10-Q 1 mbcn20150630_10q.htm FORM 10-Q mbcn20150630_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 June 30, 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 August 11, 2015: 2,062,733

 

 
1

 

 

MIDDLEFIELD BANC CORP.

 

INDEX

 

Part I – Financial Information  

 

 

Item 1

Financial Statements (unaudited)

 

       

 

 

Consolidated Balance Sheet as of June 30, 2015 and December 31, 2014

 3

       

 

 

Consolidated Statement of Income for the Three and Six Months ended June 30, 2015 and 2014

 4

       

 

 

Consolidated Statement of Comprehensive Income for the Three and Six Months ended June 30, 2015 and 2014

 5

       

 

 

Consolidated Statement of Changes in Stockholders' Equity for the Six Months ended June 30, 2015

 6

       

 

 

Consolidated Statement of Cash Flows for the Six Months ended June 30, 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

 31

       

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

 39

       

 

Item 4.

Controls and Procedures

 40

       

Part II – Other Information

 

 

Item 1.

Legal Proceedings

 41

       

 

Item 1A.

Risk Factors

 41

       

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 41

       

 

Item 3.

Defaults by the Company on its Senior Securities

 41

       

 

Item 4.

Mine Safety Disclosures

 41

       

 

Item 5.   

Other Information

 41

       
  Item 6.      Exhibits and Reports on Form 8 – K  41
       
Signatures  46
   
Exhibit 31.1  
   
Exhibit 31.2  
   

Exhibit 32  

 

 

 
2

 

 

MIDDLEFIELD BANC CORP.

CONSOLIDATED BALANCE SHEET

(Dollar amounts in thousands, except share data)

(Unaudited)

 

 

   

June 30,

   

December 31,

 
   

2015

   

2014

 
                 

ASSETS

               

Cash and due from banks

  $ 20,311     $ 20,846  

Federal funds sold

    2,340       4,793  

Cash and cash equivalents

    22,651       25,639  

Investment securities available for sale, at fair value

    157,577       154,334  

Loans held for sale

    398       438  

Loans

    492,893       470,584  

Less allowance for loan and lease losses

    6,346       6,846  

Net loans

    486,547       463,738  

Premises and equipment, net

    10,019       9,980  

Goodwill

    4,559       4,559  

Core deposit intangibles

    96       116  

Bank-owned life insurance

    13,253       9,092  

Other real estate owned

    2,308       2,590  

Accrued interest and other assets

    8,110       7,045  
                 

TOTAL ASSETS

  $ 705,518       677,531  
                 

LIABILITIES

               

Deposits:

               

Noninterest-bearing demand

  $ 109,732     $ 105,512  

Interest-bearing demand

    59,128       56,377  

Money market

    73,425       75,895  

Savings

    179,353       178,470  

Time

    201,886       169,858  

Total deposits

    623,524       586,112  

Short-term borrowings

    4,517       14,808  

Other borrowings

    10,465       10,624  

Accrued interest and other liabilities

    2,200       2,120  

TOTAL LIABILITIES

    640,706       613,664  
                 

STOCKHOLDERS' EQUITY

               

Common stock, no par value; 10,000,000 shares authorized, 2,252,179 and 2,242,025 shares issued; 2,062,649 and 2,052,495 shares outstanding

    35,854       35,529  

Retained earnings

    34,570       32,524  

Accumulated other comprehensive income

    1,122       2,548  

Treasury stock, at cost; 189,530 shares

    (6,734 )     (6,734 )

TOTAL STOCKHOLDERS' EQUITY

    64,812       63,867  
                 

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

  $ 705,518     $ 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

   

Six Months Ended

 
   

June 30,

   

June 30,

 
   

2015

   

2014

   

2015

   

2014

 

INTEREST INCOME

                               

Interest and fees on loans

  $ 5,842     $ 5,575     $ 11,685     $ 11,269  

Interest-bearing deposits in other institutions

    12       9       20       14  

Federal funds sold

    5       6       8       9  

Investment securities:

                               

Taxable interest

    379       526       774       1,035  

Tax-exempt interest

    805       783       1,564       1,538  

Dividends on stock

    23       20       50       43  

Total interest income

    7,066       6,919       14,101       13,908  
                                 

INTEREST EXPENSE

                               

