0001564590-15-006993.txt : 20150811 0001564590-15-006993.hdr.sgml : 20150811 20150811160258 ACCESSION NUMBER: 0001564590-15-006993 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 18 CONFORMED PERIOD OF REPORT: 20150630 FILED AS OF DATE: 20150811 DATE AS OF CHANGE: 20150811 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CORTLAND BANCORP INC CENTRAL INDEX KEY: 0000774569 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTION, FEDERALLY CHARTERED [6035] IRS NUMBER: 341451118 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-13814 FILM NUMBER: 151043902 BUSINESS ADDRESS: STREET 1: 194 W MAIN ST CITY: CORTLAND STATE: OH ZIP: 44410 BUSINESS PHONE: 2166378040 MAIL ADDRESS: STREET 1: 194 WEST MAIN STREET CITY: CORTLAND STATE: OH ZIP: 44410 10-Q 1 cldb-10q_20150630.htm 10-Q cldb-10q_20150630.htm

 

    

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

x

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

For the quarterly period ended June 30, 2015

or

¨

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

For the transition from                       to                     

Commission file number: 0-13814

 

Cortland Bancorp

(Exact name of registrant as specified in its charter)

 

 

Ohio

 

34-1451118

(State or other jurisdiction of

Incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

194 West Main Street, Cortland, Ohio

 

44410

(Address of principal executive offices)

 

(Zip code)

330- 637-8040

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

 

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  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

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

 

Large accelerated filer

 

¨

 

 

 

Accelerated filer

  

¨

 

 

 

 

 

 

 

 

 

Non-accelerated filer

 

¨ (Do not check if a smaller reporting company)

 

 

 

Smaller reporting company

  

x

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

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

TITLE OF CLASS

  

SHARES OUTSTANDING

Common Stock, No Par Value

  

4,517,849 Shares August 5, 2015

 

 

 

 

 

 


PART I – FINANCIAL INFORMATION

  

 

 

Item 1.

 

Financial Statements

 

 

 

 

 

 

 

Cortland Bancorp and Subsidiaries:

 

 

 

 

 

 

 

Consolidated Balance Sheets (unaudited) –June 30, 2015 and December 31, 2014

2

 

 

 

 

 

 

Consolidated Statements of Income (unaudited) – Three and six months ended June 30, 2015 and 2014

3

 

 

 

 

 

 

Consolidated Statements of Comprehensive Income (Loss) (unaudited) – Three and six months ended June 30, 2015 and 2014

4

 

 

 

 

 

 

Consolidated Statements of Changes in Shareholders’ Equity (unaudited) –Six months ended June 30, 2015 and 2014

5

 

 

 

 

 

 

Consolidated Statements of Cash Flows (unaudited) – Six months ended June 30, 2015 and 2014

6

 

 

 

 

 

 

Notes to Consolidated Financial Statements (unaudited) – June 30, 2015

7

 

 

 

 

Item 2.

 

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

 

 

 

 

 

 

 

Consolidated Average Balance Sheets, Yields and Rates – Year-to-Date June 30, 2015, December 31, 2014 and June 30, 2014

36

 

 

 

 

 

 

Consolidated Average Balance Sheets, Yields and Rates – Quarter-to-Date June 30, 2015, March 31, 2015 and June 30, 2014

37

 

 

 

 

 

 

Selected Financial Data

38

 

 

 

 

 

 

Financial Review

39

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

50

 

 

 

 

Item 4.

 

Controls and Procedures

50

 

 

 

 

PART II – OTHER INFORMATION

 

 

 

Item 1.

 

Legal Proceedings

51

 

 

 

 

Item 1A.

 

Risk Factors

51

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

51

 

 

 

 

Item 3.

 

Defaults Upon Senior Securities

51

 

 

 

 

Item 4.

 

Mine Safety Disclosures

51

 

 

 

 

Item 5.

 

Other Information

51

 

 

 

 

Item 6.

 

Exhibits

52

 

 

 

 

SIGNATURES

56

 

 

 

 


CORTLAND BANCORP AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(Amounts in thousands, except share data)

 

 

June 30,

 

 

December 31,

 

 

2015

 

 

2014

 

ASSETS

 

 

 

 

 

 

 

Cash and due from banks

$

7,571

 

 

$

6,588

 

Interest-earning deposits

 

1,773

 

 

 

3,981

 

Total cash and cash equivalents

 

9,344

 

 

 

10,569

 

Investment securities available-for-sale (Note 3)

 

159,501

 

 

 

162,247

 

Trading securities (Note 3)

 

7,955

 

 

 

7,861

 

Loans held for sale

 

2,774

 

 

 

632

 

Total loans (Note 4)

 

357,873

 

 

 

360,185

 

Less allowance for loan losses (Note 4)

 

(5,454

)

 

 

(5,202

)

Net loans

 

352,419

 

 

 

354,983

 

Premises and equipment

 

8,373

 

 

 

7,697

 

Bank-owned life insurance

 

17,162

 

 

 

16,990

 

Other assets

 

11,291

 

