10-Q 1 mbcn20170630_10q.htm FORM 10-Q mbcn20170630_10q.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

X

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

 

For the quarterly period ended June 30, 2017

or

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

 

For the transition period from ___________ to ___________

 

Commission file number 001-36613

 

 

 

Middlefield Banc. Corp.

(Exact Name of Registrant as Specified in its Charter)

 

Ohio

 

34-1585111

State or Other Jurisdiction of

 

I.R.S. Employer Identification No.

Incorporation or Organization

   
     

15985 East High Street, Middlefield, Ohio

 

44062-0035

Address of Principal Executive Offices

 

Zip Code

 

 

440-632-1666

 
  Registrant’s Telephone Number, Including Area Code  

 

     
  Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report  

 

 

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

 

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

 

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

 

 

Large accelerated filer ☐

 

Accelerated filer ☐

 

Non-accelerated filer ☐  (Do not check if a smaller reporting company)

 

Smaller reporting company X

 

Emerging growth company ☐

   

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

 

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

 

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

 

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.   Yes ☐    No ☐

 

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

 

Class: Common Stock, without par value

Outstanding at August 14, 2017: 3,211,830

 

 
 

 

 

MIDDLEFIELD BANC CORP.

 

INDEX

 

Part I – Financial Information  

 

 

 

 

 

 

 

  Item 1.  Financial Statements (unaudited)    
         
   

Consolidated Balance Sheet as of June 30, 2017 and December 31, 2016

  3
         
   

Consolidated Statement of Income for the Three and Six Months ended June 30, 2017 and 2016

  4
         
   

Consolidated Statement of Comprehensive Income for the Three and Six Months ended June 30, 2017 and 2016

  5
         
   

Consolidated Statement of Changes in Stockholders' Equity for the Six Months ended June 30, 2017

  6
         
   

Consolidated Statement of Cash Flows for the Six Months ended June 30, 2017 and 2016

  7
         
   

Notes to Unaudited Consolidated Financial Statements 

  9
         
  Item 2.

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

  35
         
  Item 3.

Quantitative and Qualitative Disclosures about Market Risk

  45
         
  Item 4.

Controls and Procedures   

  46
         

Part II – Other Information

   
         
  Item 1. Legal Proceedings   46
         
  Item 1A. Risk Factors   46
         
 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds   46
         
  Item 3. Defaults by the Company on its Senior Securities   46
         
 

Item 4.

Mine Safety Disclosures   46
         
  Item 5. Other Information    47
         
  Item 6. Exhibits and Reports on Form 8 – K   47
         

Signatures

    50
         

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,

 
   

2017

   

2016

 
                 

ASSETS

               

Cash and due from banks

  $ 37,971     $ 31,395  

Federal funds sold

    1,600       1,100  

Cash and cash equivalents

    39,571       32,495  

Investment securities available for sale, at fair value

    104,951       114,376  

Loans held for sale

    9,791       634  

Loans

    867,864       609,140  

Less allowance for loan and lease losses

    6,605       6,598  

Net loans

    861,259       602,542  

Premises and equipment, net

    11,511       11,203  

Goodwill

    15,435       4,559  

Core deposit intangibles

    2,948       36  

Bank-owned life insurance

    15,432       13,540  

Other real estate owned

    650       934  

Accrued interest and other assets

    9,528       7,502  
                 

TOTAL ASSETS

    1,071,076       787,821  
                 

LIABILITIES

               

Deposits:

               

Noninterest-bearing demand

  $ 172,199     $ 133,630  

Interest-bearing demand

    87,084       59,560  

Money market

    160,858       74,940  

Savings

    181,259       172,370  

Time

    245,383       189,434  

Total deposits

    846,783       629,934  

Short-term borrowings

    63,388       68,359  

Other borrowings

    39,346       9,437  

Accrued interest and other liabilities

    4,357       3,131  

TOTAL LIABILITIES

    953,874       710,861  
                 

STOCKHOLDERS' EQUITY

               

Common stock, no par value; 10,000,000 shares authorized, 3,597,913 and 2,640,418 shares issued; 3,211,748 and 2,254,253 shares outstanding

    84,587       47,943  

Retained earnings

    44,318       41,334  

Accumulated other comprehensive income

    1,815       1,201  

Treasury stock, at cost; 386,165 shares

    (13,518 )     (13,518 )

