10-Q 1 mbcn20150331_10q.htm FORM 10-Q mbcn20150331_10q.htm

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20552

 

FORM 10 - Q

 

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

 

For the quarterly period ended March 31, 2015

 

Commission File Number 001-36613

 

Middlefield Banc Corp.


(Exact name of registrant as specified in its charter)

 

Ohio

34 - 1585111

(State or other jurisdiction of incorporation or organization)

(IRS Employer Identification No.)

 

15985 East High Street, Middlefield, Ohio 44062-9263 

(Address of principal executive offices)

 

(440) 632-1666

(Registrant's telephone number, including area code)

 

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 and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 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 [] 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 the definition of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer [  ]

Accelerated filer [  ]

Non-accelerated filer [  ]

Small reporting company []

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). 

YES [  ] NO []

 

State the number of shares outstanding of each of the issuer's classes of common equity as of the latest practicable date:

 

Class: Common Stock, without par value

Outstanding at May 13, 2015: 2,247,808

 

 
1

 

  

MIDDLEFIELD BANC CORP.

 

INDEX

  

Part I – Financial Information

 
       

 

Item 1. Financial Statements (unaudited)  
       

 

  Consolidated Balance Sheet as of March 31, 2015 and December 31, 2014 3
       

 

  Consolidated Statement of Income for the Three Months ended March 31, 2015 and 2014 4
       

 

  Consolidated Statement of Comprehensive Income for the Three Months ended March 31, 2015 and 2014 5
       

 

  Consolidated Statement of Changes in Stockholders' Equity for the Three Months ended March 31, 2015 6
       

 

  Consolidated Statement of Cash Flows for the Three Months ended March 31, 2015 and 2014 7
       

 

  Notes to Unaudited Consolidated Financial Statements 8
       

 

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 28
       

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk 34
       

 

Item 4. Controls and Procedures 35
       

Part II – Other Information

 
       

 

Item 1. Legal Proceedings 36
       

 

Item 1A. Risk Factors 36
       

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 36
       

 

Item 3. Defaults by the Company on its Senior Securities 36
       

 

Item 4. Mine Safety Disclosures 36
       

 

Item 5. Other Information 36
       

 

Item 6. Exhibits and Reports on Form 8 – K 36
       

Signatures

39
       

Exhibit 31.1

 
       

Exhibit 31.2

 
       

Exhibit 32

 

 

 
2

 

  

MIDDLEFIELD BANC CORP.

CONSOLIDATED BALANCE SHEET

(Dollar amounts in thousands, except share data)

(Unaudited)

  

   

March 31,

   

December 31,

 
   

2015

   

2014

 
                 

ASSETS

               

Cash and due from banks

  $ 32,727     $ 20,846  

Federal funds sold

    12,535       4,793  

Cash and cash equivalents

    45,262       25,639  

Investment securities available for sale, at fair value

    151,159       154,334  

Loans held for sale

    690       438  

Loans

    475,818       470,584  

Less allowance for loan and lease losses

    6,447       6,846  

Net loans

    469,371       463,738  

Premises and equipment, net

    9,927       9,980  

Goodwill

    4,559       4,559  

Core deposit intangibles

    106       116  

Bank-owned life insurance

    9,161       9,092  

Other real estate owned

    2,203       2,590  

Accrued interest and other assets

    7,496       7,045  
                 

TOTAL ASSETS

  $ 699,934       677,531  
                 

LIABILITIES

               

Deposits:

               

Noninterest-bearing demand

  $ 105,728     $ 105,512  

Interest-bearing demand

    64,460       56,377  

Money market

    77,099       75,895  

Savings

    179,850       178,470  

Time

    190,006       169,858  

Total deposits

    617,143       586,112  

Short-term borrowings

    4,913       14,808  

Other borrowings

    10,533       10,624  

Accrued interest and other liabilities

    1,661       2,120  

TOTAL LIABILITIES

    634,250       613,664  
                 

STOCKHOLDERS' EQUITY

               

Common stock, no par value; 10,000,000 shares authorized, 2,247,556 and 2,242,025 shares issued; 2,058,026 and 2,052,495 shares outstanding

    35,706       35,529  

Retained earnings

    33,618       32,524  

Accumulated other comprehensive income

    3,094       2,548  

Treasury stock, at cost; 189,530 shares

    (6,734 )     (6,734 )

TOTAL STOCKHOLDERS' EQUITY

    65,684       63,867  
                 

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

  $ 699,934     $ 677,531  

 

See accompanying notes to unaudited consolidated financial statements.

 

 

 
3

 

 

MIDDLEFIELD BANC CORP.

