0001564590-18-028396.txt : 20181108 0001564590-18-028396.hdr.sgml : 20181108 20181108124652 ACCESSION NUMBER: 0001564590-18-028396 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 91 CONFORMED PERIOD OF REPORT: 20180930 FILED AS OF DATE: 20181108 DATE AS OF CHANGE: 20181108 FILER: COMPANY DATA: COMPANY CONFORMED NAME: County Bancorp, Inc. CENTRAL INDEX KEY: 0001470205 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 391850431 STATE OF INCORPORATION: WI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-36808 FILM NUMBER: 181169007 BUSINESS ADDRESS: STREET 1: 860 NORTH RAPIDS ROAD STREET 2: P.O. BOX 700 CITY: MANITOWOC STATE: WI ZIP: 54221-0700 BUSINESS PHONE: (920) 688-5608 MAIL ADDRESS: STREET 1: 860 NORTH RAPIDS ROAD STREET 2: P.O. BOX 700 CITY: MANITOWOC STATE: WI ZIP: 54221-0700 10-Q 1 icbk-10q_20180930.htm 10-Q icbk-10q_20180930.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

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

For the quarterly period ended September 30, 2018

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: 001-36808

 

COUNTY BANCORP, INC.

(Exact Name of Registrant as Specified in its Charter)

 

 

Wisconsin

39-1850431

(State or other jurisdiction of

incorporation or organization)

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

 

 

2400 South 44th Street

Manitowoc, WI

54221

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (920) 686-9998

 

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

Indicate by check mark whether the registrant has submitted electronically 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).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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

 

Accelerated filer

 

 

 

 

 

Non-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      No  

As of November 8, 2018, the registrant had 6,697,050 shares of common stock, $0.01 par value per share, outstanding.

 

 

 

 


 

Table of Contents

 

 

 

Page

PART I.

FINANCIAL INFORMATION

 

Item 1.

Financial Statements

1

 

Consolidated Balance Sheets

1

 

Consolidated Statements of Operations

2

 

Consolidated Statements of Comprehensive Income

3

 

Consolidated Statements of Shareholders’ Equity

4

 

Consolidated Statements of Cash Flows

5

 

Notes to Unaudited Consolidated Financial Statements

6

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

26

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

41

Item 4.

Controls and Procedures

42

PART II.

OTHER INFORMATION

 

Item 1.

Legal Proceedings

44

Item 1A.

Risk Factors

44

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

44

Item 3.

Defaults Upon Senior Securities

44

Item 4.

Mine Safety Disclosures

44

Item 5.

Other Information

44

Item 6.

Exhibits

45

Signatures

46

 

 

i


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

COUNTY BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

September 30, 2018 and December 31, 2017

(Unaudited)

 

 

September 30, 2018

 

 

December 31, 2017

 

 

 

(dollars in thousands except per share data)

 

ASSETS

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

49,996

 

 

$

66,771

 

Securities available-for-sale, at fair value

 

 

190,185

 

 

 

126,030

 

FHLB Stock, at cost

 

 

3,238

 

 

 

4,138

 

Loans held for sale

 

 

13,770

 

 

 

6,575

 

Loans, net of allowance for loan losses of $16,143 as of September 30, 2018;

   $13,247 as of December 31, 2017

 

 

1,186,794

 

 

 

1,135,704

 

Premises and equipment, net

 

 

16,094

 

 

 

9,662

 

Loan servicing rights

 

 

9,041

 

 

 

8,950

 

Other real estate owned, net

 

 

8,249

 

 

 

4,962

 

Cash surrender value of bank owned life insurance

 

 

17,728

 

 

 

17,389

 

Deferred tax asset, net

 

 

5,348

 

 

 

3,265

 

Goodwill

 

 

5,038

 

 

 

5,038

 

Core deposit intangible, net of accumulated amortization of $1,198 as of

   September 30, 2018; $882 as of December 31, 2017

 

 

603

 

 

 

919

 

