0001571049-17-004992.txt : 20170515 0001571049-17-004992.hdr.sgml : 20170515 20170515104531 ACCESSION NUMBER: 0001571049-17-004992 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 99 CONFORMED PERIOD OF REPORT: 20170331 FILED AS OF DATE: 20170515 DATE AS OF CHANGE: 20170515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HAWTHORN BANCSHARES, INC. CENTRAL INDEX KEY: 0000893847 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 431626350 STATE OF INCORPORATION: MO FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-23636 FILM NUMBER: 17842022 BUSINESS ADDRESS: STREET 1: 132 EAST HIGH STREET CITY: JEFFERSON CITY STATE: MO ZIP: 65101 BUSINESS PHONE: (573)761-6100 MAIL ADDRESS: STREET 1: P. O. BOX 688 CITY: JEFFERSON CITY STATE: MO ZIP: 65102 FORMER COMPANY: FORMER CONFORMED NAME: EXCHANGE NATIONAL BANCSHARES INC DATE OF NAME CHANGE: 19940323 10-Q 1 t1701463_10q.htm FORM 10-Q

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

xQuarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended March 31, 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: 0-23636

 

HAWTHORN BANCSHARES, INC.

(Exact name of registrant as specified in its charter)

 

Missouri   43-1626350

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

132 East High Street, Box 688, Jefferson City, Missouri 65102

(Address of principal executive offices)                                              (Zip Code)

 

(573) 761-6100

(Registrant’s telephone number, including area code)

 

N/A

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

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     x Yes     ¨ 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).     x Yes     ¨ 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 x (Do not check if a smaller reporting company) Smaller reporting company ¨
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 Exchange Act).

¨ Yes     x No

 

As of May 12, 2017, the registrant had 5,613,746 shares of common stock, par value $1.00 per share, outstanding

 

 

 

 

 

 

Part I - Financial Information

Item 1. Financial Statements

 

HAWTHORN BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets (unaudited)

 

   March 31,   December 31, 
(In thousands, except per share data)  2017   2016 
ASSETS          
Cash and due from banks  $16,746   $25,589 
Federal funds sold and other overnight interest-bearing deposits   6,427    1,406 
Cash and cash equivalents   23,173    26,995 
Investment in available-for-sale securities, at fair value   216,170    214,512 
Other investments and securities, at cost   9,859    9,796 
Total investment securities   226,029    224,308 
Loans   1,010,182    974,029 
Allowances for loan losses   (10,262)   (9,886)
Net loans   999,920    964,143 
Premises and equipment - net   35,323    35,522 
Mortgage servicing rights   2,877    2,584 
Other real estate and repossessed assets - net   13,625    14,162 
Accrued interest receivable   4,702    5,183 
Cash surrender value - life insurance   2,430    2,409 
Other assets   11,584    11,742 
Total assets  $1,319,663   $1,287,048 
LIABILITIES AND STOCKHOLDERS' EQUITY          
Deposits          
Non-interest bearing demand  $239,059   $235,975 
Savings, interest checking and money market   519,379    468,731 
Time deposits $100,000 and over   132,979    152,256 
Other time deposits   151,587    153,704 
Total deposits   1,043,004    1,010,666 
Federal funds purchased and securities sold under agreements to repurchase   31,512    31,015 
Subordinated notes   49,486    93,392 
Federal Home Loan Bank advances   91,900    49,486 
Accrued interest payable   452    498 
Other liabilities   10,232    10,974 
Total liabilities   1,226,586    1,196,031 
Stockholders’ equity:          
Common stock, $1 par value, authorized 15,000,000 shares; issued 5,822,357 shares, respectively   5,822    5,822 
Surplus   41,499    41,498 
Retained earnings   53,435    51,671 
Accumulated other comprehensive loss, net of tax   (3,481)   (3,801)
Treasury stock; 207,150 and 205,750 shares, at cost   (4,198)   (4,173)
Total stockholders’ equity   93,077    91,017 
Total liabilities and stockholders’ equity  $1,319,663   $1,287,048 

 

See accompanying notes to the consolidated financial statements (unaudited).

 

2 

 

 

HAWTHORN BANCSHARES, INC. AND SUBSIDIARIES

Consolidated Statements of Income (unaudited)

 

   Three Months Ended 
   March 31, 
(In thousands, except per share amounts)  2017   2016 
INTEREST INCOME          
Interest and fees on loans  $11,050   $9,987 
Interest on investment securities:          
Taxable   754    938 
Nontaxable   157    143 
Federal funds sold and other overnight interest-bearing deposits   48    32 
Dividends on other securities   90    76 
Total interest income   12,099    11,176 
INTEREST EXPENSE          
Interest on deposits:          
Savings, interest checking and money market   389    295 
Time deposit accounts $100,000 and over   254    209 
Other time deposits   217    240 
Interest on federal funds purchased and securities sold under agreements to repurchase   22    23 
Interest on subordinated notes   408    354 
Interest on Federal Home Loan Bank advances   322    207 
Total interest expense   1,612    1,328 
Net interest income   10,487    9,848 
Provision for loan losses   350    250 
Net interest income after provision for loan losses   10,137    9,598 
NON-INTEREST INCOME          
Service charges and other fees   836    834 
Bank card income and fees   614    634 
Trust department income   274    218 
Real estate servicing fees, net   453    54 
Gain on sale of mortgage loans, net   155    165 
Gain on sale of investment securities   0    472 
Other   75    71 
Total non-interest income   2,407    2,448 
NON-INTEREST EXPENSE          
Salaries and employee benefits   5,454    5,350 
Occupancy expense, net   619    634 
Furniture and equipment expense   598    411 
Processing, network, and bank card expense   1,045    772 
Legal, examination, and professional fees   280    333 
FDIC insurance assessment   101    176 
Advertising and promotion   239    209 
Postage, printing, and supplies   232    237 
Real estate foreclosure expense (gains), net   27    141 
Other   756    820 
Total non-interest expense   9,351    9,083 
Income before income taxes   3,193    2,963 
Income tax expense   1,093    965 
Net income   2,100    1,998 
Basic earnings per share  $0.37   $0.35 
Diluted earnings per share  $0.37   $0.35 

 

See accompanying notes to the consolidated financial statements (unaudited).

 

3 

 

 

HAWTHORN BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income (unaudited)

 

   Three Months Ended 
   March 31, 
(In thousands)  2017   2016 
Net income  $2,100   $1,998 
Other comprehensive income, net of tax          
Investment securities available-for-sale:          
Unrealized gain on investment securities available-for-sale, net of tax   306    1,245 
Adjustment for gain on sale of investment securities, net of tax   0    (293)
Defined benefit pension plans:          
Amortization of prior service cost included in net periodic pension cost, net of tax   14    12 
Total other comprehensive income   320    964 
Total comprehensive income  $2,420   $2,962 

 

See accompanying notes to the consolidated financial statements (unaudited).

 

4 

 

 

HAWTHORN BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity (unaudited)

 

               Accumulated       Total 
               Other       Stock - 
   Common       Retained   Comprehensive   Treasury   holders' 
(In thousands)  Stock   Surplus   Earnings   Loss   Stock   Equity 
Balance, December 31, 2015  $5,605   $38,549   $48,700   $(2,018)  $(3,550)  $87,286 
Net income   0    0    1,998    0    0    1,998 
Other comprehensive income   0    0    0    964    0    964 
Stock based compensation expense   0    5    0    0    0    5 
Purchase of treasury stock   0    0    0    0    (129)   (129)
Cash dividends declared, common stock   0    0    (271)   0    0    (271)
Balance, March 31, 2016  $5,605   $38,554   $50,427   $(1,054)  $(3,679)  $89,853 
                               
Balance, December 31, 2016  $5,822   $41,498   $51,671   $(3,801)  $(4,173)  $91,017 
Net income   0    0    2,100    0    0    2,100 
Other comprehensive income   0    0    0    320    0    320 
Stock based compensation expense   0    1    0    0    0    1 
Purchase of treasury stock   0    0    0    0    (25)   (25)
Cash dividends declared, common stock   0    0    (336)   0    0    (336)
Balance, March 31, 2017  $5,822   $41,499   $53,435   $(3,481)  $(4,198)  $93,077 

 

See accompanying notes to the consolidated financial statements (unaudited).

 

5 

 

 

HAWTHORN BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (unaudited)

 

   Three Months Ended March 31, 
(In thousands)  2017   2016 
Cash flows from operating activities:          
Net income  $2,100   $1,998 
Adjustments to reconcile net income to net cash provided by operating activities:          
Provision for loan losses   350    250 
Depreciation expense   473    485 
Net amortization of investment securities, premiums, and discounts   406    365 
Stock based compensation expense   1    5 
Change in fair value of mortgage servicing rights   (244)   155 
Gain on sale of investment securities   0    (472)
Loss (gain) on sales and dispositions of premises and equipment   1    (6)
Gain on sales and dispositions of other real estate and repossessed assets   (50)   (49)
Provision for other real estate owned   32    38 
Decrease in accrued interest receivable   481    343 
Increase in cash surrender value - life insurance   (21)   (13)
Decrease in other assets   58    364 
Decrease in accrued interest payable   (46)   (3)
(Decrease) increase in other liabilities   (742)   619 
Origination of mortgage loans for sale   (7,341)   (7,707)
Proceeds from the sale of mortgage loans   6,789    7,435 
Gain on sale of mortgage loans, net   (155)   (165)
Other, net   (49)   (52)
Net cash provided by operating activities   2,043    3,590 
Cash flows from investing activities:          
Net increase in loans   (35,523)   (10,760)
Purchase of available-for-sale debt securities   (15,346)   (66,459)
Proceeds from maturities of available-for-sale debt securities   9,750    9,120 
Proceeds from calls of available-for-sale debt securities   4,025    4,175 
Proceeds from sales of available-for-sale debt securities   0    44,087 
Proceeds from sales of FHLB stock   200    0 
Purchases of FHLB stock   (263)   (43)
Purchases of premises and equipment   (348)   (248)
Proceeds from sales of premises and equipment   0    6 
Proceeds from sales of other real estate and foreclosed assets   658    1,274 
Net cash used in investing activities   (36,847)   (18,848)
Cash flows from financing activities:          
Net increase in demand deposits   3,084    8,851 
Net increase in interest-bearing transaction accounts   50,648    44,679 
Net decrease in time deposits   (21,394)   (8,167)
Net increase (decrease) in federal funds purchased and securities sold under agreements to repurchase   497    (15,311)
Repayment of FHLB advances and other borrowings   (38,232)   0 
FHLB advances   36,740    0 
Purchase of treasury stock   (25)   (129)
Cash dividends paid - common stock   (336)   (271)
Net cash provided by financing activities   30,982    29,652 
Net (decrease) increase in cash and cash equivalents   (3,822)   14,394 
Cash and cash equivalents, beginning of period   26,995    28,377 
Cash and cash equivalents, end of period  $23,173   $42,771 

 

See accompanying notes to the consolidated financial statements (unaudited).

 

6 

 

 

HAWTHORN BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (continued) (unaudited)

 

   Three Months Ended March 31, 
(In thousands)  2017   2016 
Supplemental disclosures of cash flow information:          
Cash paid during the year for:          
Interest  $1,658   $1,332 
Income taxes  $755   $430 
Noncash investing activities:          
Other real estate and repossessed assets acquired in settlement of loans  $103   $742 

 

See accompanying notes to the consolidated financial statements (unaudited).

 

7 

 

 

Hawthorn Bancshares, Inc.
and subsidiaries

 

Notes to the Consolidated Financial Statements

 

(Unaudited)

 

(1)Summary of Significant Accounting Policies

 

Hawthorn Bancshares, Inc. (the Company) through its subsidiary, Hawthorn Bank (the Bank), provides a broad range of banking services to individual and corporate customers located within the communities in and surrounding Jefferson City, Columbia, Clinton, Warsaw, Springfield, Branson, and the greater Kansas City metropolitan area. The Company is subject to competition from other financial and nonfinancial institutions providing financial products. Additionally, the Company and its subsidiaries are subject to the regulations of certain regulatory agencies and undergo periodic examinations by those regulatory agencies.

 

The accompanying unaudited consolidated financial statements of the Company have been prepared in conformity with U.S. generally accepted accounting principles (U.S. GAAP) for interim financial information and with the instructions to Form 10-Q, and Rule 10-01 of Regulation S-X. Accordingly, the unaudited consolidated financial statements do not include all of the information and disclosures required by U.S. GAAP for complete financial statements and should be read in conjunction with the consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.

 

The preparation of the consolidated financial statements includes all adjustments that, in the opinion of management, are necessary in order to make those statements not misleading. Management is required to make estimates and assumptions, including the determination of the allowance for loan losses, real estate acquired in connection with foreclosure or in satisfaction of loans, and fair values of investment securities available-for-sale that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Company’s management has evaluated and did not identify any subsequent events or transactions requiring recognition or disclosure in the consolidated financial statements.

 

Stock Dividend On July 1, 2016, the Company paid a special stock dividend of four percent to shareholders of record at the close of business on June 15, 2016. For all periods presented, share information, including basic and diluted earnings per share, has been adjusted retroactively to reflect this change.

 

The following represents significant new accounting principles adopted in 2017:

 

Stock Compensation The FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, in March 2016, in order to reduce complexity in this area and improve the usefulness of information provided to users. Amendments which will affect public companies include the recognition of excess tax benefits and deficiencies in income tax expense or benefit in the income statement, guidance as to the classification of excess tax benefits on the statement of cash flows, an election to account for award forfeitures as they occur, and the ability to withhold taxes up to the maximum statutory rate in the applicable jurisdictions without triggering liability classification of the award. The Company adopted the ASU on January 1, 2017 and elected to recognize forfeitures as they occur. As allowed by the ASU, the Company’s adoption was prospective, therefore prior periods have not been adjusted. The adoption of the ASU could result in increased volatility to reported income tax expense related to excess tax benefits and tax deficiencies for employee share-based transactions, however, the actual amounts recognized in income tax expense will be dependent on the amount of employee share-based transactions and the stock price at the time of vesting or exercise. The adoption of the ASU did not have a significant effect on the Company’s consolidated financial statements.

 

8 

 

 

Hawthorn Bancshares, Inc.
and subsidiaries

 

Notes to the Consolidated Financial Statements

 

(Unaudited)

 

(2)Loans and Allowance for Loan Losses

 

Loans

 

A summary of loans, by major class within the Company’s loan portfolio, at March 31, 2017 and December 31, 2016 is as follows:

 

   March 31,   December 31, 
(in thousands)  2017   2016 
Commercial, financial, and agricultural  $182,493   $182,881 
Real estate construction - residential   20,299    18,907 
Real estate construction - commercial   70,143    55,653 
Real estate mortgage - residential   263,882    259,900 
Real estate mortgage - commercial   442,266    426,470 
Installment and other consumer   31,099    30,218 
Total loans  $1,010,182   $974,029 

 

The Bank grants real estate, commercial, installment, and other consumer loans to customers located within the communities surrounding Jefferson City, Columbia, Clinton, Warsaw, Springfield, Branson and the greater Kansas City metropolitan area. As such, the Bank is susceptible to changes in the economic environment in these communities. The Bank does not have a concentration of credit in any one economic sector. Installment and other consumer loans consist primarily of the financing of automotive vehicles. At March 31, 2017, loans of $499.1 million were pledged to the Federal Home Loan Bank as collateral for borrowings and letters of credit.

 

Allowance for Loan Losses

 

The following is a summary of the allowance for loan losses during the periods indicated.

 

   Three Months Ended March 31, 2017 
   Commercial,   Real Estate   Real Estate   Real Estate   Real Estate   Installment         
   Financial, &   Construction -   Construction -   Mortgage -   Mortgage -   and Other   Un-     
(in thousands)  Agricultural   Residential   Commercial   Residential   Commercial   Consumer   allocated   Total 
Balance at beginning of period  $2,753   $108   $413   $2,385   $3,793    274   $160   $9,886 
Additions:                                        
Provision for loan losses   (384)   (59)   166    (276)   945    72    (114)   350 
Deductions:                                        
Loans charged off   28    0    0    20    14    51    0    113 
Less recoveries on loans   (19)   (50)   0    (36)   (7)   (27)   0    (139)
Net loan charge-offs (recoveries)   9    (50)   0    (16)   7    24    0    (26)
Balance at end of period  $2,360   $99   $579   $2,125   $4,731   $322   $46   $10,262 

 

   Three Months Ended March 31, 2016 
   Commercial,   Real Estate   Real Estate   Real Estate   Real Estate   Installment         
   Financial, &   Construction -   Construction -   Mortgage -   Mortgage -   and Other   Un-     
(in thousands)  Agricultural   Residential   Commercial   Residential   Commercial   Consumer   allocated   Total 
Balance at beginning of period  $2,153   $59   $644   $2,439   $2,935   $273   $101   $8,604 
Additions:                                        
Provision for loan losses   (12)   (15)   33    32    276    (6)   (58)   250 
Deductions:                                        
Loans charged off   103    0    1    206    82    56    0    448 
Less recoveries on loans   (97)   0    (11)   (8)   (61)   (48)   0    (225)
Net loan charge-offs (recoveries)   6    0    (10)   198    21    8    0    223 
Balance at end of period  $2,135   $44   $687   $2,273   $3,190   $259   $43   $8,631 

 

Loans, or portions of loans, are charged off to the extent deemed uncollectible or a loss is confirmed. Loan charge-offs reduce the allowance for loan losses, and recoveries of loans previously charged off are added back to the allowance. If management determines that it is probable that all amounts due on a loan will not be collected under the original terms of the loan

 

9 

 

 

Hawthorn Bancshares, Inc.
and subsidiaries

 

Notes to the Consolidated Financial Statements

 

(Unaudited)

 

agreement, the loan is considered to be impaired. These loans are evaluated individually for impairment, and in conjunction with current economic conditions and loss experience, specific reserves are estimated as further discussed below. Loans not individually evaluated are aggregated by risk characteristics and reserves are recorded using a consistent methodology that considers historical loan loss experience by loan type, delinquencies, current economic conditions, loan risk ratings and industry concentration.

 

Beginning in the first quarter of 2016, the Company began to lengthen its look-back period with the intent to increase such period from three to five years over the next two years. The Company believes that the five-year look-back period, which is consistent with the Company’s practices prior to the start of the economic recession in 2008, provides a representative historical loss period in the current economic environment.

 

The following table provides the balance in the allowance for loan losses at March 31, 2017 and December 31, 2016, and the related loan balance by impairment methodology.

 

   Commercial,   Real Estate   Real Estate   Real Estate   Real Estate   Installment         
   Financial, and   Construction -   Construction -   Mortgage -   Mortgage -   and Other   Un-     
(in thousands)  Agricultural   Residential   Commercial   Residential   Commercial   Consumer   allocated   Total 
March 31, 2017                                        
Allowance for loan losses:                                        
Individually evaluated for impairment  $446   $0   $7   $354   $284   $12   $0   $1,103 
Collectively evaluated for impairment   1,914    99    572    1,771    4,447    310    46    9,159 
Total  $2,360   $99   $579   $2,125   $4,731   $322   $46   $10,262 
Loans outstanding:                                        
Individually evaluated for impairment  $1,655   $0   $49   $5,575   $1,986   $59   $0   $9,324 
Collectively evaluated for impairment   180,838    20,299    70,094    258,307    440,280    31,040    0    1,000,858 
Total  $182,493   $20,299   $70,143   $263,882   $442,266   $31,099   $0   $1,010,182 
                                         
December 31, 2016                                        
Allowance for loan losses:                                        
Individually evaluated for impairment  $469   $0   $7   $319   $277   $8   $0   $1,080 
Collectively evaluated for impairment   2,284    108    406    2,066    3,516    266    160    8,806 
Total  $2,753   $108   $413   $2,385   $3,793   $274   $160   $9,886 
Loans outstanding:                                        
Individually evaluated for impairment  $1,617   $0   $49   $5,471   $1,918   $89   $0   $9,144 
Collectively evaluated for impairment   181,264    18,907    55,604    254,429    424,552    30,129    0    964,885 
Total  $182,881   $18,907   $55,653   $259,900   $426,470   $30,218   $0   $974,029 

 

Impaired Loans

 

Loans evaluated under ASC 310-10-35 include loans which are individually evaluated for impairment. All other loans are collectively evaluated for impairment under ASC 450-20. Impaired loans individually evaluated for impairment totaled $9.3 million and $9.1 million at March 31, 2017 and December 31, 2016, respectively, and are comprised of loans on non-accrual status and loans which have been classified as troubled debt restructurings (TDRs).

 

The net carrying value of impaired loans is based on the fair values of collateral obtained through independent appraisals or internal evaluations, or by discounting the total expected future cash flows. At March 31, 2017 and December 31, 2016, $5.3 million and $4.5 million, respectively, of impaired loans were evaluated based on the fair value less estimated selling costs of the loan’s collateral. Once the impairment amount is calculated, a specific reserve allocation is recorded. At March 31, 2017, $1.1 million of the Company’s allowance for loan losses was allocated to impaired loans totaling $9.3 million compared to $1.1 million of the Company's allowance for loan losses allocated to impaired loans totaling approximately $9.1 million at December 31, 2016. Management determined that $1.6 million, or 17%, of total impaired loans required no reserve allocation at March 31, 2017 compared to $2.1 million, or 23%, at December 31, 2016 primarily due to adequate collateral values, acceptable payment history and adequate cash flow ability.

 

10 

 

 

Hawthorn Bancshares, Inc.
and subsidiaries

 

Notes to the Consolidated Financial Statements

 

(Unaudited)

 

The categories of impaired loans at March 31, 2017 and December 31, 2016 are as follows:

 

   March 31,   December 31, 
(in thousands)  2017   2016 
Non-accrual loans  $3,526   $3,429 
Performing TDRs   5,798    5,715 
Total impaired loans  $9,324   $9,144 

 

The following tables provide additional information about impaired loans at March 31, 2017 and December 31, 2016, respectively, segregated between loans for which an allowance has been provided and loans for which no allowance has been provided.

 

       Unpaid     
   Recorded   Principal   Specific 
(in thousands)  Investment   Balance   Reserves 
March 31, 2017               
With no related allowance recorded:               
Commercial, financial and agricultural  $406   $561   $0 
Real estate - residential   811    822    0 
Real estate - commercial   394    394    0 
Total  $1,611   $1,777   $0 
With an allowance recorded:               
Commercial, financial and agricultural  $1,249   $1,279   $446 
Real estate - construction commercial   49    55    7 
Real estate - residential   4,764    4,823    354 
Real estate - commercial   1,592    1,802    284 
Installment and other consumer   59    86    12 
Total  $7,713   $8,045   $1,103 
Total impaired loans  $9,324   $9,822   $1,103 

 

       Unpaid     
   Recorded   Principal   Specific 
(in thousands)  Investment   Balance   Reserves 
December 31, 2016               
With no related allowance recorded:               
Commercial, financial and agricultural  $564   $706   $0 
Real estate - residential   1,550    1,557    0 
Total  $2,114   $2,263   $0 
With an allowance recorded:               
Commercial, financial and agricultural  $1,053   $1,078   $469 
Real estate - construction commercial   49    56    7 
Real estate - residential   3,921    3,990    319 
Real estate - commercial   1,918    1,988    277 
Installment and other consumer   89    116    8 
Total  $7,030   $7,228   $1,080 
Total impaired loans  $9,144   $9,491   $1,080 

 

The following table presents by class, information related to the average recorded investment and interest income recognized on impaired loans during the periods indicated.

 

11 

 

 

Hawthorn Bancshares, Inc.
and subsidiaries

 

Notes to the Consolidated Financial Statements

 

(Unaudited)

 

   Three Months Ended March 31, 
   2017   2016 
       Interest       Interest 
   Average   Recognized   Average   Recognized 
   Recorded   For the   Recorded   For the 
(in thousands)  Investment   Period Ended   Investment   Period Ended 
With no related allowance recorded:                    
Commercial, financial and agricultural  $555   $1   $1,520   $15 
Real estate - construction commercial   0    0    118    0 
Real estate - residential   807    4    1,513    39 
Real estate - commercial   589    2    2,622    42 
Installment and other consumer   40    0    0    0 
Total  $1,991   $7   $5,773   $96 
With an allowance recorded:                    
Commercial, financial and agricultural  $1,192   $11   $984   $12 
Real estate - construction commercial   50    0    65    0 
Real estate - residential   4,511    43    4,553    120 
Real estate - commercial   1,494    15    764    0 
Installment and other consumer   51    0    135    0 
Total  $7,298   $69   $6,501   $132 
Total impaired loans  $9,289   $76   $12,274   $228 

 

The recorded investment varies from the unpaid principal balance primarily due to partial charge-offs taken resulting from current appraisals received. The amount recognized as interest income on impaired loans continuing to accrue interest, primarily related to troubled debt restructurings, was $76,000 and $228,000, for the three months ended March 31, 2017 and 2016, respectively. The average recorded investment in impaired loans is calculated on a monthly basis during the periods reported.