TOTAL STOCKHOLDERS' EQUITY

    117,202       76,960  
                 

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

  $ 1,071,076     $ 787,821  

 

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,

 
   

2017

   

2016

   

2017

   

2016

 

INTEREST AND DIVIDEND INCOME

                               

Interest and fees on loans

  $ 9,916     $ 6,317     $ 19,096     $ 12,490  

Interest-bearing deposits in other institutions

    92       15       141       27  

Federal funds sold

    1       5       4       9  

Investment securities:

                               

Taxable interest

    223       290       441       630  

Tax-exempt interest

    630       750       1,267       1,540  

Dividends on stock

    40       28       152       57  

Total interest and dividend income

    10,902       7,405       21,101       14,753  
                                 

INTEREST EXPENSE

                               

Deposits

    1,227       889       2,352       1,744  

Short-term borrowings

    273       115       450       235  

Other borrowings

    125       62       265       112  

Total interest expense

    1,625       1,066       3,067       2,091  
                                 

NET INTEREST INCOME

    9,277       6,339       18,034       12,662  
                                 

Provision for loan losses

    170       105       335       210  
                                 

NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES

    9,107       6,234       17,699       12,452  
                                 

NONINTEREST INCOME

                               

Service charges on deposit accounts

    449       491       918       938  

Investment securities gains, net

    -       252       488       303  

Earnings on bank-owned life insurance

    98       97       207       196  

Gain on sale of loans

    231       106       465       193  

Other income

    211       227       422       452  

Total noninterest income

    989       1,173       2,500       2,082  
                                 

NONINTEREST EXPENSE

                               

Salaries and employee benefits

    3,203       2,283       6,899       5,063  

Occupancy expense

    433       292       921       627  

Equipment expense

    266       210       547       479  

Data processing costs

    588       322       908       594  

Ohio state franchise tax

    186       162       372       262  

Federal deposit insurance expense

    135       132       203       264  

Professional fees

    423       218       796       510  

Net loss on other real estate owned

    15       141       70       199  

Advertising expense

    164       203       412       398  

Directors fees

    128       121       240       228  

Core deposit intangible amortization

    103       10       175       20  

Appraiser fees

    104       119       206       220  

ATM fees

    28       98       104       194  

Merger expense

    307       -       694       -  

Other expense

    621       604       1,424       1,195  

Total noninterest expense

    6,704       4,915       13,971       10,253  
                                 

Income before income taxes

    3,392       2,492       6,228       4,281  

Income taxes

    885       566       1,621       868  
                                 

NET INCOME

  $ 2,507     $ 1,926     $ 4,607     $ 3,413  
                                 

EARNINGS PER SHARE

                               

Basic

  $ 0.84     $ 0.94     $ 1.62     $ 1.74  

Diluted

    0.83       0.94       1.61       1.73  
                                 

DIVIDENDS DECLARED PER SHARE

  $ 0.27     $ 0.27     $ 0.54     $ 0.54  

 

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,

 
   

2017

   

2016

   

2017

   

2016

 
                                 

Net income

  $ 2,507     $ 1,926     $ 4,607     $ 3,413  
                                 

Other comprehensive income:

                               

Net unrealized holding gain on available-for-sale securities

    1,186       2,006       1,417       2,553  

Tax effect

    (403 )     (681 )     (481 )     (868 )
                                 

Reclassification adjustment for investment securities gain included in net income

    -       (252 )     (488 )     (303 )

Tax effect

    -       86       166       103  
                                 

Total other comprehensive income

    783       1,159       614       1,485  
                                 

Comprehensive income

  $ 3,290     $ 3,085     $ 5,221     $ 4,898  

 

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, 2016

  $ 47,943     $ 41,334     $ 1,201     $ (13,518 )   $ 76,960  
                                         

Net income

            4,607                       4,607  

Other comprehensive income

                    614               614  

Common stock issued in business combination (554,610 shares)

    20,995                               20,995  

Other common stock issuances, net of cost (396,957 shares)

    15,377                               15,377  

Dividend reinvestment and purchase plan (5,928 shares)

    272                               272  

Cash dividends ($0.54 per share)

            (1,623 )                     (1,623 )
                                         

Balance, June 30, 2017

  $ 84,587     $ 44,318     $ 1,815     $ (13,518 )   $ 117,202  

 

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,

 
   

2017

   

2016

 