Accrued interest receivable and other assets

 

 

8,884

 

 

 

7,642

 

Total assets

 

$

1,514,968

 

 

$

1,397,045

 

 

 

 

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

 

 

Noninterest-bearing

 

$

103,862

 

 

$

125,584

 

Interest-bearing

 

 

1,104,922

 

 

 

984,493

 

Total deposits

 

 

1,208,784

 

 

 

1,110,077

 

Other borrowings

 

 

838

 

 

 

1,299

 

Advances from FHLB

 

 

102,400

 

 

 

121,500

 

Subordinated debentures

 

 

44,663

 

 

 

15,523

 

Accrued interest payable and other liabilities

 

 

10,296

 

 

 

7,660

 

Total liabilities

 

 

1,366,981

 

 

 

1,256,059

 

 

 

 

 

 

 

 

 

 

SHAREHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Preferred stock-variable rate, non-cumulative, nonparticipating, $1,000 stated

   value; 15,000 shares authorized; 8,000 shares issued at September 30, 2018 and

   December 31, 2017

 

 

8,000

 

 

 

8,000

 

Common stock - $0.01 par value; 50,000,000 authorized; 7,137,924 shares issued

   and 6,694,230 shares outstanding at September 30, 2018; 7,112,962 shares issued

   and 6,673,381 shares outstanding at December 31, 2017

 

 

28

 

 

 

28

 

Surplus

 

 

52,834

 

 

 

52,230

 

Retained earnings

 

 

96,225

 

 

 

86,385

 

Treasury stock, at cost; 443,694 shares at September 30, 2018; 439,581 shares at

   December 31, 2017

 

 

(5,030

)

 

 

(5,030

)

Accumulated other comprehensive loss

 

 

(4,070

)

 

 

(627

)

Total shareholders' equity

 

 

147,987

 

 

 

140,986

 

Total liabilities and shareholders' equity

 

$

1,514,968

 

 

$

1,397,045

 

 

See accompanying notes to unaudited consolidated financial statements.

 

 

1

 


 

COUNTY BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

For the Three and Nine Months Ended September 30, 2018 and 2017

(Unaudited)

 

 

 

For the Three Months Ended September 30,

 

 

For the Nine Months Ended September 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

 

 

(dollars in thousands except per share data)

 

INTEREST AND DIVIDEND INCOME

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans, including fees

 

$

15,113

 

 

$

13,070

 

 

$

43,170

 

 

$

36,952

 

Taxable securities

 

 

945

 

 

 

461

 

 

 

2,559

 

 

 

1,346

 

Tax-exempt securities

 

 

344

 

 

 

82

 

 

 

515

 

 

 

262

 

Federal funds sold and other

 

 

249

 

 

 

102

 

 

 

863

 

 

 

243

 

Total interest and dividend income

 

 

16,651

 

 

 

13,715

 

 

 

47,107

 

 

 

38,803

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INTEREST EXPENSE

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

 

4,980

 

 

 

3,108

 

 

 

13,376

 

 

 

8,351

 

FHLB advances and other borrowed funds

 

 

411

 

 

 

511

 

 

 

1,382

 

 

 

1,356

 

Subordinated debentures

 

 

656

 

 

 

135

 

 

 

1,137

 

 

 

380

 

Total interest expense

 

 

6,047

 

 

 

3,754

 

 

 

15,895

 

 

 

10,087

 

Net interest income

 

 

10,604

 

 

 

9,961

 

 

 

31,212

 

 

 

28,716

 

Provision for loan losses

 

 

993

 

 

 

33

 

 

 

1,623

 

 

 

2,318

 

Net interest income after provision for loan losses

 

 

9,611

 

 

 

9,928

 

 

 

29,589

 

 

 

26,398

 

NON-INTEREST INCOME

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Services charges

 

 

394

 

 

 

350

 

 

 

1,204

 

 

 

1,074

 

Gain on sale of loans, net

 

 

41

 

 

 