 

 

7,953

 

Total assets

$

568,819

 

 

$

568,932

 

 

 

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

 

 

Noninterest-bearing deposits

$

94,115

 

 

$

94,731

 

Interest-bearing deposits

 

353,258

 

 

 

362,030

 

Total deposits

 

447,373

 

 

 

456,761

 

Short-term borrowings

 

5,483

 

 

 

4,259

 

Federal Home Loan Bank advances - short term

 

21,000

 

 

 

15,500

 

Federal Home Loan Bank advances - long term

 

25,000

 

 

 

25,000

 

Subordinated debt (Note 7)

 

5,155

 

 

 

5,155

 

Other liabilities

 

8,353

 

 

 

6,405

 

Total liabilities

 

512,364

 

 

 

513,080

 

 

 

 

 

 

 

 

 

SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

Common stock - $5.00 stated value - authorized 20,000,000 shares; issued 4,728,267 shares in

   2015 and 2014; outstanding shares, 4,517,849 in 2015 and 4,527,848 in 2014

 

23,641

 

 

 

23,641

 

Additional paid-in capital

 

20,833

 

 

 

20,833

 

Retained earnings

 

16,076

 

 

 

14,555

 

Accumulated other comprehensive (loss) income

 

(388

)

 

 

376

 

Treasury stock, at cost, 210,418 shares in 2015 and 200,419 in 2014

 

(3,707

)

 

 

(3,553

)

Total shareholders’ equity

 

56,455

 

 

 

55,852

 

Total liabilities and shareholders’ equity

$

568,819

 

 

$

568,932

 

 

See accompanying notes to the unaudited consolidated financial statements of Cortland Bancorp and Subsidiaries

 

 

 

2


CORTLAND BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(Amounts in thousands, except share data)

 

 

THREE MONTHS ENDED

JUNE 30,

 

 

SIX MONTHS ENDED

JUNE 30,

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

INTEREST INCOME

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest and fees on loans

$

4,185

 

 

$

3,961

 

 

$

8,265

 

 

$

8,049

 

Interest and dividends on investment securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Taxable interest

 

548

 

 

 

681

 

 

 

1,218

 

 

 

1,364

 

Nontaxable interest

 

434

 

 

 

441

 

 

 

868

 

 

 

854

 

Dividends

 

35

 

 

 

35

 

 

 

63

 

 

 

63

 

Other interest income

 

4

 

 

 

5

 

 

 

9

 

 

 

10

 

Total interest income

 

5,206

 

 

 

5,123

 

 

 

10,423

 

 

 

10,340

 

INTEREST EXPENSE

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

400

 

 

 

414

 

 

 

815

 

 

 

845

 

Short-term borrowings

 

1

 

 

 

 

 

 

2

 

 

 

1

 

Federal Home Loan Bank advances - short term

 

8

 

 

 

36

 

 

 

18

 

 

 

139

 

Federal Home Loan Bank advances - long term

 

200

 

 

 

254

 

 

 

400

 

 

 

441

 

Subordinated debt

 

22

 

 

 

22

 

 

 

44

 

 

 

44

 

Total interest expense

 

631

 

 

 

726

 

 

 

1,279

 

 

 

1,470

 

Net interest income

 

4,575

 

 

 

4,397

 

 

 

9,144

 

 

 

8,870

 

PROVISION FOR LOAN LOSSES

 

130

 

 

 

150

 

 

 

290

 

 

 

300

 

NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES

 

4,445

 

 

 

4,247

 

 

 

8,854

 

 

 

8,570

 

NON-INTEREST INCOME

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fees for customer services

 

486

 

 

 

484

 

 

 

969

 

 

 

943

 

Investment securities available-for-sale gains - net

 

 

 

 

 

 

 

 

 

 

193

 

Trading security (losses)  gains, net

 

(38

)

 

 

141

 

 

 

(30

)

 

 

267

 

Mortgage banking gains, net

 

160

 

 

 

117

 

 

 

345

 

 

 

198

 

Earnings on bank-owned life insurance

 

86

 

 

 

88

 

 

 

172

 

 

 

161

 

Wealth management income

 

117

 

 

 

84

 

 

 

307

 

 

 

165

 

Other non-interest income

 

47

 

 

 

33

 

 

 

150

 

 

 

71

 

Total non-interest income

 

858

 

 

 

947

 

 

 

1,913

 

 

 

1,998

 

NON-INTEREST EXPENSES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

2,388

 

 

 

2,306

 

 

 

4,836

 

 

 

4,500

 

Net occupancy and equipment expense

 

505

 

 

 

466

 

 

 

992

 

 

 

947

 

State and local taxes

 

104

 

 

 

85

 

 

 

204

 

 

 

170

 

FDIC insurance expense

 

83

 

 

 

83

 

 

 

166

 

 

 

158

 

Professional fees

 

212

 

 

 

233

 

 

 

406

 

 

 

405

 

Other operating expenses

 

895

 

 

 

736

 

 

 

1,577

 

 

 

1,352

 