OPERATING ACTIVITIES

               

Net income

  $ 4,607     $ 3,413  

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

               

Provision for loan losses

    335       210  

Investment securities gain, net

    (488 )     (303 )

Depreciation and amortization of premises and equipment, net

    535       443  

Amortization of premium and discount on investment securities

    220       217  

Accretion of deferred loan fees, net

    (295 )     (119 )

Amortization of core deposit intangibles

    175       20  

Origination of loans held for sale

    (10,035 )     (8,227 )

Proceeds from sale of loans

    3,866       9,031  

Gain on sale of loans

    (148 )     (193 )

Origination of student loans held for sale

    (222,526 )     -  

Proceeds from sale of student loans

    225,956       -  

Gain on sale of student loans

    (317 )     -  

Earnings on bank-owned life insurance

    (207 )     (196 )

Deferred income tax

    (245 )     265  

Net (gain) on other real estate owned

    (158 )     (68 )

Decrease in accrued interest receivable

    102       59  

Increase (decrease) in accrued interest payable

    56       (1 )

Other, net

    (4,046 )     209  

Net cash (used in) provided by operating activities

    (2,613 )     4,760  
                 

INVESTING ACTIVITIES

               

Investment securities available for sale:

               

Proceeds from repayments and maturities

    7,364       12,189  

Proceeds from sale of securities

    2,678       9,115  

Purchases

    -       (1,744 )

Increase in loans, net

    (64,390 )     (46,483 )

Proceeds from the sale of other real estate owned

    1,463       557  

Purchase of bank-owned life insurance

    (4 )     -  

Purchase of premises and equipment

    (518 )     (306 )

Purchase of restricted stock

    (899 )     -  

Redemption of restricted stock

    795       -  

Acquisition, net of cash paid

    5,431       -  

Net cash used in investing activities

    (48,080 )     (26,672 )
                 

FINANCING ACTIVITIES

               

Net increase in deposits

    18,805       3,593  

Increase (decrease) in short-term borrowings, net

    (4,971 )     6,430  

Repayment of other borrowings

    (91 )     (114 )

Proceeds from other borrowings

    30,000       -  

Common stock issued

    15,377       11,229  

Proceeds from dividend reinvestment and purchase plan

    272       255  

Cash dividends

    (1,623 )     (1,104 )

Net cash provided by financing activities

    57,769       20,289  
                 

Increase (decrease) in cash and cash equivalents

    7,076       (1,623 )
                 

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD

    32,495       23,750  
                 

CASH AND CASH EQUIVALENTS AT END OF PERIOD

  $ 39,571     $ 22,127  
                 

SUPPLEMENTAL INFORMATION

               

Cash paid during the year for:

               

Interest on deposits and borrowings

  $ 3,011     $ 2,092  

Income taxes

    3,555       475  
                 

Noncash investing transactions:

               

Transfers from loans to other real estate owned

  $ 1,021     $ 367  

Common stock issued in business acquisition

    20,995       -  

 

See accompanying notes to unaudited consolidated financial statements.

 
7

 

 

 

SUPPLEMENTAL INFORMATION (continued)

               

Acquisition of Liberty Bank

               

Non-cash assets acquired

               

Loans

          $ 195,388  

Loans held for sale

            5,953  

Premises and equipment, net

            325  

Accrued interest receivable

            440  

Bank-owned life insurance

            1,681  

Core deposit intangible

            3,087  

Deferred tax asset

            (1,073 )

Other assets

            997  

Goodwill

            10,876  
              217,674  

Liabilities assumed

               

Time deposits

            (30,744 )

Deposits other than time deposits

            (167,300 )

Accrued interest payable

            (47 )

Other liabilities

            (2,951 )
              (201,042 )
                 

Liberty stock acquired in business combination

            (1,068 )
                 

Net non-cash assets acquired

          $ 15,564  
                 

Cash and cash equivalents acquired, net

          $ 5,431  

 

See accompanying notes to unaudited consolidated financial statements.

 

 
8

 

 

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 (“MBC”), and a nonbank asset resolution subsidiary EMORECO, Inc. All significant inter-company items have been eliminated.