 

Delinquent and Non-Accrual Loans

 

The delinquency status of loans is determined based on the contractual terms of the notes. Borrowers are generally classified as delinquent once payments become 30 days or more past due. The Company’s policy is to discontinue the accrual of interest income on any loan when, in the opinion of management, the ultimate collectability of interest or principal is no longer probable. In general, loans are placed on non-accrual when they become 90 days or more past due. However, management considers many factors before placing a loan on non-accrual, including the delinquency status of the loan, the overall financial condition of the borrower, the progress of management’s collection efforts and the value of the underlying collateral. Non-accrual loans are returned to accrual status when, in the opinion of management, the financial condition of the borrower indicates that the timely collectability of interest and principal is probable and the borrower demonstrates the ability to pay under the terms of the note through a sustained period of repayment performance, which is generally six months.

 

The following table provides aging information for the Company’s past due and non-accrual loans at March 31, 2017 and December 31, 2016.

 

12 

 

 

Hawthorn Bancshares, Inc.
and subsidiaries

 

Notes to the Consolidated Financial Statements

 

(Unaudited)

 

   Current or       90 Days         
   Less Than       Past Due         
   30 Days   30 - 89 Days   And Still         
(in thousands)  Past Due   Past Due   Accruing   Non-Accrual   Total 
March 31, 2017                         
Commercial, Financial, and Agricultural  $181,368   $220   $0   $905   $182,493 
Real Estate Construction - Residential   20,299    0    0    0    20,299 
Real Estate Construction - Commercial   69,997    97    0    49    70,143 
Real Estate Mortgage - Residential   259,360    2,484    22    2,016    263,882 
Real Estate Mortgage - Commercial   440,489    1,280    0    497    442,266 
Installment and Other Consumer   30,877    154    9    59    31,099 
Total  $1,002,390   $4,235   $31   $3,526   $1,010,182 
December 31, 2016                         
Commercial, Financial, and Agricultural  $181,609   $290   $0   $982   $182,881 
Real Estate Construction - Residential   18,681    226    0    0    18,907 
Real Estate Construction - Commercial   55,603    0    0    50    55,653 
Real Estate Mortgage - Residential   254,758    3,200    54    1,888    259,900 
Real Estate Mortgage - Commercial   425,260    790    0    420    426,470 
Installment and Other Consumer   29,920    198    11    89    30,218 
Total  $965,831   $4,704   $65   $3,429   $974,029 

 

Credit Quality

 

The Company categorizes loans into risk categories based upon an internal rating system reflecting management’s risk assessment. Loans are placed on watch status when one or more weaknesses that may result in the deterioration of the repayment exits or the Company’s credit position at some future date. Loans classified as substandard are inadequately protected by the current sound worth and paying capacity of the obligor or by the collateral pledged, if any. Loans so classified may have a well-defined weakness or weaknesses that jeopardize the repayment of the debt. Such loans are characterized by the distinct possibility that the Company may sustain some loss if the deficiencies are not corrected. A loan is classified as a troubled debt restructuring (TDR) when a borrower is experiencing financial difficulties that lead to the restructuring of a loan, and the Company grants concessions to the borrower in the restructuring that it would not otherwise consider. Loans classified as TDRs which are accruing interest are classified as performing TDRs. Loans classified as TDRs which are not accruing interest are classified as nonperforming TDRs and are included with all other nonaccrual loans for presentation purposes. It is the Company’s policy to discontinue the accrual of interest income on loans when management believes that the collection of interest or principal is doubtful. Loans are placed on non-accrual status when (1) deterioration in the financial condition of the borrower exists for which payment of full principal and interest is not expected, or (2) payment of principal or interest has been in default for a period of 90 days or more and the asset is not both well secured and in the process of collection. Subsequent interest payments received on such loans are applied to principal if any doubt exists as to the collectability of such principal; otherwise, such receipts are recorded as interest income on a cash basis.

 

13 

 

 

Hawthorn Bancshares, Inc.
and subsidiaries

 

Notes to the Consolidated Financial Statements

 

(Unaudited)

 

The following table presents the risk categories by class at March 31, 2017 and December 31, 2016.

 

(in thousands)  Commercial,
Financial, &
Agricultural
   Real Estate
Construction -
Residential
   Real Estate
Construction -
Commercial
   Real Estate
Mortgage -
Residential
   Real Estate
Mortgage -
Commercial
   Installment
and Other
Consumer
   Total 
At March 31, 2017                                   
Watch  $6,647   $1,221   $1,666   $19,571   $48,984   $0   $78,089 
Substandard   689    640    97    2,546    425    22    4,419 
Performing TDRs   750    0    0    3,559    1,489    0    5,798 
Non-accrual   905    0    49    2,016    497    59    3,526 
Total  $8,991   $1,861   $1,812   $27,692   $51,395   $81   $91,832 
At December 31, 2016                                   
Watch  $10,295   $665   $1,113   $16,577   $44,611   $0   $73,261 
Substandard   798    640    0    2,159    426    24    4,047 
Performing TDRs   635    0    0    3,582    1,498    0    5,715 
Non-accrual   982    0    50    1,888    420    89    3,429 
Total  $12,710   $1,305   $1,163   $24,206   $46,955   $113   $86,452 

 

Troubled Debt Restructurings

 

At March 31, 2017, loans classified as TDRs totaled $6.4 million, of which $573,000 were classified as nonperforming TDRs and included in non-accrual loans and $5.8 million were classified as performing TDRs. At December 31, 2016, loans classified as TDRs totaled $6.3 million, of which $619,000 were classified as nonperforming TDRs and included in non-accrual loans and $5.7 million were classified as performing TDRs. Both performing and nonperforming TDRs are considered impaired loans. When an individual loan is determined to be a TDR, the amount of impairment is based upon the present value of expected future cash flows discounted at the loan’s effective interest rate or the fair value of the underlying collateral less applicable selling costs. Accordingly, specific reserves of $473,000 and $410,000 related to TDRs were allocated to the allowance for loan losses at March 31, 2017 and December 31, 2016, respectively.

 

The following table summarizes loans that were modified as TDRs during the periods indicated.

 

   Three Months Ended March 31, 
   2017   2016 
   Recorded Investment (1)   Recorded Investment (1) 
(in thousands)  Number of
Contracts
   Pre-
Modification
   Post-
Modification
   Number of
Contracts
   Pre-
Modification
   Post-
Modification
 
Troubled Debt Restructurings                              
Commercial, financial and agricultural   1   $131   $131    0   $0   $0 
Real estate mortgage - residential   0    0    0    1    78    78 
Real estate mortgage - commercial   1    56    56    0    0    0 
Total   2   $187   $187    1   $78   $78 

 

(1) The amounts reported post-modification are inclusive of all partial pay-downs and charge-offs, and no portion of the debt was forgiven. Loans modified as a TDR that were fully paid down, charged-off or foreclosed upon during the period ended are not reported.

 

The Company’s portfolio of loans classified as TDRs include concessions for the borrower given financial condition such as interest rates below the current market rate, deferring principal payments, and extending maturity dates. During the three months ended March 31, 2017, two loan meeting the TDR criteria was modified compared to one loan during the three months ended March 31, 2016.

 

The Company considers a TDR to be in default when it is 90 days or more past due under the modified terms, a charge-off occurs, or it is the process of foreclosure. There were no loans modified as a TDR that defaulted during the three months ended March 31, 2017 and 2016, respectively, and within twelve months of their modification date. See Lending and Credit Management section for further information.

 

14 

 

 

Hawthorn Bancshares, Inc.
and subsidiaries

 

Notes to the Consolidated Financial Statements

 

(Unaudited)

 

(3)Other Real Estate and Repossessed Assets

 

   March 31,   December 31, 
(in thousands)  2017   2016 
Commercial  $783   $809 
Real estate construction - commercial   12,380    12,380 
Real estate mortgage - residential   584    647 
Real estate mortgage - commercial   2,909    3,439 
Repossessed assets   13    16 
Total  $16,669   $17,291 
Less valuation allowance for other real estate owned   (3,044)   (3,129)
Total other real estate and repossessed assets  $13,625   $14,162 

 

Changes in the net carrying amount of other real estate and repossessed assets were as follows for the periods indicated:

 

   Three Months Ended March 31, 
   2017   2016 
Balance at beginning of period  $17,291   $19,225 
Additions   103    742 
Proceeds from sales   (658)   (1,274)
Charge-offs against the valuation allowance for other real estate owned, net   (117)   (46)
Net gain on sales   50    49 
Total other real estate and repossessed assets  $16,669   $18,696 
Less valuation allowance for other real estate owned   (3,044)   (3,225)
Balance at end of period  $13,625   $15,471 

 

At March 31, 2017 $194,000 of consumer mortgage loans secured by residential real estate properties were in the process of foreclosure compared to $162,000 at December 31, 2016.

 

Activity in the valuation allowance for other real estate owned was as follows for the periods indicated:

 

   Three Months Ended March 31, 
(in thousands)  2017   2016 
Balance, beginning of period  $3,129   $3,233 
Provision for other real estate owned   32    38 
Charge-offs   (117)   (46)
Balance, end of period  $3,044   $3,225 

 

15 

 

 

Hawthorn Bancshares, Inc.
and subsidiaries

 

Notes to the Consolidated Financial Statements

 

(Unaudited)

 

(4)Investment Securities

 

The amortized cost and fair value of debt securities classified as available-for-sale at March 31, 2017 and December 31, 2016 were as follows:

 

   Total             
   Amortized   Gross Unrealized   Fair 
(in thousands)  Cost   Gains   Losses   Value 
March 31, 2017                    
U.S. government and federal agency obligations  $13,560   $0   $(289)  $13,271 
Government sponsored enterprises   35,521    0    (331)   35,190 
Obligations of states and political subdivisions   46,733    180    (516)   46,397 
Mortgage-backed securities:                    
Residential - government agencies   121,996    132    (1,816)   120,312 
Commercial - government agencies   990    10    0    1,000 
Total mortgage-backed securities   122,986    142    (1,816)   121,312 
Total available-for-sale securities  $218,800   $322   $(2,952)  $216,170 
                     
December 31, 2016                    
U.S. government and federal agency obligations  $13,667   $0   $(303)  $13,364 
Government sponsored enterprises   32,786    2    (329)   32,459 
Obligations of states and political subdivisions   42,666    123    (757)   42,032 
Mortgage-backed securities:                    
Residential - government agencies   127,527    124    (1,995)   125,656 
Commercial - government agencies   989    12    0    1,001 
Total mortgage-backed securities   128,516    136    (1,995)   126,657 
Total available-for-sale securities  $217,635   $261   $(3,384)  $214,512 

 

All of the Company’s investment securities are classified as available for sale. Agency bonds and notes, small business administration guaranteed loan certificates (SBA), residential and commercial agency mortgage-backed securities, and agency collateralized mortgage obligations (CMO) include securities issued by the Government National Mortgage Association (GNMA), a U.S. government agency, and the Federal National Mortgage Association (FNMA), the Federal Home Loan Mortgage Corporation (FHLMC) and the Federal Home Loan Bank (FHLB), which are U.S. government-sponsored enterprises.

 

Other Investments and securities primarily consist of Federal Home Loan Bank stock, subordinated debt equity securities, and the Company’s interest in statutory trusts. These securities are reported at cost in other assets in the amount of $9.8 million and $9.8 million as of March 31, 2017 and December 31, 2016, respectively.

 

Debt securities with carrying values aggregating approximately $176.8 million and $167.6 million at March 31, 2017 and December 31, 2016, respectively, were pledged to secure public funds, securities sold under agreements to repurchase, and for other purposes as required or permitted by law.

 

The amortized cost and fair value of debt securities classified as available-for-sale at March 31, 2017, by contractual maturity are shown below. Expected maturities may differ from contractual maturities because borrowers have the right to call or prepay obligations with or without prepayment penalties.

 

16 

 

 

Hawthorn Bancshares, Inc.
and subsidiaries

 

Notes to the Consolidated Financial Statements

 

(Unaudited)

 

   Amortized   Fair 
(in thousands)  Cost   Value 
Due in one year or less  $4,136   $4,138 
Due after one year through five years   59,006    58,628 
Due after five years through ten years   26,630    26,123 
Due after ten years   6,042    5,969 
Total   95,814    94,858 
Mortgage-backed securities   122,986    121,312 
Total available-for-sale securities  $218,800   $216,170 

 

Gross unrealized losses on debt securities and the fair value of the related securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at March 31, 2017 and December 31, 2016 were as follows:

 

   Less than 12 months   12 months or more   Total   Total 
   Fair   Unrealized   Fair   Unrealized   Fair   Unrealized 
(in thousands)  Value   Losses   Value   Losses   Value   Losses 
At March 31, 2017                              
U.S. government and federal agency obligations  $8,362   $(168)  $4,909   $(121)  $13,271   $(289)
Government sponsored enterprises   34,190    (331)   0    0    34,190    (331)
Obligations of states and political subdivisions   28,205    (516)   0    0    28,205    (516)
Mortgage-backed securities:                              
Residential - government agencies   81,414    (1,381)   23,717    (435)   105,131    (1,816)
Total  $152,171   $(2,396)  $28,626   $(556)  $180,797   $(2,952)
                               
(in thousands)                              
At December 31, 2016                              
U.S. government and federal agency obligations  $13,365   $(303)  $0   $0   $13,365   $(303)
Government sponsored enterprises   29,432    (329)   0    0    29,432    (329)
Obligations of states and political subdivisions   32,318    (757)   0    0    32,318    (757)
Mortgage-backed securities:                              
Residential - government agencies   109,772    (1,848)   3,742    (147)   113,514    (1,995)
Total  $184,887   $(3,237)  $3,742   $(147)  $188,629   $(3,384)

 

The total available for sale portfolio consisted of approximately 309 securities at March 31, 2017. The portfolio included 205 securities having an aggregate fair value of $180.8 million that were in a loss position at March 31, 2017. Securities identified as temporarily impaired which had been in a loss position for 12 months or longer totaled $28.6 million at fair value. The $3.0 million aggregate unrealized loss included in accumulated other comprehensive income at March 31, 2017 was caused by interest rate fluctuations.

 

The total available for sale portfolio consisted of approximately 298 securities at December 31, 2016. The portfolio included 216 securities having an aggregate fair value of $188.6 million that were in a loss position at December 31, 2016. Securities identified as temporarily impaired which had been in a loss position for 12 months or longer had a fair value of $3.7 million at December 31, 2016. The $3.4 million aggregate unrealized loss included in accumulated other comprehensive income at December 31, 2016 was caused by interest rate fluctuations.

 

Because the decline in fair value is attributable to changes in interest rates and not credit quality, these investments were not considered other-than-temporarily impaired at March 31, 2017 and December 31, 2016, respectively. In the absence of changes in credit quality of these investments, the fair value is expected to recover on all debt securities as they approach their maturity date or re-pricing date, or if market yields for such investments decline. In addition, the Company does not have the intent to sell these investments over the period of recovery, and it is not more likely than not that the Company will be required to sell such investment securities.

 

17 

 

 

Hawthorn Bancshares, Inc.
and subsidiaries

 

Notes to the Consolidated Financial Statements

 

(Unaudited)

 

The table presents the components of investment securities gains and losses, which have been recognized in earnings:

 

   Three Months Ended March 31, 
(in thousands)  2017   2016 
Gains realized on sales  $0   $472 
Losses realized on sales   0    0 
Other-than-temporary impairment recognized   0    0 
Investment securities gains  $0   $472 

 

(5)Intangible Assets

 

Mortgage Servicing Rights

 

At March 31, 2017, the Company was servicing approximately $291.0 million of loans sold to the secondary market compared to $294.4 million at December 31, 2016, and $308.1 million at March 31, 2016. Mortgage loan servicing fees, reported as non-interest income, earned on loans sold were $209,000 for the three ended March 31, 2017 compared to $210,000 for the three months ended March 31, 2016, respectively.

 

The table below presents changes in mortgage servicing rights (MSRs) for the periods indicated.

 

   Three Months Ended March 31, 
(in thousands)  2017   2016 
Balance at beginning of period  $2,584   $2,847 
Originated mortgage servicing rights   49    53 
Changes in fair value:          
Due to change in model inputs and assumptions (1)   375    (3)
Other changes in fair value (2)   (131)   (152)
Balance at end of period  $2,877   $2,745 

 

(1)The change in fair value resulting from changes in valuation inputs or assumptions used in the valuation model reflects the change in discount rates and prepayment speed assumptions primarily due to changes in interest rates.
(2)Other changes in fair value reflect changes due to customer payments and passage of time.

 

The following key data and assumptions were used in estimating the fair value of the Company’s MSRs as of the three months ended March 31, 2017 and 2016:

 

   Three Months Ended March 31, 
   2017   2016 
Weighted average constant prepayment rate   8.29%   10.30%
Weighted average note rate   3.85%   3.91%
Weighted average discount rate   9.72%   9.19%
Weighted average expected life (in years)   6.50    5.70 

 

(6)Federal funds purchased and securities sold under agreements to repurchase

 

   March 31,   December 31, 
   2017   2016 
Federal funds purchased  $0   $992 
Repurchase agreements   31,512    30,023 
Total  $31,512   $31,015 

 

The Company offers a sweep account program whereby amounts in excess of an established limit are “swept” from the customer’s demand deposit account on a daily basis into retail repurchase agreements pursuant to individual repurchase agreements between the Company and its customers. Repurchase agreements are agreements to sell securities subject to an obligation to repurchase the same or similar securities. They are accounted for as collateralized financing transactions, not as

 

18 

 

 

Hawthorn Bancshares, Inc.
and subsidiaries

 

Notes to the Consolidated Financial Statements

 

(Unaudited)

 

sales and purchases of the securities portfolio. The securities collateral pledged for the repurchase agreements with customers is maintained by a designated third party custodian. The collateral amounts pledged to repurchase agreements by remaining maturity in the table below are limited to the outstanding balances of the related asset or liability; thus amounts of excess collateral are not shown.

 

Repurchase Agreements  Remaining Contractual Maturity of the Agreements 
   Overnight   Less   Greater     
   and   than   than     
(in thousands)  continuous   90 days   90 days   Total 
At March 31, 2017                    
U.S. government and federal agency obligations  $3,513   $0   $0   $3,513 
Government sponsored enterprises   7,291    0    0    7,291 
Asset-backed securities   20,708    0    0    20,708 
Total  $31,512   $0   $0   $31,512 
                     
At December 31, 2016                    
U.S. government and federal agency obligations  $3,489   $0   $0   $3,489 
Government sponsored enterprises   7,324    0    0    7,324 
Asset-backed securities   19,210    0    0    19,210 
Total  $30,023   $0   $0   $30,023 

 

(7)Income Taxes

 

Income taxes as a percentage of earnings before income taxes as reported in the consolidated financial statements were 34.2% for the three months ended March 31, 2017 compared to 32.6% for the three months ended March 31, 2016. The increase in tax rates quarter over quarter is primarily due to an immaterial return to provision adjustment made in 2016.

 

The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income of the appropriate character during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, taxable income available in carryback years, and tax planning strategies in making this assessment. With the exception of certain capital losses generated during 2013 and 2014, it is management’s opinion that the Company will more likely than not realize the benefits of these temporary differences as of March 31, 2017 and, therefore, only established a valuation reserve against the Company’s capital loss carry forward. Management arrived at this conclusion based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible. As indicated above, the Company generated approximately $219,000 of capital losses during 2013 and 2014 as a result of disposing of certain limited partnership interests. The capital losses will expire between 2018 and 2019, and it is management’s opinion that the Company will not more likely than not generate the capital gain income necessary to utilize the capital loss carry forwards before the capital losses expire. As such, the Company has established an $83,000 valuation reserve against its capital loss carry forward deferred tax asset.

 

(8)Stockholders’ Equity

 

Accumulated Other Comprehensive Loss

 

The following details the change in the components of the Company’s accumulated other comprehensive loss for the three months ended March 31, 2017 and 2016:

 

19 

 

 

Hawthorn Bancshares, Inc.
and subsidiaries

 

Notes to the Consolidated Financial Statements

 

(Unaudited)

 

   Three months ended March 31, 2017 
       Unrecognized Net   Accumulated 
   Unrealized   Pension and   Other 
   Gain (Loss)   Postretirement   Comprehensive 
(in thousands)  on Securities (1)   Costs (2)   Loss 
Balance at beginning of period  $(1,936)  $(1,865)  $(3,801)
Other comprehensive income, before reclassifications   493    22    515 
Amounts reclassified from accumulated other comprehensive income (loss)   0    0    0 
Current period other comprehensive income, before tax   493    22    515 
Income tax expense   (187)   (8)   (195)
Current period other comprehensive income, net of tax   306    14    320 
Balance at end of period  $(1,630)  $(1,851)  $(3,481)

 

   Three months ended March 31, 2016 
       Unrecognized Net   Accumulated 
   Unrealized   Pension and   Other 
   Gain (Loss)   Postretirement   Comprehensive 
(in thousands)  on Securities (1)   Costs (2)   Loss 
Balance at beginning of period  $(591)  $(1,427)  $(2,018)
Other comprehensive income, before reclassifications   2,006    21    2,027 
Amounts reclassified from accumulated other comprehensive income (loss)   (472)   0    (472)
Current period other comprehensive income, before tax   1,534    21    1,555 
Income tax expense   (583)   (8)   (591)
Current period other comprehensive income, net of tax   951    13    964 
Balance at end of period  $360   $(1,414)  $(1,054)

 

(1) The pre-tax amounts reclassified from accumulated other comprehensive loss are included in gain on sale of investment securities in the consolidated statements of income.

(2) The pre-tax amounts reclassified from accumulated other comprehensive loss are included in the computation of net periodic pension cost.

 

(9)Employee Benefit Plans

 

Employee Benefits

 

Employee benefits charged to operating expenses are summarized in the table below for the periods indicated.

 

   Three Months Ended March 31, 
(in thousands)  2017   2016 
Payroll taxes  $356   $296 
Medical plans   426    512 
401k match and profit sharing   250    181 
Pension plan   352    307 
Other   16    16 
Total employee benefits  $1,400   $1,312 

 

The Company’s profit-sharing plan includes a matching 401k portion, in which the Company matches the first 3% of eligible employee contributions. The Company made annual contributions in an amount up to 6% of income before income taxes and before contributions to the profit-sharing and pension plans for all participants, limited to the maximum amount deductible for federal income tax purposes, for each of the periods shown. In addition, employees were able to make additional tax-deferred contributions.

 

20 

 

 

Hawthorn Bancshares, Inc.
and subsidiaries

 

Notes to the Consolidated Financial Statements

 

(Unaudited)

 

Pension

 

The Company provides a noncontributory defined benefit pension plan for all full-time employees. An employer is required to recognize the funded status of a defined benefit postretirement plan as an asset or liability in its balance sheet and to recognize changes in that funded status in the year in which the changes occur through comprehensive income. Under the Company’s funding policy for the defined benefit pension plan, contributions are made to a trust as necessary to provide for current service and for any unfunded accrued actuarial liabilities over a reasonable period. To the extent that these requirements are fully covered by assets in the trust, a contribution might not be made in a particular year. The Company expects to make a pension contribution in the amount of $1.2 million on September 15, 2017. The minimum required contribution for 2017 is $842,000.

 

Components of Net Pension Cost and Other Amounts Recognized in Accumulated Other Comprehensive Income

 

The following items are components of net pension cost for the periods indicated:

 

   Estimated   Actual 
(in thousands)  2017   2016 
Service cost - benefits earned during the year  $1,343   $1,179 
Interest costs on projected benefit obligations   1,008    956 
Expected return on plan assets   (1,123)   (1,057)
Expected administrative expenses   88    70 
Amortization of prior service cost   79    79 
Amortization of unrecognized net loss   11    0 
Net periodic pension expense  $1,406   $1,227 
           
Pension expense - three months ended March 31, (actual)  $352   $307 

 

(10)Stock Compensation

 

The Company’s stock option plan provides for the grant of options to purchase up to 557,706 shares of the Company’s common stock to officers and other key employees of the Company and its subsidiaries. All options have been granted at exercise prices equal to fair value and vest over periods ranging from four to five years.