CONSOLIDATED STATEMENT OF INCOME

(Dollar amounts in thousands, except per share data)

(Unaudited)

 

   

Three Months Ended

 
   

March 31,

 
   

2015

   

2014

 

INTEREST INCOME

               

Interest and fees on loans

  $ 5,843     $ 5,694  

Interest-bearing deposits in other institutions

    8       5  

Federal funds sold

    3       3  

Investment securities:

               

Taxable interest

    395       509  

Tax-exempt interest

    759       755  

Dividends on stock

    27       23  

Total interest income

    7,035       6,989  
                 

INTEREST EXPENSE

               

Deposits

    831       940  

Short-term borrowings

    37       35  

Other borrowings

    23       32  

Trust preferred securities

    (8 )     26  

Total interest expense

    883       1,033  
                 

NET INTEREST INCOME

    6,152       5,956  
                 

Provision for loan losses

    105       180  
                 

NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES

    6,047       5,776  
                 

NONINTEREST INCOME

               

Service charges on deposit accounts

    441       441  

Investment securities gains (losses), net

    24       (6 )

Earnings on bank-owned life insurance

    69       67  

Gain on sale of loans

    53       -  

Other income

    209       213  

Total noninterest income

    796       715  
                 

NONINTEREST EXPENSE

               

Salaries and employee benefits

    2,360       2,016  

Occupancy expense

    349       321  

Equipment expense

    216       220  

Data processing costs

    250       214  

Ohio state franchise tax

    75       83  

Federal deposit insurance expense

    112       132  

Professional fees

    319       287  

Loss (gain) on other real estate owned

    88       (5 )

Advertising expense

    196       123  

Other real estate expense

    65       63  

Directors fees

    118       86  

Other expense

    663       689  

Total noninterest expense

    4,811       4,229  

Income before income taxes

    2,032       2,262  

Income taxes

    404       499  

NET INCOME

  $ 1,628     $ 1,763  
                 

EARNINGS PER SHARE

               

Basic

  $ 0.79     $ 0.87  

Diluted

    0.79       0.86  
                 

DIVIDENDS DECLARED PER SHARE

  $ 0.26     $ 0.26  

 

See accompanying notes to unaudited consolidated financial statements.

 

 
4

 

 

MIDDLEFIELD BANC CORP.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

(Dollar amounts in thousands)

(Unaudited)

  

   

Three Months Ended

 
   

March 31,

 
   

2015

   

2014

 
                 

Net income

  $ 1,628     $ 1,763  
                 

Other comprehensive income:

               

Net unrealized holding gain on available-for-sale securities

    851       2,799  

Tax effect

    (289 )     (952 )
                 

Reclassification adjustment for investment securities (gain) loss included in net income

    (24 )     6  

Tax effect

    8       (2 )
                 

Total other comprehensive income

    546       1,851  
                 

Comprehensive income

  $ 2,174     $ 3,614  

   

See accompanying notes to unaudited consolidated financial statements.

 

 

 
5

 

 

MIDDLEFIELD BANC CORP.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY

(Dollar amounts in thousands, except share data)

(Unaudited)

   

                   

Accumulated

                 
                   

Other

           

Total

 
   

Common

   

Retained

   

Comprehensive

   

Treasury

   

Stockholders'

 
   

Stock

   

Earnings

   

Income

   

Stock

   

Equity

 
                                         

Balance, December 31, 2014

  $ 35,529     $ 32,524     $ 2,548     $ (6,734 )   $ 63,867  
                                         

Net income

            1,628                       1,628  

Other comprehensive income

                    546               546  

Dividend reinvestment and purchase plan (5,281 shares)

    175                               175  

Stock options exercised (250 shares)

    2                               2  

Cash dividends ($0.26 per share)

            (534 )                     (534 )
                                         

Balance, March 31, 2015

  $ 35,706     $ 33,618     $ 3,094     $ (6,734 )   $ 65,684  

   

See accompanying notes to unaudited consolidated financial statements.

 

 

 
6

 

 

MIDDLEFIELD BANC CORP.

CONSOLIDATED STATEMENT OF CASH FLOWS

(Dollar amounts in thousands)

(Unaudited)

  

   

Three Months Ended

 
   

March 31,

 
   

2015

   

2014

 

OPERATING ACTIVITIES

               

Net income

  $ 1,628     $ 1,763  

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

               

Provision for loan losses

    105       180  

Investment securities (gain) loss, net

    (24 )     6  

Depreciation and amortization

    180       202  

Amortization of premium and discount on investment securities

    189       182  

Accretion of deferred loan fees, net

    (241 )     (76 )

Origination of loans held for sale

    (2,664 )     -  

Proceeds from sale of loans

    2,465       -  

Gain on sale of loans

    (53 )     -  

Earnings on bank-owned life insurance

    (69 )     (67 )

Deferred income tax

    (305 )     (156 )

Loss (gain) on other real estate owned

    88       (5 )

Increase in accrued interest receivable

    (454 )     (391 )

Decrease in accrued interest payable

    (11 )     (19 )

Other, net

    (407 )     (481 )

Net cash provided by operating activities

    427       1,138  
                 

INVESTING ACTIVITIES

               