47

 

 

 

118

 

 

 

96

 

Loan servicing fees

 

 

1,475

 

 

 

1,563

 

 

 

4,550

 

 

 

4,038

 

Other

 

 

247

 

 

 

127

 

 

 

641

 

 

 

451

 

Total non-interest income

 

 

2,157

 

 

 

2,087

 

 

 

6,513

 

 

 

5,659

 

NON-INTEREST EXPENSE

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Employee compensation and benefits

 

 

4,394

 

 

 

3,845

 

 

 

12,726

 

 

 

11,735

 

Occupancy

 

 

332

 

 

 

162

 

 

 

814

 

 

 

519

 

Information processing

 

 

529

 

 

 

450

 

 

 

1,523

 

 

 

1,209

 

Write-down of other real estate owned

 

 

81

 

 

 

7

 

 

 

185

 

 

 

85

 

Other

 

 

1,687

 

 

 

1,827

 

 

 

5,497

 

 

 

5,279

 

Total non-interest expense

 

 

7,023

 

 

 

6,291

 

 

 

20,745

 

 

 

18,827

 

Income before income taxes

 

 

4,745

 

 

 

5,724

 

 

 

15,357

 

 

 

13,230

 

Income tax expense

 

 

1,228

 

 

 

2,120

 

 

 

3,936

 

 

 

4,936

 

NET INCOME

 

$

3,517

 

 

$

3,604

 

 

$

11,421

 

 

$

8,294

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET INCOME PER SHARE:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.51

 

 

$

0.53

 

 

$

1.66

 

 

$

1.21

 

Diluted

 

$

0.50

 

 

$

0.52

 

 

$

1.65

 

 

$

1.19

 

Dividends paid per share

 

$

0.07

 

 

$

0.06

 

 

$

0.21

 

 

$

0.18

 

 

See accompanying notes to unaudited consolidated financial statements.

 

 

 

 

2

 


 

COUNTY BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

For the Three and Nine Months Ended September 30, 2018 and 2017

(Unaudited)

 

 

 

For the Three Months Ended September 30,

 

 

For the Nine Months Ended September 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

 

 

(dollars in thousands)

 

Net income

 

$

3,517

 

 

$

3,604

 

 

$

11,421

 

 

$

8,294

 

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain (loss) on securities available-for-sale

 

 

(1,664

)

 

 

(16

)

 

 

(4,436

)

 

 

563

 

Income tax benefit (expense)

 

 

356

 

 

 

6

 

 

 

950

 

 

 

(220

)

Total other comprehensive income (loss) on securities

    available-for-sale

 

 

(1,308

)

 

 

(10

)

 

 

(3,486

)

 

 

343

 

Unrealized gain on derivatives arising during the period

 

 

181

 

 

 

 

 

 

232

 

 

 

 

Income tax expense

 

 

(49

)

 

 

 

 

 

(63

)

 

 

 

Total other comprehensive gain on derivatives

 

 

132

 

 

 

 

 

 

169

 

 

 

 

Total other comprehensive income (loss)

 

 

(1,176

)

 

 

(10

)

 

 

(3,317

)

 

 

343

 

Comprehensive income

 

$

2,341

 

 

$

3,594

 

 

$

8,104

 

 

$

8,637

 

 

See accompanying notes to unaudited consolidated financial statements.

 

 

 

3

 


 

COUNTY BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

For the Nine Months Ended September 30, 2018 and 2017

(Unaudited)

 

 

 

Preferred

Stock

 

 

Common

Stock

 

 

Surplus

 

 

Retained

Earnings

 

 

Treasury

Stock

 

 

Accumulated

Other

Comprehensive

Income (Loss)

 

 

Total

Shareholders'

Equity

 

 

 

(dollars in thousands except share data)

 

Balance at December 31, 2016

 

$

8,000

 

 

$

26

 

 

$

50,553

 

 

$

77,907

 

 

$

(4,828

)

 

$

(370

)

 