 

The following table summarizes the Company’s stock option activity:

 

           Weighted     
       Weighted   Average   Aggregate 
   Number   average   Contractual   Intrinsic 
   of   Exercise   Term   Value 
   Shares   Price   (in years)   ($000) 
Outstanding, beginning of period   44,458   $20.11           
Granted   0    0.00           
Exercised   0    0.00           
Forfeited or expired   (4,345)   20.34           
Outstanding, March 31, 2017   40,113   $20.08    0.75   $110,931 
Exercisable, March 31, 2017   38,844   $20.24    0.73   $103,647 

 

Options have been adjusted to reflect a 4% stock dividend paid on July 1, 2016.

 

Total stock-based compensation expense was $1,000 and $5,000 for the three months ended March 31, 2017 and 2016, respectively. As of March 31, 2017, the total unrecognized compensation expense related to non-vested stock awards was $2,000 and the related weighted average period over which it is expected to be recognized is approximately 0.26 years.

 

21 

 

 

Hawthorn Bancshares, Inc.
and subsidiaries

 

Notes to the Consolidated Financial Statements

 

(Unaudited)

 

(11)Earnings per Share

 

Stock Dividend On July 1, 2016, the Company paid a special stock dividend of 4% to common shareholders of record at the close of business on June 15, 2016. For all periods presented, share information, including basic and diluted earnings per share, has been adjusted retroactively to reflect this change.

 

Basic earnings per share is computed by dividing income available to shareholders by the weighted average number of shares outstanding during the year. Diluted earnings per share gives effect to all dilutive potential shares that were outstanding during the year. The calculations of basic and diluted earnings per share are as follows for the periods indicated:

 

   Three Months Ended March 31, 
(dollars in thousands, except per share data)  2017   2016 
Basic earnings per share:          
Net income available to shareholders  $2,100   $1,998 
Basic earnings per share  $0.37   $0.35 
Diluted earnings per share:          
Net income available to shareholders  $2,100   $1,998 
Average shares outstanding   5,615,300    5,654,066 
Effect of dilutive stock options   4,726    0 
Average shares outstanding including dilutive stock options   5,620,026    5,654,066 
Diluted earnings per share  $0.37    0.35 

 

Under the treasury stock method, outstanding stock options are dilutive when the average market price of the Company’s common stock, when combined with the effect of any unamortized compensation expense, exceeds the option price during the period, except when the Company has a loss from continuing operations available to shareholders. In addition, proceeds from the assumed exercise of dilutive options along with the related tax benefit are assumed to be used to repurchase common shares at the average market price of such stock during the period.

 

Options to purchase 20,787 and 44,458 shares during the three months ended March 31, 2017 and 2016, respectively, were not included in the respective computations of diluted earnings per share because the exercise price of the option, when combined with the effect of the unamortized compensation expense, was greater than the average market price of the common shares and were considered anti-dilutive.

 

Repurchase Program On August 6, 2015, the Board of Directors authorized a share repurchase plan to purchase through open market transactions $2.0 million market value of the Company’s common stock. As of March 31, 2017, the Company repurchased a total of 45,293 shares of common stock pursuant to the plan at an average price of $15.04 per share, including 1,400 shares of common stock repurchased pursuant to the plan during the three months ended March 31, 2017 at an average price of $17.88 per share. At March 31, 2017, approximately $1.3 million may be used to purchase shares under the plan.

 

The table below shows activity in the outstanding shares of the Company's common stock during the past three years. Shares in the table below are presented on a historical basis and have not been restated for the annual 4% stock dividends.

 

   Number of shares 
   March 31,   December 31,   March 31, 
   2017   2016   2016 
Outstanding, beginning of year   5,616,607    5,441,190    5,441,190 
Issuance of stock:               
4% stock dividend   0    217,155    0 
Purchase of treasury stock   (1,400)   (41,738)   (8,635)
Outstanding, end of year   5,615,207    5,616,607    5,432,555 

 

Except as noted in the above table, all share and per share amounts in this note have been restated for the 4% common stock dividend distributed July 1, 2016.

 

22 

 

 

Hawthorn Bancshares, Inc.
and subsidiaries

 

Notes to the Consolidated Financial Statements

 

(Unaudited)

 

(12)Fair Value Measurements

 

The Company uses fair value measurements to record fair value adjustments to certain financial and nonfinancial assets and liabilities. The FASB ASC Topic 820, Fair Value Measurements and Disclosures, defines fair value, establishes a framework for the measurement of fair value, and enhances disclosures about fair value measurements. The standard applies whenever other standards require (permit) assets or liabilities to be measured at fair value but does not expand the use of fair value in any new circumstances. In this standard, FASB clarified the principle that fair value should be based on the assumptions market participants would use when pricing the asset or liability. In support of this principle, the standard establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. As of March 31, 2017 and December 31, 2016, respectively, there were no transfers into or out of Levels 1-3.

 

The fair value hierarchy is as follows:

 

Level 1 – Inputs are unadjusted quoted prices for identical assets or liabilities in active markets.

 

Level 2 – Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets and liabilities in active markets, such as interest rates and yield curves that are observable at commonly quoted intervals.

 

Level 3 – Inputs are unobservable inputs for the asset or liability and significant to the fair value. These may be internally developed using the Company’s best information and assumptions that a market participant would consider.

 

ASC Topic 820 also provides guidance on determining fair value when the volume and level of activity for the asset or liability have significantly decreased and on identifying circumstances when a transaction may not be considered orderly.

 

The Company is required to disclose assets and liabilities measured at fair value on a recurring basis separate from those measured at fair value on a nonrecurring basis. Nonfinancial assets measured at fair value on a nonrecurring basis would include foreclosed real estate, long-lived assets, and core deposit intangible assets, which are reviewed when circumstances or other events indicate that impairment may have occurred. 

 

Valuation Methods for Instruments Measured at Fair Value on a Recurring Basis

 

Following is a description of the Company’s valuation methodologies used for assets and liabilities recorded at fair value on a recurring basis:

 

Available-for-Sale Securities

 

The fair value measurements of the Company’s investment securities are determined by a third party pricing service which considers observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions, among other things. The fair value measurements are subject to independent verification to another pricing source by management each quarter for reasonableness. Securities classified as available-for-sale are reported at fair value utilizing Level 2 inputs.

 

Mortgage Servicing Rights

 

The fair value of mortgage servicing rights is based on the discounted value of estimated future cash flows utilizing contractual cash flows, servicing rate, constant prepayment rate, servicing cost, and discount rate factors. Accordingly, the fair value is estimated based on a valuation model that calculates the present value of estimated future net servicing income. The model incorporates assumptions that market participants use in estimating future net servicing income, including estimates of prepayment speeds, market discount rates, cost to service, float earnings rates, and other ancillary income, including late fees. The valuation models estimate the present value of estimated future net servicing income. The Company classifies its servicing rights as Level 3.

 

23 

 

 

Hawthorn Bancshares, Inc.
and subsidiaries

 

Notes to the Consolidated Financial Statements

 

(Unaudited)

 

       Fair Value Measurements 
       Quoted Prices         
       in Active         
       Markets for   Other   Significant 
       Identical   Observable   Unobservable 
       Assets   Inputs   Inputs 
(in thousands)  Fair Value   (Level 1)   (Level 2)   (Level 3) 
March 31, 2017                    
Assets:                    
U.S. government and federal agency obligations  $13,271   $0    13,271   $0 
Government sponsored enterprises   35,190    0    35,190    0 
Obligations of states and political subdivisions   46,397    0    46,397    0 
Mortgage-backed securities   121,312    0    121,312    0 
Mortgage servicing rights   2,877    0    0    2,877 
Total  $219,047   $0   $216,170   $2,877 
                     
December 31, 2016                    
Assets:                    
U.S. government and federal agency obligations  $13,364   $0    13,364   $0 
Government sponsored enterprises   32,459    0    32,459    0 
Obligations of states and political subdivisions   42,032    0    42,032    0 
Mortgage-backed securities   126,657    0    126,657    0 
Mortgage servicing rights   2,584    0    0    2,584 
Total  $217,096   $0   $214,512   $2,584 

 

The changes in Level 3 assets and liabilities measured at fair value on a recurring basis are summarized as follows:

 

   Fair Value Measurements Using 
   Significant Unobservable Inputs 
   (Level 3) 
   Mortgage Servicing Rights 
(in thousands)  Three Months Ended March 31, 
   2017   2016 
Balance at beginning of period  $2,584   $2,847 
Total gains or losses (realized/unrealized):          
Included in earnings   244    (155)
Included in other comprehensive income   0    0 
Purchases   0    0 
Sales   0    0 
Issues   49    53 
Settlements   0    0 
Balance at end of period  $2,877   $2,745 

 

The change in valuation of mortgage servicing rights arising from inputs and assumptions increased $375,000 and $3,000 for the three months ended March 31, 2017 and 2016, respectively.

 

24 

 

 

Hawthorn Bancshares, Inc.
and subsidiaries

 

Notes to the Consolidated Financial Statements

 

(Unaudited)

 

   Quantitative Information about Level 3 Fair Value Measurements    
   Valuation Technique  Unobservable Inputs  Input Value 
         Three Months Ended March 31, 
         2017   2016 
Mortgage servicing rights   Discounted cash flows  Weighted average constant prepayment rate   8.29%   10.30%
      Weighted average note rate   3.85%   3.91%
      Weighted average discount rate   9.72%   9.19%
      Weighted average expected life (in years)   6.50    5.70 

 

Valuation methods for instruments measured at fair value on a nonrecurring basis

 

Following is a description of the Company’s valuation methodologies used for assets and liabilities recorded at fair value on a nonrecurring basis:

 

Impaired Loans

 

The Company does not record loans at fair value on a recurring basis other than loans that are considered impaired. The net carrying value of impaired loans is generally based on fair values of the underlying collateral obtained through independent appraisals or internal evaluations, or by discounting the total expected future cash flows. Once the fair value of the collateral has been determined and any impairment amount calculated, a specific reserve allocation is made. Because many of these inputs are not observable, the measurements are classified as Level 3. As of March 31, 2017, the Company identified $7.7 million in impaired loans that had specific allowances for losses aggregating $1.1 million. Related to these loans, there was $20,000 in charge-offs recorded during the three months ended March 31, 2017. As of March 31, 2016, the Company identified $5.2 million in impaired loans that had specific allowances for losses aggregating $1.3 million. Related to these loans, there was $560,000 in charge-offs recorded during the three months ended March 31, 2016.

 

Other Real Estate and Foreclosed Assets

 

Other real estate and foreclosed assets consisted of loan collateral that has been repossessed through foreclosure. This collateral is comprised of commercial and residential real estate and other non-real estate property, including autos, manufactured homes, and construction equipment. Other real estate assets are recorded as held for sale initially at the lower of the loan balance or fair value of the collateral less estimated selling costs. The Company relies on external appraisals and assessment of property values by internal staff. In the case of non-real estate collateral, reliance is placed on a variety of sources, including external estimates of value and judgment based on experience and expertise of internal specialists. Subsequent to foreclosure, valuations are updated periodically, and the assets may be written down to reflect a new cost basis. Because many of these inputs are not observable, the measurements are classified as Level 3.

 

25 

 

 

Hawthorn Bancshares, Inc.
and subsidiaries

 

Notes to the Consolidated Financial Statements

 

(Unaudited)

 

       Fair Value Measurements Using     
       Quoted Prices           Three 
       in Active           Months 
       Markets for   Other   Significant   Ended 
       Identical   Observable   Unobservable   March 31, 
   Total   Assets   Inputs   Inputs   Total Gains 
(in thousands)  Fair Value   (Level 1)   (Level 2)   (Level 3)   (Losses)* 
March 31, 2017                         
Assets:                         
Impaired loans:                         
Commercial, financial, & agricultural  $803   $0   $0   $803   $(1)
Real estate construction - commercial   42    0    0    42    0 
Real estate mortgage - residential   4,410    0    0    4,410    (3)
Real estate mortgage - commercial   1,308    0    0    1,308    (4)
Consumer   47    0    0    47    (12)
Total  $6,610   $0   $0   $6,610   $(20)
Other real estate and foreclosed assets  $13,625   $0   $0   $13,625   $15 
                          
March 31, 2016                         
Assets:                         
Impaired loans:                         
Commercial, financial, & agricultural  $248   $0   $0   $248   $(359)
Real estate construction - commercial   44    0    0    44    0 
Real estate mortgage - residential   3,170    0    0    3,170    (35)
Real estate mortgage - commercial   243    0    0    243    (154)
Consumer   100    0    0    100    (12)
Total  $3,805   $0   $0   $3,805   $(560)
Other real estate and foreclosed assets  $15,471   $0   $0   $15,471   $33 

 

* Total gains (losses) reported for other real estate and foreclosed assets includes charge-offs, valuation write downs, and net losses taken during the periods reported.

 

(13)Fair Value of Financial Instruments

 

The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate such value:

 

Loans

 

The fair values of loans are estimated by discounting the expected future cash flows using the current rates at which similar loans could be made to borrowers with similar credit ratings and for the same remaining maturities. The net carrying amount of impaired loans is generally based on the fair values of collateral obtained through independent appraisals or internal evaluations, or by discounting the total expected future cash flows. This method of estimating fair value does not incorporate the exit-price concept of fair value prescribed by ASC Topic 820.

 

Investment Securities

 

A detailed description of the fair value measurement of the debt instruments in the available-for-sale sections of the investment security portfolio is provided in the Fair Value Measurement section above. A schedule of investment securities by category and maturity is provided in the notes on Investment Securities.

 

Federal Home Loan Bank (FHLB) Stock

 

Ownership of equity securities of FHLB is restricted and there is no established market for their resale. The carrying amount is a reasonable estimate of fair value.

 

26 

 

 

Hawthorn Bancshares, Inc.
and subsidiaries

 

Notes to the Consolidated Financial Statements

 

(Unaudited)

 

Federal Funds Sold, Cash, and Due from Banks

 

The carrying amounts of short-term federal funds sold and securities purchased under agreements to resell, interest earning deposits with banks, and cash and due from banks approximate fair value. Federal funds sold and securities purchased under agreements to resell classified as short-term generally mature in 90 days or less.

 

Mortgage Servicing Rights

 

The fair value of mortgage servicing rights is based on the discounted value of estimated future cash flows utilizing contractual cash flows, servicing rate, constant prepayment rate, servicing cost, and discount rate factors. Accordingly, the fair value is estimated based on a valuation model that calculates the present value of estimated future net servicing income. The model incorporates assumptions that market participants use in estimating future net servicing income, including estimates of prepayment speeds, market discount rates, cost to service, float earnings rates, and other ancillary income, including late fees.

 

Cash Surrender Value - Life Insurance

 

The fair value of Bank owned life insurance (BOLI) approximates the carrying amount. Upon liquidation of these investments, the Company would receive the cash surrender value which equals the carrying amount.

 

Accrued Interest Receivable and Payable

 

For accrued interest receivable and payable, the carrying amount is a reasonable estimate of fair value because of the short maturity for these financial instruments.

 

Deposits

 

The fair value of deposits with no stated maturity, such as noninterest-bearing demand, NOW accounts, savings, and money market, is equal to the amount payable on demand. The fair value of time deposits is based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently offered for deposits of similar remaining maturities.

 

Securities Sold under Agreements to Repurchase and Interest-bearing Demand Notes to U.S. Treasury

 

For securities sold under agreements to repurchase and interest-bearing demand notes to U.S. Treasury, the carrying amount is a reasonable estimate of fair value, as such instruments reprice in a short time period.

 

Subordinated Notes and Other Borrowings

 

The fair value of subordinated notes and other borrowings is based on the discounted value of contractual cashflows. The discount rate is estimated using the rates currently offered for other borrowed money of similar remaining maturities.

 

27 

 

 

Hawthorn Bancshares, Inc.
and subsidiaries

 

Notes to the Consolidated Financial Statements

 

(Unaudited)

 

A summary of the carrying amounts and fair values of the Company’s financial instruments at March 31, 2017 and December 31, 2016 is as follows:

 

           March 31, 2017 
           Fair Value Measurements 
           Quoted Prices         
           in Active       Net 
           Markets for   Other   Significant 
   March 31, 2017   Identical   Observable   Unobservable 
   Carrying   Fair   Assets   Inputs   Inputs 
(in thousands)  Amount   Value   (Level 1)   (Level 2)   (Level 3) 
Assets:                         
Cash and due from banks  $16,746   $16,746   $16,746   $0   $0 
Federal funds sold and overnight interest-bearing deposits   6,427    6,427    6,427    0    0 
Investment in available-for-sale securities   216,170    216,170    0    216,170    0 
Loans, net   999,920    993,219    0    0    993,219 
Investment in FHLB stock   5,212    5,212    0    5,212    0 
Mortgage servicing rights   2,877    2,877    0    0    2,877 
Cash surrender value - life insurance   2,430    2,430    0    2,430    0 
Accrued interest receivable   4,702    4,702    4,702    0    0 
   $1,254,484   $1,247,783   $27,875   $223,812   $996,096 
Liabilities:                         
Deposits:                         
Non-interest bearing demand  $239,059   $239,059   $239,059   $0   $0 
Savings, interest checking and money market   519,379    519,379    519,379    0    0 
Time deposits   284,566    282,822    0    0    282,822 
Federal funds purchased and securities sold under agreements to repurchase   31,512    31,512    31,512    0    0 
Subordinated notes   49,486    34,228    0    34,228    0 
Federal Home Loan Bank advances   91,900    92,225    0    92,225    0 
Accrued interest payable   452    452    452    0    0 
   $1,216,354   $1,199,677   $790,402   $126,453   $282,822 

 

28 

 

 

Hawthorn Bancshares, Inc.
and subsidiaries

 

Notes to the Consolidated Financial Statements

 

(Unaudited)

 

           December 31, 2016 
           Fair Value Measurements 
           Quoted Prices         
           in Active       Net 
           Markets for   Other   Significant 
   December 31, 2016   Identical   Observable   Unobservable 
   Carrying   Fair   Assets   Inputs   Inputs 
(in thousands)  amount   value   (Level 1)   (Level 2)   (Level 3) 
Assets:                         
Cash and due from banks  $25,589   $25,589   $25,589   $0   $0 
Federal funds sold and overnight interest-bearing deposits   1,406    1,406    1,406    0    0 
Investment in available-for-sale securities   214,512    214,512    0    214,512    0 
Loans, net   964,143    959,929    0    0    959,929 
Investment in FHLB stock   5,149    5,149    0    5,149    0 
Mortgage servicing rights   2,584    2,584    0    0    2,584 
Cash surrender value - life insurance   2,409    2,409    0    2,409    0 
Accrued interest receivable   5,183    5,183    5,183    0    0 
   $1,220,975   $1,216,761   $32,178   $222,070   $962,513 
Liabilities:                         
Deposits:                         
Non-interest bearing demand  $235,975   $235,975   $235,975   $0   $0 
Savings, interest checking and money market   468,731    468,731    468,731    0    0 
Time deposits   305,960    304,334    0    0    304,334 
Federal funds purchased and securities sold under agreements to repurchase   31,015    31,015    31,015    0    0 
Subordinated notes   49,486    33,712    0    33,712    0 
Other borrowings   93,392    93,209    0    93,209    0 
Accrued interest payable   498    498    498    0    0 
   $1,185,057   $1,167,474   $736,219   $126,921   $304,334 

 

Off-Balance Sheet Financial Instruments

 

The fair value of commitments to extend credit and standby letters of credit is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements, the likelihood of the counterparties drawing on such financial instruments, and the present creditworthiness of such counterparties. The Company believes such commitments have been made on terms that are competitive in the markets in which it operates.

 

Limitations

 

The fair value estimates provided are made at a point in time based on market information and information about the financial instruments. Because no market exists for a portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the fair value estimates.

 

(14)Repurchase Reserve Liability

 

The Company’s repurchase reserve liability for estimated losses incurred on sold loans was $160,000 at both March 31, 2017 and December 31, 2016. This liability represents management’s estimate of the potential repurchase or make-whole liability for residential mortgage loans originated for sale that may arise from representation and warranty claims that could relate to a variety of issues, including but not limited to, misrepresentation of facts, appraisal issues, or program requirements that may not meet investor guidelines. At March 31, 2017, the Company was servicing 2,843 loans sold to the secondary market with a

 

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Hawthorn Bancshares, Inc.
and subsidiaries

 

Notes to the Consolidated Financial Statements

 

(Unaudited)

  

balance of approximately $291.00 million compared to 2,877 loans sold with a balance of approximately $294.4 million at December 31, 2016.

 

   Three Months Ended March 31, 
(in thousands)  2017   2016 
Balance at beginning of year  $160   $160 
Provision for repurchase liability   0    0 
Reimbursement of expenses   0    0 
Balance at end of year  $160   $160 

 

(15)Commitments and Contingencies

 

The Company issues financial instruments with off-balance-sheet risk in the normal course of business of meeting the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. These instruments may involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized in the consolidated balance sheets.

 

The Company’s extent of involvement and maximum potential exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of these instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for financial instruments included on its consolidated balance sheets. At March 31, 2017, no amounts have been accrued for any estimated losses for these financial instruments.

 

The contractual amount of off-balance-sheet financial instruments were as follows as of the dates indicated:

 

   March 31,   December 31, 
(in thousands)  2017   2016 
Commitments to extend credit  $238,425   $253,375 
Commitments to originate residential first and second mortgage loans   3,751    2,626 
Standby letters of credit   23,570    2,745 
Total   265,746    258,746 

 

Commitments

 

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since certain of the commitments and letters of credit are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the customer. Collateral held varies, but may include accounts receivable, inventory, furniture and equipment, and real estate.

 

Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. These standby letters of credit are primarily issued to support contractual obligations of the Company’s customers. The approximate remaining term of standby letters of credit range from one month to five years at March 31, 2017.

 

Pending Litigation

 

The Company and its subsidiaries are defendants in various legal actions incidental to the Company’s past and current business activities. Based on the Company’s analysis, and considering the inherent uncertainties associated with litigation, management does not believe that it is reasonably possible that these legal actions will materially adversely affect the Company’s consolidated financial condition or results of operations in the near term. The Company records a loss accrual for all legal matters for which it deems a loss is probable and can be reasonably estimated. Some legal matters, which are at early stages in the legal process, have not yet progressed to the point where a loss is deemed probable or an amount can be estimated.

 

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Item 2 - Management’s Discussion and Analysis of Financial Condition

And Results of Operations

 

Forward-Looking Statements

 

This report contains certain forward-looking statements with respect to the financial condition, results of operations, plans, objectives, future performance and business of the Company, Hawthorn Bancshares, Inc., and its subsidiaries, including, without limitation:

 

·statements that are not historical in nature, and
·statements preceded by, followed by or that include the words believes, expects, may, will, should, could, anticipates, estimates, intends or similar expressions.

 

Forward-looking statements are not guarantees of future performance or results. They involve risks, uncertainties and assumptions. Actual results may differ materially from those contemplated by the forward-looking statements due to, among others, the following factors:

 

·competitive pressures among financial services companies may increase significantly,
·changes in the interest rate environment may reduce interest margins,
·general economic conditions, either nationally or in Missouri, may be less favorable than expected and may adversely affect the quality of our loans and other assets,
·increases in non-performing assets in the Company’s loan portfolios and adverse economic conditions may necessitate increases to our provisions for loan losses,
·costs or difficulties related to the integration of the business of the Company and its acquisition targets may be greater than expected,
·legislative or regulatory changes may adversely affect the business in which the Company and its subsidiaries are engaged, and
·changes may occur in the securities markets.

 

We have described under the caption Risk Factors in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016, and in other reports filed with the SEC from time to time, additional factors that could cause actual results to be materially different from those described in the forward-looking statements. Other factors that have not been identified in this report could also have this effect. You are cautioned not to put undue reliance on any forward-looking statement, which speak only as of the date they were made.

 

Overview

 

Crucial to the Company’s community banking strategy is growth in its commercial banking services, retail mortgage lending and retail banking services. Through the branch network of its subsidiary bank, the Company, with $1.3 billion in assets at March 31, 2017, provides a broad range of commercial and personal banking services. The Bank’s specialties include commercial banking for small and mid-sized businesses, including equipment, operating, commercial real estate, Small Business Administration (SBA) loans, and personal banking services including real estate mortgage lending, installment and consumer loans, certificates of deposit, individual retirement and other time deposit accounts, checking accounts, savings accounts, and money market accounts. Other financial services that the Company provides include trust services that include estate planning, investment and asset management services and a comprehensive suite of cash management services. The geographic areas in which the Company provides products and services include the Missouri communities in and surrounding Jefferson City, Columbia, Clinton, Warsaw, Springfield, Branson, and the greater Kansas City metropolitan area.