Total non-interest expenses

 

4,187

 

 

 

3,909

 

 

 

8,181

 

 

 

7,532

 

INCOME BEFORE FEDERAL INCOME TAX EXPENSE

 

1,116

 

 

 

1,285

 

 

 

2,586

 

 

 

3,036

 

Federal income tax expense

 

200

 

 

 

246

 

 

 

521

 

 

 

665

 

NET INCOME

$

916

 

 

$

1,039

 

 

$

2,065

 

 

$

2,371

 

EARNINGS PER SHARE

$

0.21

 

 

$

0.23

 

 

$

0.46

 

 

$

0.52

 

CASH DIVIDENDS DECLARED PER SHARE

$

0.06

 

 

$

0.05

 

 

$

0.12

 

 

$

0.08

 

 

 

See accompanying notes to the unaudited consolidated financial statements of Cortland Bancorp and Subsidiaries

 

 

3


CORTLAND BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)

(Amounts in thousands)

 

 

THREE MONTHS ENDED

JUNE 30,

 

 

SIX MONTHS ENDED

JUNE 30,

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Net income

$

916

 

 

$

1,039

 

 

$

2,065

 

 

$

2,371

 

Other comprehensive (loss) income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized holding (losses) gains on available-for-sale securities

 

(1,767

)

 

 

1,923

 

 

 

(1,088

)

 

 

4,487

 

Tax effect

 

600

 

 

 

(654

)

 

 

369

 

 

 

(1,526

)

Reclassification adjustment for net gains realized in net income

 

 

 

 

 

 

 

 

 

 

(193

)

Tax effect

 

 

 

 

 

 

 

 

 

 

66

 

Total securities available for sale

 

(1,167

)

 

 

1,269

 

 

 

(719

)

 

 

2,834

 

Change in post-retirement obligations

 

(23

)

 

 

13

 

 

 

(45

)

 

 

26

 

Total other comprehensive (loss) income

 

(1,190

)

 

 

1,282

 

 

 

(764

)

 

 

2,860

 

Total comprehensive (loss) income

$

(274

)

 

$

2,321

 

 

$

1,301

 

 

$

5,231

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to the unaudited consolidated financial statements of Cortland Bancorp and Subsidiaries

 

 

4


 

CORTLAND BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED)

(Amounts in thousands)

 

 

Common Stock

 

 

Additional Paid-in Capital

 

 

Retained Earnings

 

 

Accumulated Other Comprehensive Income (Loss)

 

 

Treasury Stock

 

 

Total Shareholders' Equity

 

SIX MONTHS ENDED

June 30, 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2013

$

23,641

 

 

$

20,833

 

 

$

11,502

 

 

$

(2,888

)

 

$

(3,553

)

 

$

49,535

 

Net income

 

 

 

 

 

 

 

2,371

 

 

 

 

 

 

 

 

 

2,371

 

Other comprehensive income, net of tax

 

 

 

 

 

 

 

 

 

 

2,860

 

 

 

 

 

 

2,860

 

Cash dividend declared ($0.08 per share)

 

 

 

 

 

 

 

(363

)

 

 

 

 

 

 

 

 

(363

)

Balance at June 30, 2014

$

23,641

 

 

$

20,833

 

 

$

13,510

 

 

$

(28

)

 

$

(3,553

)

 

$

54,403

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SIX MONTHS ENDED

June 30, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2014

$

23,641

 

 

$

20,833

 

 

$

14,555

 

 

$

376

 

 

$

(3,553

)

 

$

55,852

 

Net income

 

 

 

 

 

 

 

2,065

 

 

 

 

 

 

 

 

 

2,065

 

Other comprehensive loss, net of tax

 

 

 

 

 

 

 

 

 

 

(764

)

 

 

 

 

 

(764

)

Cash dividend declared ($0.12 per share)

 

 

 

 

 

 

 

(544

)

 

 

 

 

 

 

 

 

(544

)

Treasury shares purchased net of 1 share reissued (9,999 shares)

 

 

 

 

 

 

 

 

 

 

 

 

 

(154

)

 

 

(154

)

Balance at June 30, 2015

$

23,641

 

 

$

20,833

 

 

$

16,076

 

 

$

(388

)

 

$

(3,707

)

 

$

56,455

 

 

 

 

 

 

 

 

See accompanying notes to the unaudited consolidated financial statements of Cortland Bancorp and Subsidiaries

 

 

 

5


 

CORTLAND BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(Amounts in thousands)

 

 

 

FOR THE SIX MONTHS

ENDED JUNE 30,

 

 

2015

 

 

2014

 

Net cash flow from operating activities

$

114

 

 

$

4,370

 

Cash flow from investing activities

 

 

 

 

 

 

 

Purchases of available-for-sale securities

 

(8,835

)

 

 

(26,810

)

Proceeds from sale of securities

 

 

 

 

10,237

 

Proceeds from call, maturity and principal payments on securities

 

9,590

 

 

 

10,173

 

Net decrease in loans made to customers

 

2,274

 

 

 

30,279

 