Deposits

    874       929       1,705       1,869  

Short-term borrowings

    33       38       70       73  

Other borrowings

    23       32       46       64  

Trust preferred securities

    60       34       52       60  

Total interest expense

    990       1,033       1,873       2,066  
                                 

NET INTEREST INCOME

    6,076       5,886       12,228       11,842  
                                 

Provision for loan losses

    -       120       105       300  
                                 

NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES

    6,076       5,766       12,123       11,542  
                                 

NONINTEREST INCOME

                               

Service charges on deposit accounts

    470       469       911       910  

Investment securities gains, net

    22       64       46       58  

Earnings on bank-owned life insurance

    92       68       161       135  

Gain on sale of loans

    120       -       173       -  

Other income

    258       256       467       469  

Total noninterest income

    962       857       1,758       1,572  
                                 

NONINTEREST EXPENSE

                               

Salaries and employee benefits

    2,560       2,268       4,920       4,284  

Occupancy expense

    291       275       640       596  

Equipment expense

    241       194       457       414  

Data processing costs

    261       224       511       438  

Ohio state franchise tax

    75       93       150       176  

Federal deposit insurance expense

    120       97       232       229  

Professional fees

    277       338       596       625  

(Gain) loss on other real estate owned

    (40 )     75       48       70  

Advertising expense

    195       124       391       247  

Other real estate expense

    268       102       333       165  

Directors fees

    127       118       245       204  

Other expense

    842       690       1,505       1,379  

Total noninterest expense

    5,217       4,598       10,028       8,827  
                                 

Income before income taxes

    1,821       2,025       3,853       4,287  

Income taxes

    316       414       720       913  
                                 

NET INCOME

  $ 1,505     $ 1,611     $ 3,133     $ 3,374  
                                 

EARNINGS PER SHARE

                               

Basic

  $ 0.73     $ 0.79     $ 1.52     $ 1.66  

Diluted

    0.73       0.79       1.52       1.65  
                                 

DIVIDENDS DECLARED PER SHARE

  $ 0.27     $ 0.26     $ 0.53     $ 0.52  

 

 

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

   

Six Months Ended

 
   

June 30,

   

June 30,

 
   

2015

   

2014

   

2015

   

2014

 
                                 

Net income

  $ 1,505     $ 1,611     $ 3,133     $ 3,374  
                                 

Other comprehensive (loss) income:

                               

Net unrealized holding (loss) gain on available-for-sale securities

    (2,966 )     1,950       (2,115 )     4,749  

Tax effect

    1,008       (663 )     719       (1,615 )
                                 

Reclassification adjustment for investment securities gain included in net income

    (22 )     (64 )     (46 )     (58 )

Tax effect

    8       22       16       20  
                                 

Total other comprehensive (loss) income

    (1,972 )     1,245       (1,426 )     3,096  
                                 

Comprehensive (loss) income

  $ (467 )   $ 2,856     $ 1,707     $ 6,470  

 

 

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

            3,133                       3,133  

Other comprehensive loss

                    (1,426 )             (1,426 )

Dividend reinvestment and purchase plan (9,754 shares)

    319                               319  

Stock options exercised (400 shares)

    6                               6  

Cash dividends ($0.53 per share)

            (1,087 )                     (1,087 )
                                         

Balance, June 30, 2015

  $ 35,854     $ 34,570     $ 1,122     $ (6,734 )   $ 64,812  

 

 

See accompanying notes to unaudited consolidated financial statements.

 

 
6

 

 

MIDDLEFIELD BANC CORP.

CONSOLIDATED STATEMENT OF CASH FLOWS

(Dollar amounts in thousands)

(Unaudited)

 

  

   

Six Months Ended

 
   

June 30,

 
   

2015

   

2014

 

OPERATING ACTIVITIES

               

Net income

  $ 3,133     $ 3,374  

Adjustments to reconcile net income to net cash provided by (used for) operating activities:

               

Provision for loan losses

    105       300  

Investment securities gain, net

    (46 )     (58 )

Depreciation and amortization

    500       373  

Amortization of premium and discount on investment securities

    365       370  

Accretion of deferred loan fees, net

    (346 )     (141 )