 

The Company's primary source of revenue is net interest income derived primarily from lending and deposit taking activities. Much of the Company's business is commercial, commercial real estate development, and residential mortgage lending. The Company's income from mortgage brokerage activities is directly dependent on mortgage rates and the level of home purchases and refinancing activity.

 

The success of the Company's growth strategy depends primarily on the ability of its banking subsidiary to generate an increasing level of loans and deposits at acceptable risk levels and on acceptable terms without significant increases in non-interest expenses relative to revenues generated. The Company's financial performance also depends, in part, on its ability to manage various portfolios and to successfully introduce additional financial products and services by expanding new and

 

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existing customer relationships, utilizing improved technology, and enhancing customer satisfaction. Furthermore, the success of the Company's growth strategy depends on its ability to maintain sufficient regulatory capital levels during periods in which general economic conditions are unfavorable and despite economic conditions being beyond its control.

 

The Company’s subsidiary bank is a full-service bank conducting a general banking business, offering its customers checking and savings accounts, debit cards, certificates of deposit, safety deposit boxes and a wide range of lending services, including commercial and industrial loans, residential real estate loans, single payment personal loans, installment loans and credit card accounts. In addition, the Bank provides trust services.

 

The deposit accounts of the Bank are insured by the Federal Deposit Insurance Corporation (FDIC) to the extent provided by law. The operations of the Bank are supervised and regulated by the FDIC and the Missouri Division of Finance. Periodic examinations of the Bank are conducted by representatives of the FDIC and the Missouri Division of Finance. Such regulations, supervision and examinations are principally for the benefit of depositors, rather than for the benefit of shareholders. The Company is subject to supervision and examination by the Board of Governors of the Federal Reserve System.

 

CRITICAL ACCOUNTING POLICIES

 

The following accounting policies are considered most critical to the understanding of the Company’s financial condition and results of operations. These critical accounting policies require management’s most difficult, subjective and complex judgments about matters that are inherently uncertain. Because these estimates and judgments are based on current circumstances, they may change over time or prove to be inaccurate based on actual experiences. In the event that different assumptions or conditions were to prevail, and depending upon the severity of such changes, the possibility of a materially different financial condition and/or results of operations could reasonably be expected. The impact and any associated risks related to the critical accounting policies on the business operations are discussed throughout Management’s Discussion and Analysis of Financial Condition and Results of Operations, where such policies affect the reported and expected financial results.

 

Allowance for Loan Losses

 

Management has identified the accounting policy related to the allowance for loan losses as critical to the understanding of the Company's results of operations, since the application of this policy requires significant management assumptions and estimates that could result in materially different amounts to be reported if conditions or underlying circumstances were to change. Further discussion of the methodology used in establishing the allowance and the impact of any associated risks related to these policies on the Company’s business operations is provided in note 1 to the Company’s unaudited consolidated financial statements and is also discussed in the Lending and Credit Management section below. Many of the loans are deemed collateral dependent for purposes of the measurement of the impairment loss, thus the fair value of the underlying collateral and sensitivity of such fair values due to changing market conditions, supply and demand, condition of the collateral and other factors can be volatile over periods of time. Such volatility can have an impact on the financial performance of the Company.

 

Other Real Estate and Foreclosed Assets

 

Other real estate and foreclosed assets consist of loan collateral that has been repossessed through foreclosure. This collateral is comprised of commercial and residential real estate and other non-real estate property, including vehicles, manufactured homes, and construction equipment. Other real estate assets are initially recorded as held for sale at the fair value of the collateral less estimated selling costs. Any adjustment is recorded as a charge-off against the allowance for loan losses. The Company relies on external appraisals and assessment of property values by internal staff. In the case of non-real estate collateral, reliance is placed on a variety of sources, including external estimates of value and judgment based on experience and expertise of internal specialists. Subsequent to foreclosure, valuations are updated periodically, and the assets may be written down to reflect a new cost basis. The write-downs are recorded as other real estate expense, net. The Company establishes a valuation allowance related to other real estate owned on an asset-by-asset basis. The valuation allowance is created during the holding period when the fair value less cost to sell is lower than the cost of the property.

 

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SELECTED CONSOLIDATED FINANCIAL DATA

 

The following table presents selected consolidated financial information for the Company as of and for each of the three months ended March 31, 2017 and 2016, respectively. The selected consolidated financial data should be read in conjunction with the unaudited consolidated financial statements of the Company, including the related notes, presented elsewhere herein.

 

Selected Financial Data

 

   Three Months Ended 
   March 31, 
(In thousands, except per share data)  2017   2016 
Per Share Data          
Basic earnings per share  $0.37   $0.35 
Diluted earnings per share   0.37    0.35 
Dividends paid on common stock   336    271 
Book value per share   16.58    15.89 
Market price per share   21.10    14.18 
Selected Ratios          
(Based on average balance sheets)          
Return on total assets   0.65%   0.66%
Return on stockholders' equity   9.23%   9.02%
Stockholders' equity to total assets   7.01%   7.28%
Efficiency ratio (1)   72.51%   73.87%
           
(Based on end-of-period data)          
Stockholders' equity to assets   7.05%   7.28%
Total risk-based capital ratio   13.37%   14.65%
Tier 1 risk-based capital ratio   11.06%   12.03%
Common equity Tier 1 capital   8.33%   9.02%
Tier 1 leverage ratio (2)   9.74%   9.90%

 

(1)Efficiency ratio is calculated as non-interest expense as a percentage of revenue. Total revenue includes net interest income and non-interest income.
(2)Tier I leverage ratio is calculated by dividing Tier 1 capital by average total consolidated assets.

 

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RESULTS OF OPERATIONS ANALYSIS

 

The Company has prepared all of the consolidated financial information in this report in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP). In preparing the consolidated financial statements in accordance with U.S. GAAP, the Company makes estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. There can be no assurances that actual results will not differ from those estimates.

 

   Three Months Ended March 31, 
(In thousands)  2017   2016   $ Change   % Change 
                 
Net interest income  $10,487   $9,848   $639    6.5%
Provision for loan losses   350    250    100    100.0 
Noninterest income   2,407    2,448    (41)   (1.7)
Noninterest expense   9,351    9,083    268    3.0 
Income before income taxes   3,193    2,963    230    7.8 
Income tax expense   1,093    965    128    13.3 
Net income  $2,100   $1,998   $102    5.1%

 

Consolidated net income of $2.1 million, or $0.37 per diluted share, for the three months ended March 31, 2017 increased $102,000 compared to $2.0 million, or $0.35 per diluted share, for the three months ended March 31, 2016. For the three months ended March 31, 2017, the return on average assets was 0.65%, the return on average stockholders’ equity was 9.23%, and the efficiency ratio was 72.51%.

 

Net interest income was $10.5 million for the three months ended March 31, 2017 compared to $9.8 million for the three months ended March 31, 2016. The net interest margin (expressed on a fully taxable equivalent basis) decreased to 3.48% for the three months ended March 31, 2017, compared to 3.51% for the three months ended March 31, 2016. These changes are discussed in greater detail under the Average Balance Sheets and Rate and Volume Analysis section below.

 

A $350,000 provision for loan losses was recorded for the three months ended March 31, 2017 compared to a $250,000 provision for the three months ended March 31, 2016.

 

The Company’s net recoveries were $26,000, or 0.00% of average loans, for the three months ended March 31, 2017 compared to net charge-offs of $223,000, or 0.03% of average loans, for the three months ended March 31, 2016. Non-performing loans totaled $9.4 million, or 0.93% of total loans, at March 31, 2017 compared to $9.2 million, or 0.95% of total loans, at December 31, 2016, and $9.0 million, or 1.03% of total loans, at March 31, 2016. These changes are discussed in greater detail under the Lending and Credit Management section below.

 

Non-interest income decreased $41,000, or 1.7%, for the three months ended March 31, 2017 compared to the three months ended March 31, 2016. These changes are discussed in greater detail below under Non-interest Income.

 

Non-interest expense increased $268,000, or 3.0%, for the three months ended March 31, 2017 compared to the three months ended March 31, 2016. These changes are discussed in greater detail below under Non-interest Expense.

 

Average Balance Sheets

 

Net interest income is the largest source of revenue resulting from the Company’s lending, investing, borrowing, and deposit gathering activities. It is affected by both changes in the level of interest rates and changes in the amounts and mix of interest earning assets and interest bearing liabilities. The following table presents average balance sheets, net interest income, average yields of earning assets, average costs of interest bearing liabilities, net interest spread and net interest margin on a fully taxable equivalent basis for each of the periods ended March 31, 2017 and 2016, respectively.

 

34 

 

 

   Three Months Ended March 31, 
(In thousands)  2017   2016 
       Interest   Rate       Interest   Rate 
   Average   Income/   Earned/   Average   Income/   Earned/ 
   Balance   Expense(1)   Paid(1)   Balance   Expense(1)   Paid(1) 
ASSETS                              
Loans: (2) (4)                              
Commercial  $182,548   $1,999    4.44%  $146,984   $1,715    4.69%
Real estate construction - residential   19,307    215    4.52    18,128    207    4.59 
Real estate construction - commercial   66,214    720    4.41    35,333    409    4.66 
Real estate mortgage - residential   260,551    2,922    4.55    253,511    2,910    4.62 
Real estate mortgage - commercial   433,152    4,957    4.64    388,423    4,522    4.68 
Consumer   30,234    300    4.02    23,881    275    4.63 
Total loans  $992,006   $11,113    4.54%  $866,260   $10,038    4.66%
Investment securities: (3)                              
U.S. government and federal agency obligations  $45,410   $156    1.39%  $64,459   $188    1.17%
Obligations of states and political subdivisions   43,733    249    2.31    31,645    227    2.89 
Mortgage-backed securities   124,321    582    1.90    150,626    737    1.97 
Total investment securities  $213,464   $987    1.88%  $246,730   $1,152    1.88%
Other investments and securities, at cost   9,785    90    3.73    8,038    76    3.80 
Federal funds sold and interest bearing deposits in other financial institutions   21,657    48    0.90    22,313    32    0.58 
Total interest earning assets  $1,236,912   $12,238    4.01%  $1,143,341   $11,298    3.97%
All other assets   90,264              90,502           
Allowance for loan losses   (10,003)             (8,588)          
Total assets  $1,317,173             $1,225,255           
LIABILITIES AND                              
STOCKHOLDERS' EQUITY                              
NOW accounts  $216,075   $232    0.44%  $209,639   $167    0.32%
Savings   99,828    12    0.05    92,226    12    0.05 
Commercial   1,655    2    0.49    0    0    0.00 
Money market   199,698    143    0.29    178,539    116    0.26 
Time deposits of $100,000 and over   143,376    254    0.72    129,091    209    0.65 
Other time deposits   152,981    217    0.58    164,414    240    0.59 
Total interest bearing deposits  $813,613   $860    0.43%  $773,909   $744    0.39%
Federal funds purchased and securities sold under agreements to repurchase   29,078    22    0.31    49,295    23    0.19 
Subordinated notes   49,486    408    3.34    49,486    354    2.88 
Federal Home Loan Bank Advances   92,578    322    1.41    50,000    207    1.67 
Total borrowings  $171,142   $752    1.78%  $148,781   $584    1.58%
Total interest bearing liabilities  $984,755   $1,612    0.66%  $922,690   $1,328    0.58%
Demand deposits   228,765              203,096           
Other liabilities   11,322              10,325           
Total liabilities   1,224,842              1,136,111           
Stockholders' equity   92,331              89,144           
Total liabilities and                              
stockholders' equity  $1,317,173             $1,225,255           
Net interest income (FTE)        10,626              9,970      
Net interest spread             3.35%             3.39%
Net interest margin             3.48%             3.51%

 

(1)Interest income and yields are presented on a fully taxable equivalent basis using the federal statutory income tax rate of 34%, net of nondeductible interest expense. Such adjustments totaled $139,000 and $122,000 for the three months ended March 31, 2017 and 2016, respectively.
(2)Non-accruing loans are included in the average amounts outstanding.
(3)Average balances based on amortized cost.
(4)Fees and costs on loans are included in interest income.

 

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Rate and Volume Analysis

 

The following table summarizes the changes in net interest income on a fully taxable equivalent basis, by major category of interest earning assets and interest bearing liabilities, identifying changes related to volumes and rates for the three months ended March 31, 2017 compared to the three months ended March 31, 2016. The change in interest due to the combined rate/volume variance has been allocated to rate and volume changes in proportion to the absolute dollar amounts of change in each.

 

   Three Months Ended March 31, 
   2017 vs. 2016 
       Change due to 
   Total   Average   Average 
(In thousands)  Change   Volume   Rate 
Interest income on a fully taxable equivalent basis: (1)               
Loans: (2) (4)               
Commercial  $284   $395   $(111)
Real estate construction - residential   8    13    (5)
Real estate construction - commercial   311    337    (26)
Real estate mortgage - residential   12    80    (68)
Real estate mortgage - commercial   435    513    (78)
Consumer   25    66    (41)
Investment securities: (3)               
U.S. government and federal agency obligations   (32)   (62)   30 
Obligations of states and political subdivisions   22    75    (53)
Mortgage-backed securities   (155)   (125)   (30)
Other investments and securities, at cost   14    17    (3)
Federal funds sold and interest bearing deposits in other financial institutions   16    (1)   17 
Total interest income   940    1,308    (368)
Interest expense:               
NOW accounts   65    5    60 
Savings   0    1    (1)
Commercial   2    0      
Money market   27    15    12 
Time deposits of $100,000 and over   45    24    21 
Other time deposits   (23)   (17)   (6)
Federal funds purchased and securities sold under agreements to repurchase   (1)   (11)   10 
Subordinated notes   54    0    54 
Federal Home Loan Bank advances   115    152    (37)
Total interest expense   284    169    113 
Net interest income on a fully taxable equivalent basis  $656   $1,139   $(481)

 

(1)Interest income and yields are presented on a fully taxable equivalent basis using the Federal statutory income tax rate of 34%, net of nondeductible interest expense. Such adjustments totaled $139,000 and $122,000 for the three months March 31, 2017 and 2016, respectively.
(2)Non-accruing loans are included in the average amounts outstanding.
(3)Average balances based on amortized cost.
(4)Fees and costs on loans are included in interest income.

 

Financial results for the three months ended March 31, 2017 compared to the three months ended March 31, 2016, reflected an increase in net interest income, on a tax equivalent basis, of $656,000, or 6.58%. Measured as a percentage of average earning assets, the net interest margin (expressed on a fully taxable equivalent basis) decreased to 3.48% for the three months ended March 31, 2017 compared to 3.51% for the three months ended March 31, 2016. The increase in net interest income was primarily due to an increase in average loans and the decrease in net interest margin was due to an increase in average interest bearing deposits and borrowings.

 

Average interest-earning assets increased $93.6 million, or 8.18%, to $1.24 billion for the three months ended March 31, 2017 compared to $1.14 billion for the three months ended March 31, 2016, and average interest bearing liabilities increased $62.1 million, or 6.73%, to $984.8 million for the three months ended March 31, 2017 compared to $922.7 million for the three months ended March 31, 2016.

 

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Total interest income (expressed on a fully taxable equivalent basis) was $12.2 million for the three months ended March 31, 2017 compared to $11.3 million for the three months ended March 31, 2016. The Company’s rates earned on interest earning assets were 4.01% for the three months ended March 31, 2017 compared to 3.97% for the three months ended March 31, 2016.

 

Interest income on loans increased to $11.1 million for the three months ended March 31, 2017 compared to $10.0 million for the three months ended March 31, 2016.

 

Average loans outstanding increased $125.7 million, or 14.5%, to $992.0 million for the three months ended March 31, 2017 compared to $866.3 million for the three months ended March 31, 2016. The average yield on loans receivable decreased to 4.54% for the three months ended March 31, 2017 compared to 4.66% for the three months ended March 31, 2016. See the Lending and Credit Management section for further discussion of changes in the composition of the lending portfolio.

 

Total interest expense increased to $1.6 million for the three months ended March 31, 2017 compared to $1.3 million for the three months ended March 31, 2016. The Company’s rates paid on interest bearing liabilities was 0.66% for the three months ended March 31, 2017 compared to 0.58% for the three months ended March 31, 2016. See the Liquidity Management section for further discussion.

 

Interest expense on deposits increased to $860,000 for the three months ended March 31, 2017 compared to $744,000 for the three months ended March 31, 2016.

 

Average interest bearing deposits increased $39.7 million, or 5.13%, to $813.6 million for the three months ended March 31, 2017 compared to $773.9 million for the three months ended March 31, 2016. The average cost of deposits increased to 0.43% for the three months ended March 31, 2017 compared to 0.39% for the three months ended March 31, 2016.

 

Interest expense on borrowings increased to $752,000 for the three months ended March 31, 2017 compared to $584,000 for the three months ended March 31, 2016. Average borrowings increased to $171.1million for the three months ended March 31, 2017 compared to $148.8 million for the three months ended March 31, 2016. See the Liquidity Management section for further discussion.

 

Non-interest Income and Expense

 

Non-interest income for the periods indicated was as follows:

 

   Three Months Ended March 31, 
(In thousands)  2017   2016   $
Change
   %
Change
 
Non-interest Income                    
Service charges and other fees  $836   $834   $2    0.2%
Bank card income and fees   614    634    (20)   (3.2)
Trust department income   274    218    56    25.7 
Real estate servicing fees, net   453    54    399    738.9 
Gain on sales of mortgage loans, net   155    165    (10)   (6.1)
Gain on sale of investment securities   0    472    (472)   (100.0)
Other   75    71    4    5.6 
Total non-interest income  $2,407   $2,448   $(41)   (1.7)%
                     
Non-interest income as a % of total revenue *   18.7%    19.9%           
Total revenue per full time equivalent employee  $39.0   $36.2           

 

* Total revenue is calculated as net interest income plus non-interest income.

 

Total non-interest income was consistent at $2.4 million for both the three months ended March 31, 2017 and 2016.

 

Real estate servicing fees, net of the change in valuation of mortgage serving rights increased $399,000 to $453,000 for the three months ended March 31, 2017 compared to $54,000 for the three months ended March 31, 2016 primarily due to slower prepayment speeds resulting from a higher rate environment in the current quarter.

 

Mortgage loan servicing fees earned on loans sold were $209,000 for the three months ended March 31, 2017 compared to $210,000 for the three months ended March 31, 2016. Total realized losses included in earnings attributable to the change in unrealized gains or losses related to assets still held were $244,000 for the three months ended March 31, 2017 compared to $155,000 for the three months ended March 31, 2016. The Company was servicing $291.0 million of mortgage loans at March 31, 2017 compared to $294.4 million and $308.1 million at December 31, 2016 and March 31, 2016, respectively.

 

Gain on sales of mortgage loans decreased $10,000, or 6.1%, to $155,000 for the three months ended March 31, 2017 compared to $165,000 for the three months ended March 31, 2016. The Company sold loans of $6.8 million for the three months ended March 31, 2017 compared to $7.4 million for the three months ended March 31, 2016.

 

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No gain on sale of investment securities was recognized during the three months ended March 31, 2017. During the three months ended March 31, 2016 the Company received $44.1 million from proceeds on sales of available-for-sale debt securities and recognized gains of $472,000. This transaction was the result of bond sales and purchases to replace several smaller holdings with fewer, larger investments without materially changing the duration or yield of the investment portfolio.

 

Non-interest expense for the periods indicated was as follows:

 

   Three Months Ended March 31, 
(In thousands)  2017   2016   $ Change   % Change 
Non-interest Expense                    
Salaries  $4,054   $4,038   $16    0.4%
Employee benefits   1,400    1,312    88    6.7 
Occupancy expense, net   619    634    (15)   (2.4)
Furniture and equipment expense   598    411    187    45.5 
Processing expense, network and bank card expense   1,045    772    273    35.4 
Legal, examination, and professional fees   280    333    (53)   (15.9)
FDIC insurance assessment   101    176    (75)   (42.6)
Advertising and promotion   239    209    30    14.4 
Postage, printing, and supplies   232    237    (5)   (2.1)
Real estate foreclosure expense (gains), net   27    141    (114)   80.9 
Other   756    820    (64)   (7.8)
Total non-interest expense  $9,351   $9,083   $268    3.0%
Efficiency ratio *   72.5%   73.9%          
Salaries and benefits as a % of total non-interest expense   58.3%   58.9%          
Number of full-time equivalent employees   331    340           

 

* Efficiency ratio is calculated as non-interest expense as a percent of revenue.

   Total revenue includes net interest income and non-interest income.

 

Total non-interest expense increased $268,000, or 3.0%, to $9.4 million for the three months ended March 31, 2017 compared to $9.1 million for the three months ended March 31, 2016.

 

Employee benefits increased $88,000, or 6.7%, to $1.4 million for the three months ended March 31, 2017 compared to $1.3 million for the three months ended March 31, 2016. The increase was primarily due to increases in 401(k) profit-sharing and pension expenses partially offset by a decrease in medical insurance premiums.

 

Furniture and equipment expense increased $187,000, or 45.5%, to $598,000 for the three months ended March 31, 2017 compared to $411,000 for the three months ended March 31, 2016. Beginning December 2016, the Company began upgrading its data processing infrastructure to a hosted cloud based network solution. The process included changes in maintenance agreements and service providers.

 

Processing, network, and bank card expense increased $273,000, or 35.4%, to $1.0 million for the three months ended March 31, 2017 compared to $772,000 for the three months ended March 31, 2016. The increase was primarily due to a corporate wide network upgrade and changes in processing service providers.

 

Real estate foreclosure expense and (gains), net decreased $114,000, or 80.9%, to $27,000 for the three months ended March 31, 2017 compared to $141,000 for the three months ended March 31, 2016. Net gains recognized on other real estate owned were $19,000 for the three months ended March 31, 2017 compared to $21,000 for the three months ended March 31, 2016. Expenses to maintain foreclosed properties were $46,000 for the three months ended March 31, 2017 compared to $161,000 for the three months ended March 31, 2016. The decrease in in expenses period over period was primarily due to sales of foreclosed assets.

 

FDIC insurance assessment decreased $75,000, or 42.6%, to $101,000 for the three months ended March 31, 2017 compared to $176,000 for the three months ended March 31, 2016. In February 2011, the FDIC adopted a rule that requires large institutions to bear the burden of raising the reserve ratio form 1.15% to 1.35% in accordance with the Dodd-Frank Act. The quarter after the reserve ratio reached 1.15%, lower assessment rates, surcharges, and new pricing for small institutions under $10 billion became effective July 1, 2016 and appeared on the December 31, 2016 invoicing. Once the reserve ratio reaches 1.38%, small institutions, such as Hawthorn, will receive credits to offset their contribution to raising the reserve ratio to 1.35%.

 

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Income taxes

 

Income taxes as a percentage of earnings before income taxes as reported in the consolidated financial statements were 34.2% for the quarter ended March 31, 2017 compared to 32.6% for the quarter ended March 31, 2016. The increase in tax rates quarter over quarter is primarily due to an immaterial return to provision adjustment made in 2016.

 

Lending and Credit Management

 

Interest earned on the loan portfolio is a primary source of interest income for the Company. Net loans represented 75.8% of total assets as of March 31, 2017 compared to 74.9% as of December 31, 2016.

 

Lending activities are conducted pursuant to an established loan policy approved by the Bank’s Board of Directors. The Bank’s credit review process is overseen by regional loan committees with established loan approval limits. In addition, a senior loan committee reviews all credit relationships in aggregate over an established dollar amount. The senior loan committee meets weekly and is comprised of senior managers of the Bank.

 

A summary of loans, by major class within the Company’s loan portfolio as of the dates indicated is as follows:

 

   March 31,   December 31, 
(In thousands)  2017   2016 
Commercial, financial, and agricultural  $182,493   $182,881 
Real estate construction - residential   20,299    18,907 
Real estate construction - commercial   70,143    55,653 
Real estate mortgage - residential   263,882    259,900 
Real estate mortgage - commercial   442,266    426,470 
Installment loans to individuals   31,099    30,218 
Total loans  $1,010,182   $974,029 
Percent of categories to total loans:          
Commercial, financial, and agricultural   18.1%   18.8%
Real estate construction - residential   2.0    1.9 
Real estate construction - commercial   6.9    5.7 
Real estate mortgage - residential   26.1    26.7 
Real estate mortgage - commercial   43.8    43.8 
Installment loans to individuals   3.1    3.1 
Total   100.0%   100.0%

 

The Company extends credit to its local community market through traditional real estate mortgage products. The Company does not participate in extending credit to sub-prime residential real estate markets. The Company does not lend funds for the type of transactions defined as “highly leveraged” by bank regulatory authorities or for foreign loans. Additionally, the Company does not have any concentrations of loans exceeding 10% of total loans that are not otherwise disclosed in the loan portfolio composition table. The Company does not have any interest-earning assets that would have been included in nonaccrual, past due, or restructured loans if such assets were loans.

