10-Q 1 mbcn20160830_10q.htm FORM 10-Q mbcn20160830_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 September 30, 2016

 

 

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

(IRS Employer Identification No.)

or organization)

 

 

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 November 10, 2016: 2,250,707

 

 
1

 

 

MIDDLEFIELD BANC CORP.

 

INDEX

 

Part I – Financial Information

 
   

Item 1. 

  Item 1. Financial Statements (unaudited)

 

       

 

  Consolidated Balance Sheet as of September 30, 2016 and December 31, 2015 3
       

 

  Consolidated Statement of Income for the Three and Nine Months ended September 30, 2016 and 2015 4
       

 

  Consolidated Statement of Comprehensive Income for the Three and Nine Months ended September 30, 2016 and 2015 5
       

 

  Consolidated Statement of Changes in Stockholders' Equity for the Nine Months ended September 30, 2016 6
       

 

  Consolidated Statement of Cash Flows for the Nine Months ended September 30, 2016 and 2015 7
       

 

  Notes to Unaudited Consolidated Financial Statements 8
       

Item 2. 

  Management's Discussion and Analysis of Financial Condition and Results of Operations 32
       

Item 3. 

  Quantitative and Qualitative Disclosures about Market Risk 41
       

Item 4. 

  Controls and Procedures   42
       

Part II – Other Information

 
   

Item 1. 

  Legal Proceedings 42
       

Item 1A. 

  Risk Factors 42
       

Item 2. 

  Unregistered Sales of Equity Securities and Use of Proceeds 42
       

Item 3. 

  Defaults by the Company on its Senior Securities 42
       

Item 4. 

  Mine Safety Disclosures 42
       

Item 5.  

  Other Information 42
       

Item 6.  

  Exhibits and Reports on Form 8 – K 42
       

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)

 

   

September 30,

   

December 31,

 
   

2016

   

2015

 
                 

ASSETS

               

Cash and due from banks

  $ 21,976     $ 22,421  

Federal funds sold

    1,300       1,329  

Cash and cash equivalents

    23,276       23,750  

Investment securities available for sale, at fair value

    123,054       146,520  

Loans held for sale

    880       1,107  

Loans

    586,329       533,710  

Less allowance for loan and lease losses

    6,334       6,385  

Net loans

    579,995       527,325  

Premises and equipment, net

    9,921       9,772  

Goodwill

    4,559       4,559  

Core deposit intangibles

    46       76  

Bank-owned life insurance

    13,438       13,141  

Other real estate owned

    1,205       1,412  

Accrued interest and other assets

    5,884       7,477  
                 

TOTAL ASSETS

    762,258       735,139  
                 

LIABILITIES

               

Deposits:

               

Noninterest-bearing demand

  $ 136,320     $ 116,498  

Interest-bearing demand

    67,061       57,219  

Money market

    77,774       78,856  

Savings

    173,272       180,653  

Time

    184,915       191,221  

Total deposits

    639,342       624,447  

Short-term borrowings

    32,803       35,825  

Other borrowings

    9,713       9,939  

Accrued interest and other liabilities

    2,208       2,624  

TOTAL LIABILITIES

    684,066       672,835  
                 

STOCKHOLDERS' EQUITY

               

Common stock, no par value; 10,000,000 shares authorized, 2,636,830 and 2,263,403 shares issued; 2,250,665 and 1,877,238 shares outstanding

    47,812       36,191  

Retained earnings

    40,282       37,236  

Accumulated other comprehensive income

    3,616       2,395  

Treasury stock, at cost; 386,165 shares

    (13,518 )     (13,518 )

TOTAL STOCKHOLDERS' EQUITY

    78,192       62,304  
                 

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

  $ 762,258     $ 735,139  

 

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

   

Nine Months Ended

 
   

September 30,

   

September 30,

 
   

2016

   

2015

   

2016

   

2015

 

INTEREST AND DIVIDEND INCOME

                               

Interest and fees on loans

  $ 6,459     $ 5,971     $ 18,949     $ 17,656  

Interest-bearing deposits in other institutions

    15       6       42       26  

Federal funds sold

    7       4       16       12  

Investment securities:

                               

Taxable interest

    235       341       865       1,115  

Tax-exempt interest

    687       809       2,227       2,373  

Dividends on stock

    17       20       74       70  

Total interest and dividend income

    7,420       7,151       22,173       21,252  
                                 

INTEREST EXPENSE

                               

Deposits

    921       876       2,665       2,581  

Short-term borrowings

    49       30       288       100  

Other borrowings

    14       20        47       66  

Trust preferred securities

    42       33       117       85  

Total interest expense

    1,026       959       3,117       2,832  
                                 

NET INTEREST INCOME

    6,394       6,192       19,056       18,420  
                                 

Provision for loan losses

    105       105       315       210  
                                 

NET INTEREST INCOME AFTER

                               

PROVISION FOR LOAN LOSSES

    6,289       6,087       18,741       18,210  
                                 

NONINTEREST INCOME

                               

Service charges on deposit accounts

    505       471       1,443       1,382  

Investment securities gains, net

    -       211       303       257  

Earnings on bank-owned life insurance

    101       101       297       262  

Gain on sale of loans

    129       113       322       286  

Other income

    242       212        694       679  

Total noninterest income

    977       1,108       3,059       2,866  
                                 

NONINTEREST EXPENSE

                               

Salaries and employee benefits

    2,677       2,285       7,740       7,205  

Occupancy expense

    306       305       933       945  

Equipment expense

    221       249       700       706  

Data processing costs

    334       287       928       798  

Ohio state franchise tax

    186       75       448       225  

Federal deposit insurance expense

    132       120       396       352  

Professional fees

    547       229       1,057       825  

Loss (gain) on other real estate owned

    (49 )     24       (52 )     72  

Advertising expense

    206       195       604       586  

Other real estate expense

    97       116       299       449  

Directors fees

    102       98       330       343  

Core deposit intangible amortization

    10       10       30       30  

Appraiser fees

    114       97       334       327  

ATM fees

    102       89       296       295  

Other expense

    677       490       1,872       1,539  

Total noninterest expense

    5,662       4,669       15,915       14,697  
                                 

Income before income taxes

    1,604       2,526       5,885       6,379  

Income taxes

    261       544       1,129       1,264  
                                 

NET INCOME

  $ 1,343     $ 1,982     $ 4,756     $ 5,115  
                                 

EARNINGS PER SHARE

                               

Basic

  $ 0.60     $ 0.96     $ 2.31     $ 2.49  

Diluted

    0.60       0.96       2.30       2.47  
                                 

DIVIDENDS DECLARED PER SHARE

  $ 0.27     $ 0.27     $ 0.81     $ 0.80  

 

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

   

Nine Months Ended

 
   

September 30,

   

September 30,

 
   

2016

   

2015

   

2016

   

2015

 
                                 

Net income

  $ 1,343     $ 1,982     $ 4,756     $ 5,115  
                                 

Other comprehensive income (loss):

                               

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

    (400 )     1,416       2,153       (699 )

Tax effect

    137       (481 )     (732 )     238  
                                 

Reclassification adjustment for investment securities gains included in net income

    -       (211 )     (303 )     (257 )

Tax effect

    -       71       103       87  
                                 

Total other comprehensive income (loss)

    (263 )     795       1,221       (631 )
                                 

Comprehensive income

  $ 1,080     $ 2,777     $ 5,977     $ 4,484  

 

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, 2015

  $ 36,191     $ 37,236     $ 2,395     $ (13,518 )   $ 62,304  
                                         

Net income

            4,756                       4,756  

Other comprehensive income

                    1,221               1,221  

Common stock issuance, net of offering cost (360,815 shares)

    11,239                               11,239  

Dividend reinvestment and purchase plan (11,712 shares)

    382                               382  

Cash dividends ($0.81 per share)

            (1,710 )                     (1,710 )
                                         

Balance, September 30, 2016

  $ 47,812     $ 40,282     $ 3,616     $ (13,518 )   $ 78,192  

 

 

See accompanying notes to unaudited consolidated financial statements.

 

 
6

 

 

MIDDLEFIELD BANC CORP.