Proceeds from sale of other real estate

 

40

 

 

 

52

 

Purchases of bank-owned life insurance

 

 

 

 

(1,605

)

Purchases of premises and equipment

 

(1,046

)

 

 

(283

)

Net cash flow provided by investing activities

 

2,023

 

 

 

22,043

 

Cash deficit from financing activities

 

 

 

 

 

 

 

Net decrease in deposit accounts

 

(9,388

)

 

 

(23,604

)

Net change in short term borrowings

 

1,224

 

 

 

(124

)

Net change in Federal Home Loan Bank advances - short term

 

5,500

 

 

 

(3,000

)

Repayments of  Federal Home Loan Bank advances - long term

 

(4,000

)

 

 

 

Purchase of  Federal Home Loan Bank advances - long term

 

4,000

 

 

 

 

Dividends paid

 

(544

)

 

 

(363

)

Treasury shares purchased

 

(154

)

 

 

 

Net cash deficit used for financing activities

 

(3,362

)

 

 

(27,091

)

Net change in cash and cash equivalents

 

(1,225

)

 

 

(678

)

Cash and cash equivalents

 

 

 

 

 

 

 

Beginning of period

 

10,569

 

 

 

12,396

 

End of period

$

9,344

 

 

$

11,718

 

Supplemental disclosures:

 

 

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

 

 

Income taxes

$

660

 

 

$

 

Interest

$

1,293

 

 

$

1,490

 

 

 

 

 

 

 

 

 

Transfer of loans to other real estate owned

$

 

 

$

57

 

 

 

 

 

See accompanying notes to the unaudited consolidated financial statements of Cortland Bancorp and Subsidiaries

 

 

 

6


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

 

1.) Basis of Presentation and Reclassifications:

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring items) considered necessary for a fair presentation have been included. Operating results for the three and six months ended June 30, 2015 are not necessarily indicative of the results that may be expected for the year ending December 31, 2015. These interim unaudited consolidated financial statements should be read in conjunction with our annual audited financial statements as of December 31, 2014, included in our Form 10-K for the year ended December 31, 2014, filed with the United States Securities and Exchange Commission. The accompanying consolidated balance sheet at December 31, 2014, has been derived from the audited consolidated balance sheet but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements.

Certain items contained in the 2014 financial statements have been reclassified to conform to the presentation for 2015. Such reclassifications had no effect on the net results of operations or equity.

 

 

2.) Authoritative Accounting Guidance:

 

In January 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-01, Investments – Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Qualified Affordable Housing Projects. The amendments in this Update permit reporting entities to make an accounting policy election to account for their investments in qualified affordable housing projects using the proportional amortization method if certain conditions are met. Under the proportional amortization method, an entity amortizes the initial cost of the investment in proportion to the tax credits and other tax benefits received and recognizes the net investment performance in the income statement as a component of income tax expense (benefit).  The amendments in this Update should be applied retrospectively to all periods presented. A reporting entity that uses the effective yield method to account for its investments in qualified affordable housing projects before the date of adoption may continue to apply the effective yield method for those preexisting investments. The amendments in this Update are effective for public business entities for annual periods and interim reporting periods within those annual periods, beginning after December 15, 2014. This Update did not have a significant impact on the Company’s financial statements.

 

In January 2014, the FASB issued ASU 2014-04, Receivables – Troubled Debt Restructurings by Creditors (Subtopic 310-40): Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure. The amendments in this Update clarify that an in substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either (1) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure or (2) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. Additionally, the amendments require interim and annual disclosure of both (1) the amount of foreclosed residential real estate property held by the creditor and (2) the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction. The amendments in this Update are effective for public business entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2014. An entity can elect to adopt the amendments in this Update using either a modified retrospective transition method or a prospective transition method. This Update did not have a significant impact on the Company’s financial statements.

 

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (a new revenue recognition standard). The Update’s core principle is that a company will recognize revenue to depict the transfer of 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. In addition, this update specifies the accounting for certain costs to obtain or fulfill a contract with a customer and expands disclosure requirements for revenue recognition. This Update is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. The Company is evaluating the effect of adopting this new Update.

 

In June 2014, the FASB issued ASU 2014-11, Transfers and Servicing (Topic 860): Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures.  The amendments in this Update change the accounting for repurchase-to-maturity transactions to secured borrowing accounting.  For repurchase financing arrangements, the amendments require separate accounting for a transfer of a financial asset executed contemporaneously with a repurchase agreement with the same counterparty, which will result in secured borrowing accounting for the repurchase agreement.  The amendments also require enhanced disclosures.  The accounting changes in this Update are effective for the first interim or annual period beginning after December 15, 2014.  An entity is required to present changes in accounting for transactions outstanding on the effective date as a cumulative-effect adjustment to