$

131,288

 

Net income

 

 

 

 

 

 

 

 

 

 

 

8,294

 

 

 

 

 

 

 

 

 

8,294

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

343

 

 

 

343

 

Stock compensation expense, net of tax

 

 

 

 

 

 

 

 

393

 

 

 

 

 

 

 

 

 

 

 

 

393

 

Cash dividends declared on common stock

 

 

 

 

 

 

 

 

 

 

 

(1,194

)

 

 

 

 

 

 

 

 

(1,194

)

Cash dividends declared on preferred stock

 

 

 

 

 

 

 

 

 

 

 

(256

)

 

 

 

 

 

 

 

 

(256

)

Proceeds from exercise of common stock

   options (65,026 shares)

 

 

 

 

 

1

 

 

 

860

 

 

 

 

 

 

 

 

 

 

 

 

861

 

Balance at September 30, 2017

 

$

8,000

 

 

$

27

 

 

$

51,806

 

 

$

84,751

 

 

$

(4,828

)

 

$

(27

)

 

$

139,729

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2017

 

$

8,000

 

 

$

28

 

 

$

52,230

 

 

$

86,385

 

 

$

(5,030

)

 

$

(627

)

 

$

140,986

 

Net income

 

 

 

 

 

 

 

 

 

 

 

11,421

 

 

 

 

 

 

 

 

 

11,421

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,317

)

 

 

(3,317

)

Stock compensation expense, net of tax

 

 

 

 

 

 

 

 

350

 

 

 

 

 

 

 

 

 

 

 

 

350

 

Cash dividends declared on common stock

 

 

 

 

 

 

 

 

 

 

 

(1,405

)

 

 

 

 

 

 

 

 

(1,405

)

Cash dividends declared on preferred stock

 

 

 

 

 

 

 

 

 

 

 

(302

)

 

 

 

 

 

 

 

 

(302

)

Reclassification of stranded tax effects of

   rate change

 

 

 

 

 

 

 

 

 

 

 

126

 

 

 

 

 

 

(126

)

 

 

 

Proceeds from exercise of common stock

   options (14,967 shares)

 

 

 

 

 

 

 

 

254

 

 

 

 

 

 

 

 

 

 

 

 

254

 

Balance at September 30, 2018

 

$

8,000

 

 

$

28

 

 

$

52,834

 

 

$

96,225

 

 

$

(5,030

)

 

$

(4,070

)

 

$

147,987

 

 

See accompanying notes to unaudited consolidated financial statements.

 

 

 

 

4

 


 

COUNTY BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Nine Months Ended September 30, 2018 and 2017

(Unaudited)

 

 

For the Nine Months Ended

 

 

 

September 30, 2018

 

 

September 30, 2017

 

 

 

(dollars in thousands)

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net income

 

$

11,421

 

 

$

8,294

 

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

 

 

 

 

 

 

 

 

Depreciation and amortization of premises and equipment

 

 

846

 

 

 

744

 

Amortization of core deposit intangible

 

 

316

 

 

 

403

 

Amortization of subordinated debentures discount

 

 

82

 

 

 

55

 

Provision for loan losses

 

 

1,623

 

 

 

2,318

 

Realized loss on sales of securities available-for-sale

 

 

 

 

 

37

 

Realized gain on sales of other real estate owned

 

 

(177

)

 

 

(363

)

Write-down of other real estate owned

 

 

185

 

 

 

85

 

Realized loss (gain) on sales of premises and equipment

 

 

(1

)

 

 

290

 

Increase in cash surrender value of bank owned life insurance

 

 

(339

)

 

 

(326

)

Deferred income tax expense (benefit)

 

 

(810

)

 

 

45

 

Stock compensation expense, net

 

 

350

 

 

 

393

 

Net amortization of securities

 

 

645

 

 

 

685

 

Net change in:

 

 

 

 

 

 

 

 

Accrued interest receivable and other assets

 

 

(1,242

)

 

 

(617

)