CONSOLIDATED STATEMENT OF CASH FLOWS

(Dollar amounts in thousands)

(Unaudited)

  

   

Nine Months Ended

 
   

September 30,

 
   

2016

   

2015

 

OPERATING ACTIVITIES

               

Net income

  $ 4,756     $ 5,115  

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

               

Provision for loan losses

    315       210  

Investment securities gain, net

    (303 )     (257 )

Depreciation and amortization

    774       763  

Amortization of premium and discount on investment securities

    352       553  

Accretion of deferred loan fees, net

    (150 )     (468 )

Origination of loans held for sale

    (15,497 )     (14,740 )

Proceeds from sale of loans

    16,046       14,844  

Gain on sale of loans

    (322 )     (286 )

Earnings on bank-owned life insurance

    (297 )     (262 )

Deferred income tax

    224       397  

Loss (gain) on sale of other real estate owned

    (52 )     72  

Other real estate owned writedowns

    73       56  

Increase in accrued interest receivable

    (139 )     (481 )

(Decrease) increase in accrued interest payable

    (4 )     58  

Other, net

    253       (158 )

Net cash provided by operating activities

    6,029       5,416  
                 

INVESTING ACTIVITIES

               

Investment securities available for sale:

               

Proceeds from repayments and maturities

    17,896       7,530  

Proceeds from sale of securities

    9,115       15,284  

Purchases

    (1,744 )     (14,876 )

Increase in loans, net

    (53,430 )     (40,554 )

Proceeds from the sale of other real estate owned

    781       1,094  

Purchase of bank-owned life insurance

    -       (4,000 )

Purchase of premises and equipment

    (679 )     (454 )

Net cash used for investing activities

    (28,061 )     (35,976 )
                 

FINANCING ACTIVITIES

               

Net increase in deposits

    14,895       40,436  

Decrease in short-term borrowings, net

    (3,022 )     (10,761 )

Repayment of other borrowings

    (226 )     (324 )

Common stock issued

    11,239       -  

Stock options exercised

    -       6  

Proceeds from dividend reinvestment and purchase plan

    382       504  

Cash dividends

    (1,710 )     (1,645 )

Net cash provided by financing activities

    21,558       28,216  
                 

Decrease in cash and cash equivalents

    (474 )     (2,344 )
                 

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD

    23,750       25,639  
                 

CASH AND CASH EQUIVALENTS AT END OF PERIOD

  $ 23,276     $ 23,295  
                 

SUPPLEMENTAL INFORMATION

               

Cash paid during the year for:

               

Interest on deposits and borrowings

  $ 3,121     $ 2,774  

Income taxes

    475       350  
                 

Noncash investing transactions:

               

Transfers from loans to other real estate owned

  $ 595     $ 638  

 

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, 2015, 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, 2015. 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 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 currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

 

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, or the Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

 

In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606). The amendments in this Update defer the effective date of ASU 2014-09 for all entities by one year. Public business entities, certain not-for-profit entities, and certain employee benefit plans should apply the guidance in ASU 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. All other entities should apply the guidance in ASU 2014-09 to annual reporting periods beginning after December 15, 2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019. The Company is evaluating the effect of adopting this new accounting Update.

 

 
8

 

 

In January 2016, the FASB issued ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. This Update applies to all entities that hold financial assets or owe financial liabilities and is intended to provide more useful information on the recognition, measurement, presentation, and disclosure of financial instruments. Among other things, this Update (a) requires equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income; (b) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; (c) eliminates the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public business entities; (d) eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; (e) requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; (f) requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments; (g) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements; and (h) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. For all other entities, including not-for-profit entities and employee benefit plans within the scope of Topics 960 through 965 on plan accounting, the amendments in this Update are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. All entities that are not public business entities may adopt the amendments in this Update earlier as of the fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

 

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The standard requires lessees to recognize the assets and liabilities that arise from leases on the balance sheet.  A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term.  A short-term lease is defined as one in which (a) the lease term is 12 months or less and (b) there is not an option to purchase the underlying asset that the lessee is reasonably certain to exercise. For short-term leases, lessees may elect to recognize lease payments over the lease term on a straight-line basis. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2018, and interim periods within those years. For all other entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2019, and for interim periods within fiscal years beginning after December 15, 2020. The amendments should be applied at the beginning of the earliest period presented using a modified retrospective approach with earlier application permitted as of the beginning of an interim or annual reporting period. This Update is not expected to have a significant impact on the Company’s financial statements.

