cash flows –sales-type and direct financing leases; and transition disclosures related to Topic 250, Accounting Changes and Error Corrections.  The transition and effective date provisions for this update apply to issue 1 and 2.  The amendments in this update are effective for the Company for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years.  Early adoption is permitted.  The Company adopted this standard during the first quarter of 2019 and it did not have any significant effect on the Company’s financial statements.

3.  Accumulated other comprehensive income

The following tables illustrate the changes in accumulated other comprehensive income by component and the details about the components of accumulated other comprehensive income as of and for the periods indicated:

As of and for the six months ended June 30, 2019
	Unrealized gains
	(losses) on
	available-for-sale
(dollars in thousands)	debt securities
Beginning balance	$	(1,095)
Other comprehensive income before reclassifications, net of tax		3,446
Amounts reclassified from accumulated other comprehensive income, net of tax		3
Net current-period other comprehensive income		3,449
Ending balance	$	2,354

12

As of and for the three months ended June 30, 2019
	Unrealized gains
	(losses) on
	available-for-sale
(dollars in thousands)	debt securities
Beginning balance	$	896
Other comprehensive income before reclassifications, net of tax		1,458
Amounts reclassified from accumulated other comprehensive income, net of tax		-
Net current-period other comprehensive income		1,458
Ending balance	$	2,354

As of and for the six months ended June 30, 2018
	Unrealized gains
	(losses) on
	available-for-sale
(dollars in thousands)	securities
Beginning balance	$	1,804
Other comprehensive loss before reclassifications, net of tax		(2,661)
Amounts reclassified from accumulated other comprehensive income, net of tax		(5)
Effect of adopting ASU 2016-01, net of tax*		(421)
Net current-period other comprehensive loss		(3,087)
Ending balance	$	(1,283)

*The Company adopted ASU 2016-01 on January 1, 2018.  As a result, unrealized gains on equity securities were reclassified from accumulated other comprehensive income to retained earnings.

As of and for the three months ended June 30, 2018
	Unrealized gains
	(losses) on
	available-for-sale
(dollars in thousands)	securities
Beginning balance	$	(579)
Other comprehensive loss before reclassifications, net of tax		(704)
Amounts reclassified from accumulated other comprehensive income, net of tax		-
Net current-period other comprehensive loss		(704)
Ending balance	$	(1,283)

Details about accumulated other
comprehensive income components	Amount reclassified from accumulated	Affected line item in the statement
(dollars in thousands)	other compr