Investment securities available for sale:

               

Proceeds from repayments and maturities

    2,224       3,306  

Proceeds from sale of securities

    1,590       514  

Increase in loans, net

    (5,497 )     (8,139 )

Proceeds from the sale of other real estate owned

    299       47  

Purchase of premises and equipment

    (108 )     (156 )

Net cash used for investing activities

    (1,492 )     (4,428 )
                 

FINANCING ACTIVITIES

               

Net increase in deposits

    31,031       25,930  

Decrease in short-term borrowings, net

    (9,895 )     (5,489 )

Repayment of other borrowings

    (91 )     (141 )

Stock options exercised

    2       -  

Proceeds from dividend reinvestment and purchase plan

    175       136  

Cash dividends

    (534 )     (529 )

Net cash provided by financing activities

    20,688       19,907  
                 

Increase in cash and cash equivalents

    19,623       16,617  
                 

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD

    25,639       26,193  
                 

CASH AND CASH EQUIVALENTS AT END OF PERIOD

  $ 45,262     $ 42,810  
                 

SUPPLEMENTAL INFORMATION

               

Cash paid during the year for:

               

Interest on deposits and borrowings

  $ 894     $ 1,052  

Income taxes

    -       610  

 

See accompanying notes to unaudited consolidated financial statements.

 

 

 
7

 

 

MIDDLEFIELD BANC CORP.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 1 - BASIS OF PRESENTATION

 

The consolidated financial statements of Middlefield Banc Corp. ("Company") include its bank subsidiary, The Middlefield Banking Company (“MB”), and a nonbank asset resolution subsidiary EMORECO, Inc. All significant inter-company items have been eliminated.

 

The accompanying unaudited financial statements have been prepared in accordance with U.S. generally accepted accounting principles and the instructions for Form 10-Q and Article 10 of Regulation S-X. In management’s opinion, the financial statements include all adjustments, consisting of normal recurring adjustments, that the Company considers necessary to fairly state the Company’s financial position and the results of operations and cash flows. The consolidated balance sheet at December 31, 2014, has been derived from the audited financial statements at that date but does not include all of the necessary informational disclosures and footnotes as required by U.S. generally accepted accounting principles. The accompanying financial statements should be read in conjunction with the financial statements and notes thereto included with the Company’s Form 10-K for the year ended December 31, 2014. The results of the Company’s operations for any interim period are not necessarily indicative of the results of the Company’s operations for any other interim period or for a full fiscal year.

  

Recent Accounting Pronouncements

 

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. Early adoption is permitted. 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. The Company has included the disclosures related to this Update in Note 8.

 

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 accounting Update.

 

In June 2014, the FASB issued ASU 2014-10, 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 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.

 

 

 
8

 

 

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 is not expected to 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 is not expected to 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 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.

 

 

 
9

 

 

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.

 

 

 
10

 

  

NOTE 2 - STOCK-BASED COMPENSATION

 

The Company had no unvested stock options outstanding or unrecognized stock-based compensation costs outstanding as of March 31, 2015 and 2014.

 

Stock option activity during the three months ended March 31 is as follows:

  

           

Weighted-

           

Weighted-

 
           

average

           

average

 
           

Exercise

           

Exercise

 
   

2015

   

Price

   

2014

   

Price

 
                                 

Outstanding, January 1

    46,451     $ 27.90       58,581     $ 28.38  

Exercised

    (375 )   $ 17.55       -       -  
                                 

Outstanding, March 31

    46,076     $ 27.99       58,581     $ 28.38  
                                 

Exercisable, March 31

    46,076     $ 27.99       58,581     $ 28.38  

   

NOTE 3 - EARNINGS PER SHARE

 

The Company provides dual presentation of basic and diluted earnings per share. Basic earnings per share is calculated by dividing net income by the average shares outstanding. Diluted earnings per share adds the dilutive effects of stock options to average shares outstanding.

 

The following table sets forth the composition of the weighted-average common shares (denominator) used in the basic and diluted earnings per share computation.

  

   

For the Three

 
   

Months Ended

 
   

March 31,

 
   

2015

   

2014

 

Weighted-average common shares outstanding

    2,243,190       2,223,010  
                 
Average treasury stock shares     (189,530 )     (189,530 )
                 

Weighted-average common shares and common stock equivalents used to calculate basic earnings per share

    2,053,660       2,033,480  
                 

Additional common stock equivalents (stock options) used to calculate diluted earnings per share

    9,207       6,035  
                 

Weighted-average common shares and common stock equivalents used to calculate diluted earnings per share

    2,062,867       2,039,515  

 

 

 
11

 

     

Options to purchase 46,076 shares of common stock, at prices ranging from $17.55 to $40.24, were outstanding as of the three months ended March 31, 2015. For the three months ended March 31, 2015, 27,250 were considered dilutive based on the market price exceeding the strike price.