 

In March 2016, the FASB issued ASU 2016-04, Liabilities Extinguishments of Liabilities (Subtopic 405-20). The standard provides that liabilities related to the sale of prepaid stored-value products within the scope of this Update are financial liabilities. The amendments in the Update provide a narrow-scope exception to the guidance in Subtopic 405-20 to require that breakage for those liabilities be accounted for consistent with the breakage guidance in Topic 606. The amendments in this Update are effective for public business entities, certain not-for-profit entities, and certain employee benefit plans for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. For all other entities, the amendments are effective for financial statements issued for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Earlier application is permitted, including adoption in an interim period. This Update is not expected to have a significant impact on the Company’s financial statements.

 

 
9

 

 

In March 2016, the FASB issued ASU 2016-05, Derivatives and Hedging (Topic 815). The amendments in this Update apply to all reporting entities for which there is a change in the counterparty to a derivative instrument that has been designated as a heading instrument under Topic 815. The standards in this Update clarify that a change in the counterparty to a derivative instrument that has been designated as the hedging instrument under Topic 815 does not, in and of itself, require designation of that hedging relationship provided that all other hedge accounting criteria continue to be met. For public business entities, the amendments in this Update are effective for financial statements issued for fiscal years beginning after December 15, 2016, 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, 2017, and interim periods within fiscal years beginning after December 15, 2018. An entity has an option to apply the amendments in this Update on either a prospective basis or a modified retrospective basis. Early adoption is permitted, including adoption in an interim period. This Update is not expected to have a significant impact on the Company’s financial statements.

 

In March 2016, the FASB issued ASU 2016-06, Derivatives and Hedging (Topic 815). The amendments apply to all entities that are issuers of or investors in debt instruments (or hybrid financial instruments that are determined to have a debt host) with embedded call (put) options. The amendments in this Update clarify the requirements for assessing whether contingent call (put) options that can accelerate the payment of principal on debt instruments are clearly and closely related to their debt host. An entity performing the assessment under the amendments in this Update is required to assess the embedded call (put) options solely in accordance with the four-step decision sequence. For public business entities, the amendments in this Update are effective for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. For entities other than public business entities, the amendments in this Update are effective for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within fiscal years beginning after December 15, 2018. Early adoption is permitted, including adoption in an interim period. This Update is not expected to have a significant impact on the Company’s financial statements.

 

In March 2016, the FASB issued ASU 2016-07, Investments Equity Method and Joint Ventures (Topic 323). The Update affects all entities that have an investment that becomes qualified for the equity method of accounting as a result of an increase in the level of ownership interest or degree of influence. The amendments in this Update eliminate the requirement that when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence, an investor must adjust the investment, results of operations, and retained earnings retroactively on a step-by-step basis as if the equity method had been in effect during all previous periods that the investment had been held. The amendments require that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor's previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. Therefore, upon qualifying for the equity method of accounting, no retroactive adjustment of the investment is required. The amendments in this Update require that an entity that has an available-for-sale equity security that becomes qualified for the equity method of accounting recognize through earnings the unrealized holding gain or loss in accumulated other comprehensive income at the date the investment becomes qualified for use of the equity method. The amendments in this Update are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. The amendments should be applied prospectively upon their effective date to increases in the level of ownership interest or degree of influence that result in the adoption of the equity method. Earlier application is permitted. This Update is not expected to have a significant impact on the Company’s financial statements.