 

The Company generally does not retain long-term fixed rate residential mortgage loans in its portfolio. Fixed rate loans conforming to standards required by the secondary market are offered to qualified borrowers, but are not funded until the Company has a non-recourse purchase commitment from the secondary market at a predetermined price. During the three months ended March 31, 2017, the Company sold approximately $6.8 million of loans to investors compared to $7.4 million for the three months ended March 31, 2016. At March 31, 2017, the Company was servicing approximately $291.0 million of loans sold to the secondary market compared to $294.4 million at December 31, 2016, and $308.1 million at March 31, 2016.

 

Risk Elements of the Loan Portfolio

 

Management, the senior loan committee, and internal loan review, formally review all loans in excess of certain dollar amounts (periodically established) at least annually. Currently, loans in excess of $2.0 million in aggregate and all adversely classified credits identified by management are reviewed. In addition, all other loans are reviewed on a sample basis. The senior loan committee reviews and reports to the board of directors, on a monthly basis, past due, classified, and watch list loans in order to classify or reclassify loans as loans requiring attention, substandard, doubtful, or loss. During this review, management also determines which loans should be considered impaired. Management follows the guidance provided in the FASB’s ASC Topic 310-10-35 in identifying and measuring loan impairment. If management determines that it is probable that all amounts due on a loan will not be collected under the original terms of the loan agreement, the loan is considered to be impaired. These loans are evaluated individually for impairment, and in conjunction with current economic conditions and

 

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loss experience, specific reserves are estimated as further discussed below. Loans not individually evaluated are aggregated and reserves are recorded using a consistent methodology that considers historical loan loss experience by loan type, delinquencies, current economic conditions, loan risk ratings and industry concentration. Management believes, but there can be no assurance, that these procedures keep management informed of potential problem loans. Based upon these procedures, both the allowance and provision for loan losses are adjusted to maintain the allowance at a level considered necessary by management to provide for probable losses inherent in the loan portfolio.

 

Nonperforming Assets

The following table summarizes nonperforming assets at the dates indicated:

 

   March 31,   December 31, 
(In thousands)  2017   2016 
Nonaccrual loans:          
Commercial, financial, and agricultural  $905   $982 
Real estate construction - commercial   49    50 
Real estate mortgage - residential   2,016    1,888 
Real estate mortgage - commercial   497    420 
Installment and other consumer   59    89 
Total  $3,526   $3,429 
Loans contractually past - due 90 days or more and still accruing:          
Real estate mortgage - residential  $22   $54 
Installment and other consumer   9    11 
Total  $31   $65 
Performing troubled debt restructurings   5,798    5,715 
Total nonperforming loans   9,355    9,209 
Other real estate owned and repossessed assets   13,625    14,162 
Total nonperforming assets  $22,980   $23,371 
           
Loans  $1,010,182   $974,029 
Allowance for loan losses to loans   1.02%   1.01%
Nonperforming loans to loans   0.93%   0.95%
Allowance for loan losses to nonperforming loans   109.70%   107.35%
Allowance for loan losses to nonperforming loans, excluding performing TDR's   288.50%   282.94%
Nonperforming assets to loans, other real estate owned and repossessed assets   2.24%   2.37%

 

Total nonperforming assets totaled $23.0 million at March 31, 2017 compared to $23.4 million at December 31, 2016. Nonperforming loans, defined as loans on nonaccrual status, loans 90 days or more past due and still accruing, and TDRs totaled $9.4 million, or 0.93%, of total loans at March 31, 2017 compared to $9.2 million, or 0.95%, of total loans at December 31, 2016. Non-accrual loans included $573,000 and $619,000 of loans classified as TDRs at March 31, 2017 and December 31, 2016, respectively.

 

As of March 31, 2017 and December 31, 2016, approximately $4.4 million and $4.0 million, respectively, of loans classified as substandard, not included in the nonperforming asset table, were identified as potential problem loans having more than normal risk which raised doubts as to the ability of the borrower to comply with present loan repayment terms. Management believes the general allowance was sufficient to cover the risks and probable losses related to such loans at March 31, 2017 and December 31, 2016, respectively.

 

Total non-accrual loans at March 31, 2017 increased $97,000 to $3.5 million compared to $3.4 million at December 31, 2016. This increase primarily consisted of a $205,000 increase in real estate mortgage - commercial loans and real estate mortgage - residential loans, partially offset by a $77,000 decrease in commercial, financial, and agricultural loans, and a $30,000 decrease in installment loans.

 

Loans past due 90 days and still accruing interest at March 31, 2017, were $31,000 compared to $65,000 at December 31, 2016. Other real estate and repossessed assets at March 31, 2017 were $13.6 million compared to $14.2 million at December 31, 2016. During the three months ended March 31, 2017, $103,000 of nonaccrual loans, net of charge-offs taken, moved to other real estate owned and repossessed assets compared to $742,000 during the three months ended March 31, 2016.

 

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The following table summarizes the Company’s TDRs at the dates indicated:

 

   March 31, 2017   December 31, 2016 
(In thousands)  Number of
Contracts
   Recorded
Investment
   Specific
Reserves
   Number of
Contracts
   Recorded
Investment
   Specific
Reserves
 
Performing TDRs                              
Commercial, financial and agricultural   9   $750   $50    8   $635   $11 
Real estate mortgage - residential   9    3,559    128    8    3,582    99 
Real estate mortgage - commercial   3    1,489    122    3    1,498    123 
Total performing TDRs   21   $5,798   $300    19   $5,715   $233 
Nonperforming TDRs                              
Real estate mortgage - residential   5    332    58    6   $430   $58 
Real estate mortgage - commercial   3   $241   $115    2    189    119 
Total nonperforming TDRs   8   $573   $173    8   $619   $177 
Total TDRs   29   $6,371   $473    27   $6,334   $410 

 

At March 31, 2017, loans classified as TDRs totaled $6.4 million, with $473,000 of specific reserves, of which $573,000 were classified as nonperforming TDRs and $5.8 million were classified as performing TDRs. This compared to $6.3 million of loans classified as TDRs, with $410,000 of specific reserves, of which $619,000 were classified as nonperforming TDRs and $5.7 million were classified as performing TDRs at December 31, 2016. Both performing and nonperforming TDRs are considered impaired loans. When an individual loan is determined to be a TDR, the amount of impairment is based upon the present value of expected future cash flows discounted at the loan’s effective interest rate or the fair value of the underlying collateral less applicable selling costs. The net increase in total TDRs from December 31, 2016 to March 31, 2017 was primarily due to two new TDR’s totally $187,000, partially offset by $168,000 of payments received.

 

Allowance for Loan Losses and Provision

 

Allowance for Loan Losses

 

The following table is a summary of the allocation of the allowance for loan losses:

 

   March 31,   December 31, 
(In thousands)  2017   2016 
Allocation of allowance for loan losses at end of period:          
Commercial, financial, and agricultural  $2,360   $2,753 
Real estate construction - residential   99    108 
Real estate construction - commercial   579    413 
Real estate mortgage - residential   2,125    2,385 
Real estate mortgage - commercial   4,731    3,793 
Installment and other consumer   322    274 
Unallocated   46    160 
Total  $10,262   $9,886 

 

The allowance for loan losses (ALL) was $10.3 million, or 1.02%, of loans outstanding at March 31, 2017 compared to $9.9 million, or 1.01%, at December 31, 2016, and $8.6 million, or 0.99%, of loans outstanding at March 31, 2016. The ratio of the allowance for loan losses to nonperforming loans, excluding performing TDR’s, was 288.50% at March 31, 2017, compared to 282.94% at December 31, 2016.

 

The following table is a summary of the general and specific allocations of the allowance for loan losses:

 

   March 31,   December 31, 
(In thousands)  2017   2016 
Allocation of allowance for loan losses:          
Individually evaluated for impairment - specific reserves  $1,103   $1,080 
Collectively evaluated for impairment - general reserves   9,159    8,806 
Total  $10,262   $9,886 

 

The specific reserve component applies to loans evaluated individually for impairment. The net carrying value of impaired loans is generally based on the fair values of collateral obtained through independent appraisals and/or internal evaluations, or by discounting the total expected future cash flows. Once the impairment amount is calculated, a specific reserve allocation is

 

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recorded. At March 31, 2017, $1.1 million of the Company’s ALL was allocated to impaired loans totaling approximately $9.3 million compared to $1.1 million of the Company’s ALL allocated to impaired loans totaling approximately $9.1 million at December 31, 2016. Management determined that $1.6 million, or 17%, of total impaired loans required no reserve allocation at March 31, 2017 compared to $2.1 million, or 23%, at December 31, 2016 primarily due to adequate collateral values, acceptable payment history and adequate cash flow ability.

 

The incurred loss component of the general reserve, or loans collectively evaluated for impairment, is determined by applying loss rates to pools of loans by asset type. Loans not individually evaluated are aggregated by risk characteristics and reserves are recorded using a consistent methodology that considers historical loan loss experience by loan type. Beginning in the first quarter of 2016, the Company began to lengthen its look-back period with the intent to increase such period from three to five years over the next two years. The Company believes that the five-year look-back period, which is consistent with the Company’s practices prior to the start of the economic recession in 2008, provides a representative historical loss period in the current economic environment. These historical loss rates for each risk group are used as the starting point to determine loss rates for measurement purposes. The historical loan loss rates are multiplied by loss emergence periods (LEP) which represent the estimated time period between a borrower first experiencing financial difficulty and the recognition of a loss.

 

The Company’s methodology includes qualitative risk factors that allow management to adjust its estimates of losses based on the most recent information available and to address other limitations in the quantitative component that is based on historical loss rates. Such risk factors are generally reviewed and updated quarterly, as appropriate, and are adjusted to reflect changes in national and local economic conditions and developments, the nature, volume and terms of loans in the portfolio, including changes in volume and severity of past due loans, the volume of nonaccrual loans, and the volume and severity of adversely classified or graded loans, loan concentrations, assessment of trends in collateral values, assessment of changes in the quality of the Company’s internal loan review department, and changes in lending policies and procedures, including underwriting standards and collections, charge-off and recovery practices.

 

The specific and general reserve allocations represent management’s best estimate of probable losses inherent in the loan portfolio at the evaluation date. Although the allowance for loan losses is comprised of specific and general allocations, the entire allowance is available to absorb any credit losses.

 

Provision

 

A $350,000 provision was required for the three months ended March 31, 2017 compared to a $250,000 provision for the three months ended March 31, 2016. The increase was primarily due to using a seventeen quarter look-back period compared to thirteen quarters, as discussed above, in addition to an increase in loans.

 

The following table summarizes loan loss experience for the periods indicated:

 

   Three Months Ended 
   March 31, 
(In thousands)  2017   2016 
Analysis of allowance for loan losses:          
Balance beginning of period  $9,886   $8,604 
Charge-offs:          
Commercial, financial, and agricultural   28    103 
Real estate construction - commercial   -    1 
Real estate mortgage - residential   20    206 
Real estate mortgage - commercial   14    82 
Installment and other consumer   51    56 
Total charge-offs   113    448 
Recoveries:          
Commercial, financial, and agricultural  $19   $97 
Real estate construction - residential   50    - 
Real estate construction - commercial   -    11 
Real estate mortgage - residential   36    8 
Real estate mortgage - commercial   7    61 
Installment and other consumer   27    48 
Total recoveries   139    225 
Net charge-offs (recoveries)   (26)   223 
Provision for loan losses   350    250 
Balance end of period  $10,262   $8,631 

 

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Net Loan Charge-offs (Recoveries)

 

The Company’s net loan recoveries were $26,000, or 0.00%, of average loans for the three months ended March 31, 2017, compared to net loan charge-offs of $223,000, or 0.03%, of average loans for the three months ended March 31, 2016. The decrease in charge-offs quarter over quarter primarily related to a decrease in commercial, financial, and agricultural loans, and a decrease in real estate mortgage residential loans. The decrease in recoveries quarter over quarter was primarily due to a significant recovery in one commercial loan relationship and one real estate construction loan relationship during the quarter ended March 31, 2016. This decrease was partially offset by a recovery in one real estate construction loan relationship received during the quarter ended March 31, 2017.

 

Liquidity and Capital Resources

 

Liquidity Management

 

The role of liquidity management is to ensure funds are available to meet depositors' withdrawal and borrowers' credit demands while at the same time maximizing profitability. This is accomplished by balancing changes in demand for funds with changes in the supply of those funds. Liquidity to meet the demands is provided by maturing assets, short-term liquid assets that can be converted to cash and the ability to attract funds from external sources, principally depositors. Due to the nature of services offered by the Company, management prefers to focus on transaction accounts and full service relationships with customers.

 

The Company’s Asset/Liability Committee (ALCO), primarily made up of senior management, has direct oversight responsibility for the Company's liquidity position and profile. A combination of daily, weekly, and monthly reports provided to management detail the following: internal liquidity metrics, composition and level of the liquid asset portfolio, timing differences in short-term cash flow obligations, available pricing and market access to the financial markets for capital, and exposure to contingent draws on the Company's liquidity.

 

The Company has a number of sources of funds to meet liquidity needs on a daily basis. The Company’s most liquid assets are comprised of available for sale investment securities, federal funds sold, and excess reserves held at the Federal Reserve.

 

   March 31,   December 31, 
(In thousands)  2017   2016 
Federal funds sold and other overnight interest-bearing deposits  $6,427   $1,406 
Available-for-sale investment securities   216,170    214,512 
Total  $222,597   $215,918 

 

Federal funds sold and resale agreements normally have overnight maturities and are used for general daily liquidity purposes. The fair value of the available-for-sale investment portfolio was $216.2 million at March 31, 2017 and included an unrealized net loss of $2.6 million. The portfolio includes projected maturities and mortgage backed securities pay-downs of approximately $30.0 million over the next twelve months, which offer resources to meet either new loan demand or reductions in the Company’s deposit base.

 

The Company pledges portions of its investment securities portfolio to secure public fund deposits, federal funds purchase lines, securities sold under agreements to repurchase, borrowing capacity at the Federal Reserve Bank, and for other purposes required by law. At March 31, 2017 and December 31, 2016, the Company’s unpledged securities in the available for sale portfolio totaled approximately $39.3 million and $46.9 million, respectively.

 

Total investment securities pledged for these purposes were as follows:

 

   March 31,   December 31, 
(In thousands)  2017   2016 
Investment securities pledged for the purpose of securing:          
Federal Reserve Bank borrowings  $10,314   $9,211 
Federal funds purchased and securities sold under agreements to repurchase   45,712    43,054 
Other deposits   120,767    115,330 
Total pledged, at fair value  $176,793   $167,595 

 

Liquidity is available from the Company’s base of core customer deposits, defined as demand, interest checking, savings, and money market deposit accounts. At March 31, 2017, such deposits totaled $758.4 million and represented 72.7% of the Company’s total deposits. These core deposits are normally less volatile and are often tied to other products of the Company through long lasting relationships. Time deposits and certificates of deposit of $100,000 and over totaled $133.0 million at March 31, 2017. These accounts are normally considered more volatile and higher costing representing 12.7% of total deposits at March 31, 2017.

 

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Core deposits at March 31, 2017 and December 31, 2016 were as follows:

 

   March 31,   December 31, 
(In thousands)  2017   2016 
Core deposit base:          
Non-interest bearing demand  $239,059   $235,975 
Interest checking   221,252    177,414 
Savings and money market   298,127    291,317 
Total  $758,438   $704,706 

 

Other components of liquidity are the level of borrowings from third party sources and the availability of future credit. The Company’s outside borrowings are comprised of securities sold under agreements to repurchase, Federal Home Loan Bank advances, and subordinated notes. Federal funds purchased are overnight borrowings obtained mainly from upstream correspondent banks with which the Company maintains approved credit lines. As of March 31, 2017, under agreements with these unaffiliated banks, the Bank may borrow up to $40.0 million in federal funds on an unsecured basis and $18.3 million on a secured basis. There were no federal funds purchased outstanding at March 31, 2017. Securities sold under agreements to repurchase are generally borrowed overnight and are secured by a portion of the Company’s investment portfolio. At March 31, 2017, there was $31.5 million in repurchase agreements. The Company may periodically borrow additional short-term funds from the Federal Reserve Bank through the discount window; although no such borrowings were outstanding at March 31, 2017.

 

The Bank is a member of the Federal Home Loan Bank of Des Moines (FHLB). As a member of the FHLB, the Bank has access to credit products of the FHLB. As of March 31, 2017, the Bank had $91.9 million in outstanding borrowings with the FHLB. In addition, the Company has $49.5 million in outstanding subordinated notes issued to wholly-owned grantor trusts, funded by preferred securities issued by the trusts.

 

Borrowings outstanding at March 31, 2017 and December 31, 2016 were as follows:

 

   March 31,   December 31, 
(In thousands)  2017   2016 
Borrowings:          
Federal funds purchased and securities sold under agreements to repurchase  $31,512   $31,015 
Federal Home Loan Bank advances   91,900    92,900 
Subordinated notes   49,486    49,486 
Other borrowings   -    492 
Total  $172,898   $173,893 

 

The Company pledges certain assets, including loans and investment securities to the Federal Reserve Bank, FHLB, and other correspondent banks as security to establish lines of credit and borrow from these entities. Based on the type and value of collateral pledged, the FHLB establishes a collateral value from which the Company may draw advances against this collateral. This collateral is also used to enable the FHLB to issue letters of credit in favor of public fund depositors of the Company. The Federal Reserve Bank also establishes a collateral value of assets pledged to support borrowings from the discount window. The following table reflects collateral value of assets pledged, borrowings, and letters of credit outstanding, in addition to the estimated future funding capacity available to the Company as follows:

 

   March 31,   December 31, 
   2017   2016 
(In thousands)  FHLB   Federal
Reserve
Bank
   Federal
Funds
Purchased
Lines
   Total   FHLB   Federal
Reserve
Bank
   Federal
Funds
Purchased
Lines
   Total 
Advance equivalent  $319,596   $10,081   $58,331   $388,008   $314,602   $9,015   $49,020   $372,637 
Letters of credit   (20,000)   0    0    (20,000)   0    0    0    0 
Advances outstanding   (91,900)   0    0    (91,900)   (92,900)   0    (992)   (93,892)
Total available  $207,696   $10,081   $58,331   $276,108   $221,702   $9,015   $48,028   $278,745 

 

At March 31, 2017, loans of $499.1 million were pledged at the Federal Home Loan Bank as collateral for borrowings and letters of credit. At March 31, 2017, investments totaling $21.0 million were pledged to secure federal funds purchase lines and borrowing capacity at the Federal Reserve Bank.

 

44 

 

 

Sources and Uses of Funds

 

Cash and cash equivalents were $23.2 million at March 31, 2017 compared to $27.0 million at December 31, 2016. The $3.8 million decrease resulted from changes in the various cash flows produced by operating, investing, and financing activities of the Company, as shown in the accompanying consolidated statement of cash flows for the three months ended March 31, 2017. Cash flow provided from operating activities consists mainly of net income adjusted for certain non-cash items. Operating activities provided cash flow of $2.0 million for the three months ended March 31, 2017.

 

Investing activities consisting mainly of purchases, sales and maturities of available-for-sale securities, and changes in the level of the loan portfolio used total cash of $36.8 million. The cash outflow primarily consisted of $35.5 million increase in loans and $15.3 million purchases of investment securities, partially offset by $13.8 million from maturities and calls of investment securities.

 

Financing activities provided cash of $31.0 million, resulting primarily from a $50.6 million increase in interest bearing transaction accounts partially offset by a $21.4 million decrease in time deposits. Future short-term liquidity needs arising from daily operations are not expected to vary significantly during 2017.

 

In the normal course of business, the Company enters into certain forms of off-balance sheet transactions, including unfunded loan commitments and letters of credit. These transactions are managed through the Company's various risk management processes. Management considers both on-balance sheet and off-balance sheet transactions in its evaluation of the Company's liquidity. The Company had $265.7 million in unused loan commitments and standby letters of credit as of March 31, 2017. Although the Company's current liquidity resources are adequate to fund this commitment level the nature of these commitments is such that the likelihood of such a funding demand is very low.

 

The Company is a legal entity, separate and distinct from the Bank, which must provide its own liquidity to meet its operating needs. The Company’s ongoing liquidity needs primarily include funding its operating expenses and paying cash dividends to its shareholders. The Company paid cash dividends to its shareholders totaling approximately $336,000 and $271,000 for the three months ended March 31, 2017 and 2016, respectively. A large portion of the Company’s liquidity is obtained from the Bank in the form of dividends. The Bank did not declare or pay dividends to the Company during the three months ended March 31, 2017. At March 31, 2017 and December 31, 2016, the Company had cash and cash equivalents totaling $2.9 million and $3.9 million, respectively.

 

Capital Management

 

The Company and the Bank are subject to various regulatory capital requirements administered by federal and state banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on the Company’s consolidated financial statements. Under capital adequacy guidelines, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classification of the Company and the Bank are subject to qualitative judgments by the regulators about components, risk-weightings, and other factors.

 

In July 2013, the federal banking agencies issued final rules to implement the Basel III regulatory capital reforms and changes required by the Dodd-Frank Act. The phase-in period for the Company began on January 1, 2015. The Federal Reserve System’s (FRB) capital adequacy guidelines require that bank holding companies maintain a Common Equity Tier 1 risk-based capital ratio equal to at least 4.5% of its risk-weighted assets, a Tier 1 risk-based capital ratio equal to at least 6% of its risk-weighted assets and a total risk-based capital ratio equal to at least 8% of its risk-weighted assets. In addition, bank holding companies generally are required to maintain a Tier 1 leverage ratio of at least 4%.

 

In addition, the final rules establish a common equity tier 1 capital conservation buffer of 2.5% of risk-weighted assets applicable to all banking organizations. Institutions that do not maintain the required capital buffer will become subject to progressively more stringent limitations on the percentage of earnings that can be paid out in dividends or used for stock repurchases and on the payment of discretionary bonuses to senior executive management. The capital conservation buffer requirement will be phased in over four years beginning in 2016. On January 1, 2016, the first phase of the requirement went into effect at 0.625% of risk-weighted assets, and the requirement will increase each subsequent year by an additional 0.625 percentage points, to reach its final level of 2.5% of risk weighted assets on January 1, 2019. Once fully phase in , the capital conservation buffer requirement effectively raises the minimum required risk-based capital ratios to 7% Common Equity Tier 1 Capital, 8.5% Tier 1 Capital and 10.5% Total Capital on a fully phased-in basis.

 

Under the Basel III requirements, at March 31, 2017 and December 31, 2016, the Company met all capital adequacy requirements and had regulatory capital ratios in excess of the levels established for well-capitalized institutions, as shown in the following table as of periods indicated:

 

45 

 

 

               Well-Capitalized Under 
           Required for Capital   Prompt Corrective Action 
   Actual   Adequacy Purposes   Provision 
(in thousands)  Amount   Ratio   Amount   Ratio   Amount   Ratio 
March 31, 2017                              
Total Capital (to risk-weighted assets):                              
Company  $154,980    13.37%  $92,766    8.00%  $N.A.    N.A.%
Bank   151,380    13.10    92,445    8.00    115,556    10.00 
Tier I Capital (to risk-weighted assets):                              
Company  $128,201    11.06%  $69,574    6.00%  $N.A.    N.A.%
Bank   140,958    12.20    69,334    6.00    92,445    8.00 
Common Equity Tier I Capital                              
(to risk-weighted assets)                              
Company  $96,558    8.33%  $52,181    4.50%  $N.A.    N.A.%
Bank   140,958    12.20    52,000    4.50    75,111    6.50 
Tier I Capital (to adjusted average assets):                              
Company  $128,201    9.74%  $52,641    4.00%  $N.A.    N.A.%
Bank   140,958    10.73    52,524    4.00    65,655    5.00 

 

(in thousands)                              
December 31, 2016                              
Total Capital (to risk-weighted assets):                              
Company  $152,864    13.72%  $89,118    8.00%   N.A.    N.A.%
Bank   148,304    13.36    88,804    8.00   $111,005    10.00 
Tier I Capital (to risk-weighted assets):                              
Company  $125,779    11.29%  $66,839    6.00%   N.A.    N.A.%
Bank   138,258    12.46    66,603    6.00   $88,804    8.00 
Common Equity Tier I Capital                              
(to risk-weighted assets)                              
Company  $94,818    8.51%  $50,129    4.50%  $N.A.    N.A.%
Bank   138,258    12.46    49,952    4.50    72,153    6.50 
Tier I capital (to adjusted average assets):                              
Company  $125,779    9.87%  $50,998    4.00%  $N.A.    N.A.%
Bank   138,258    10.88    50,810    4.00    63,513    5.00 

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

Interest Sensitivity

 

Market risk arises from exposure to changes in interest rates and other relevant market rate or price risk. The Company faces market risk in the form of interest rate risk through transactions other than trading activities. The Company uses financial modeling techniques to measure interest rate risk. These techniques measure the sensitivity of future earnings due to changing interest rate environments. Guidelines established by the Company's Asset/Liability Committee and approved by the board of directors are used to monitor exposure of earnings at risk. General interest rate movements are used to develop sensitivity as the Company feels it has no primary exposure to specific points on the yield curve. For the three months ended March 31, 2017, our Company utilized a 400 basis point immediate and gradual move in interest rates (both upward and downward) applied to both a parallel and proportional yield curve. However, there are no assurances that the change will not be more or less than this estimate.