Loans held for sale

 

 

(7,195

)

 

 

(892

)

Loan servicing rights

 

 

(91

)

 

 

278

 

Accrued interest payable and other liabilities

 

 

2,719

 

 

 

(22

)

Net cash provided by operating activities

 

 

8,332

 

 

 

11,407

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

Proceeds from maturities, principal repayments, and call of securities available-for-sale

 

 

16,990

 

 

 

22,757

 

Purchases of securities available-for-sale

 

 

(86,462

)

 

 

(10,108

)

Proceeds from sales of securities available-for-sale

 

 

 

 

 

3,389

 

Redemption of FHLB stock

 

 

900

 

 

 

1,379

 

Purchases of bank owned life insurance

 

 

 

 

 

(5,500

)

Loan originations and principal collections, net

 

 

(58,817

)

 

 

(102,231

)

Proceeds from sales of premises and equipment

 

 

 

 

 

1,615

 

Purchases of premises and equipment

 

 

(7,277

)

 

 

(2,428

)

Proceeds from sales of other real estate owned

 

 

2,809

 

 

 

1,244

 

Net cash used in investing activities

 

 

(131,857

)

 

 

(89,883

)

Cash flows from financing activities

 

 

 

 

 

 

 

 

Net decrease in demand and savings deposits

 

 

(24,882

)

 

 

(28,940

)

Net increase in certificates of deposits

 

 

123,588

 

 

 

117,516

 

Net change in other borrowings

 

 

(461

)

 

 

(800

)

Proceeds from FHLB advances

 

 

84,000

 

 

 

192,660

 

Repayment of FHLB advances

 

 

(103,100

)

 

 

(172,255

)

Proceeds from issuance of subordinated debt

 

 

29,058

 

 

 

 

Proceeds from issuance of common stock

 

 

254

 

 

 

861

 

Dividends paid on preferred stock

 

 

(302

)

 

 

(256

)

Dividends paid on common stock

 

 

(1,405

)

 

 

(1,194

)

Net cash provided by financing activities

 

 

106,750

 

 

 

107,592

 

Net change in cash and cash equivalents

 

 

(16,775

)

 

 

29,116

 

Cash and cash equivalents, beginning of period

 

 

66,771

 

 

 

42,679

 

Cash and cash equivalents, end of period

 

$

49,996

 

 

$

71,795

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

 

 

 

Interest

 

$

14,679

 

 

$

9,841

 

Income taxes

 

$

3,325

 

 

$

5,050

 

Noncash investing activities:

 

 

 

 

 

 

 

 

Transfer from loans to other real estate owned

 

$

6,104

 

 

$

4,779

 

Loans charged off

 

$

42

 

 

$

1,492

 

See accompanying notes to unaudited consolidated financial statements.

 

5


 

 

 

 

County Bancorp, Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

NOTE 1 – BASIS OF PRESENTATION

The unaudited consolidated financial statements of County Bancorp, Inc. (“we,” “us,” ”our,” or the “Company”) and its subsidiaries, including Investors Community Bank (the “Bank”), have been prepared, in the opinion of management, to reflect all adjustments necessary for a fair presentation of the financial position, results of operations, and cash flows as of and for the three and nine months ended September 30, 2018.  The results of operations for the three and nine months ended September 30, 2018 may not necessarily be indicative of the results to be expected for the year ending December 31, 2018, or for any other period.

Management of the Company is required to make estimates and assumptions which affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements, as well as the reported amounts of income and expenses during the reported periods.  Actual results could differ significantly from those estimates.

These unaudited interim financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”).  Certain information in footnote disclosure normally included in financial statements prepared in accordance with GAAP has been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”).  These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.

The Company qualifies as an “emerging growth company” under the Jumpstart Our Business Startups Act (the “JOBS Act”). Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended (the “Securities Act”), for complying with new or revised accounting standards. As an emerging growth company, the Company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. The Company elected to take advantage of the benefits of this extended transition period.