 

In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606). The amendments in this Update affect entities with transactions included within the scope of Topic 606, which includes entities that enter into contracts with customers to transfer goods or services (that are an output of the entity’s ordinary activities) in exchange for consideration. The amendments in this Update do not change the core principle of the guidance in Topic 606; they simply clarify the implementation guidance on principal versus agent considerations. The amendments in this Update are intended to improve the operability and understandability of the implementation guidance on principal versus agent considerations. The amendments in this Update affect the guidance in ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which is not yet effective. The effective date and transition requirements for the amendments in this Update are the same as the effective date and transition requirements of Update 2014-09. ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, defers the effective date of Update 2014-09 by one year. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

 

In March 2016, the FASB issued ASU 2016-09, Compensation – Stock Compensation (Topic 718). The amendments in this Update affect all entities that issue share-based payment awards to their employees. The standards in this Update provide simplification for several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as with equity or liabilities, and classification on the statement of cash flows. Some of the areas for simplification apply only to nonpublic entities. In addition to those simplifications, the amendments eliminate the guidance in Topic 718 that was indefinitely deferred shortly after the issuance of FASB Statement No. 123 (revised 2004), Share-Based Payment. This should not result in a change in practice because the guidance that is being superseded was never effective. For public business entities, the amendments in this Update are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. For all other entities, the amendments are effective for annual periods beginning after December 15, 2017, and interim periods within annual periods beginning after December 15, 2018. Early adoption is permitted for any entity in any interim or annual period. This Update is not expected to have a significant impact on the Company’s financial statements.

 

 
10

 

 

In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606). The amendments in this Update affect entities with transactions included within the scope of Topic 606, which includes entities that enter into contracts with customers to transfer goods or services in exchange for consideration. The amendments in this Update do not change the core principle for revenue recognition in Topic 606. Instead, the amendments provide (1) more detailed guidance in a few areas and (2) additional implementation guidance and examples based on feedback the FASB received from its stakeholders. The amendments are expected to reduce the degree of judgment necessary to comply with Topic 606, which the FASB expects will reduce the potential for diversity arising in practice and reduce the cost and complexity of applying the guidance. The amendments in this Update affect the guidance in ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which is not yet effective. The effective date and transition requirements for the amendments in this Update are the same as the effective date and transition requirements in Topic 606 (and any other Topic amended by Update 2014-09). ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, defers the effective date of Update 2014-09 by one year. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

 

In May 2016, the FASB issued ASU 2016-11, Revenue Recognition (Topic 605) and Derivative and Hedging (Topic 815), which rescinds SEC paragraphs pursuant to two SEC Staff Announcements at the March 3, 2016, Emerging Issues Task Force meeting. This Update did not have a significant impact on the Company’s financial statements.

 

In May 2016, the FASB issued ASU 2016-12, Revenue from Contracts with Customers (Topic 606), which among other things clarifies the objective of the collectability criterion in Topic 606, as well as certain narrow aspects of Topic 606. The amendments in this Update affect the guidance in ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which is not yet effective. The effective date and transition requirements for the amendments in this Update are the same as the effective date and transition requirements for Topic 606 (and any other Topic amended by Update 2014-09). ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, defers the effective date of Update 2014-09 by one year. This Update is not expected to have a significant impact on the Company’s financial statements.

 

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which changes the impairment model for most financial assets. This Update is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. The underlying premise of the Update is that financial assets measured at amortized cost should be presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis. The allowance for credit losses should reflect management’s current estimate of credit losses that are expected to occur over the remaining life of a financial asset. The income statement will be effected for the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have taken place during the period. ASU 2016-13 is effective for annual and interim periods beginning after December 15, 2019, and early adoption is permitted for annual and interim periods beginning after December 15, 2018. With certain exceptions, transition to the new requirements will be through a cumulative effect adjustment to opening retained earnings as of the beginning of the first reporting period in which the guidance is adopted. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

 

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”), which addresses eight specific cash flow issues with the objective of reducing diversity in practice. Among these include recognizing cash payments for debt prepayment or debt extinguishment as cash outflows for financing activities; cash proceeds received from the settlement of insurance claims should be classified on the basis of the related insurance coverage; and cash proceeds received from the settlement of bank-owned life insurance policies should be classified as cash inflows from investing activities while the cash payments for premiums on bank-owned policies may be classified as cash outflows for investing activities, operating activities, or a combination of investing and operating activities. The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects early adoption must adopt all of the amendments in the same period. The amendments in this Update should be applied using a retrospective transition method to each period presented. If it is impracticable to apply the amendments retrospectively for some of the issues, the amendments for those issues would be applied prospectively as of the earliest date practicable. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s statement of cash flows.