Origination of loans held for sale

    (8,026 )     -  

Proceeds from sale of loans

    8,239       -  

Gain on sale of loans

    (173 )     -  

Earnings on bank-owned life insurance

    (161 )     (135 )

Deferred income tax

    346       (262 )

Loss on other real estate owned

    48       70  

Increase in accrued interest receivable

    (157 )     (94 )

Increase (decrease) in accrued interest payable

    74       (22 )

Other, net

    (573     (797 )

Net cash provided by operating activities

    3,328       2,978  
                 

INVESTING ACTIVITIES

               

Investment securities available for sale:

               

Proceeds from repayments and maturities

    5,818       6,809  

Proceeds from sale of securities

    3,312       1,494  

Purchases

    (14,876 )     (12,287 )

Increase in loans, net

    (23,206     (14,490 )

Proceeds from the sale of other real estate owned

    830       256  

Purchase of bank-owned life insurance

    (4,000 )     -  

Purchase of premises and equipment

    (394 )     (444 )

Net cash used for investing activities

    (32,516     (18,662 )
                 

FINANCING ACTIVITIES

               

Net increase in deposits

    37,412       19,957  

Decrease in short-term borrowings, net

    (10,291 )     (3,870 )

Repayment of other borrowings

    (159 )     (247 )

Stock options exercised

    6       -  

Proceeds from dividend reinvestment and purchase plan

    319       287  

Cash dividends

    (1,087 )     (1,059 )

Net cash provided by financing activities

    26,200       15,068  
                 

Decrease in cash and cash equivalents

    (2,988 )     (616 )
                 

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD

    25,639       26,193  
                 

CASH AND CASH EQUIVALENTS AT END OF PERIOD

  $ 22,651     $ 25,577  
                 

SUPPLEMENTAL INFORMATION

               

Cash paid during the year for:

               

Interest on deposits and borrowings

  $ 1,799     $ 2,088  

Income taxes

    200       1,395  
                 

Noncash investing transactions:

               

Transfers from loans to other real estate owned

  $ 638     $ 20  

 

 

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 2014-11, 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 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.

 

 
9

 

 

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 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.

 

 
10

 

 

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.

 

 
11

 

 

NOTE 2 - STOCK-BASED COMPENSATION

 

The Company had no unvested stock options outstanding or unrecognized stock-based compensation costs outstanding as of June 30, 2015 and 2014.

 

Stock option activity during the six months ended June 30 is as follows:

 

           

Weighted-

           

Weighted-

 
           

average

           

average

 
           

Exercise

           

Exercise

 
   

2015

   

Price

   

2014

   

Price

 
                                 

Outstanding, January 1

    46,451     $ 27.90       58,581     $ 28.38  

Expired

    (3,639 )     37.33       (907 )     27.35  

Exercised

    (525 )     17.55       -       -  
                                 

Outstanding, June 30

    42,287     $ 27.19       57,674     $ 28.40  
                                 

Exercisable, June 30

    42,287     $ 27.19       57,674     $ 28.40  

 

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

   

For the Six

 
   

Months Ended

   

Months Ended

 
   

June 30,

   

June 30,

 
   

2015

   

2014

   

2015

   

2014

 

Weighted-average common shares outstanding

    2,248,516       2,227,556       2,245,868       2,225,555  
                                 

Average treasury stock shares

    (189,530 )     (189,530 )     (189,530 )     (189,530 )
                                 

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

    2,058,986       2,038,026       2,056,338       2,036,025  
                                 

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

    9,327       6,538       9,590       6,156  
                                 

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

    2,068,313       2,044,564       2,065,928       2,042,181  

 

 
12

 

 

Options to purchase 42,437 shares of common stock, at prices ranging from $17.55 to $37.48, were outstanding during the three and six months ended June 30, 2015. Of those options, 27,000 were considered dilutive for the three month period based on the market price exceeding the strike price. For the six months ended June 30, 2015, 27,250 options were considered dilutive.

 

Options to purchase 57,674 shares of common stock, at prices ranging from $17.55 to $40.24, were outstanding during the three and six months ended June 30, 2014. Of those options, 28,282 were considered dilutive for both periods 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.