 

On January 12, 2017, the Company completed its acquisition of Liberty Bank, N.A. (“Liberty”), pursuant to a previously announced definitive merger agreement. Under the terms of the merger agreement, Liberty shareholders received $37.96 in cash or 1.1934 shares of the Company’s common stock in exchange for each share of Liberty common stock they owned immediately prior to the merger. The Company issued 544,610 shares of its common stock in the merger and the aggregate merger consideration was approximately $42.2 million. Upon closing, Liberty was merged into MBC, and its three full-service bank offices, in Twinsburg, in northern Summit County, and in Beachwood and Solon in eastern Cuyahoga County, became offices of MBC. The systems integration of Liberty into MBC was completed in February.

 

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, 2016, 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, 2016. 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. Because the guidance does not apply to revenue associated with financial instruments, including loans and securities, we do not expect the new standard, or any of the amendments, to result in a material change from our current accounting for revenue because the majority of the Company's financial instruments are not within the scope of Topic 606.  However, we do expect that the standard will result in new disclosure requirements, which are currently being evaluated.

 

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.

 

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 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 (g) 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.

 

 
9

 

 

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. The Company is currently assessing the practical expedients it may elect at adoption, but does not anticipate the amendments will have a significant impact on the financial statements. Based on the Company’s preliminary analysis of its current portfolio, the impact to the Company’s balance sheet is estimated to result in less than a 1 percent increase in assets and liabilities. The Company also anticipates additional disclosure to be provided at adoption.

 

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 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 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 2016-12, 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, 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 are 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. We expect to recognize a one-time cumulative effect adjustment to the allowance for loan losses as of the beginning of the first reporting period in which the new standard is effective, but cannot yet determine the magnitude of any such one-time adjustment or the overall impact of the new guidance on the consolidated financial statements.

 

 
10

 

 

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, 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.

 

In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740), which requires recognition of current and deferred income taxes resulting from an intra-entity transfer of any asset (excluding inventory) when the transfer occurs. Consequently, the amendments in this Update eliminate the exception for an intra-entity transfer of an asset other than inventory. The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2017, including interim periods within those annual reporting periods. For all other entities, the amendments are effective for annual reporting periods beginning after December 15, 2018, and interim reporting periods within annual periods beginning after December 15, 2019. Early adoption is permitted for all entities as of the beginning of an annual reporting period for which financial statements (interim or annual) have not been issued or made available for issuance. That is, earlier adoption should be in the first interim period if an entity issues interim financial statements. The amendments in this Update should be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. 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 October 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230), which requires that a statement of cash flows explains the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. 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. The amendments in this Update should be applied using a retrospective transition method to each period presented. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s statement of cash flows.

 

In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805), Clarifying the Definition of a Business, which provides a more robust framework to use in determining when a set of assets and activities (collectively referred to as a “set”) is a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. This screen reduces the number of transactions that need to be further evaluated. Public business entities should apply the amendments in this Update to annual periods beginning after December 15, 2017, including interim periods within those periods. All other entities should apply the amendments to annual periods beginning after December 15, 2018, and interim periods within annual periods beginning after December 15, 2019. The amendments in this Update should be applied prospectively on or after the effective date. This Update is not expected to have a significant impact on the Company’s financial statements.

 

 
11

 

 

In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment. To simplify the subsequent measurement of goodwill, the FASB eliminated Step 2 from the goodwill impairment test. In computing the implied fair value of goodwill under Step 2, an entity had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities) following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. Instead, under the amendments in this Update, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting units fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. A public business entity that is a U.S. Securities and Exchange Commission (“SEC”) filer should adopt the amendments in this Update for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. A public business entity that is not an SEC filer should adopt the amendments in this Update for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2020. All other entities, including not-for-profit entities, that are adopting the amendments in this Update should do so for their annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2021. This Update is not expected to have a significant impact on the Company’s financial statements.

 

In March 2017, the FASB issued ASU 2017-08, Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20). The amendments in this Update shorten the amortization period for certain callable debt securities held at a premium. Specifically, the amendments require the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. For public business entities, the amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. 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 should apply the amendments in this Update on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. Additionally, in the period of adoption, an entity should provide disclosures about a change in accounting principle. This Update is not expected to have a significant impact on the Company’s financial statements.