Significant Accounting Policies

Derivative Instruments.  Derivative instruments, classified on the balance sheet as an other asset, represent contracts between parties that usually require little or no initial net investment and result in one party delivering cash to the other party based on a notional amount and an underlying variable, as specified in the contract, and may be subject to master netting agreements.  

During the second quarter of 2018, the Company executed an interest rate swap to manage interest rate risk on two sets of its trust preferred securities. This derivative contract involves the receipt of floating rate interest from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreement, without the exchange of the underlying notional value. This instrument is designated as a cash flow hedge as the receipt of floating rate interest from the counterparty is used to manage interest rate risk associated with three month LIBOR advances. The change in the fair value of this hedging instrument is recorded in accumulated other comprehensive income, net of taxes, and is subsequently reclassified into earnings in the period that the hedged transaction affects earnings while the ineffective portion of changes in the fair value of the derivative, if any, is recognized immediately in other noninterest income.  The Company assesses the effectiveness of the hedging relationship by comparing the cumulative changes in cash flows of the derivative hedging instrument with the cumulative changes in cash flows of the designated hedged item or transaction.

New Accounting Pronouncements

In April 2016, the Financial Accounting Standards Board (the “FASB”) issued ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606), which was an update to ASU 2014-09.  The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods and services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services.  The Company adopted this amendment effective January 1, 2018 with no material impact to its consolidated financial statements.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses, to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date.  The amendment replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and

6


 

supportable information to inform credit loss estimates.  This amendment is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years with early adoption permitted for the fiscal year beginning after December 15, 2018, including interim periods within those fiscal years.  Entities should apply this amendment a modified-retrospective approach, through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective.  The Company has engaged a third-party software consultant to assist in developing our loss model methodology, and is currently gathering historical data.  At this time, the effect this ASU will have on its consolidated financial statements is unknown.

In March 2017, the FASB issued updated guidance codified within ASU No. 2017-08, Receivables – Nonrefundable Fees and Other Costs, which is intended to enhance the accounting for the amortization of premiums for purchased callable debt securities.  The amendment is effective for fiscal years beginning after December 15, 2018, with early adoption permitted including adoption in an interim period.  The Company is currently evaluating the effects this ASU will have on its consolidated financial statements.  

In May 2017, the FASB issued updated guidance codified within ASU No. 2017-09, Compensation – Stock Compensation to provide clarity and reduce the diversity in practice and cost and complexity of applying the guidance when there is a change of terms for share-based awards.  The amendment became effective January 1, 2018.  The adoption of this ASU did not have a significant impact on the Company’s consolidated financial because modifications to share-based awards were not made.

In July 2017, the FASB issued ASU No. 2017-11, Earnings Per Share – Accounting for Certain Financial Instruments with Down Round Features to address the complexity of the accounting for equity-classified financial instruments with down round features.  The amendment is effective for fiscal years beginning after December 15, 2019, with early adoption permitted, including adoption in an interim period.  The adoption of this ASU is not expected to have a significant impact on the Company’s consolidated financial because the Company does not issue equity-classified financial instruments with down round features.

In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815), to permit entities to better portray the economic results of their hedging strategies in their financial statements.  In addition, the amendments make certain targeted improvements to simplify the application of the hedge accounting guidance in current GAAP.  The amendment is effective for fiscal years beginning after December 15, 2018, with early adoption permitted, including adoption in an interim period.  The Company has chosen to early adopt this amendment in connection with the interest rate swap that commenced on June 15, 2018 with no material impact on its results of operation, financial position, or liquidity.