 

Options to purchase 58,581 shares of common stock, at prices ranging from $17.55 to $40.24, were outstanding during the three months ended March 31, 2014. For the three months ended March 31, 2014, 27,375 were considered dilutive based on the market price exceeding the strike price.

 

NOTE 4 - FAIR VALUE MEASUREMENTS

 

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for an asset or liability in an orderly transaction between market participants at the measurement date. GAAP established a fair value hierarchy that prioritizes the use of inputs used in valuation methodologies into the following levels:

   

 

Level I:

Quoted prices are available in active markets for identical assets or liabilities as of the reported date.

 

Level II:

Pricing inputs are other than the quoted prices in active markets, which are either directly or indirectly observable as of the reported date. The nature of these assets and liabilities includes items for which quoted prices are available but traded less frequently and items that are fair valued using other financial instruments, the parameters of which can be directly observed.

 

Level III:

Assets and liabilities that have little to no pricing observability as of the reported date. These items do not have two-way markets and are measured using management’s best estimate of fair value, where the inputs into the determination of fair value require significant management judgment or estimation.

   

 

The following tables present the assets measured on a recurring basis on the Consolidated Balance Sheet at their fair value by level within the fair value hierarchy. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

  

           

March 31, 2015

         

(Dollar amounts in thousands)

 

Level I

   

Level II

   

Level III

   

Total

 

Assets measured on a recurring basis:

                               

U.S. government agency securities

  $ -     $ 22,921     $ -     $ 22,921  

Obligations of states and political subdivisions

    -       96,097       -       96,097  

Mortgage-backed securities in government- sponsored entities

            28,517               28,517  

Private-label mortgage-backed securities

    -       2,725       -       2,725  

Total debt securities

    -       150,260       -       150,260  

Equity securities in financial institutions

    -       899       -       899  

Total

  $ -     $ 151,159     $ -     $ 151,159  

 

           

December 31, 2014

         
   

Level I

   

Level II

   

Level III

   

Total

 

Assets measured on a recurring basis:

                               

U.S. government agency securities

  $ -     $ 22,896     $ -     $ 22,896  

Obligations of states and political subdivisions

    -       98,345       -       98,345  

Mortgage-backed securities in government- sponsored entities

    -       29,391       -       29,391  

Private-label mortgage-backed securities

    -       2,919       -       2,919  

Total debt securities

    -       153,551       -       153,551  

Equity securities in financial institutions

    -       783       -       783  

Total

  $ -     $ 154,334     $ -     $ 154,334  

 

 

 
12

 

     

The Company obtains fair values from an independent pricing service which represent either quoted market prices for the identical securities (Level I inputs) or fair values determined by pricing models using a market approach that considers observable market data, such as interest rate volatilities, LIBOR yield curve, credit spreads and prices from market makers and live trading systems (Level II).

 

Financial instruments are considered Level III when their values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable. In addition to these unobservable inputs, the valuation models for Level III financial instruments typically also rely on a number of inputs that are readily observable either directly or indirectly. Level III financial instruments also include those for which the determination of fair value requires significant management judgment or estimation. The Company has no securities considered to be Level III as of March 31, 2015 or December 31, 2014.

 

The Company uses prices compiled by third party vendors due to improvements in third party pricing methodology that have narrowed the variances between third party vendor prices and actual market prices.

 

The following tables present the assets measured on a nonrecurring basis on the Consolidated Balance Sheet at their fair value by level within the fair value hierarchy. Impaired loans that are collateral dependent are written down to fair value through the establishment of specific reserves. Techniques used to value the collateral that secure the impaired loan include quoted market prices for identical assets classified as Level I inputs and observable inputs, employed by certified appraisers, for similar assets classified as Level II inputs. In cases where valuation techniques included inputs that are unobservable and are based on estimates and assumptions developed by management based on the best information available under each circumstance, the asset valuation is classified as Level III inputs.

  

           

March 31, 2015

         

(Dollar amounts in thousands)

 

Level I

   

Level II

   

Level III

   

Total

 

Assets measured on a nonrecurring basis:

                               

Impaired loans

  $ -     $ -     $ 11,059     $ 11,059  

Other real estate owned

    -       -       2,203       2,203  

 

           

December 31, 2014

         
   

Level I

   

Level II

   

Level III

   

Total

 

Assets measured on a nonrecurring basis:

                               

Impaired loans

  $ -     $ -     $ 12,772     $ 12,772  

Other real estate owned

    -       -       2,590       2,590  

  

The Company values other real estate owned at the estimated fair value of the underlying collateral less expected selling costs. Such values are estimated primarily using appraisals and reflect a market value approach. Due to the significance of the Level III inputs, other real estate owned has been classified as Level III.