 

The following table represents estimated interest rate sensitivity and periodic and cumulative gap positions calculated as of March 31, 2017. Significant assumptions used for this table included: loans will repay at historic repayment rates; certain interest-bearing demand accounts are interest sensitive due to immediate repricing, and fixed maturity deposits will not be withdrawn prior to maturity. A significant variance in actual results from one or more of these assumptions could materially affect the results reflected in the table.

 

46 

 

 

                       Over     
                       5 Years or     
                       No stated     
(In thousands)  Year 1   Year 2   Year 3   Year 4   Year 5   Maturity   Total 
ASSETS                                   
Investment securities  $29,945   $36,110   $43,108   $33,815   $20,895   $52,297   $216,170 
Federal funds sold and other over-night interest-bearing deposits   6,427    -    -    -    -    -    6,427 
Other investments and securities, at cost   6,859    -    -    3,000    -    -    9,859 
Loans   362,962    161,100    164,723    109,077    109,955    102,365    1,010,182 
Total  $406,193   $197,210   $207,831   $145,892   $130,850   $154,662   $1,242,638 
                                    
LIABILITIES                                   
Savings, interest checking, and money market deposits  $284,230   $-   $235,149   $-   $-   $-   $519,379 
Time deposits   189,515    50,827    26,094    6,116    12,014    -    284,566 
Federal funds purchased and securities sold under agreements to repurchase   31,512    -    -    -    -    -    31,512 
Subordinated notes   49,486    -    -    -    -    -    49,486 
Federal Home Loan Bank advances   44,900    22,000    10,000    11,000    4,000    -    91,900 
Total  $599,643   $72,827   $271,243   $17,116   $16,014   $-   $976,843 
Interest-sensitivity GAP                                   
Periodic GAP  $(193,450)  $124,383   $(63,412)  $128,776   $114,836   $154,662   $265,795 
Cumulative GAP  $(193,450)  $(69,067)  $(132,479)  $(3,703)  $111,133   $265,795   $265,795 
                                    
Ratio of interest-earning assets to interest-bearing liabilities                                   
Periodic GAP   0.68    2.71    0.77    8.52    8.17     NM     1.27 
Cumulative GAP   0.68    0.90    0.86    1.00    1.11    1.27    1.27 

 

Effects of Inflation

 

The effects of inflation on financial institutions are different from the effects on other commercial enterprises since financial institutions make few significant capital or inventory expenditures, which are directly affected by changing prices. Because bank assets and liabilities are virtually all monetary in nature, inflation does not affect a financial institution as much as do changes in interest rates. The general level of inflation does underlie the general level of most interest rates, but interest rates do not increase at the rate of inflation as do prices of goods and services. Rather, interest rates react more to changes in the expected rate of inflation and to changes in monetary and fiscal policy.

 

Inflation does have an impact on the growth of total assets in the banking industry, often resulting in a need to increase capital at higher than normal rates to maintain an appropriate capital to asset ratio. In the opinion of management, inflation did not have a significant effect on the Company's operations for the three months ended March 31, 2017.

 

Item 4. Controls and Procedures

 

Our Company's management has evaluated, with the participation of our principal executive and principal financial officers, the effectiveness of our disclosure controls and procedures as defined in Rules 13a – 15(e) or 15d – 15(e) of the Securities Exchange Act of 1934 as of March 31, 2017.  Based upon and as of the date of that evaluation, our principal executive and principal financial officers concluded that our disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports we file and submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported as and when required.  It should be noted that any system of disclosure controls and procedures, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system are met.  In addition, the design of any system of disclosure controls and procedures is based in part upon assumptions about the likelihood of future events. Because of these and other inherent limitations of any such system, there can be no assurance that any design will always succeed in achieving its stated goals under all potential future conditions, regardless of how remote.

 

There has been no change in our Company's internal control over financial reporting that occurred during the three months ended March 31, 2017 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

47 

 

 

Impact of New Accounting Standards

 

Revenue from Contracts with Customers The FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), in May 2014. The ASU supersedes revenue recognition requirements in Topic 605, Revenue Recognition, including most industry-specific revenue recognition guidance in the FASB Accounting Standards Codification. The core principle of the new guidance is that an entity should recognize revenue to depict the transfer of promised 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. The guidance identifies specific steps that entities should apply in order to achieve this principle. The amendments are effective for interim and annual periods beginning January 1, 2018 and must be applied retrospectively.

 

In March 2016, the FASB began to issue targeted guidance to clarify specific implementation issues of ASU 2014-09. The FASB issued ASU 2016-08, Principal versus Agent Considerations (Reporting Revenue Gross versus Net), which provides guidance on determining an entity's role in providing goods and services as a principal versus an agent, and whether it controls each specified good or service before it is transferred to the customer. In April 2016, ASU 2016-10, Identifying Performance Obligations and Licensing, was issued which clarifies the guidance related to whether goods or services are distinct within the contract and therefore are a performance obligation, and clarifies the timing and pattern of revenue recognition for licenses of intellectual property. The effective date and transition requirements of these ASUs are the same as those of ASU 2014-09.

 

In May 2016, the FASB issued ASU 2016-12, Revenue from Contracts with Customers: Narrow-Scope Improvements and Practical Expedients. The amendments in this update address narrow-scope improvements to the accounting guidance on collectability, noncash consideration, and completed contracts at transition. Additionally, the amendments in this Update provide a practical expedient for contract modifications at transition and an accounting policy election related to the presentation of sales taxes and other similar taxes collected from customers. The amendments also included a rescission issued in May 2016, ASU 2016-11, Revenue Recognition and Derivatives and Hedging: Rescission of SEC Guidance Because of ASU 2014-09 and 2014-16 Pursuant to Staff Announcements at the March 3, 2016 Emerging Task Force meeting, and relates to revenue and expense recognition for freight services in process, accounting for shipping and handling fees and costs, and accounting for consideration given by a vendor to a customer.

 

The FASB continues to issue additional ASU’s clarifying the revenue recognition guidance for certain implementation issues. Under the ASU 2014-09 and related amendments, the guidance is effective for periods beginning January 1, 2018 and must be applied retroactively, whether through a full restatement of prior periods or a cumulative adjustment upon adoption of the ASU. The Company expects that the ASU will require a change in how the Company recognizes trust department revenue, bank card revenue, and real-estate sales; however these changes are not expected to have a significant impact on the Company’s consolidated financial statements. The Company continues to assess the impact of the ASU's adoption on these non-interest income components and expects to adopt the ASU in the first quarter of 2018.

 

Debt Instruments The FASB issued ASU 2016-06, Contingent Put and Call Options in Debt Instruments, in March 2016. The ASU clarifies 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 hosts. Under the new guidance, the embedded options should be assessed solely in accordance with a four-step decision sequence, with no additional assessment of whether the triggering event is indexed to interest rates or credit risk. The amendments are effective January 1, 2017 and are not expected to have a significant effect on the Company's consolidated financial statements.

 

Financial Instruments The FASB issued ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, in January 2016. The amendments require all equity investments to be measured at fair value with changes in the fair value recognized through net income, other than those accounted for under the equity method of accounting or those that result in the consolidation of the investee. Additionally, these amendments require presentation 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 for those liabilities measured at fair value. The amendments also require use of the exit price notion when measuring the fair value of financial instruments for disclosure purposes. These amendments are effective for interim and annual periods beginning January 1, 2018. The Company is in the process of evaluating the impact of the ASU's adoption on the Company's consolidated financial statements, including potential changes to the Company's note disclosure of the fair value of its loan portfolio.

 

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The revised accounting guidance will remove all recognition thresholds and will require a company to recognize an allowance for credit losses for the difference between the amortized cost basis of a financial instrument and the amount of amortized cost that the company expects to collect over the instrument's contractual life. It also amends the credit loss measurement guidance for available-for-sale debt securities and beneficial interests in securitized financial assets. This new accounting guidance will be effective for interim and annual reporting periods beginning after December 15, 2019. While the Company generally expects 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, the Company

 

48 

 

 

cannot determine the magnitude of any such one-time adjustment or the overall impact of the new guidance on the Company’s consolidated financial statements. The Company is continuing to evaluate the impact of the ASU's adoption on the Company's consolidated financial statements.

 

Leases In February 2016, the FASB issued ASU 2016-02, Leases, in order to increase transparency and comparability by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The ASU primarily affects lessee accounting, which requires the lessee to recognize a right-of-use asset and a liability to make lease payments for those leases classified as operating leases under previous GAAP. For leases with a term of 12 months or less, an election by class of underlying asset not to recognize lease assets and lease liabilities is permitted. The ASU also provides additional guidance as to the definition of a lease, identification of lease components, and sale and leaseback transactions. The amendments in the ASU are effective for interim and annual periods beginning January 1, 2019. The Company expects to adopt this ASU in the first quarter of 2019 and is in the process of evaluating the impact of the ASU's adoption on the Company's consolidated financial statements.

 

Liabilities The FASB issued ASU 2016-04, Recognition of Breakage for Certain Prepaid Store-Value Products, in March 2016, in order to address current and potential future diversity in practice related to the derecognition of a prepaid store-value product liability. Such products include prepaid gift cards issued on a specific payment network and redeemable at network-accepting merchant locations, prepaid telecommunication cards, and traveler's checks. The amendments require that the portion of the dollar value of prepaid stored-value products that is ultimately unredeemed (that is, the breakage) be accounted for consistent with the breakage guidance for stored-value product transactions provided in ASC Topic 606 - Revenue from Contracts with Customers. These amendments are effective for interim and annual periods beginning January 1, 2018. The Company is in the process of evaluating the impact of the ASU's adoption on the Company's consolidated financial statements.

 

Statement of Cash Flows The FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, in August 2016, in order to address concerns regarding diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. In particular, this ASU addresses eight specific cash flow issues in an effort to reduce this diversity in practice: (1) debt prepayment or debt extinguishment costs; (2) settlement of zero-coupon bonds; (3) contingent consideration payments made after a business combination; (4) proceeds from the settlement of insurance claims; (5) proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies; (6) distributions received from equity method investees; (7) beneficial interests in securitization transactions; and (8) separately identifiable cash flows and application of the predominance principle. The amendments are effective for annual periods beginning after December 15, 2017, and for interim periods within those annual periods. The Company is in the process of evaluating the impact of the ASU's adoption on the Company's consolidated financial statements.

 

The FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, in November 2016. The ASU addresses the current diversity in the classification and presentation of changes in restricted cash on the statement of cash flows. The ASU requires that amounts described as restricted cash and restricted cash equivalents be included with cash and cash equivalents when reconciling the beginning and end of period amounts shown on the statement of cash flows. Disclosures are to be provided on the nature of restrictions on cash and cash equivalents. When presented in more than one line item within the statement of financial position, the entity shall disclose the amounts, disaggregated by line item, of cash, cash equivalents, restricted cash, and restricted cash equivalents reported within the statement of financial position. The amendments are effective January 1, 2018 and are not expected to have a significant effect on the Company's consolidated financial statements.

 

Pension The FASB issued ASU 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost in March 2017. Under the new guidance, employers will present the service cost component of the net periodic benefit cost in the same income statement line item (e.g., Salaries and Benefits) as other employee compensation costs arising from services rendered during the period. In addition, only the service cost component will be eligible for capitalization in assets. Employers will present the other components separately (e.g., Other Noninterest Expense) from the line item that includes the service cost. The ASU is effective for interim and annual reporting periods beginning after December 15, 2017. Early adoption is permitted, however, the Company has decided not to early adopt. Employers will apply the guidance on the presentation of the components of net periodic benefit cost in the income statement retrospectively. The guidance limiting the capitalization of net periodic benefit cost in assets to the service cost component will be applied prospectively. The Company expects to utilize the ASU’s practical expedient allowing entities to estimate amounts for comparative periods using the information previously disclosed in their pension and other postretirement benefit plan footnote. The ASU is not expected to have a significant effect on the Company’s Consolidated Financial Statements.

 

Callable Debt Securities The FASB issued ASU 2017-08, Premium Amortization on Purchased Callable Debt Securities in March 2017. This ASU shortens the amortization period for the premium on certain purchased callable debt securities to the earliest call date. Today, entities generally amortize the premium over the contractual life of the security. The new guidance

 

49 

 

 

does not change the accounting for purchased callable debt securities held at a discount; the discount continues to be amortized to maturity. The ASU is effective for interim and annual reporting periods beginning after December 15, 2018 and early adoption is permitted. The guidance calls for a modified retrospective transition approach under which a cumulative-effect adjustment will be made to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. The Company is currently evaluating the provisions of ASU 2017-08 to determine the potential impact the new standard will have on the Company’s Consolidated Financial Statements.

 

50 

 

 

PART II - OTHER INFORMATION

 

Item 1.

Legal Proceedings 

 

The information required by this Item is set forth in Commitments and Contingencies, Pending Litigation, in our Company’s Notes to Consolidated Financial Statements (unaudited).

 

Item 1A. Risk Factors

None

 

 

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

 

The following table summarizes the purchases made by or on behalf of the Company or certain affiliated purchasers of shares of the Company's common stock during the three months ended March 31, 2017:

 

Period  (a) Total Number of
Shares (or Units)
Purchased
   (b) Average
Price Paid per
Share (or Unit)
   (c) Total Number of Shares
(or Units) Purchased as
Part of Publicly Announced
Plans or Programs
   (d) Maximum Number (or
Approximate Dollar Value)
of Shares (or Units) that
May Yet Be Purchased
Under the Plans or
Programs *
 
January 1-31, 2017   1,400   $17.88    1,400   $1,318,951 
February 1-28, 2017   -   $-    -   $1,318,951 
March 1-31, 2017   -   $-    -   $1,318,951 
Total   1,400   $17.88    1,400   $1,318,951 

 

* On August 6, 2015, the Company announced that its Board of Directors authorized the purchase, through open market transactions, of up to $2,000,000 market value of the Company's common stock. Management was given discretion to determine the number and pricing of the shares to be purchased, as well as, the timing of any such purchases.

 

Item 3. Defaults Upon Senior Securities None
     
Item 4. Mine Safety Disclosures None
     
Item 5. Other Information None
     
Item 6. Exhibits  

 

Exhibit No.   Description
3.1   Restated Articles of Incorporation of our Company (filed as Exhibit 3.1 to our Company's current report on Form 8-K on August 9, 2007 and incorporated herein by reference).
     
3.2   Amended and Restated Bylaws of our Company (filed as Exhibit 3.1 to our Company's current report on Form 8-K on June 8, 2009 and incorporated herein by reference).
     
4.1   Specimen certificate representing shares of our Company’s $1.00 par value common stock (filed as Exhibit 4.1 to our Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1999 (Commission file number 0-23636) and incorporated herein by reference).
     
31.1   Certificate of the Chief Executive Officer of our Company pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities

 

51 

 

 

    Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     
31.2   Certificate of the Chief Financial Officer of our Company pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     
32.1   Certificate of the Chief Executive Officer of our Company pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
     
32.2   Certificate of the Chief Financial Officer of our Company pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
     
101   Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Changes in Equity, (iv) the Consolidated Statements of Cash Flows and (v) the Notes to Consolidated Financial Statements, tagged as blocks of text and in detail (XBRL).

 

52 

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

HAWTHORN BANCSHARES, INC.

 

Date

 

  /s/ David T. Turner  
     
May 15, 2017 David T. Turner, Chairman of the Board and  
  Chief Executive Officer (Principal Executive Officer)  
     
   /s/ W. Bruce Phelps  
     
May 15, 2017 W. Bruce Phelps, Chief Financial Officer (Principal Financial  
 

Officer and Principal Accounting Officer) 

 

 

53 

 

 

HAWTHORN BANCSHARES, INC.

 

INDEX TO EXHIBITS

 

March 31, 2017 Form 10-Q

 

 

Exhibit No.   Description
3.1   Restated Articles of Incorporation of our Company (filed as Exhibit 3.1 to our Company's current report on Form 8-K on August 9, 2007 and incorporated herein by reference).
     
3.2   Amended and Restated Bylaws of our Company (filed as Exhibit 3.1 to our Company's current report on Form 8-K on June 8, 2009 and incorporated herein by reference).
     
4.1  

Specimen certificate representing shares of our Company’s $1.00 par value common stock (filed as Exhibit 4.1 to our Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1999 (Commission file number 0-23636) and incorporated herein by reference).

     
31.1   Certificate of the Chief Executive Officer of our Company pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     
31.2   Certificate of the Chief Financial Officer of our Company pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     
32.1   Certificate of the Chief Executive Officer of our Company pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *
     
32.2   Certificate of the Chief Financial Officer of our Company pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *
     
101   Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Changes in Equity, (iv) the Consolidated Statements of Cash Flows and (v) the Notes to Consolidated Financial Statements, tagged as blocks of text and in detail (XBRL).

 

 

* This information is furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933, as amended, and Section 18 of the Securities Exchange Act of 1934, as amended.

 

54 

 

EX-31.1 2 t1701463_ex31-1.htm EXHIBIT 31.1

 

Exhibit 31.1

 

CERTIFICATIONS

I, David T. Turner, certify that:

 

1. I have reviewed this quarterly report on Form 10-Q of Hawthorn Bancshares, Inc.;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

 

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

 

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

 

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

 

Date: May 15, 2017 /s/ David T. Turner
  David T. Turner
  Chairman of the Board and Chief Executive Officer

 

   

EX-31.2 3 t1701463_ex31-2.htm EXHIBIT 31.2

 

Exhibit 31.2

 

CERTIFICATIONS

 

I, W. Bruce Phelps, certify that:

 

1. I have reviewed this quarterly report on Form 10-Q of Hawthorn Bancshares, Inc.;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

 

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

 

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

 

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

 

Date: May 15, 2017

 

/s/ W. Bruce Phelps 

  W. Bruce Phelps
  Chief Financial Officer

 

   

EX-32.1 4 t1701463_ex32-1.htm EXHIBIT 32.1

 

Exhibit 32.1

 

Certification of Chief Executive Officer

 

In connection with the Quarterly Report of Hawthorn Bancshares, Inc. (the “Company”) on Form 10-Q for the period ended March 31, 2017 as filed with the Securities and Exchange Commission (the “Report”), I, David T. Turner, Chairman of the Board and Chief Executive Officer of our Company, hereby certify in accordance with 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

 

(a)       The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

 

(b)       The information contained in the Report fairly presents, in all material aspects, the financial condition and results of operations of the Company.

 

Dated: May 15, 2017

  /s/ David T. Turner
  David T. Turner
  Chairman of the Board and Chief Executive Officer

 

   

EX-32.2 5 t1701463_ex32-2.htm EXHIBIT 32.2

 

Exhibit 32.2

 

Certification of Chief Financial Officer

 

In connection with the Quarterly Report of Hawthorn Bancshares, Inc. (the “Company”) on Form 10-Q for the period ended March 31, 2017 as filed with the Securities and Exchange Commission (the “Report”), I, W. Bruce Phelps, Chief Financial Officer of our Company, hereby certify in accordance with 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

 

(a)       The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

 

(b)       The information contained in the Report fairly presents, in all material aspects, the financial condition and results of operations of the Company.

 

Dated: May 15, 2017

  /s/ W. Bruce Phelps
  W. Bruce Phelps
  Chief Financial Officer

 

   

  