 

 
11

 

 

NOTE 2 - STOCK-BASED COMPENSATION

 

The Company had no unvested stock options outstanding or unrecognized stock-based compensation costs outstanding as of September 30, 2016 and 2015.

 

Stock option activity during the nine months ended September 30 is as follows:

 

 

           

Weighted-

           

Weighted-

 
           

average

           

average

 
           

Exercise

           

Exercise

 
   

2016

   

Price

   

2015

   

Price

 
                                 

Outstanding, January 1

    31,949     $ 25.03       46,451     $ 27.90  

Expired

    -       -       (3,639 )     37.33  

Exercised

    -       -       (1,025 )     20.21  
                                 

Outstanding, September 30

    31,949     $ 25.03       41,787     $ 27.27  
                                 

Exercisable, September 30

    31,949     $ 25.03       41,787     $ 27.27  

 

 
12

 

 

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 Nine

 
   

Months Ended

   

Months Ended

 
   

September 30,

   

September 30,

 
   

2016

   

2015

   

2016

   

2015

 

Weighted-average common shares outstanding

    2,633,752       2,253,584       2,445,821       2,248,468  
                                 

Average treasury stock shares

    (386,165 )     (189,530 )     (386,165 )     (189,530 )
                                 

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

    2,247,587       2,064,054       2,059,656       2,058,938  
                                 

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

    8,643       8,585       8,876       9,254  
                                 

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

    2,256,230       2,072,639       2,068,532       2,068,192  

 

 

 

Options to purchase 31,949 shares of common stock, at prices ranging from $17.55 to $40.24, were outstanding during the three and nine months ended September 30, 2016. Of those options, 24,700 were considered dilutive for the three and nine month periods based on the market price exceeding the strike price.

 

Options to purchase 41,787 shares of common stock, at prices ranging from $17.55 to $37.48, were outstanding during the three and nine months ended September 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 nine months ended September 30, 2015, 27,250 options were considered dilutive.

 

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.

 

 
13

 

 

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.

 

           

September 30, 2016

         

(Dollar amounts in thousands)

 

Level I

   

Level II

   

Level III

   

Total

 

Assets measured on a recurring basis:

                               

U.S. government agency securities

  $ -     $ 10,863     $ -     $ 10,863  

Obligations of states and political subdivisions

    -       87,525       -       87,525  

Mortgage-backed securities in government- sponsored entities

    -       21,380       -       21,380  

Private-label mortgage-backed securities

    -       2,068       -       2,068  

Total debt securities

    -       121,836       -       121,836  

Equity securities in financial institutions

    5       1,213       -       1,218  

Total

  $ 5     $ 123,049     $ -     $ 123,054  

 

           

December 31, 2015

         

(Dollar amounts in thousands)

 

Level I

   

Level II

   

Level III

   

Total

 

Assets measured on a recurring basis:

                               

U.S. government agency securities

  $ -     $ 21,629     $ -     $ 21,629  

Obligations of states and political subdivisions

    -       97,290       -       97,290  

Mortgage-backed securities in government- sponsored entities

    -       24,524       -       24,524  

Private-label mortgage-backed securities

    -       2,263       -       2,263  

Total debt securities

    -       145,706       -       145,706  

Equity securities in financial institutions

    5       809       -       814  

Total

  $ 5     $ 146,515     $ -     $ 146,520  

 

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 September 30, 2016 or December 31, 2015.

 

The Company uses prices compiled by third party vendors.

 

 
14

 

 

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.