 

           

June 30, 2015

         

(Dollar amounts in thousands)

 

Level I

   

Level II

   

Level III

   

Total

 

Assets measured on a recurring basis:

                               

U.S. government agency securities

  $ -     $ 22,222     $ -     $ 22,222  

Obligations of states and political subdivisions

    -       105,059       -       105,059  

Mortgage-backed securities in government- sponsored entities

            26,682               26,682  

Private-label mortgage-backed securities

    -       2,715       -       2,715  

Total debt securities

    -       156,678       -       156,678  

Equity securities in financial institutions

    5       894       -       899  

Total

  $ 5     $ 157,572     $ -     $ 157,577  

 

 
13

 

  

           

December 31, 2014

         

(Dollar amounts in thousands)

 

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

    5       778       -       783  

Total

  $ 5     $ 154,329     $ -     $ 154,334  

 

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 June 30, 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. 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.

 

           

June 30, 2015

         

(Dollar amounts in thousands)

 

Level I

   

Level II

   

Level III

   

Total

 

Assets measured on a nonrecurring basis:

                               

Impaired loans

  $ -     $ -     $ 17,307     $ 17,307  

Other real estate owned

    -       -       2,308       2,308  

 

 
14

 

 

           

December 31, 2014

         

(Dollar amounts in thousands)

 

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 following tables present 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)

       

 

 

 

 

   

Fair Value Estimate

  Valuation Techniques Unobservable Input   Range (Weighted Average)

June 30, 2015

                   

Impaired loans

  $ 14,013  

Discounted cash flow

Discount rate

    -3.1% to -7.9%  (-5.2%) 
      3,294  

Appraisal of collateral (1)

Appraisal adjustments (2)

    0% to -94.1%  (-29.6%)

Other real estate owned

  $ 2,308  

Appraisal of collateral (1)

Appraisal adjustments (2)

    0% to -10.0%  (-7.4%)

 

   

Quantitative Information about Level III Fair Value Measurements

 

(Dollar amounts in thousands)

       

 

 

 

 

 
   

Fair Value Estimate

  Valuation Techniques Unobservable Input   Range (Weighted Average) 

December 31, 2014

                   

Impaired loans

  $ 12,772  

Appraisal of collateral (1)

Appraisal adjustments (2)

    0% to -84.6%  (-25.5%)

Other real estate owned

  $ 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.

 

 
15

 

 

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

 

   

June 30, 2015

 
   

Carrying

                           

Total

 
   

Value

   

Level I

   

Level II

   

Level III

   

Fair Value

 
   

(Dollar amounts in thousands)

 

Financial assets:

                                       

Cash and cash equivalents

  $ 22,651     $ 22,651     $ -     $ -     $ 22,651  

Investment securities Available for sale

    157,577       -       157,577       -       157,577  

Loans held for sale

    398       -       398       -       398  

Net loans

    486,547       -       -       497,323       497,323  

Bank-owned life insurance

    13,253       13,253       -       -       13,253  

Federal Home Loan Bank stock

    1,887       1,887       -       -       1,887  

Accrued interest receivable

    2,252       2,252       -       -       2,252  
                                         
                                         

Financial liabilities:

                                       

Deposits

  $ 623,524     $ 421,638     $ -     $ 179,295     $ 600,933  

Short-term borrowings

    4,517       4,517       -       -       4,517  

Other borrowings

    10,465       -       -       12,410       12,410  

Accrued interest payable

    389       389       -       -       389  

  

   

December 31, 2014

 
   

Carrying

                           

Total

 
   

Value

   

Level I

   

Level II

   

Level III

   

Fair Value

 
   

(Dollar amounts 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.

 

 
16

 

 

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.