 

The following table presents additional quantitative information about assets measured at fair value on a nonrecurring basis and for which the Company uses Level III inputs to determine fair value:

 

   

Quantitative Information about Level III Fair Value Measurements

 

(Dollar amounts in thousands)

               

Valuation

Unobservable

 

Range

 
   

Fair Value Estimate

  Techniques Input   (Weighted Average)  
   

March 31, 2015

   

December 31, 2014

                 

Impaired loans

  $ 11,059     $ 12,772  

Appraisal of collateral (1)

Appraisal adjustments (2)

  0% to -128.1% (-31.1%)  

Other real estate owned

  $ 2,203     $ 2,590  

Appraisal of collateral (1)

Appraisal adjustments (2)

  0% to -10.0% (-7.5%)  

 

 

(1)

Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various level 3 inputs which are not identifiable.

 

(2)

Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses. The range and weighted average of liquidation expenses and other appraisal adjustments are presented as a percent of the appraisal.

  

 

 
13

 

 

The estimated fair value of the Company’s financial instruments is as follows:

  

   

March 31, 2015

 
   

Carrying

                           

Total

 
   

Value

   

Level I

   

Level II

   

Level III

   

Fair Value

 
   

(Dollar amounts in thousands)

 
Financial assets:                                        

Cash and cash equivalents

  $ 45,262     $ 45,262     $ -     $ -     $ 45,262  

Investment securities Available for sale

    151,159       -       151,159       -       151,159  

Loans held for sale

    690       -       690       -       690  

Net loans

    469,371       -       -       481,581       481,581  

Bank-owned life insurance

    9,161       9,161       -       -       9,161  

Federal Home Loan Bank stock

    1,887       1,887       -       -       1,887  

Accrued interest receivable

    2,549       2,549       -       -       2,549  
                                         
Financial liabilities:                                        

Deposits

  $ 617,143     $ 427,137     $ -     $ 186,893     $ 614,030  

Short-term borrowings

    4,913       4,913       -       -       4,913  

Other borrowings

    10,533       -       -       12,528       12,528  

Accrued interest payable

    304       304       -       -       304  

 

 

   

December 31, 2014

 
   

Carrying

                           

Total

 
   

Value

   

Level I

   

Level II

   

Level III

   

Fair Value

 
   

(in thousands)

 
Financial assets:                                        

Cash and cash equivalents

  $ 25,639     $ 25,639     $ -     $ -     $ 25,639  

Investment securities Available for sale

    154,334       -       154,334       -       154,334  

Loans held for sale

    438       -       438       -       438  

Net loans

    463,738       -       -       475,019       475,019  

Bank-owned life insurance

    9,092       9,092       -       -       9,092  

Federal Home Loan Bank stock

    1,887       1,887       -       -       1,887  

Accrued interest receivable

    2,095       2,095       -       -       2,095  
                                         
Financial liabilities:                                        

Deposits

  $ 586,112     $ 416,254     $ -     $ 170,542     $ 586,796  

Short-term borrowings

    14,808       14,808       -       -       14,808  

Other borrowings

    10,624       -               10,822       10,822  

Accrued interest payable

    315       315       -       -       315  

  

Financial instruments are defined as cash, evidence of ownership interest in an entity, or a contract which creates an obligation or right to receive or deliver cash or another financial instrument from/to a second entity on potentially favorable or unfavorable terms.

 

Fair value is defined as the amount at which a financial instrument could be exchanged in a current transaction between willing parties other than in a forced liquidation sale. If a quoted market price is available for a financial instrument, the estimated fair value would be calculated based upon the market price per trading unit of the instrument.

 

If no readily available market exists, the fair value estimates for financial instruments should be based upon management’s judgment regarding current economic conditions, interest rate risk, expected cash flows, future estimated losses, and other factors as determined through various option pricing formulas or simulation modeling. Since many of these assumptions result from judgments made by management based upon estimates which are inherently uncertain, the resulting estimated fair values may not be indicative of the amount realizable in the sale of a particular financial instrument. In addition, changes in assumptions on which the estimated fair values are based may have a significant impact on the resulting estimated fair values.

 

 

 
14

 

 

As certain assets such as deferred tax assets and premises and equipment are not considered financial instruments, the estimated fair value of financial instruments would not represent the full value of the Company.

 

The Company employed simulation modeling in determining the estimated fair value of financial instruments for which quoted market prices were not available based upon the following assumptions:

 

Cash and Cash Equivalents, Federal Home Loan Bank Stock, Accrued Interest Receivable, Accrued Interest Payable, and Short-Term Borrowings

The fair value is equal to the current carrying value.

 

Bank-Owned Life Insurance

The fair value is equal to the cash surrender value of the life insurance policies.

 

Investment Securities Available for Sale

The fair value of investment securities is equal to the available quoted market price.  If no quoted market price is available, fair value is estimated using the quoted market price for similar securities. 

 

Loans Held for Sale

Loans held for sale are carried at lower of cost or market value. The fair value of loans held for sale is based on secondary market pricing on portfolios with similar characteristics. The changes in fair value of the assets are largely driven by changes in interest rates subsequent to loan funding and changes in the fair value of servicing associated with the mortgage loan held for sale.