  

           

September 30, 2016

         

(Dollar amounts in thousands)

 

Level I

   

Level II

   

Level III

   

Total

 

Assets measured on a nonrecurring basis:

                               

Impaired loans

  $ -     $ -     $ 11,102     $ 11,102  

Other real estate owned

    -       -       1,205       1,205  

 

           

December 31, 2015

         

(Dollar amounts in thousands)

 

Level I

   

Level II

   

Level III

   

Total

 

Assets measured on a nonrecurring basis:

                               

Impaired loans

  $ -     $ -     $ 12,848     $ 12,848  

Other real estate owned

    -       -       1,412       1,412  

 

 

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)  

September 30, 2016

                         

Impaired loans

  $ 7,743  

Discounted cash flow

Discount rate

    3.1% to 7.0% (5.0%)  
      3,359  

Appraisal of collateral (1)

Appraisal adjustments (2)

    0.0% to 55.7% (34.6%)  
                           

Other real estate owned

  $ 1,205  

Appraisal of collateral (1)

Appraisal adjustments (2)

    0.0% to 10.0% (7.3%)  

 

   

Quantitative Information about Level III Fair Value Measurements

 

(Dollar amounts in thousands)

                 
   

Fair Value Estimate

  Valuation Techniques Unobservable Input     Range (Weighted Average)  

December 31, 2015

                         

Impaired loans

  $ 6,867  

Discounted cash flow

Discount rate

    3.1% to 7.9% (5.0%)  
      5,981  

Appraisal of collateral (1)

Appraisal adjustments (2)

    0.0% to 87.1% (23.3%)  
                           

Other real estate owned

  $ 1,412  

Appraisal of collateral (1)

Appraisal adjustments (2)

    0% to 10.0% (7.3%)  

 

 

 

(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:

 

  

   

September 30, 2016

 
   

Carrying

                           

Total

 
   

Value

   

Level I

   

Level II

   

Level III

   

Fair Value

 
   

(Dollar amounts in thousands)

 

Financial assets:

                                       

Cash and cash equivalents

  $ 23,276     $ 23,276     $ -     $ -     $ 23,276  

Investment securities

                                       

Available for sale

    123,054       5       123,049       -       123,054  

Loans held for sale

    880       -       880       -       880  

Net loans

    579,995       -       -       586,739       586,739  

Bank-owned life insurance

    13,438       13,438       -       -       13,438  

Federal Home Loan Bank stock

    1,887       1,887       -       -       1,887  

Accrued interest receivable

    2,526       2,526       -       -       2,526  
                                         
                                         

Financial liabilities:

                                       

Deposits

  $ 639,342     $ 454,427     $ -     $ 188,668     $ 643,095  

Short-term borrowings

    32,803       32,803       -       -       32,803  

Other borrowings

    9,713       -       -       10,003       10,003  

Accrued interest payable

    391       391       -       -       391  

 

 

   

December 31, 2015

 
   

Carrying

                           

Total

 
   

Value

   

Level I

   

Level II

   

Level III

   

Fair Value

 
   

(Dollar amounts in thousands)

 

Financial assets:

                                       

Cash and cash equivalents

  $ 23,750     $ 23,750     $ -     $ -     $ 23,750  

Investment securities

                                       

Available for sale

    146,520       5       146,515       -       146,520  

Loans held for sale

    1,107       -       1,107       -       1,107  

Net loans

    527,325       -       -       534,021       534,021  

Bank-owned life insurance

    13,141       13,141       -       -       13,141  

Federal Home Loan Bank stock

    1,887       1,887       -       -       1,887  

Accrued interest receivable

    2,387       2,387       -       -       2,387  
                                         

Financial liabilities:

                                       

Deposits

  $ 624,447     $ 433,226     $ -     $ 191,747     $ 624,973  

Short-term borrowings

    35,825       35,825       -       -       35,825  

Other borrowings

    9,939       -               10,063       10,063  

Accrued interest payable

    395       395       -       -       395  

 

 

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.

 

 

 
16

 

 

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.