7


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

retained earnings as of the beginning of the period of adoption. Earlier application is prohibited.  The disclosure for certain transactions accounted for as a sale is required to be presented for interim and annual periods beginning after December 15, 2014, and the disclosure for repurchase agreements, securities lending transactions, and repurchase-to-maturity transactions accounted for as secured borrowings is required to be presented for annual periods beginning after December 15, 2014, and for interim periods beginning after March 15, 2015. The disclosures are not required to be presented for comparative periods before the effective date.  This Update did not have a significant impact on the Company’s financial statements. (See Footnote 13)

 

In June 2014, the FASB issued ASU 2014-12, Compensation-Stock Compensation (Topic 718): Accounting for Share-Based Payments when the Terms of an Award Provide that a Performance Target Could Be Achieved After the Requisite Service Period.  The amendments require that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. The amendments in this Update are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Earlier adoption is permitted. Entities may apply the amendments in this Update either (a) prospectively to all awards granted or modified after the effective date or (b) retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter. If retrospective transition is adopted, the cumulative effect of applying this Update as of the beginning of the earliest annual period presented in the financial statements should be recognized as an adjustment to the opening retained earnings balance at that date. Additionally, if retrospective transition is adopted, an entity may use hindsight in measuring and recognizing the compensation cost.  This Update did not have a significant impact on the Company’s financial statements.

 

In August 2014, the FASB issued ASU 2014-14, Receivables – Troubled Debt Restructurings by Creditors (Subtopic 310-40).  The amendments in this Update require that a mortgage loan be derecognized and that a separate other receivable be recognized upon foreclosure if the following conditions are met:  (1) the loan has a government guarantee that is not separable from the loan before foreclosure, (2) at the time of foreclosure, the creditor has the intent to convey the real estate property to the guarantor and make a claim on the guarantee, and the creditor has the ability to recover under that claim, and (3) at the time of foreclosure, any amount of the claim that is determined on the basis of the fair value of the real estate is fixed.  Upon foreclosure, the separate other receivable should be measured based on the amount of the loan balance (principal and interest) expected to be recovered from the guarantor.  The amendments in this Update are effective for public business entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2014. This Update did not have a significant impact on the Company’s financial statements.

 

In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements -Going Concern (Subtopic 205-40).  The amendments in this Update provide guidance in accounting principles generally accepted in the United States of America about management's responsibility to evaluate whether there is substantial doubt about an entity's ability to continue as a going concern and to provide related footnote disclosures.  The amendments in this Update are effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted. This Update is not expected to have a significant impact on the Company’s financial statements.

 

In November 2014, the FASB issued ASU 2014-16, Derivatives and Hedging (Topic 815): Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share Is More Akin to Debt or to Equity (a consensus of the FASB Emerging Issues Task Force).  This ASU clarifies how current U.S. GAAP should be interpreted in subjectively evaluating the economic characteristics and risks of a host contract in a hybrid financial instrument that is issued in the form of a share. Public business entities are required to implement the new requirements in fiscal years and interim periods within those fiscal years beginning after December 15, 2015. This Update did not have a significant impact on the Company’s financial statements.

 

In November 2014, the FASB issued ASU 2014-17, Business Combinations (Topic 805): Pushdown Accounting. The amendments in this Update apply to the separate financial statements of an acquired entity and its subsidiaries that are a business or nonprofit activity (either public or nonpublic) upon the occurrence of an event in which an acquirer (an individual or an entity) obtains control of the acquired entity.  An acquired entity may elect the option to apply pushdown accounting in the reporting period in which the change-in-control event occurs. If pushdown accounting is not applied in the reporting period in which the change-in-control event occurs, an acquired entity will have the option to elect to apply pushdown accounting in a subsequent reporting period to the acquired entity's most recent change-in-control event. The amendments in this Update are effective on November 18, 2014. After the effective date, an acquired entity can make an election to apply the guidance to future change-in-control events or to its most recent change-in-control event. This Update is not expected to have a significant impact on the Company’s financial statements.

 

In January 2015, the FASB issued ASU 2015-01, Income Statement –Extraordinary and Unusual Items, as part of its initiative to reduce complexity in accounting standards.  This Update eliminates from GAAP the concept of extraordinary items.  The amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. A reporting entity may apply the amendments prospectively. A reporting entity also may apply the amendments retrospectively to all prior periods presented in the financial statements. Early adoption is permitted provided that the guidance is applied from the

8


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

beginning of the fiscal year of adoption. This Update is not expected to have a significant impact on the Company’s financial statements.

 

In February 2015, the FASB issued ASU 2015-02, Consolidation (Topic 810). The amendments in this Update affect reporting entities that are required to evaluate whether they should consolidate certain legal entities. All legal entities are subject to reevaluation under the revised consolidation model. Specifically, the amendments (1) Modify the evaluation of whether limited partnerships and similar legal entities are variable interest entities (VIEs) or voting interest entities; (2) Eliminate the presumption that a general partner should consolidate a limited partnership; (3) Affect the consolidation analysis of reporting entities that are involved with VIEs, particularly those that have fee arrangements and related party relationships; (4) Provide a scope exception from consolidation guidance for reporting entities with interests in legal entities that are required to comply with or operate in accordance with requirements that are similar to those in Rule 2a-7 of the Investment Company Act of 1940 for registered money market funds.  The amendments in this Update are effective for public business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015.  For all other entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2016, and for interim periods within fiscal years beginning after December 15, 2017. This Update is not expected to have a significant impact on the Company’s financial statements.