 

In May 2017, the FASB issued ASU 2017-09, Compensation – Stock Compensation (Topic 718), which affects any entity that changes the terms or conditions of a share-based payment award.  This Update amends the definition of modification by qualifying that modification accounting does not apply to changes to outstanding share-based payment awards that do not affect the total fair value, vesting requirements, or equity/liability classification of the awards.  The amendments in this Update are effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted, including adoption in any interim period, for (1) public business entities for reporting periods for which financial statements have not yet been issued and (2) all other entities for reporting periods for which financial statements have not yet been made available for issuance. The amendments in this Update should be applied prospectively to an award modified on or after the adoption date. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

 

 

NOTE 2 - STOCK-BASED COMPENSATION

 

The Company had no unvested stock options outstanding or unrecognized stock-based compensation costs outstanding as of June 30, 2017 and 2016.

 

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

 

           

Weighted-

           

Weighted-

 
           

average

           

average

 
           

Exercise

           

Exercise

 
   

2017

   

Price

   

2016

   

Price

 
                                 

Outstanding, January 1

    29,324     $ 23.67       31,949     $ 25.03  

Exercised

    (7,949 )     29.87       -       -  
                                 

Outstanding, June 30

    21,375     $ 26.91       31,949     $ 25.03  
                                 

Exercisable, June 30

    21,375     $ 26.91       31,949     $ 25.03  

 

 
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 Six

 
   

Months Ended

   

Months Ended

 
   

June 30,

   

June 30,

 
                         
   

2017

   

2016

   

2017

   

2016

 

Weighted-average common shares outstanding

    3,386,616       2,437,302       3,227,184       2,350,822  
                                 

Average treasury stock shares

    (386,165 )     (386,165 )     (386,165 )     (386,165 )
                                 

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

    3,000,451       2,051,137       2,841,019       1,964,657  
                                 

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

    13,689       8,274       13,139       8,522  
                                 

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

    3,014,140       2,059,411       2,854,158       1,973,179  

 

 

Options to purchase 21,375 shares of common stock, at prices ranging from $17.55 to $37.48, were outstanding during the three and six months ended June 30, 2017. Of those options, 21,375 were considered dilutive for the three and six month periods based on the market price exceeding the strike price and no options were anti-dilutive.

 

Options to purchase 31,949 shares of common stock, at prices ranging from $17.55 to $40.24, were outstanding during the three and six months ended June 30, 2016. Of those options, 24,700 were considered dilutive and 7,249 were considered anti-dilutive for the three and six month 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.

 

 
13

 

 

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, 2017          

(Dollar amounts in thousands)

 

Level I

   

Level II

   

Level III

   

Total

 

Assets measured on a recurring basis:

                               

U.S. government agency securities

  $ -     $ 9,514     $ -     $ 9,514  

Obligations of states and political subdivisions

    -       77,635       -       77,635  

Mortgage-backed securities in government-sponsored entities

    -       17,512       -       17,512  

Total debt securities

    -       104,661       -       104,661  

Equity securities in financial institutions

    -       290       -       290  

Total

  $ -     $ 104,951     $ -     $ 104,951  

 

            December 31, 2016          

(Dollar amounts in thousands)

 

Level I

   

Level II

   

Level III

   

Total

 

Assets measured on a recurring basis:

                               

U.S. government agency securities

  $ -     $ 10,236     $ -     $ 10,236  

Obligations of states and political subdivisions

    -       81,223       -       81,223  

Mortgage-backed securities in government-sponsored entities

    -       20,069       -       20,069  

Private-label mortgage-backed securities

    -       1,709       -       1,709  

Total debt securities

    -       113,237       -       113,237  

Equity securities in financial institutions

    -       1,139       -       1,139  

Total

  $ -     $ 114,376     $ -     $ 114,376  

  

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).

 

The Company uses prices compiled by third party vendors.

 

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 – The Company has measured impairment on collateral-dependent impaired loans generally based on the fair value of the loan’s collateral. Fair value is generally determined based upon independent third-party appraisals of the properties. In some cases, management may adjust the appraised value due to the age of the appraisal, changes in market conditions, or observable deterioration of the property since the appraisal was completed. Additionally, management makes estimates about expected costs to sell the property which are also included in the net realizable value. If the fair value of the collateral dependent loan is less than the carrying amount of the loan, a specific reserve for the loan is made in the allowance for loan losses or a charge-off is taken to reduce the loan to the fair value of the collateral (less estimated selling costs) and the loan is included in the following table as a Level III measurement. If the fair value of the collateral exceeds the carrying amount of the loan, then the loan is not included in the following table as it is not currently being carried at its fair value. The fair values in the following table exclude estimated selling costs of $767,000 at June 30, 2017.