 

Net Loans

The fair value is estimated by discounting future cash flows using current market inputs at which loans with similar terms and qualities would be made to borrowers of similar credit quality. Where quoted market prices were available, primarily for certain residential mortgage loans, such market rates were used as estimates for fair value.

 

Deposits and Other Borrowings

The fair values of certificates of deposit and other borrowings are based on the discounted value of contractual cash flows. The discount rates are estimated using rates currently offered for similar instruments with similar remaining maturities. Demand, savings, and money market deposits are valued at the amount payable on demand as of period end.

 

Commitments to Extend Credit

These financial instruments are generally not subject to sale, and estimated fair values are not readily available. The carrying value, represented by the net deferred fee arising from the unrecognized commitment or letter of credit, and the fair value, determined by discounting the remaining contractual fee over the term of the commitment using fees currently charged to enter into similar agreements with similar credit risk, are not considered material for disclosure.

  

 

 
15

 

  

NOTE 5 – ACCUMULATED OTHER COMPREHENSIVE INCOME

 

The following table presents the changes in accumulated other comprehensive income by component net of tax for the three months ended March 31, 2015 and 2014, respectively:

 

   

Unrealized gains on

 
   

available-for-sale

 

(Dollars in thousands)

 

securities (a)

 

Balance as of December 31, 2014

  $ 2,548  

Other comprehensive income before reclassification

    562  

Amount reclassified from accumulated other comprehensive income

    (16 )

Period change

    546  

Balance at March 31, 2015

  $ 3,094  

  

   

Unrealized gains on

 
   

available-for-sale

 

(Dollars in thousands)

 

securities (a)

 

Balance as of December 31, 2013

  $ (2,237 )

Other comprehensive income before reclassification

    1,847  

Amount reclassified from accumulated other comprehensive income

    4  

Period change

    1,851  

Balance at March 31, 2014

  $ (386 )

   

The following tables present significant amounts reclassified out of each component of accumulated other comprehensive income for the three months ended March 31, 2015 and 2014, respectively:

  

 

      Amount Reclassified from Accumulated Other Comprehensive   

 

(Dollars in thousands)

 

    Income (a)   

Affected Line Item in the Statement Where

Details about other comprehensive income

      March 31, 2015    Net Income is Presented
Unrealized gains (losses) on available-for-sale securities     $ 24  

Investment securities gains (losses), net

        (8 )

Income taxes

      $ 16  

Net of tax

 

      Amount Reclassified from Accumulated Other Comprehensive    

(Dollars in thousands)

    Income (a)  

Affected Line Item in the Statement Where

Details about other comprehensive income

    March 31, 2014  

Net Income is Presented

Unrealized gains (losses) on available-for-sale securities     $ (6 )

Investment securities gains (losses), net

        2  

Income taxes

      $ (4 )

Net of tax

 

(a) Amounts in parentheses indicate debits to net income

 

 

 
16

 

  

NOTE 6 - INVESTMENT SECURITIES AVAILABLE FOR SALE

 

The amortized cost and fair values of securities available for sale are as follows:

  

   

March 31, 2015

 
           

Gross

   

Gross

         
   

Amortized

   

Unrealized

   

Unrealized

   

Fair

 

(Dollar amounts in thousands)

 

Cost

   

Gains

   

Losses

   

Value

 
                                 

U.S. government agency securities

  $ 22,697     $ 383     $ (159 )   $ 22,921  

Obligations of states and political subdivisions:

                               

Taxable

    2,952       305       -       3,257  

Tax-exempt

    89,544       3,749       (453 )     92,840  

Mortgage-backed securities in government-sponsored entities

    28,055       573       (111 )     28,517  

Private-label mortgage-backed securities

    2,500       225       -       2,725  

Total debt securities

    145,748       5,235       (723 )     150,260  

Equity securities in financial institutions

    750       149       -       899  

Total

  $ 146,498     $ 5,384     $ (723 )   $ 151,159  

 

   

December 31, 2014

 
           

Gross

   

Gross

         
   

Amortized

   

Unrealized

   

Unrealized

   

Fair

 
   

Cost

   

Gains

   

Losses

   

Value

 
                                 

U.S. government agency securities

  $ 23,035     $ 311     $ (450 )   $ 22,896  

Obligations of states and political subdivisions:

                               

Taxable

    2,953       226       -       3,179  

Tax-exempt

    91,916       3,803       (553 )     95,166  

Mortgage-backed securities in government-sponsored entities

    29,150       475       (234 )     29,391  

Private-label mortgage-backed securities

    2,672       247       -       2,919  

Total debt securities

    149,726       5,062       (1,237 )     153,551  

Equity securities in financial institutions

    750       33       -       783  

Total

  $ 150,476     $ 5,095     $ (1,237 )   $ 154,334  

 