 

 
17

 

 

NOTE 5 – ACCUMULATED OTHER COMPREHENSIVE INCOME

 

The following tables present the changes in accumulated other comprehensive income by component net of tax for the three and six months ended June 30, 2015 and 2014, respectively:

  

   

Unrealized gains on

 
   

available-for-sale

 

(Dollars in thousands)

 

securities

 

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  
         

Other comprehensive loss before reclassification

    (1,958 )

Amount reclassified from accumulated other comprehensive income

    (14 )

Period change

    (1,972 )

Balance at June 30, 2015

  $ 1,122  

 

   

Unrealized gains on

 
   

available-for-sale

 

(Dollars in thousands)

 

securities

 

Balance as of December 31, 2013

  $ (2,237 )

Other comprehensive income before reclassification

    1,847  

Amount reclassified from accumulated other comprehensive loss

    4  

Period change

    1,851  

Balance at March 31, 2014

  $ (386 )
         

Other comprehensive income before reclassification

    1,287  

Amount reclassified from accumulated other comprehensive income

    (42 )

Period change

    1,245  

Balance at June 30, 2014

  $ 859  

 

The following tables present significant amounts reclassified out of each component of accumulated other comprehensive income for the three and six months ended June 30, 2015 and 2014, respectively:

  

    Amount Reclassified from Accumulated Other  

Affected Line Item in

    Comprehensive Income (a)   

the Statement Where

(Dollars in thousands)

  For the Three Months Ended  

Net Income is

Details about other comprehensive income

  June 30, 2015    

June 30, 2014

 

Presented

Unrealized gains on available-for-sale securities   $ 22     $ 64  

Investment securities gains, net

      (8 )     (22 )

Income taxes

    $ 14     $ 42  

Net of tax

 

 
18

 

 

    Amount Reclassified from Accumulated Other  

Affected Line Item in

    Comprehensive Income (a)  

the Statement Where

(Dollars in thousands)

  For the Six Months Ended  

Net Income is

Details about other comprehensive income

  June 30, 2015    

June 30, 2014

 

Presented

Unrealized gains on available-for-sale securities   $ 46     $ 58  

Investment securities gains, net

      (16 )     (20 )

Income taxes

    $ 30     $ 38  

Net of tax

 

(a) Amounts in parentheses indicate debits to net income

 

NOTE 6 - INVESTMENT SECURITIES AVAILABLE FOR SALE

 

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

 

   

June 30, 2015

 
           

Gross

   

Gross

         
   

Amortized

   

Unrealized

   

Unrealized

   

Fair

 

(Dollar amounts in thousands)

 

Cost

   

Gains

   

Losses

   

Value

 
                                 

U.S. government agency securities

  $ 22,404     $ 275     $ (457 )   $ 22,222  

Obligations of states and political subdivisions:

                               

Taxable

    1,991       129       -       2,120  

Tax-exempt

    101,595       2,652       (1,308 )     102,939  

Mortgage-backed securities in government-sponsored entities

    26,663       354       (335 )     26,682  

Private-label mortgage-backed securities

    2,500       215       -       2,715  

Total debt securities

    155,153       3,625       (2,100 )     156,678  

Equity securities in financial institutions

    750       149       -       899  

Total

  $ 155,903     $ 3,774     $ (2,100 )   $ 157,577  

 

 
19

 

 

   

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 June 30, 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.

 

The following table provides investment maturity tranches as of June 30, 2015:

 

   

Amortized

   

Fair

 

(Dollar amounts in thousands)

 

Cost

   

Value

 
                 

Due in one year or less

  $ 2,121     $ 2,185  

Due after one year through five years

    12,763       13,021  

Due after five years through ten years

    17,263       17,548  

Due after ten years

    123,006       123,924  
                 

Total

  $ 155,153     $ 156,678  

 

Proceeds from the sales of securities available for sale and the gross realized gains and losses for the six months ended June 30 are as follows:

 

   

For the Three Months

   

For the Six Months

 
(Dollar amounts in thousands)   Ended June 30,     Ended June 30,  
   

2015

   

2014

   

2015

   

2014

 

Proceeds from sales

  $ 1,721     $ 980     $ 3,312     $ 1,494  

Gross realized gains

    92       64       140       64  

Gross realized losses

    (70 )     -       (94 )     (6 )

 

Investment securities with an approximate carrying value of $57.5 million and $61.9 million at June 30, 2015 and December 31, 2014, respectively, were pledged to secure deposits and other purposes as required by law.

 

 
20

 

 

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.

  

   

June 30, 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

  $ 2,745     $ (79 )   $ 12,791     $ (378 )   $ 15,536     $ (457 )

Obligations of states and political subdivisions

    19,988       (457 )     11,586       (851 )     31,574       (1,308 )

Mortgage-backed securities in government-sponsored entities

    9,410       (139