 

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 fair 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 nine months ended September 30, 2016 and 2015, respectively:

 

   

Unrealized gains on

 
   

available-for-sale

 

(Dollars in thousands)

 

securities

 

Balance as of December 31, 2015

  $ 2,395  

Other comprehensive income before reclassification

    1,421  

Amount reclassified from accumulated other comprehensive income

    (200 )

Period change

    1,221  

Balance at September 30, 2016

  $ 3,616  
         
Balance as of June 30, 2016   $ 3,879  

Other comprehensive income before reclassification

    (263 )

Amount reclassified from accumulated other comprehensive income

    -  

Period change

    (263 )

Balance at September 30, 2016

  $ 3,616  

 

   

Unrealized gains on

 
   

available-for-sale

 

(Dollars in thousands)

 

securities

 

Balance as of December 31, 2014

  $ 2,548  

Other comprehensive income before reclassification

    (461 )

Amount reclassified from accumulated other comprehensive income

    (170 )

Period change

    (631 )

Balance at September 30, 2015

    1,917  
         

Balance as of June 30, 2015

  $ 1,122  

Other comprehensive loss before reclassification

    935  

Amount reclassified from accumulated other comprehensive income

    (140 )

Period change

    795  

Balance at September 30, 2015

  $ 1,917  

 

 

The following tables present significant amounts reclassified out of each component of accumulated other comprehensive income for the three and nine months ended September 30, 2016 and 2015, respectively:

 

 

      Amount Reclassified from Accumulated Other Comprehensive  

Affected Line Item in

      Income (a)  

the Statement Where

(Dollars in thousands)

    For the Three Months Ended  

Net Income is

Details about other comprehensive income

  September 30, 2016    

September 30, 2015

 

Presented

Unrealized gains on available-for-sale securities

                 
    $ -     $ 211  

Investment securities gains, net

      -       (71 )

Income taxes

    $ -     $ 140  

Net of tax

 

 

 
18

 

 

 

   

Amount Reclassified from Accumulated Other Comprehensive

 

Affected Line Item in

      Income (a)  

the Statement Where

(Dollars in thousands)

    For the Nine Months Ended  

Net Income is

Details about other comprehensive income

  September 30, 2016    

September 30, 2015

 

Presented

Unrealized gains on available-for-sale securities

                 
    $ 303     $ 257  

Investment securities gains, net

      (103 )     (87 )

Income taxes

    $ 200     $ 170  

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:

 

 
   

September 30, 2016

 
           

Gross

   

Gross

         
   

Amortized

   

Unrealized

   

Unrealized

   

Fair

 

(Dollar amounts in thousands)

 

Cost

   

Gains

   

Losses

   

Value

 
                                 

U.S. government agency securities

  $ 10,516     $ 359     $ (12 )   $ 10,863  

Obligations of states and political subdivisions:

                               

Taxable

    1,616       186       -       1,802  

Tax-exempt

    81,829       3,899       (5 )     85,723  

Mortgage-backed securities in government-sponsored entities

    20,939       485       (44 )     21,380  

Private-label mortgage-backed securities

    1,927       141       -       2,068  

Total debt securities

    116,827       5,070       (61 )     121,836  

Equity securities in financial institutions

    750       468       -       1,218  

Total

  $ 117,577     $ 5,538     $ (61 )   $ 123,054  

 

 
19

 

 

   

December 31, 2015

 
           

Gross

   

Gross

         
   

Amortized

   

Unrealized

   

Unrealized

   

Fair

 
   

Cost

   

Gains

   

Losses

   

Value

 
                                 

U.S. government agency securities

  $ 21,655     $ 245     $ (271 )   $ 21,629  

Obligations of states and political subdivisions:

                               

Taxable

    1,989       134       -       2,123  

Tax-exempt

    91,940       3,402       (175 )     95,167  

Mortgage-backed securities in government-sponsored entities

    24,480       316       (272 )     24,524  

Private-label mortgage-backed securities

    2,079       184       -       2,263  

Total debt securities

    142,143       4,281       (718 )     145,706  

Equity securities in financial institutions

    750       64       -       814  

Total

  $ 142,893     $ 4,345     $ (718 )   $ 146,520  

 

 

The amortized cost and fair value of debt securities at September 30, 2016, 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.

 

 

   

Amortized

   

Fair

 

(Dollar amounts in thousands)

 

Cost

   

Value

 
                 

Due in one year or less

  $ 2,842     $ 2,879  

Due after one year through five years

    9,132       9,500  

Due after five years through ten years

    12,916       13,510  

Due after ten years

    91,937       95,947  
                 

Total

  $ 116,827     $ 121,836  

 

 

Proceeds from the sales of securities available for sale and the gross realized gains and losses for the three and nine mon