The amortized cost and fair value of debt securities at March 31, 2015, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

 

 

 
17

 

 

The following table provides investment maturity tranches as of March 31, 2015:

  

   

Amortized

   

Fair

 

(Dollar amounts in thousands)

 

Cost

   

Value

 
                 

Due in one year or less

  $ 998     $ 1,014  

Due after one year through five years

    12,447       12,820  

Due after five years through ten years

    20,148       20,888  

Due after ten years

    112,155       115,538  
                 

Total

  $ 145,748     $ 150,260  

 

Proceeds from the sales of securities available for sale and the gross realized gains and losses for the three months ended March 31 are as follows:

 

(Dollar amounts in thousands)

  For the Three Months Ended March 31,  
   

2015

   

2014

 

Proceeds from sales

  $ 1,590     $ 514  

Gross realized gains

    48       -  

Gross realized losses

    (24 )     (6 )

 

Investment securities with an approximate carrying value of $61.5 million and $61.9 million at March 31, 2015 and December 31, 2014, respectively, were pledged to secure deposits and other purposes as required by law.

 

The following tables show the Company’s gross unrealized losses and fair value, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position.

 

   

March 31, 2015

 
   

Less than Twelve Months

   

Twelve Months or Greater

   

Total

 
           

Gross

           

Gross

           

Gross

 
   

Fair

   

Unrealized

   

Fair

   

Unrealized

   

Fair

   

Unrealized

 

(Dollar amounts in thousands)

 

Value

   

Losses

   

Value

   

Losses

   

Value

   

Losses

 
                                                 

U.S. government agency securities

  $ 1,988     $ (12 )   $ 13,101     $ (147 )   $ 15,089     $ (159 )

Obligations of states and political subdivisions

    4,682       (34 )     12,767       (419 )     17,449       (453 )

Mortgage-backed securities in government-sponsored entities

    -       -       7,815       (111 )     7,815       (111 )
Total   $ 6,670     $ (46 )   $ 33,683     $ (677 )   $ 40,353     $ (723 )

 

 
18

 

  

   

December 31, 2014

 
   

Less than Twelve Months

   

Twelve Months or Greater

   

Total

 
           

Gross

           

Gross

           

Gross

 
   

Fair

   

Unrealized

   

Fair

   

Unrealized

   

Fair

   

Unrealized

 
   

Value

   

Losses

   

Value

   

Losses

   

Value

   

Losses

 
                                                 

U.S. government agency securities

  $ -     $ -     $ 15,734     $ (450 )   $ 15,734     $ (450 )

Obligations of states and political subdivisions

    2,406       (10 )     18,232       (543 )     20,638       (553 )

Mortgage-backed securities in government-sponsored entities

    -       -       16,774       (234 )     16,774       (234 )
Total   $ 2,406     $ (10 )   $ 50,740     $ (1,227 )   $ 53,146     $ (1,237 )

 

There were 54 securities considered temporarily impaired at March 31, 2015.

 

On a quarterly basis, the Company performs an assessment to determine whether there have been any events or economic circumstances indicating that a security with an unrealized loss has suffered other-than-temporary impairment (“OTTI”). A debt security is considered impaired if the fair value is less than its amortized cost basis at the reporting date. The Company assesses whether the unrealized loss is other than temporary.

 

OTTI losses are recognized in earnings when the Company has the intent to sell the debt security or it is more likely than not that it will be required to sell the debt security before recovery of its amortized cost basis. However, even if the Company does not expect to sell a debt security, it must evaluate expected cash flows to be received and determine if a credit loss has occurred.

 

An unrealized loss is generally deemed to be other than temporary and a credit loss is deemed to exist if the present value of the expected future cash flows is less than the amortized cost basis of the debt security. As a result the credit loss component of an OTTI is recorded as a component of investment securities gains (losses) in the accompanying Consolidated Statement of Income, while the remaining portion of the impairment loss is recognized in other comprehensive income, provided the Company does not intend to sell the underlying debt security and it is “more likely than not” that the Company will not have to sell the debt security prior to recovery.

 

Debt securities issued by U.S. government agencies, U.S. government-sponsored enterprises, and state and political subdivisions accounted for more than 98% of the total available-for-sale portfolio as of March 31, 2015 and no credit losses are expected, given the explicit and implicit guarantees provided by the U.S. federal government and the lack of prolonged unrealized loss positions within the obligations of state and political subdivisions security portfolio. The Company considers the following factors in determining whether a credit loss exists and the period over which the debt security is expected to recover:

 

 

 

The length of time and the extent to which the fair value has been less than the amortized cost basis.