 

In April 2015, the FASB issued ASU 2015-03, Interest-Imputation of Interest (Subtopic 835-30), as part of its initiative to reduce complexity in accounting standards.  To simplify presentation of debt issuance costs, the amendments in this Update require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this Update.  For public business entities, the amendments in this Update are effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years.  For all other entities, the amendments in this Update are effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within fiscal years beginning after December 15, 2016.  An entity should apply the new guidance on a retrospective basis, wherein the balance sheet of each individual period presented should be adjusted to reflect the period-specific effects of applying the new guidance. This Update is not expected to have a significant impact on the Company’s financial statements.

 

In April 2015, the FASB issued ASU 2015-04, Compensation-Retirement Benefits (Topic 715), as part of its initiative to reduce complexity in accounting standards.  For an entity with a fiscal year-end that does not coincide with a month-end, the amendments in this Update provide a practical expedient that permits the entity to measure defined benefit plan assets and obligations using the month-end that is closest to the entity's fiscal year-end and apply that practical expedient consistently from year to year. The practical expedient should be applied consistently to all plans if an entity has more than one plan. The amendments in this Update are effective for public business entities for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. For all other entities, the amendments in this Update are effective for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods within fiscal years beginning after December 15, 2017. Earlier application is permitted. This Update is not expected to have a significant impact on the Company’s financial statements.

 

In April 2015, the FASB issued ASU 2015-05, Intangible – Goodwill and Other Internal Use Software (Topic 350-40), as part of its initiative to reduce complexity in accounting standards. This guidance will help entities evaluate the accounting for fees paid by a customer in a cloud computing arrangement. The amendments in this Update provide guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract.  For public business entities, the Board decided that the amendments will be effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2015. For all other entities, the amendments will be effective for annual periods beginning after December 15, 2015, and interim periods in annual periods beginning after December 15, 2016. Early adoption is permitted for all entities. This Update is not expected to have a significant impact on the Company’s financial statements.

 

In April 2015, the FASB issued ASU 2015-06, Earnings Per Share (Topic 260): Effects on Historical Earnings per Unit of Master Limited Partnership Dropdown Transactions.  Topic 260, Earnings Per Share, contains guidance that addresses master limited partnerships that originated from Emerging Issues Task Force (“EITF”) Issue No. 07-4, Application of the Two-Class Method Under FASB Statement No. 128 to Master Limited Partnerships. Under Topic 260, master limited partnerships apply the two-class method of calculating earnings per unit because the general partner, limited partners, and incentive distribution rights holders each participate differently in the distribution of available cash in accordance with the contractual rights contained in the partnership agreement. The amendments in this Update specify that for purposes of calculating historical earnings per unit under the two-class method, the earnings (losses) of a transferred business before the date of a dropdown transaction should be allocated entirely to the general partner. In that circumstance, the previously reported earnings per unit of the limited partners (which is typically the earnings per unit measure presented in the financial statements) would not change as a result of the dropdown transaction. Qualitative disclosures about how the rights to the earnings (losses) differ before and after the dropdown transaction occurs for purposes of computing earnings per unit

9


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

under the two-class method are also required. The amendments in this Update are effective for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Earlier application is permitted.  This Update is not expected to have a significant impact on the Company’s financial statements.

 

In May 2015, the FASB issued ASU 2015-07, Disclosures for Investments in Certain Entities that Calculate Net Asset Value per Share (or Its Equivalent).  The Update applies to reporting entities that elect to measure the fair value of an investment using the net asset value per share (or its equivalent) practical expedient. Under the amendments in this Update, investments for which fair value is measured at net asset value per share (or its equivalent) using the practical expedient should not be categorized in the fair value hierarchy. Removing those investments from the fair value hierarchy not only eliminates the diversity in practice resulting from the way in which investments measured at net asset value per share (or its equivalent) with future redemption dates are classified, but also ensures that all investments categorized in the fair value hierarchy are classified using a consistent approach. Investments that calculate net asset value per share (or its equivalent), but for which the practical expedient is not applied will continue to be included in the fair value hierarchy. A reporting entity should continue to disclose information on investments for which fair value is measured at net asset value (or its equivalent) as a practical expedient to help users understand the nature and risks of the investments and whether the investments, if sold, are probable of being sold at amounts different from net asset value. The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. For all other entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. A reporting entity should apply the amendments retrospectively to all periods presented. The retrospective approach requires that an investment for which fair value is measured using the net asset value per share practical expedient be removed from the fair value hierarchy in all periods presented in an entity's financial statements. Earlier application is permitted. This Update is not expected to have a significant impact on the Company’s financial statements.  