 

 
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Other Real Estate Owned (OREO) – OREO is carried at the lower of cost or fair value, which is measured at the date of foreclosure. If the fair value of the collateral exceeds the carrying amount of the loan, no charge-off or adjustment is necessary, the loan is not considered to be carried at fair value, and is therefore not included in the following table. If the fair value of the collateral is less than the carrying amount of the loan, management will charge the loan down to its estimated realizable value. The fair value of OREO is based on the appraised value of the property, which is generally unadjusted by management and is based on comparable sales for similar properties in the same geographic region as the subject property, and is included in the following table as a Level II measurement. In some cases, management may adjust the appraised value due to the age of the appraisal, changes in market conditions, or observable deterioration of the property since the appraisal was completed. In these cases, the loans are categorized in the following table as Level III measurement since these adjustments are considered to be unobservable inputs. Income and expenses from operations and further declines in the fair value of the collateral subsequent to foreclosure are included in net expenses from OREO.

 

           

June 30, 2017

         

(Dollar amounts in thousands)

 

Level I

   

Level II

   

Level III

   

Total

 

Assets measured on a nonrecurring basis:

                               

Impaired loans

  $ -     $ -     $ 3,183     $ 3,183  

Other real estate owned

    -       -       88       88  

 

           

December 31, 2016

         

(Dollar amounts in thousands)

 

Level I

   

Level II

   

Level III

   

Total

 

Assets measured on a nonrecurring basis:

                               

Impaired loans

  $ -     $ -     $ 6,498     $ 6,498  

Other real estate owned

    -       -       511       511  

 

 

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)

       

 

 

 

 

Range (Weighted

 
   

Fair Value Estimate

  Valuation Techniques   Unobservable Input   Average)  

June 30, 2017

                           

Impaired loans

  $ 3,183  

Appraisal of collateral (1)

 

Appraisal adjustments (2)

    3.3%  to  8.3% (5.1%)  

Other real estate owned

  $ 88  

Appraisal of collateral (1)

 

Appraisal adjustments (2)

    0.0%  to 10.0%    

 

 

   

Quantitative Information about Level III Fair Value Measurements

 

(Dollar amounts in thousands)

       

 

 

 

 

Range (Weighted

 
   

Fair Value Estimate

  Valuation Techniques   Unobservable Input   Average)  

December 31, 2016

                           

Impaired loans

  $ 4,928  

Discounted cash flow

 

Discount rate

    3.1% to 7.0% (5.1%)   
      1,570  

Appraisal of collateral (1)

 

Appraisal adjustments (2)

    0.0% to  59.7% (28.2%)   

Other real estate owned

  $ 511  

Appraisal of collateral (1)

 

Appraisal adjustments (2)

    0% to 10.0%    

 

 

 

(1)

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

 

(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, 2017

 
   

Carrying

                           

Total

 
   

Value

   

Level I

   

Level II

   

Level III

   

Fair Value

 
   

(Dollar amounts in thousands)

 

Financial assets:

                                       

Cash and cash equivalents

  $ 39,571     $ 39,571     $ -     $ -     $ 39,571  

Investment securities

                                       

Available for sale

    104,951               104,951       -       104,951  

Loans held for sale

    9,791       8,476       1,315       -       9,791  

Net loans

    861,259       -       -       874,014       874,014  

Bank-owned life insurance

    15,432       15,432       -       -       15,432  

Federal Home Loan Bank stock

    3,589       3,589       -       -       3,589  

Accrued interest receivable

    2,764       2,764       -       -       2,764  
                                         

Financial liabilities:

                                       

Deposits

  $ 846,783     $ 601,400     $ -     $ 246,121     $ 847,521  

Short-term borrowings

    63,388       63,388       -       -       63,388  

Other borrowings

    39,346       -       -       15,703       15,703  

Accrued interest payable

    498       498       -       -       498  

 

 

   

December 31, 2016

 
   

Carrying

                           

Total

 
   

Value

   

Level I

   

Level II

   

Level III

   

Fair Value

 
   

(Dollar amounts in thousands)

 

Financial assets:

                                       

Cash and cash equivalents

  $ 32,495     $ 32,495     $ -     $ -     $ 32,495  

Investment securities

                                       

Available for sale

    114,376       -       114,376       -       114,376  

Loans held for sale

    634       -       634       -       634  

Net loans

    602,542       -       -       604,447       604,447  

Bank-owned life insurance

    13,540       13,540       -       -       13,540  

Restricted stock

    2,204       2,204       -       -       2,204  

Accrued interest receivable

    2,246       2,426       -       -       2,426  
                                         

Financial liabilities:

                                       

Deposits

  $ 629,934     $ 440,500     $ -     $ 189,871     $ 630,371  

Short-term borrowings

    68,359       68,359       -       -       68,359  

Other borrowings

    9,437       -               9,512       9,512  

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.