 

     

 

 

Changes in the near term prospects of the underlying collateral of a security such as changes in default rates, loss severity given default and significant changes in prepayment assumptions;

 

     

 

 

The level of cash flows generated from the underlying collateral supporting the principal and interest payments of the debt securities; and

       

 

 

Any adverse change to the credit conditions and liquidity of the issuer, taking into consideration the latest information available about the overall financial condition of the issuer, credit ratings, recent legislation and government actions affecting the issuer’s industry and actions taken by the issuer to deal with the present economic climate.

  

For the three months ended March 31, 2015 and 2014, there were no available-for-sale debt securities with an unrealized loss that suffered OTTI. Management does not believe any individual unrealized loss as of March 31, 2015 or December 31, 2014 represented an other-than-temporary impairment. The unrealized losses on debt securities are primarily the result of interest rate changes. These conditions will not prohibit the Company from receiving its contractual principal and interest payments on these debt securities. The fair value of these debt securities is expected to recover as payments are received on these securities and they approach maturity. Should the impairment of any of these securities become other than temporary, the cost basis of the investment will be reduced and the resulting loss recognized in net income in the period the other-than-temporary impairment is identified.

 

 

 
19

 

    

NOTE 7 - LOANS AND RELATED ALLOWANCE FOR LOAN AND LEASE LOSSES

 

Major classifications of loans are summarized as follows (in thousands):

  

   

March 31,

   

December 31,

 
   

2015

   

2014

 
                 

Commercial and industrial

  $ 48,916     $ 60,744  

Real estate - construction

    24,763       30,296  

Real estate - mortgage:

               

Residential

    231,836       227,552  

Commercial

    165,680       147,413  

Consumer installment

    4,623       4,579  
      475,818       470,584  

Less Allowance for loan and lease losses

    6,447       6,846  
                 

Net loans

  $ 469,371     $ 463,738  

 

The Company’s primary business activity is with customers located within its local Northeastern Ohio trade area, eastern Geauga County, and contiguous counties to the north, east, and south. The Company also serves the central Ohio market with offices in Dublin and Westerville, Ohio. Commercial, residential, consumer, and agricultural loans are granted. Although the Company has a diversified loan portfolio, loans outstanding to individuals and businesses are dependent upon the local economic conditions in the Company’s immediate trade area.

 

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff generally are reported at their outstanding unpaid principal balances net of the allowance for loan and lease losses.  Interest income is recognized as income when earned on the accrual method.  The accrual of interest is discontinued on a loan when management believes, after considering economic and business conditions, the borrower’s financial condition is such that collection of interest is doubtful.  Interest received on nonaccrual loans is recorded as income or applied against principal according to management’s judgment as to the collectability of such principal.

 

Loan origination fees and certain direct loan origination costs are being deferred and the net amount amortized as an adjustment of the related loan’s yield.  Management is amortizing these amounts over the contractual life of the related loans.

 

The following tables summarize the primary segments of the loan portfolio and allowance for loan and lease losses (in thousands):

  

                   

Real Estate- Mortgage

                 

March 31, 2015

 

Commercial and industrial

   

Real estate- construction

   

Residential

   

Commercial

   

Consumer installment

   

Total

 

Loans:

                                               

Individually evaluated for impairment

  $ 1,061     $ 2,467     $ 4,482     $ 4,041     $ 6     $ 12,057  

Collectively evaluated for impairment

    47,855       22,296       227,354       161,639       4,617       463,761  

Total loans

  $ 48,916     $ 24,763     $ 231,836     $ 165,680     $ 4,623     $ 475,818  

 

                   

Real estate- Mortgage

                 

December 31, 2014

 

Commercial and industrial

   

Real estate- construction

   

Residential

   

Commercial

   

Consumer installment

   

Total

 

Loans:

                                               

Individually evaluated for impairment

  $ 1,393     $ 3,296     $ 5,183     $ 4,490     $ 6     $ 14,368  

Collectively evaluated for impairment

    59,351       27,000       222,369       142,923       4,573       456,216  

Total loans

  $ 60,744     $ 30,296     $ 227,552     $ 147,413     $ 4,579     $ 470,584  

 

 

 
20

 

  

                   

Real Estate- Mortgage

                 

March 31, 2015

 

Commercial and industrial

   

Real estate- construction

   

Residential

   

Commercial

   

Consumer installment

   

Total

 
Allowance for loan and lease losses:                                                
Ending allowance balance attributable to loans:                                                

Individually evaluated for impairment

  $ 65     $ 181     $ 550     $ 200     $ 2     $ 998  

Collectively evaluated for impairment

    428       313       2,909       1,758       41       5,449  

Total ending allowance balance

  $ 493     $ 494     $ 3,459     $ 1,958     $ 43     $ 6,447  

 

                   

Real Estate- Mortgage

                 

December 31, 2014

 

Commercial and industrial

   

Real estate- construction

   

Residential

   

Commercial

   

Consumer installment

   

Total

 
Allowance for loan and lease losses:                                                
Ending allowance balance attributable to loans:                                                

Individually evaluated for impairment

  $ 83     $ 589     $ 892     $