 

In May 2015, the FASB issued ASU 2015-08, Business Combinations – Pushdown Accounting – Amendment to SEC Paragraphs Pursuant to Staff Accounting Bulletin No. 115. This Update was issued to amend various SEC paragraphs pursuant to the issuance of Staff Accounting Bulletin No. 115.  This Update is not expected to have a significant impact on the Company’s financial statements.

 

In May 2015, the FASB issued ASU 2015-09, Financial Services – Insurance (Topic 944): Disclosure About Short-Duration Contracts. The amendments apply to all insurance entities that issue short-duration contracts as defined in Topic 944, Financial Services – Insurance. The amendments require insurance entities to disclose for annual reporting periods certain information about the liability for unpaid claims and claim adjustment expenses. The amendments also require insurance entities to disclose information about significant changes in methodologies and assumptions used to calculate the liability for unpaid claims and claim adjustment expenses, including reasons for the change and the effects on the financial statements.  Additionally, the amendments require insurance entities to disclose for annual and interim reporting periods a rollforward of the liability for unpaid claims and claim adjustment expenses, described in Topic 944. For health insurance claims, the amendments require the disclosure of the total of incurred-but-not-reported liabilities plus expected development on reported claims included in the liability for unpaid claims and claim adjustment expenses. For public business entities, the amendments in this Update are effective for annual periods beginning after December 15, 2015, and interim periods within annual periods beginning after December 15, 2016.  For all other entities, the amendments in this Update are effective for annual periods beginning after December 15, 2016, and interim periods within annual periods beginning after December 15, 2017.  This Update is not expected to have a significant impact on the Company’s financial statements.

 

In June 2015, the FASB issued ASU 2015-10, Technical Corrections and Improvements. The amendments in this Update represent changes to clarify the FASB Accounting Standards Codification (“Codification”), correct unintended application of guidance, or make minor improvements to the Codification that are not expected to have a significant effect on current accounting practice or create a significant administrative cost to most entities. Transition guidance varies based on the amendments in this Update. The amendments in this Update that require transition guidance are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted, including adoption in an interim period. All other amendments will be effective upon the issuance of this Update.  This Update is not expected to have a significant impact on the Company’s financial statements.

 

 

 


10


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

3.) Investment Securities:

Investments in debt and equity securities are classified as held-to-maturity, available-for-sale or trading. Securities classified as held-to-maturity are those that management has the positive intent and ability to hold to maturity. Securities classified as available-for-sale are those that could be sold for liquidity, investment management, or similar reasons, even though management has no present intentions to do so. Securities classified as trading are those that management has bought principally for the purpose of selling in the near term. The Company currently has no securities classified as held-to-maturity.

Available-for-sale securities are carried at fair value with unrealized gains and losses recorded as a separate component of shareholders’ equity, net of tax. Realized gains or losses on dispositions are based on net proceeds and the adjusted carrying amount of securities sold, using the specific identification method. Interest income includes amortization of purchase premium or discount and is amortized on the level-yield method without anticipating payments, except for U.S. Government mortgage-backed and related securities where twelve months of historical prepayments are taken into consideration. Trading securities are carried at fair value with valuation adjustments included in other non-interest income.

Securities are evaluated periodically to determine whether a decline in value is other-than-temporary. Management utilizes criteria such as the magnitude and duration of the decline, along with the reasons underlying the decline, to determine whether the loss in value is other-than-temporary. The term “other-than-temporary” is not intended to indicate that the decline in value is permanent, but indicates that the prospect for a near-term recovery of value is not necessarily favorable and that there is a lack of evidence to support a realizable value equal to or greater than the carrying value of the investment. Unrealized losses on available-for-sale investments have not been recognized into income. However, once a decline in value is determined to be other-than-temporary, the credit related other-than-temporary impairment (OTTI) is recognized in earnings while the non-credit related OTTI on securities not expected to be sold is recognized in other comprehensive income.

 

The following table is a summary of investment securities available-for-sale: 

 

 

(Amounts in thousands)

 

June 30, 2015

Amortized Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

Losses

 

 

Fair Value

 

U.S. Government agencies and corporations

$

13,544

 

 

$

104

 

 

$

74

 

 

$

13,574

 

Obligations of states and political subdivisions

 

49,667

 

 

 

1,168

 

 

 

438

 

 

 

50,397

 

U.S. Government-sponsored mortgage-backed securities

 

80,014

 

 

 

198

 

 

 

616

 

 

 

79,596

 

U.S. Government-sponsored collateralized mortgage obligations

 

12,121

 

 

 

6

 

 

 

80

 

 

 

12,047

 

Trust preferred securities

 

1,649

 

 

 

 

 

 

811

 

 

 

838

 

Total debt securities

 

156,995

 

 

 

1,476

 

 

 

2,019

 

 

 

156,452

 

Federal Home Loan Bank (FHLB) stock

 

2,823

 

 

 

 

 

 

 

 

 

2,823

 

Federal Reserve Bank (FRB) stock

 

226

 

 

 

 

 

 

 

 

 

226

 

Total regulatory stock

 

3,049

 

 

 

 

 

 

 

 

 

3,049

 

Total investment securities available-for-sale

$

160,044

 