 

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.

 

 
16

 

 

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.

 

 

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, 2017 and 2016, respectively:

 

 

   

Unrealized gains on

 
   

available-for-sale

 

(Dollars in thousands)

 

securities

 

Balance as of December 31, 2016

  $ 1,201  

Other comprehensive income before reclassification

    153  

Amount reclassified from accumulated other comprehensive income

    (322 )

Period change

    (169 )

Balance at March 31, 2017

  $ 1,032  
         

Other comprehensive income before reclassification

    783  

Amount reclassified from accumulated other comprehensive income

    -  

Period change

    783  

Balance at June 30, 2017

  $ 1,815  

 

 
17

 

  

   

Unrealized gains on

 
   

available-for-sale

 

(Dollars in thousands)

 

securities

 

Balance as of December 31, 2015

  $ 2,395  

Other comprehensive income before reclassification

    360  

Amount reclassified from accumulated other comprehensive income

    (34 )

Period change

    326  

Balance at March 31, 2016

    2,721  
         

Other comprehensive loss before reclassification

    1,325  

Amount reclassified from accumulated other comprehensive income

    (166 )

Period change

    1,159  

Balance at June 30, 2016

  $ 3,880  

 

 

 

(a)

All amounts are net of tax. Amounts in parentheses indicate debits to accumulated other comprehensive income.

 

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, 2017 and 2016, 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

 

June 30, 2017

   

June 30, 2016

 

Presented

Unrealized gains on available-for-sale securities

                 
      -     $ 252  

Investment securities gains, net

      -       (86 )

Income taxes

      -     $ 166    

 

 

    Amount Reclassified from Accumulated Other Comprehensive  

Affected Line Item in

    Income (a)  

the Statement Where

(Dollars in thousands)

  For the Six Months Ended  

Net Income is

Details about other comprehensive income

  June 30, 2017    

June 30, 2016

 

Presented

Unrealized gains on available-for-sale securities

                 
    $ 488     $ 303  

Investment securities gains, net

      (166 )     (103 )

Income taxes

    $ 322     $ 200    

 

(a) Amounts in parentheses indicate debits to net income

 

 
18

 

 

NOTE 6 - INVESTMENT SECURITIES AVAILABLE FOR SALE

 

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

 

   

June 30, 2017

 
           

Gross

   

Gross

         
   

Amortized

   

Unrealized

   

Unrealized

   

Fair

 

(Dollar amounts in thousands)

 

Cost

   

Gains

   

Losses

   

Value

 
                                 

U.S. government agency securities

  $ 9,383     $ 180     $ (49 )   $ 9,514  

Obligations of states and political subdivisions:

                               

Taxable

    1,613       149       (2 )     1,760  

Tax-exempt

    73,582       2,333       (40 )     75,875  

Mortgage-backed securities in government-sponsored entities

    17,455       192       (135 )     17,512  

Total debt securities

    102,033       2,854       (226 )     104,661  

Equity securities in financial institutions

    170       120       -       290  

Total

  $ 102,203     $ 2,974     $ (226 )   $ 104,951  

 

 

   

December 31, 2016

 
           

Gross

   

Gross

         
   

Amortized

   

Unrealized

   

Unrealized

   

Fair

 
   

Cost

   

Gains

   

Losses

   

Value

 
                                 

U.S. government agency securities

  $ 10,158     $ 174     $ (96 )   $ 10,236  

Obligations of states and political subdivisions:

                               

Taxable

    1,615       129       (4 )     1,740  

Tax-exempt

    78,327       1,678       (522 )     79,483  

Mortgage-backed securities in government-sponsored entities

    20,128       202       (261 )     20,069  

Private-label mortgage-backed securities

    1,579       130       -       1,709  

Total debt securities

    111,807       2,313