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Document and Entity Information - shares
3 Months Ended
Mar. 31, 2017
May 12, 2017
Document And Entity Information Abstract    
Entity Registrant Name HAWTHORN BANCSHARES, INC.  
Entity Central Index Key 0000893847  
Trading Symbol hwbk  
Current Fiscal Year End Date --12-31  
Entity Filer Category Non-accelerated Filer  
Entity Common Stock, Shares Outstanding   5,613,746
Document Type 10-Q  
Document Period End Date Mar. 31, 2017  
Amendment Flag false  
Document Fiscal Year Focus 2017  
Document Fiscal Period Focus Q1  
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Consolidated Balance Sheets (unaudited) - USD ($)
$ in Thousands
Mar. 31, 2017
Dec. 31, 2016
ASSETS    
Cash and due from banks $ 16,746 $ 25,589
Federal funds sold and other overnight interest-bearing deposits 6,427 1,406
Cash and cash equivalents 23,173 26,995
Investment in available-for-sale securities, at fair value 216,170 214,512
Other investments and securities, at cost 9,859 9,796
Total investment securities 226,029 224,308
Loans 1,010,182 974,029
Allowances for loan losses (10,262) (9,886)
Net loans 999,920 964,143
Premises and equipment - net 35,323 35,522
Mortgage servicing rights 2,877 2,584
Other real estate and repossessed assets - net 13,625 14,162
Accrued interest receivable 4,702 5,183
Cash surrender value - life insurance 2,430 2,409
Other assets 11,584 11,742
Total assets 1,319,663 1,287,048
Deposits    
Non-interest bearing demand 239,059 235,975
Savings, interest checking and money market 519,379 468,731
Time deposits $100,000 and over 132,979 152,256
Other time deposits 151,587 153,704
Total deposits 1,043,004 1,010,666
Federal funds purchased and securities sold under agreements to repurchase 31,512 31,015
Subordinated notes 49,486 93,392
Federal Home Loan Bank advances 91,900 49,486
Accrued interest payable 452 498
Other liabilities 10,232 10,974
Total liabilities 1,226,586 1,196,031
Stockholders' equity:    
Common stock, $1 par value, authorized 15,000,000 shares; issued 5,822,357 shares, respectively 5,822 5,822
Surplus 41,499 41,498
Retained earnings 53,435 51,671
Accumulated other comprehensive loss, net of tax (3,481) (3,801)
Treasury stock; 207,150 and 205,750 shares, at cost (4,198) (4,173)
Total stockholders' equity 93,077 91,017
Total liabilities and stockholders' equity $ 1,319,663 $ 1,287,048
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Consolidated Balance Sheets (unaudited) (Parentheticals) - $ / shares
Mar. 31, 2017
Dec. 31, 2016
Statement of Financial Position [Abstract]    
Common stock, par value (in dollars per share) $ 1 $ 1
Common stock, shares authorized 15,000,000 15,000,000
Common stock, shares issued 5,822,357 5,822,357
Treasury stock, shares 207,150 205,750
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Consolidated Statements of Income (unaudited) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2017
Mar. 31, 2016
INTEREST INCOME    
Interest and fees on loans $ 11,050 $ 9,987
Interest on investment securities:    
Taxable 754 938
Nontaxable 157 143
Federal funds sold and other overnight interest-bearing deposits 48 32
Dividends on other securities 90 76
Total interest income 12,099 11,176
Interest on deposits:    
Savings, interest checking and money market 389 295
Time deposit accounts $100,000 and over 254 209
Other time deposits 217 240
Interest on federal funds purchased and securities sold under agreements to repurchase 22 23
Interest on subordinated notes 408 354
Interest on Federal Home Loan Bank advances 322 207
Total interest expense 1,612 1,328
Net interest income 10,487 9,848
Provision for loan losses 350 250
Net interest income after provision for loan losses 10,137 9,598
NON-INTEREST INCOME    
Service charges and other fees 836 834
Bank card income and fees 614 634
Trust department income 274 218
Real estate servicing fees, net 453 54
Gain on sale of mortgage loans, net 155 165
Gain on sale of investment securities 0 472
Other 75 71
Total non-interest income 2,407 2,448
NON-INTEREST EXPENSE    
Salaries and employee benefits 5,454 5,350
Occupancy expense, net 619 634
Furniture and equipment expense 598 411
Processing, network, and bank card expense 1,045 772
Legal, examination, and professional fees 280 333
FDIC insurance assessment 101 176
Advertising and promotion 239 209
Postage, printing, and supplies 232 237
Real estate foreclosure expense (gains), net 27 141
Other 756 820
Total non-interest expense 9,351 9,083
Income before income taxes 3,193 2,963
Income tax expense 1,093 965
Net income $ 2,100 $ 1,998
Basic earnings per share (in dollars per share) $ 0.37 $ 0.35
Diluted earnings per share (in dollars per share) $ 0.37 $ 0.35
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Consolidated Statements of Comprehensive Income (unaudited) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2017
Mar. 31, 2016
Consolidated Statements of Comprehensive Income    
Net income $ 2,100 $ 1,998
Investment securities available-for-sale:    
Unrealized gain on investment securities available-for-sale, net of tax 306 1,245
Adjustment for gain on sale of investment securities, net of tax 0 (293)
Defined benefit pension plans:    
Amortization of prior service cost included in net periodic pension cost, net of tax 14 12
Total other comprehensive income 320 964
Total comprehensive income $ 2,420 $ 2,962
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Consolidated Statements of Stockholders' Equity (unaudited) - USD ($)
$ in Thousands
Common Stock
Surplus
Retained Earnings
Accumulated Other Comprehensive Income (Loss)
Treasury Stock
Total
Balance at Dec. 31, 2015 $ 5,605 $ 38,549 $ 48,700 $ (2,018) $ (3,550) $ 87,286
Increase (Decrease) in Stockholders' Equity            
Net income 0 0 1,998 0 0 1,998
Other comprehensive income 0 0 0 964 0 964
Stock based compensation expense 0 5 0 0 0 5
Purchase of treasury stock 0 0 0 0 (129) (129)
Cash dividends declared, common stock 0 0 (271) 0 0 (271)
Balance at Mar. 31, 2016 5,605 38,554 50,427 (1,054) (3,679) 89,853
Balance at Dec. 31, 2016 5,822 41,498 51,671 (3,801) (4,173) 91,017
Increase (Decrease) in Stockholders' Equity            
Net income 0 0 2,100 0 0 2,100
Other comprehensive income 0 0 0 320 0 320
Stock based compensation expense 0 1 0 0 0 1
Purchase of treasury stock 0 0 0 0 (25) (25)
Cash dividends declared, common stock 0 0 (336) 0 0 (336)
Balance at Mar. 31, 2017 $ 5,822 $ 41,499 $ 53,435 $ (3,481) $ (4,198) $ 93,077
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Consolidated Statements of Cash Flows (unaudited) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2017
Mar. 31, 2016
Cash flows from operating activities:    
Net income $ 2,100 $ 1,998
Adjustments to reconcile net income to net cash provided by operating activities:    
Provision for loan losses 350 250
Depreciation expense 473 485
Net amortization of investment securities, premiums, and discounts 406 365
Stock based compensation expense 1 5
Change in fair value of mortgage servicing rights (244) 155
Gain on sale of investment securities 0 (472)
Loss (gain) on sales and dispositions of premises and equipment 1 (6)
Gain on sales and dispositions of other real estate and repossessed assets (50) (49)
Provision for other real estate owned 32 38
Decrease in accrued interest receivable 481 343
Increase in cash surrender value - life insurance (21) (13)
Decrease in other assets 58 364
Decrease in accrued interest payable (46) (3)
(Decrease) increase in other liabilities (742) 619
Origination of mortgage loans for sale (7,341) (7,707)
Proceeds from the sale of mortgage loans 6,789 7,435
Gain on sale of mortgage loans, net (155) (165)
Other, net (49) (52)
Net cash provided by operating activities 2,043 3,590
Cash flows from investing activities:    
Net increase in loans (35,523) (10,760)
Purchase of available-for-sale debt securities (15,346) (66,459)
Proceeds from maturities of available-for-sale debt securities 9,750 9,120
Proceeds from calls of available-for-sale debt securities 4,025 4,175
Proceeds from sales of available-for-sale debt securities 0 44,087
Proceeds from sales of FHLB stock 200 0
Purchases of FHLB stock (263) (43)
Purchases of premises and equipment (348) (248)
Proceeds from sales of premises and equipment 0 6
Proceeds from sales of other real estate and foreclosed assets 658 1,274
Net cash used in investing activities (36,847) (18,848)
Cash flows from financing activities:    
Net increase in demand deposits 3,084 8,851
Net increase in interest-bearing transaction accounts 50,648 44,679
Net decrease in time deposits (21,394) (8,167)
Net increase (decrease) in federal funds purchased and securities sold under agreements to repurchase 497 (15,311)
Repayment of FHLB advances and other borrowings (38,232) 0
FHLB advances 36,740 0
Purchase of treasury stock (25) (129)
Cash dividends paid - common stock (336) (271)
Net cash provided by financing activities 30,982 29,652
Net (decrease) increase in cash and cash equivalents (3,822) 14,394
Cash and cash equivalents, beginning of period 26,995 28,377
Cash and cash equivalents, end of period 23,173 42,771
Cash paid during the year for:    
Interest 1,658 1,332
Income taxes 755 430
Noncash investing activities:    
Other real estate and repossessed assets acquired in settlement of loans $ 103 $ 742
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Summary of Significant Accounting Policies
3 Months Ended
Mar. 31, 2017
Accounting Policies [Abstract]  
Summary of Significant Accounting Policies
(1) Summary of Significant Accounting Policies

 

Hawthorn Bancshares, Inc. (the Company) through its subsidiary, Hawthorn Bank (the Bank), provides a broad range of banking services to individual and corporate customers located within the communities in and surrounding Jefferson City, Columbia, Clinton, Warsaw, Springfield, Branson, and the greater Kansas City metropolitan area. The Company is subject to competition from other financial and nonfinancial institutions providing financial products. Additionally, the Company and its subsidiaries are subject to the regulations of certain regulatory agencies and undergo periodic examinations by those regulatory agencies.

 

The accompanying unaudited consolidated financial statements of the Company have been prepared in conformity with U.S. generally accepted accounting principles (U.S. GAAP) for interim financial information and with the instructions to Form 10-Q, and Rule 10-01 of Regulation S-X. Accordingly, the unaudited consolidated financial statements do not include all of the information and disclosures required by U.S. GAAP for complete financial statements and should be read in conjunction with the consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.

 

The preparation of the consolidated financial statements includes all adjustments that, in the opinion of management, are necessary in order to make those statements not misleading. Management is required to make estimates and assumptions, including the determination of the allowance for loan losses, real estate acquired in connection with foreclosure or in satisfaction of loans, and fair values of investment securities available-for-sale that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Company’s management has evaluated and did not identify any subsequent events or transactions requiring recognition or disclosure in the consolidated financial statements.

 

Stock Dividend On July 1, 2016, the Company paid a special stock dividend of four percent to shareholders of record at the close of business on June 15, 2016. For all periods presented, share information, including basic and diluted earnings per share, has been adjusted retroactively to reflect this change.

 

The following represents significant new accounting principles adopted in 2017:

 

Stock Compensation The FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, in March 2016, in order to reduce complexity in this area and improve the usefulness of information provided to users. Amendments which will affect public companies include the recognition of excess tax benefits and deficiencies in income tax expense or benefit in the income statement, guidance as to the classification of excess tax benefits on the statement of cash flows, an election to account for award forfeitures as they occur, and the ability to withhold taxes up to the maximum statutory rate in the applicable jurisdictions without triggering liability classification of the award. The Company adopted the ASU on January 1, 2017 and elected to recognize forfeitures as they occur. As allowed by the ASU, the Company’s adoption was prospective, therefore prior periods have not been adjusted. The adoption of the ASU could result in increased volatility to reported income tax expense related to excess tax benefits and tax deficiencies for employee share-based transactions, however, the actual amounts recognized in income tax expense will be dependent on the amount of employee share-based transactions and the stock price at the time of vesting or exercise. The adoption of the ASU did not have a significant effect on the Company’s consolidated financial statements.
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Loans and Allowance for Loan Losses
3 Months Ended
Mar. 31, 2017
Loans and Leases Receivable Disclosure [Abstract]  
Loans and Allowance for Loan Losses
(2) Loans and Allowance for Loan Losses

 

Loans

 

A summary of loans, by major class within the Company’s loan portfolio, at March 31, 2017 and December 31, 2016 is as follows:

 

    March 31,     December 31,  
(in thousands)   2017     2016  
Commercial, financial, and agricultural   $ 182,493     $ 182,881  
Real estate construction - residential     20,299       18,907  
Real estate construction - commercial     70,143       55,653  
Real estate mortgage - residential     263,882       259,900  
Real estate mortgage - commercial     442,266       426,470  
Installment and other consumer     31,099       30,218  
Total loans   $ 1,010,182     $ 974,029  

 

The Bank grants real estate, commercial, installment, and other consumer loans to customers located within the communities surrounding Jefferson City, Columbia, Clinton, Warsaw, Springfield, Branson and the greater Kansas City metropolitan area. As such, the Bank is susceptible to changes in the economic environment in these communities. The Bank does not have a concentration of credit in any one economic sector. Installment and other consumer loans consist primarily of the financing of automotive vehicles. At March 31, 2017, loans of $499.1 million were pledged to the Federal Home Loan Bank as collateral for borrowings and letters of credit.

 

Allowance for Loan Losses

 

The following is a summary of the allowance for loan losses during the periods indicated.

 

    Three Months Ended March 31, 2017  
    Commercial,     Real Estate     Real Estate     Real Estate     Real Estate     Installment              
    Financial, &     Construction -     Construction -     Mortgage -     Mortgage -     and Other     Un-        
(in thousands)   Agricultural     Residential     Commercial     Residential     Commercial     Consumer     allocated     Total  
Balance at beginning of period   $ 2,753     $ 108     $ 413     $ 2,385     $ 3,793       274     $ 160     $ 9,886  
Additions:                                                                
Provision for loan losses     (384 )     (59 )     166       (276 )     945       72       (114 )     350  
Deductions:                                                                
Loans charged off     28       0       0       20       14       51       0       113  
Less recoveries on loans     (19 )     (50 )     0       (36 )     (7 )     (27 )     0       (139 )
Net loan charge-offs (recoveries)     9       (50 )     0       (16 )     7       24       0       (26 )
Balance at end of period   $ 2,360     $ 99     $ 579     $ 2,125     $ 4,731     $ 322     $ 46     $ 10,262  

 

    Three Months Ended March 31, 2016  
    Commercial,     Real Estate     Real Estate     Real Estate     Real Estate     Installment              
    Financial, &     Construction -     Construction -     Mortgage -     Mortgage -     and Other     Un-        
(in thousands)   Agricultural     Residential     Commercial     Residential     Commercial     Consumer     allocated     Total  
Balance at beginning of period   $ 2,153     $ 59     $ 644     $ 2,439     $ 2,935     $ 273     $ 101     $ 8,604  
Additions:                                                                
Provision for loan losses     (12 )     (15 )     33       32       276       (6 )     (58 )     250  
Deductions:                                                                
Loans charged off     103       0       1       206       82       56       0       448  
Less recoveries on loans     (97 )     0       (11 )     (8 )     (61 )     (48 )     0       (225 )
Net loan charge-offs (recoveries)     6       0       (10 )     198       21       8       0       223  
Balance at end of period   $ 2,135     $ 44     $ 687     $ 2,273     $ 3,190     $ 259     $ 43     $ 8,631  

 

Loans, or portions of loans, are charged off to the extent deemed uncollectible or a loss is confirmed. Loan charge-offs reduce the allowance for loan losses, and recoveries of loans previously charged off are added back to the allowance. If management determines that it is probable that all amounts due on a loan will not be collected under the original terms of the loan agreement, the loan is considered to be impaired. These loans are evaluated individually for impairment, and in conjunction with current economic conditions and loss experience, specific reserves are estimated as further discussed below. Loans not individually evaluated are aggregated by risk characteristics and reserves are recorded using a consistent methodology that considers historical loan loss experience by loan type, delinquencies, current economic conditions, loan risk ratings and industry concentration.

 

Beginning in the first quarter of 2016, the Company began to lengthen its look-back period with the intent to increase such period from three to five years over the next two years. The Company believes that the five-year look-back period, which is consistent with the Company’s practices prior to the start of the economic recession in 2008, provides a representative historical loss period in the current economic environment.

 

The following table provides the balance in the allowance for loan losses at March 31, 2017 and December 31, 2016, and the related loan balance by impairment methodology.

 

    Commercial,     Real Estate     Real Estate     Real Estate     Real Estate     Installment              
    Financial, and     Construction -     Construction -     Mortgage -     Mortgage -     and Other     Un-        
(in thousands)   Agricultural     Residential     Commercial     Residential     Commercial     Consumer     allocated     Total  
March 31, 2017                                                                
Allowance for loan losses:                                                                
Individually evaluated for impairment   $ 446     $ 0     $ 7     $ 354     $ 284     $ 12     $ 0     $ 1,103  
Collectively evaluated for impairment     1,914       99       572       1,771       4,447       310       46       9,159  
Total   $ 2,360     $ 99     $ 579     $ 2,125     $ 4,731     $ 322     $ 46     $ 10,262  
Loans outstanding:                                                                
Individually evaluated for impairment   $ 1,655     $ 0     $ 49     $ 5,575     $ 1,986     $ 59     $ 0     $ 9,324  
Collectively evaluated for impairment     180,838       20,299       70,094       258,307       440,280       31,040       0       1,000,858  
Total   $ 182,493     $ 20,299     $ 70,143     $ 263,882     $ 442,266     $ 31,099     $ 0     $ 1,010,182  
                                                                 
December 31, 2016                                                                
Allowance for loan losses:                                                                
Individually evaluated for impairment   $ 469     $ 0     $ 7     $ 319     $ 277     $ 8     $ 0     $ 1,080  
Collectively evaluated for impairment     2,284       108       406       2,066       3,516       266       160       8,806  
Total   $ 2,753     $ 108     $ 413     $ 2,385     $ 3,793     $ 274     $ 160     $ 9,886  
Loans outstanding:                                                                
Individually evaluated for impairment   $ 1,617     $ 0     $ 49     $ 5,471     $ 1,918     $ 89     $ 0     $ 9,144  
Collectively evaluated for impairment     181,264       18,907       55,604       254,429       424,552       30,129       0       964,885  
Total   $ 182,881     $ 18,907     $ 55,653     $ 259,900     $ 426,470     $ 30,218     $ 0     $ 974,029  

 

Impaired Loans

 

Loans evaluated under ASC 310-10-35 include loans which are individually evaluated for impairment. All other loans are collectively evaluated for impairment under ASC 450-20. Impaired loans individually evaluated for impairment totaled $9.3 million and $9.1 million at March 31, 2017 and December 31, 2016, respectively, and are comprised of loans on non-accrual status and loans which have been classified as troubled debt restructurings (TDRs).

 

The net carrying value of impaired loans is based on the fair values of collateral obtained through independent appraisals or internal evaluations, or by discounting the total expected future cash flows. At March 31, 2017 and December 31, 2016, $5.3 million and $4.5 million, respectively, of impaired loans were evaluated based on the fair value less estimated selling costs of the loan’s collateral. Once the impairment amount is calculated, a specific reserve allocation is recorded. At March 31, 2017, $1.1 million of the Company’s allowance for loan losses was allocated to impaired loans totaling $9.3 million compared to $1.1 million of the Company's allowance for loan losses allocated to impaired loans totaling approximately $9.1 million at December 31, 2016. Management determined that $1.6 million, or 17%, of total impaired loans required no reserve allocation at March 31, 2017 compared to $2.1 million, or 23%, at December 31, 2016 primarily due to adequate collateral valuesacceptable payment history and adequate cash flow ability.

 

The categories of impaired loans at March 31, 2017 and December 31, 2016 are as follows:

 

    March 31,     December 31,  
(in thousands)   2017     2016  
Non-accrual loans   $ 3,526     $ 3,429  
Performing TDRs     5,798       5,715  
Total impaired loans   $ 9,324     $ 9,144  

 

The following tables provide additional information about impaired loans at March 31, 2017 and December 31, 2016, respectively, segregated between loans for which an allowance has been provided and loans for which no allowance has been provided.

 

          Unpaid        
    Recorded     Principal     Specific  
(in thousands)   Investment     Balance     Reserves  
March 31, 2017                        
With no related allowance recorded:                        
Commercial, financial and agricultural   $ 406     $ 561     $ 0  
Real estate - residential     811       822       0  
Real estate - commercial     394       394       0  
Total   $ 1,611     $ 1,777     $ 0  
With an allowance recorded:                        
Commercial, financial and agricultural   $ 1,249     $ 1,279     $ 446  
Real estate - construction commercial     49       55       7  
Real estate - residential     4,764       4,823       354  
Real estate - commercial     1,592       1,802       284  
Installment and other consumer     59       86       12  
Total   $ 7,713     $ 8,045     $ 1,103  
Total impaired loans   $ 9,324     $ 9,822     $ 1,103  

 

          Unpaid        
    Recorded     Principal     Specific  
(in thousands)   Investment     Balance     Reserves  
December 31, 2016                        
With no related allowance recorded:                        
Commercial, financial and agricultural   $ 564     $ 706     $ 0  
Real estate - residential     1,550       1,557       0  
Total   $ 2,114     $ 2,263     $ 0  
With an allowance recorded:                        
Commercial, financial and agricultural   $ 1,053     $ 1,078     $ 469  
Real estate - construction commercial     49       56       7  
Real estate - residential     3,921       3,990       319  
Real estate - commercial     1,918       1,988       277  
Installment and other consumer     89       116       8  
Total   $ 7,030     $ 7,228     $ 1,080  
Total impaired loans   $ 9,144     $ 9,491     $ 1,080  

 

The following table presents by class, information related to the average recorded investment and interest income recognized on impaired loans during the periods indicated.

 

    Three Months Ended March 31,  
    2017     2016  
          Interest           Interest  
    Average     Recognized     Average     Recognized  
    Recorded     For the     Recorded     For the  
(in thousands)   Investment     Period Ended     Investment     Period Ended  
With no related allowance recorded:                                
Commercial, financial and agricultural   $ 555     $ 1     $ 1,520     $ 15  
Real estate - construction commercial     0       0       118       0  
Real estate - residential     807       4       1,513       39  
Real estate - commercial     589       2       2,622       42  
Installment and other consumer     40       0       0       0  
Total   $ 1,991     $ 7     $ 5,773     $ 96  
With an allowance recorded:                                
Commercial, financial and agricultural   $ 1,192     $ 11     $ 984     $ 12  
Real estate - construction commercial     50       0       65       0  
Real estate - residential     4,511       43       4,553       120  
Real estate - commercial     1,494       15       764       0  
Installment and other consumer     51       0       135       0  
Total   $ 7,298     $ 69     $ 6,501     $ 132  
Total impaired loans   $ 9,289     $ 76     $ 12,274     $ 228  

 

The recorded investment varies from the unpaid principal balance primarily due to partial charge-offs taken resulting from current appraisals received. The amount recognized as interest income on impaired loans continuing to accrue interest, primarily related to troubled debt restructurings, was $76,000 and $228,000, for the three months ended March 31, 2017 and 2016, respectively. The average recorded investment in impaired loans is calculated on a monthly basis during the periods reported.

 

Delinquent and Non-Accrual Loans

 

The delinquency status of loans is determined based on the contractual terms of the notes. Borrowers are generally classified as delinquent once payments become 30 days or more past due. The Company’s policy is to discontinue the accrual of interest income on any loan when, in the opinion of management, the ultimate collectability of interest or principal is no longer probable. In general, loans are placed on non-accrual when they become 90 days or more past due. However, management considers many factors before placing a loan on non-accrual, including the delinquency status of the loan, the overall financial condition of the borrower, the progress of management’s collection efforts and the value of the underlying collateral. Non-accrual loans are returned to accrual status when, in the opinion of management, the financial condition of the borrower indicates that the timely collectability of interest and principal is probable and the borrower demonstrates the ability to pay under the terms of the note through a sustained period of repayment performance, which is generally six months.

 

The following table provides aging information for the Company’s past due and non-accrual loans at March 31, 2017 and December 31, 2016.

 

    Current or           90 Days              
    Less Than           Past Due              
    30 Days     30 - 89 Days     And Still              
(in thousands)   Past Due     Past Due     Accruing     Non-Accrual     Total  
March 31, 2017                                        
Commercial, Financial, and Agricultural   $ 181,368     $ 220     $ 0     $ 905     $ 182,493  
Real Estate Construction - Residential     20,299       0       0       0       20,299  
Real Estate Construction - Commercial     69,997       97       0       49       70,143  
Real Estate Mortgage - Residential     259,360       2,484       22       2,016       263,882  
Real Estate Mortgage - Commercial     440,489       1,280       0       497       442,266  
Installment and Other Consumer     30,877       154       9       59       31,099  
Total   $ 1,002,390     $ 4,235     $ 31     $ 3,526     $ 1,010,182  
December 31, 2016                                        
Commercial, Financial, and Agricultural   $ 181,609     $ 290     $ 0     $ 982     $ 182,881  
Real Estate Construction - Residential     18,681       226       0       0       18,907  
Real Estate Construction - Commercial     55,603       0       0       50       55,653  
Real Estate Mortgage - Residential     254,758       3,200       54       1,888       259,900  
Real Estate Mortgage - Commercial     425,260       790       0       420       426,470  
Installment and Other Consumer     29,920       198       11       89       30,218  
Total   $ 965,831     $ 4,704     $ 65     $ 3,429     $ 974,029  

 

Credit Quality

 

The Company categorizes loans into risk categories based upon an internal rating system reflecting management’s risk assessment. Loans are placed on watch status when one or more weaknesses that may result in the deterioration of the repayment exits or the Company’s credit position at some future date. Loans classified as substandard are inadequately protected by the current sound worth and paying capacity of the obligor or by the collateral pledged, if any. Loans so classified may have a well-defined weakness or weaknesses that jeopardize the repayment of the debt. Such loans are characterized by the distinct possibility that the Company may sustain some loss if the deficiencies are not corrected. A loan is classified as a troubled debt restructuring (TDR) when a borrower is experiencing financial difficulties that lead to the restructuring of a loan, and the Company grants concessions to the borrower in the restructuring that it would not otherwise consider. Loans classified as TDRs which are accruing interest are classified as performing TDRs. Loans classified as TDRs which are not accruing interest are classified as nonperforming TDRs and are included with all other nonaccrual loans for presentation purposes. It is the Company’s policy to discontinue the accrual of interest income on loans when management believes that the collection of interest or principal is doubtful. Loans are placed on non-accrual status when (1) deterioration in the financial condition of the borrower exists for which payment of full principal and interest is not expected, or (2) payment of principal or interest has been in default for a period of 90 days or more and the asset is not both well secured and in the process of collection. Subsequent interest payments received on such loans are applied to principal if any doubt exists as to the collectability of such principal; otherwise, such receipts are recorded as interest income on a cash basis.

 

The following table presents the risk categories by class at March 31, 2017 and December 31, 2016.

 

(in thousands)   Commercial,
Financial, &
Agricultural
    Real Estate
Construction -
Residential
    Real Estate
Construction -
Commercial
    Real Estate
Mortgage -
Residential
    Real Estate
Mortgage -
Commercial
    Installment
and Other
Consumer
    Total  
At March 31, 2017                                                        
Watch   $ 6,647     $ 1,221     $ 1,666     $ 19,571     $ 48,984     $ 0     $ 78,089  
Substandard     689       640       97       2,546       425       22       4,419  
Performing TDRs     750       0       0       3,559       1,489       0       5,798  
Non-accrual     905       0       49       2,016       497       59       3,526  
Total   $ 8,991     $ 1,861     $ 1,812     $ 27,692     $ 51,395     $ 81     $ 91,832  
At December 31, 2016                                                        
Watch   $ 10,295     $ 665     $ 1,113     $ 16,577     $ 44,611     $ 0     $ 73,261  
Substandard     798       640       0       2,159       426       24       4,047  
Performing TDRs     635       0       0       3,582       1,498       0       5,715  
Non-accrual     982       0       50       1,888       420       89       3,429  
Total   $ 12,710     $ 1,305     $ 1,163     $ 24,206     $ 46,955     $ 113     $ 86,452  

 

Troubled Debt Restructurings

 

At March 31, 2017, loans classified as TDRs totaled $6.4 million, of which $573,000 were classified as nonperforming TDRs and included in non-accrual loans and $5.8 million were classified as performing TDRs. At December 31, 2016, loans classified as TDRs totaled $6.3 million, of which $619,000 were classified as nonperforming TDRs and included in non-accrual loans and $5.7 million were classified as performing TDRs. Both performing and nonperforming TDRs are considered impaired loans. When an individual loan is determined to be a TDR, the amount of impairment is based upon the present value of expected future cash flows discounted at the loan’s effective interest rate or the fair value of the underlying collateral less applicable selling costs. Accordingly, specific reserves of $473,000 and $410,000 related to TDRs were allocated to the allowance for loan losses at March 31, 2017 and December 31, 2016, respectively.