 

$

1,476

 

 

$

2,019

 

 

$

159,501

 

 

 

(Amounts in thousands)

 

December 31, 2014

Amortized Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

Losses

 

 

Fair Value

 

U.S. Treasury securities

$

100

 

 

$

1

 

 

$

 

 

$

101

 

U.S. Government agencies and corporations

 

8,640

 

 

 

88

 

 

 

80

 

 

 

8,648

 

Obligations of states and political subdivisions

 

48,547

 

 

 

1,667

 

 

 

123

 

 

 

50,091

 

U.S. Government-sponsored mortgage-backed securities

 

85,675

 

 

 

353

 

 

 

441

 

 

 

85,587

 

U.S. Government-sponsored collateralized mortgage obligations

 

14,030

 

 

 

26

 

 

 

64

 

 

 

13,992

 

Trust preferred securities

 

1,662

 

 

 

 

 

 

883

 

 

 

779

 

Total debt securities

 

158,654

 

 

 

2,135

 

 

 

1,591

 

 

 

159,198

 

Federal Home Loan Bank (FHLB) stock

 

2,823

 

 

 

 

 

 

 

 

 

2,823

 

Federal Reserve Bank (FRB) stock

 

226

 

 

 

 

 

 

 

 

 

226

 

Total regulatory stock

 

3,049

 

 

 

 

 

 

 

 

 

3,049

 

Total investment securities available-for-sale

$

161,703

 

 

$

2,135

 

 

$

1,591

 

 

$

162,247

 

 

11


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

The regulatory stock is carried at cost and the Company is required to hold such investments as a condition of membership in order to transact business with the FHLB of Cincinnati and the FRB.

The Bank is required to maintain a minimum investment in stock of the FHLB and FRB. The stock is bought from and sold based upon its par value. The stock does not have a readily determinable fair value and as such is classified as restricted stock, carried at cost and evaluated by management. The stock’s value is determined by the ultimate recoverability of the par value rather than by recognizing temporary declines. The determination of whether the par value will ultimately be recovered is influenced by criteria such as the following: (a) the significance of the decline in net assets of the FHLB and FRB as compared to the capital stock amount and the length of time this situation has persisted, (b) commitments by the FHLB and FRB to make payments required by law or regulation and the level of such payments in relation to the operating performance, (c) the impact of legislative and regulatory changes on the customer base of the FHLB and FRB and (d) the liquidity position of the FHLB and FRB. The Company does not consider these investments to be other-than-temporarily impaired at June 30, 2015.

At both June 30, 2015 and December 31, 2014, trading securities of $8.0 million and $7.9 million, respectively, are an investment in obligations of states and political subdivisions and include cash equivalent investments for trading liquidity. Unrealized gains and losses on trading securities at June 30, 2015 were $42,000 and $1,000, respectively, compared to $39,000 and $4,000 respectively, at December 31, 2014. Total net unrealized gains of $41,000 and realized losses of $71,000 for the six months ended June 30, 2015 and unrealized gains of $44,100 and realized gains of $222,900 for the six months ended June 30, 2014 are included in the Consolidated Statement of Income. Total net unrealized losses of $4,000 and realized losses of $34,000 for the three months ended June 30, 2015 and unrealized gains of $53,000 and realized gains of $88,000 for the three months ended June 30, 2014 are included in the Consolidated Statement of Income.

The amortized cost and fair value of debt securities at June 30, 2015, by contractual maturity, are shown below. Actual maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties. 

 

 

(Amounts in thousands)

 

 

Amortized Cost

 

 

Fair Value

 

Due in one year or less

$

676

 

 

$

679

 

Due after one year through five years

 

70

 

 

 

71

 

Due after five years through ten years

 

24,452

 

 

 

24,871

 

Due after ten years

 

39,662

 

 

 

39,188

 

Total

 

64,860

 

 

 

64,809

 

U.S. Government-sponsored mortgage-backed and related securities

 

92,135

 

 

 

91,643

 

Total debt securities

$

156,995

 

 

$

156,452

 

 

 

The table below sets forth the proceeds and gains or losses realized on available for sale securities sold or called for the periods presented:

 

(Amounts in thousands)

 

 

Three Months Ended

 

 

Six Months Ended

 

 

June 30,

 

 

June 30,

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Proceeds on securities sold

$

 

 

$

 

 

$

 

 

$

10,237

 

Gross realized gains

 

 

 

 

 

 

 

 

 

 

637

 

Gross realized losses

 

 

 

 

 

 

 

 

 

 

444

 

 

Investment securities with a carrying value of approximately $112.8 million at June 30, 2015 were pledged to secure deposits and for other purposes. The remaining securities provide an adequate level of liquidity.

12


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

The following is a summary of the fair value of available for sale securities with unrealized losses and an aging of those unrealized losses at June 30, 2015:  

 

 

(Amounts in thousands)

 

 

Less than 12 Months

 

 

12 Months or More

 

 

Total

 

 

Fair Value

 

 

Unrealized Losses

 

 

Fair Value