In September 2017, the FASB issued updated guidance codified within ASU No. 2017-13, Revenue Recognition, Revenue from Contracts with Customers, Leases (Topic 840), and Leases (Topic 842) to clarify the amendment to the SEC paragraphs pursuant to the staff announcement on July 20, 2017 and update ASU No. 2016-20 Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers which was an update to ASU 2014-09 Revenue from Contracts with Customers. These are the culmination of efforts by the FASB and the International Accounting Standards Board to develop a common revenue standard for GAAP and International Financial Reporting Standards. ASU 2014-09 supersedes Topic 605—Revenue Recognition and most industry-specific guidance. The core principal of the guidance is that an entity should 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 good or services. The guidance in ASU 2014-09 describes a 5-step process entities can apply to achieve the core principle or revenue recognition and requires disclosures sufficient to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers and the significant judgments used in determining that information. The amendments in this update became effective beginning January 1, 2018 and did not have a significant impact the Company’s financial statements.

In February 2018, the FASB issued ASU 2018-02, Income Statement – Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which requires companies to reclassify the stranded effects in other comprehensive income to retained earnings as a result of the change in the tax rates under the Tax Cuts and Jobs Act, Public Law 115-97 (the “2017 Tax Act”).  The amendment is effective for fiscal years beginning after December 15, 2018, with early adoption permitted, including adoption in an interim period.  The Company early adopted this amendment as of January 1, 2018 and included the impact of the reclassification from other comprehensive income to retained earnings in the consolidated statements of shareholders’ equity.

In June 2018, the FASB issued ASU 2018-07, Stock Compensation – Improvements to Nonemployee Share-Based Payment Accounting, which simplifies several aspects of the account for nonemployee share-based payment transactions for acquiring goods or services from nonemployees.  The amendment is effective for the fiscal years beginning after December 15, 2018, with early adoption permitted.  The Company early adopted this amendment as of January 1, 2018, and it did not have a significant impact on the Company's financial statements.

7


 

In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842) – Targeted Improvements, which provides an additional and optional transition method with which to adopt the new leases standard.  The updated ASU allows entities to initially apply the new lease standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption.  The amendment is effective for the fiscal years beginning after December 15, 2018.  The Company is currently evaluating which transition method it will use when adopting the new standard.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 842) – Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement, which focuses on improving the effectiveness of disclosures in the notes to the financial statements.  The amendment is effective for the fiscal years beginning after December 15, 2019.  The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption.  All other amendments should be applied retrospectively to all periods presented upon their effective date.  The Company is currently evaluating the effect this standard will have on the Company’s financial statements.

 

NOTE 2 – EARNINGS PER SHARE

Earnings per common share is computed using the two-class method.  Basic earnings per common share is computed by dividing net income by the weighted-average number of common shares outstanding during the applicable period.  Diluted earnings per share is computed using the weighted-average number of shares determined for the basic earnings per common share plus the dilutive effect of share-based compensation using the treasury stock method.

 

 

For the Three Months Ended

 

 

For the Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

 

 

(dollars in thousands)

 

Net income from continuing operations

 

$

3,517

 

 

$

3,604

 

 

$

11,421

 

 

$

8,294

 

Less:  preferred stock dividends

 

 

106

 

 

 

91

 

 

 

302

 

 

 

256

 

Income available to common shareholders for basic

   earnings per common share

 

$

3,411

 

 

$

3,513

 

 

$

11,119

 

 

$

8,038

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average number of common shares issued

 

 

7,357,350

 

 

 

7,333,799

 

 

 

7,352,425

 

 

 

7,327,268

 

Less: weighted average treasury shares

 

 

443,140

 

 

 

432,861

 

 

 

441,704

 

 

 

432,653

 

Less: weighted average nonvested equity incentive plan shares

 

 

219,611

 

 

 

256,638

 

 

 

222,885

 

 

 

271,338

 

Weighted average number of common shares outstanding

 

 

6,694,599

 

 

 

6,644,300

 

 

 

6,687,836

 

 

 

6,623,277

 

Effect of dilutive options

 

 

63,346

 

 

 

112,904

 

 

 

64,290

 

 

 

119,371

 

Weighted average number of common shares outstanding

   used to calculate diluted earnings per common share

 

 

6,757,945

 

 

 

6,757,204

 

 

 

6,752,126