 

The following table summarizes loans that were modified as TDRs during the periods indicated.

 

    Three Months Ended March 31,  
    2017     2016  
    Recorded Investment (1)     Recorded Investment (1)  
(in thousands)   Number of
Contracts
    Pre-
Modification
    Post-
Modification
    Number of
Contracts
    Pre-
Modification
    Post-
Modification
 
Troubled Debt Restructurings                                                
Commercial, financial and agricultural     1     $ 131     $ 131       0     $ 0     $ 0  
Real estate mortgage - residential     0       0       0       1       78       78  
Real estate mortgage - commercial     1       56       56       0       0       0  
Total     2     $ 187     $ 187       1     $ 78     $ 78  

 

(1) The amounts reported post-modification are inclusive of all partial pay-downs and charge-offs, and no portion of the debt was forgiven. Loans modified as a TDR that were fully paid down, charged-off or foreclosed upon during the period ended are not reported.

 

The Company’s portfolio of loans classified as TDRs include concessions for the borrower given financial condition such as interest rates below the current market rate, deferring principal payments, and extending maturity dates. During the three months ended March 31, 2017, two loan meeting the TDR criteria was modified compared to one loan during the three months ended March 31, 2016.

 

The Company considers a TDR to be in default when it is 90 days or more past due under the modified terms, a charge-off occurs, or it is the process of foreclosure. There were no loans modified as a TDR that defaulted during the three months ended March 31, 2017 and 2016, respectively, and within twelve months of their modification date. See Lending and Credit Management section for further information.

XML 21 R10.htm IDEA: XBRL DOCUMENT v3.7.0.1
Other Real Estate and Repossessed Assets
3 Months Ended
Mar. 31, 2017
Other Real Estate [Abstract]  
Other Real Estate and Repossessed Assets
(3) Other Real Estate and Repossessed Assets

 

    March 31,     December 31,  
(in thousands)   2017     2016  
Commercial   $ 783     $ 809  
Real estate construction - commercial     12,380       12,380  
Real estate mortgage - residential     584       647  
Real estate mortgage - commercial     2,909       3,439  
Repossessed assets     13       16  
Total   $ 16,669     $ 17,291  
Less valuation allowance for other real estate owned     (3,044 )     (3,129 )
Total other real estate and repossessed assets   $ 13,625     $ 14,162  

 

Changes in the net carrying amount of other real estate and repossessed assets were as follows for the periods indicated:

 

    Three Months Ended March 31,  
    2017     2016  
Balance at beginning of period   $ 17,291     $ 19,225  
Additions     103       742  
Proceeds from sales     (658 )     (1,274 )
Charge-offs against the valuation allowance for other real estate owned, net     (117 )     (46 )
Net gain on sales     50       49  
Total other real estate and repossessed assets   $ 16,669     $ 18,696  
Less valuation allowance for other real estate owned     (3,044 )     (3,225 )
Balance at end of period   $ 13,625     $ 15,471  

 

At March 31, 2017 $194,000 of consumer mortgage loans secured by residential real estate properties were in the process of foreclosure compared to $162,000 at December 31, 2016.

 

Activity in the valuation allowance for other real estate owned was as follows for the periods indicated:

 

    Three Months Ended March 31,  
(in thousands)   2017     2016  
Balance, beginning of period   $ 3,129     $ 3,233  
Provision for other real estate owned     32       38  
Charge-offs     (117 )     (46 )
Balance, end of period   $ 3,044     $ 3,225  
XML 22 R11.htm IDEA: XBRL DOCUMENT v3.7.0.1
Investment Securities
3 Months Ended
Mar. 31, 2017
Investments Debt And Equity Securities [Abstract]  
Investment Securities
(4) Investment Securities

 

The amortized cost and fair value of debt securities classified as available-for-sale at March 31, 2017 and December 31, 2016 were as follows:

 

    Total                    
    Amortized     Gross Unrealized     Fair  
(in thousands)   Cost     Gains     Losses     Value  
March 31, 2017                                
U.S. government and federal agency obligations   $ 13,560     $ 0     $ (289 )   $ 13,271  
Government sponsored enterprises     35,521       0       (331 )     35,190  
Obligations of states and political subdivisions     46,733       180       (516 )     46,397  
Mortgage-backed securities:                                
Residential - government agencies     121,996       132       (1,816 )     120,312  
Commercial - government agencies     990       10       0       1,000  
Total mortgage-backed securities     122,986       142       (1,816 )     121,312  
Total available-for-sale securities   $ 218,800     $ 322     $ (2,952 )   $ 216,170  
                                 
December 31, 2016                                
U.S. government and federal agency obligations   $ 13,667     $ 0     $ (303 )   $ 13,364  
Government sponsored enterprises     32,786       2       (329 )     32,459  
Obligations of states and political subdivisions     42,666       123       (757 )     42,032  
Mortgage-backed securities:                                
Residential - government agencies     127,527       124       (1,995 )     125,656  
Commercial - government agencies     989       12       0       1,001  
Total mortgage-backed securities     128,516       136       (1,995 )     126,657  
Total available-for-sale securities   $ 217,635     $ 261     $ (3,384 )   $ 214,512  

 

All of the Company’s investment securities are classified as available for sale. Agency bonds and notes, small business administration guaranteed loan certificates (SBA), residential and commercial agency mortgage-backed securities, and agency collateralized mortgage obligations (CMO) include securities issued by the Government National Mortgage Association (GNMA), a U.S. government agency, and the Federal National Mortgage Association (FNMA), the Federal Home Loan Mortgage Corporation (FHLMC) and the Federal Home Loan Bank (FHLB), which are U.S. government-sponsored enterprises.

 

Other Investments and securities primarily consist of Federal Home Loan Bank stock, subordinated debt equity securities, and the Company’s interest in statutory trusts. These securities are reported at cost in other assets in the amount of $9.8 million and $9.8 million as of March 31, 2017 and December 31, 2016, respectively.

 

Debt securities with carrying values aggregating approximately $176.8 million and $167.6 million at March 31, 2017 and December 31, 2016, respectively, were pledged to secure public funds, securities sold under agreements to repurchase, and for other purposes as required or permitted by law.

 

The amortized cost and fair value of debt securities classified as available-for-sale at March 31, 2017, by contractual maturity are shown below. Expected maturities may differ from contractual maturities because borrowers have the right to call or prepay obligations with or without prepayment penalties.

 
    Amortized     Fair  
(in thousands)   Cost     Value  
Due in one year or less   $ 4,136     $ 4,138  
Due after one year through five years     59,006       58,628  
Due after five years through ten years     26,630       26,123  
Due after ten years     6,042       5,969  
Total     95,814       94,858  
Mortgage-backed securities     122,986       121,312  
Total available-for-sale securities   $ 218,800     $ 216,170  

 

Gross unrealized losses on debt securities and the fair value of the related securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at March 31, 2017 and December 31, 2016 were as follows:

 

    Less than 12 months     12 months or more     Total     Total  
    Fair     Unrealized     Fair     Unrealized     Fair     Unrealized  
(in thousands)   Value     Losses     Value     Losses     Value     Losses  
At March 31, 2017                                                
U.S. government and federal agency obligations   $ 8,362     $ (168 )   $ 4,909     $ (121 )   $ 13,271     $ (289 )
Government sponsored enterprises     34,190       (331 )     0       0       34,190       (331 )
Obligations of states and political subdivisions     28,205       (516 )     0       0       28,205       (516 )
Mortgage-backed securities:                                                
Residential - government agencies     81,414       (1,381 )     23,717       (435 )     105,131       (1,816 )
Total   $ 152,171     $ (2,396 )   $ 28,626     $ (556 )   $ 180,797     $ (2,952 )
                                                 
(in thousands)                                                
At December 31, 2016                                                
U.S. government and federal agency obligations   $ 13,365     $ (303 )   $ 0     $ 0     $ 13,365     $ (303 )
Government sponsored enterprises     29,432       (329 )     0       0       29,432       (329 )
Obligations of states and political subdivisions     32,318       (757 )     0       0       32,318       (757 )
Mortgage-backed securities:                                                
Residential - government agencies     109,772       (1,848 )     3,742       (147 )     113,514       (1,995 )
Total   $ 184,887     $ (3,237 )   $ 3,742     $ (147 )   $ 188,629     $ (3,384 )

 

The total available for sale portfolio consisted of approximately 309 securities at March 31, 2017. The portfolio included 205 securities having an aggregate fair value of $180.8 million that were in a loss position at March 31, 2017. Securities identified as temporarily impaired which had been in a loss position for 12 months or longer totaled $28.6 million at fair value. The $3.0 million aggregate unrealized loss included in accumulated other comprehensive income at March 31, 2017 was caused by interest rate fluctuations.

 

The total available for sale portfolio consisted of approximately 298 securities at December 31, 2016. The portfolio included 216 securities having an aggregate fair value of $188.6 million that were in a loss position at December 31, 2016. Securities identified as temporarily impaired which had been in a loss position for 12 months or longer had a fair value of $3.7 million at December 31, 2016. The $3.4 million aggregate unrealized loss included in accumulated other comprehensive income at December 31, 2016 was caused by interest rate fluctuations.

 

Because the decline in fair value is attributable to changes in interest rates and not credit quality, these investments were not considered other-than-temporarily impaired at March 31, 2017 and December 31, 2016, respectively. In the absence of changes in credit quality of these investments, the fair value is expected to recover on all debt securities as they approach their maturity date or re-pricing date, or if market yields for such investments decline. In addition, the Company does not have the intent to sell these investments over the period of recovery, and it is not more likely than not that the Company will be required to sell such investment securities.

 
The table presents the components of investment securities gains and losses, which have been recognized in earnings:

 

    Three Months Ended March 31,  
(in thousands)   2017     2016  
Gains realized on sales   $ 0     $ 472  
Losses realized on sales     0       0  
Other-than-temporary impairment recognized     0       0  
Investment securities gains   $ 0     $ 472  
XML 23 R12.htm IDEA: XBRL DOCUMENT v3.7.0.1
Intangible Assets
3 Months Ended
Mar. 31, 2017
Intangible Assets  
Intangible Assets
(5) Intangible Assets

 

Mortgage Servicing Rights

 

At March 31, 2017, the Company was servicing approximately $291.0 million of loans sold to the secondary market compared to $294.4 million at December 31, 2016, and $308.1 million at March 31, 2016. Mortgage loan servicing fees, reported as non-interest income, earned on loans sold were $209,000 for the three ended March 31, 2017 compared to $210,000 for the three months ended March 31, 2016, respectively.

 

The table below presents changes in mortgage servicing rights (MSRs) for the periods indicated.

 

    Three Months Ended March 31,  
(in thousands)   2017     2016  
Balance at beginning of period   $ 2,584     $ 2,847  
Originated mortgage servicing rights     49       53  
Changes in fair value:                
Due to change in model inputs and assumptions (1)     375       (3 )
Other changes in fair value (2)     (131 )     (152 )
Balance at end of period   $ 2,877     $ 2,745  

 

(1) The change in fair value resulting from changes in valuation inputs or assumptions used in the valuation model reflects the change in discount rates and prepayment speed assumptions primarily due to changes in interest rates.
(2) Other changes in fair value reflect changes due to customer payments and passage of time.

 

The following key data and assumptions were used in estimating the fair value of the Company’s MSRs as of the three months ended March 31, 2017 and 2016:

 

    Three Months Ended March 31,  
    2017     2016  
Weighted average constant prepayment rate     8.29 %     10.30 %
Weighted average note rate     3.85 %     3.91 %
Weighted average discount rate     9.72 %     9.19 %
Weighted average expected life (in years)     6.50       5.70  
XML 24 R13.htm IDEA: XBRL DOCUMENT v3.7.0.1
Federal Funds Purchased and Securities Sold Under Agreements to Repurchase
3 Months Ended
Mar. 31, 2017
Federal Funds Purchased and Securities Sold under Agreements to Repurchase [Abstract]  
Federal funds purchased and securities sold under agreements to repurchase
(6) Federal funds purchased and securities sold under agreements to repurchase

 

    March 31,     December 31,  
    2017     2016  
Federal funds purchased   $ 0     $ 992  
Repurchase agreements     31,512       30,023  
Total   $ 31,512     $ 31,015  

 

The Company offers a sweep account program whereby amounts in excess of an established limit are “swept” from the customer’s demand deposit account on a daily basis into retail repurchase agreements pursuant to individual repurchase agreements between the Company and its customers. Repurchase agreements are agreements to sell securities subject to an obligation to repurchase the same or similar securities. They are accounted for as collateralized financing transactions, not as sales and purchases of the securities portfolio. The securities collateral pledged for the repurchase agreements with customers is maintained by a designated third party custodian. The collateral amounts pledged to repurchase agreements by remaining maturity in the table below are limited to the outstanding balances of the related asset or liability; thus amounts of excess collateral are not shown.

 

Repurchase Agreements   Remaining Contractual Maturity of the Agreements  
    Overnight     Less     Greater        
    and     than     than        
(in thousands)   continuous     90 days     90 days     Total  
At March 31, 2017                                
U.S. government and federal agency obligations   $ 3,513     $ 0     $ 0     $ 3,513  
Government sponsored enterprises     7,291       0       0       7,291  
Asset-backed securities     20,708       0       0       20,708  
Total   $ 31,512     $ 0     $ 0     $ 31,512  
                                 
At December 31, 2016                                
U.S. government and federal agency obligations   $ 3,489     $ 0     $ 0     $ 3,489  
Government sponsored enterprises     7,324       0       0       7,324  
Asset-backed securities     19,210       0       0       19,210  
Total   $ 30,023     $ 0     $ 0     $ 30,023  
XML 25 R14.htm IDEA: XBRL DOCUMENT v3.7.0.1
Income Taxes
3 Months Ended
Mar. 31, 2017
Income Tax Disclosure [Abstract]  
Income Taxes
(7) Income Taxes

 

Income taxes as a percentage of earnings before income taxes as reported in the consolidated financial statements were 34.2% for the three months ended March 31, 2017 compared to 32.6% for the three months ended March 31, 2016. The increase in tax rates quarter over quarter is primarily due to an immaterial return to provision adjustment made in 2016.

 

The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income of the appropriate character during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, taxable income available in carryback years, and tax planning strategies in making this assessment. With the exception of certain capital losses generated during 2013 and 2014, it is management’s opinion that the Company will more likely than not realize the benefits of these temporary differences as of March 31, 2017 and, therefore, only established a valuation reserve against the Company’s capital loss carry forward. Management arrived at this conclusion based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible. As indicated above, the Company generated approximately $219,000 of capital losses during 2013 and 2014 as a result of disposing of certain limited partnership interests. The capital losses will expire between 2018 and 2019, and it is management’s opinion that the Company will not more likely than not generate the capital gain income necessary to utilize the capital loss carry forwards before the capital losses expire. As such, the Company has established an $83,000 valuation reserve against its capital loss carry forward deferred tax asset.
XML 26 R15.htm IDEA: XBRL DOCUMENT v3.7.0.1
Stockholders' Equity
3 Months Ended
Mar. 31, 2017
Stockholders' Equity Note [Abstract]  
Stockholders' Equity
(8) Stockholders’ Equity

 

Accumulated Other Comprehensive Loss

 

The following details the change in the components of the Company’s accumulated other comprehensive loss for the three months ended March 31, 2017 and 2016:
 
    Three months ended March 31, 2017  
          Unrecognized Net     Accumulated  
    Unrealized     Pension and     Other  
    Gain (Loss)     Postretirement     Comprehensive  
(in thousands)   on Securities (1)     Costs (2)     Loss  
Balance at beginning of period   $ (1,936 )   $ (1,865 )   $ (3,801 )
Other comprehensive income, before reclassifications     493       22       515  
Amounts reclassified from accumulated other comprehensive income (loss)     0       0       0  
Current period other comprehensive income, before tax     493       22       515  
Income tax expense     (187 )     (8 )     (195 )
Current period other comprehensive income, net of tax     306       14       320  
Balance at end of period   $ (1,630 )   $ (1,851 )   $ (3,481 )

 

    Three months ended March 31, 2016  
          Unrecognized Net     Accumulated  
    Unrealized     Pension and     Other  
    Gain (Loss)     Postretirement     Comprehensive  
(in thousands)   on Securities (1)     Costs (2)     Loss  
Balance at beginning of period   $ (591 )   $ (1,427 )   $ (2,018 )
Other comprehensive income, before reclassifications     2,006       21       2,027  
Amounts reclassified from accumulated other comprehensive income (loss)     (472 )     0       (472 )
Current period other comprehensive income, before tax     1,534       21       1,555  
Income tax expense     (583 )     (8 )     (591 )
Current period other comprehensive income, net of tax     951       13       964  
Balance at end of period   $ 360     $ (1,414 )   $ (1,054 )

 

(1) The pre-tax amounts reclassified from accumulated other comprehensive loss are included in gain on sale of investment securities in the consolidated statements of income.

(2) The pre-tax amounts reclassified from accumulated other comprehensive loss are included in the computation of net periodic pension cost.

XML 27 R16.htm IDEA: XBRL DOCUMENT v3.7.0.1
Employee Benefit Plans
3 Months Ended
Mar. 31, 2017
Compensation and Retirement Disclosure [Abstract]  
Employee Benefit Plans
(9) Employee Benefit Plans

 

Employee Benefits

 

Employee benefits charged to operating expenses are summarized in the table below for the periods indicated.

 

    Three Months Ended March 31,  
(in thousands)   2017     2016  
Payroll taxes   $ 356     $ 296  
Medical plans     426       512  
401k match and profit sharing     250       181  
Pension plan     352       307  
Other     16       16  
Total employee benefits   $ 1,400     $ 1,312  

 

The Company’s profit-sharing plan includes a matching 401k portion, in which the Company matches the first 3% of eligible employee contributions. The Company made annual contributions in an amount up to 6% of income before income taxes and before contributions to the profit-sharing and pension plans for all participants, limited to the maximum amount deductible for federal income tax purposes, for each of the periods shown. In addition, employees were able to make additional tax-deferred contributions.

 

Pension

 

The Company provides a noncontributory defined benefit pension plan for all full-time employees. An employer is required to recognize the funded status of a defined benefit postretirement plan as an asset or liability in its balance sheet and to recognize changes in that funded status in the year in which the changes occur through comprehensive income. Under the Company’s funding policy for the defined benefit pension plan, contributions are made to a trust as necessary to provide for current service and for any unfunded accrued actuarial liabilities over a reasonable period. To the extent that these requirements are fully covered by assets in the trust, a contribution might not be made in a particular year. The Company expects to make a pension contribution in the amount of $1.2 million on September 15, 2017. The minimum required contribution for 2017 is $842,000.

 

Components of Net Pension Cost and Other Amounts Recognized in Accumulated Other Comprehensive Income

 

The following items are components of net pension cost for the periods indicated:

 

    Estimated     Actual  
(in thousands)   2017     2016  
Service cost - benefits earned during the year   $ 1,343     $ 1,179  
Interest costs on projected benefit obligations     1,008       956  
Expected return on plan assets     (1,123 )     (1,057 )
Expected administrative expenses     88       70  
Amortization of prior service cost     79       79  
Amortization of unrecognized net loss     11       0  
Net periodic pension expense   $ 1,406     $ 1,227  
                 
Pension expense - three months ended March 31, (actual)   $ 352     $ 307  
XML 28 R17.htm IDEA: XBRL DOCUMENT v3.7.0.1
Stock Compensation
3 Months Ended
Mar. 31, 2017
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Stock Compensation
(10) Stock Compensation

 

The Company’s stock option plan provides for the grant of options to purchase up to 557,706 shares of the Company’s common stock to officers and other key employees of the Company and its subsidiaries. All options have been granted at exercise prices equal to fair value and vest over periods ranging from four to five years.

 

The following table summarizes the Company’s stock option activity:

 

                Weighted        
          Weighted     Average     Aggregate  
    Number     average     Contractual     Intrinsic  
    of     Exercise     Term     Value  
    Shares     Price     (in years)     ($000)  
Outstanding, beginning of period     44,458     $ 20.11                  
Granted     0       0.00                  
Exercised     0       0.00                  
Forfeited or expired     (4,345 )     20.34                  
Outstanding, March 31, 2017     40,113     $ 20.08       0.75     $ 110,931  
Exercisable, March 31, 2017     38,844     $ 20.24       0.73     $ 103,647  

 

Options have been adjusted to reflect a 4% stock dividend paid on July 1, 2016.

 

Total stock-based compensation expense was $1,000 and $5,000 for the three months ended March 31, 2017 and 2016, respectively. As of March 31, 2017, the total unrecognized compensation expense related to non-vested stock awards was $2,000 and the related weighted average period over which it is expected to be recognized is approximately 0.26 years.
XML 29 R18.htm IDEA: XBRL DOCUMENT v3.7.0.1
Earnings per Share
3 Months Ended
Mar. 31, 2017
Earnings Per Share [Abstract]  
Earnings per Share
(11) Earnings per Share

 

Stock Dividend On July 1, 2016, the Company paid a special stock dividend of 4% to common shareholders of record at the close of business on June 15, 2016. For all periods presented, share information, including basic and diluted earnings per share, has been adjusted retroactively to reflect this change.

 

Basic earnings per share is computed by dividing income available to shareholders by the weighted average number of shares outstanding during the year. Diluted earnings per share gives effect to all dilutive potential shares that were outstanding during the year. The calculations of basic and diluted earnings per share are as follows for the periods indicated:

 

    Three Months Ended March 31,  
(dollars in thousands, except per share data)   2017     2016  
Basic earnings per share:                
Net income available to shareholders   $ 2,100     $ 1,998  
Basic earnings per share   $ 0.37     $ 0.35  
Diluted earnings per share:                
Net income available to shareholders   $ 2,100     $ 1,998  
Average shares outstanding     5,615,300       5,654,066  
Effect of dilutive stock options     4,726       0  
Average shares outstanding including dilutive stock options     5,620,026       5,654,066  
Diluted earnings per share   $ 0.37       0.35  

 

Under the treasury stock method, outstanding stock options are dilutive when the average market price of the Company’s common stock, when combined with the effect of any unamortized compensation expense, exceeds the option price during the period, except when the Company has a loss from continuing operations available to shareholders. In addition, proceeds from the assumed exercise of dilutive options along with the related tax benefit are assumed to be used to repurchase common shares at the average market price of such stock during the period.

 

Options to purchase 20,787 and 44,458 shares during the three months ended March 31, 2017 and 2016, respectively, were not included in the respective computations of diluted earnings per share because the exercise price of the option, when combined with the effect of the unamortized compensation expense, was greater than the average market price of the common shares and were considered anti-dilutive.

 

Repurchase Program On August 6, 2015, the Board of Directors authorized a share repurchase plan to purchase through open market transactions $2.0 million market value of the Company’s common stock. As of March 31, 2017, the Company repurchased a total of 45,293 shares of common stock pursuant to the plan at an average price of $15.04 per share, including 1,400 shares of common stock repurchased pursuant to the plan during the three months ended March 31, 2017 at an average price of $17.88 per share. At March 31, 2017, approximately $1.3 million may be used to purchase shares under the plan.

 

The table below shows activity in the outstanding shares of the Company's common stock during the past three years. Shares in the table below are presented on a historical basis and have not been restated for the annual 4% stock dividends.

 

    Number of shares  
    March 31,     December 31,     March 31,  
    2017     2016     2016  
Outstanding, beginning of year     5,616,607       5,441,190       5,441,190  
Issuance of stock:                        
4% stock dividend     0       217,155       0  
Purchase of treasury stock     (1,400 )     (41,738 )     (8,635 )
Outstanding, end of year     5,615,207       5,616,607       5,432,555  

 

Except as noted in the above table, all share and per share amounts in this note have been restated for the 4% common stock dividend distributed July 1, 2016.

XML 30 R19.htm IDEA: XBRL DOCUMENT v3.7.0.1
Fair Value Measurements
3 Months Ended
Mar. 31, 2017
Fair Value Disclosures [Abstract]  
Fair Value Measurements
(12) Fair Value Measurements

 

The Company uses fair value measurements to record fair value adjustments to certain financial and nonfinancial assets and liabilities. The FASB ASC Topic 820, Fair Value Measurements and Disclosures, defines fair value, establishes a framework for the measurement of fair value, and enhances disclosures about fair value measurements. The standard applies whenever other standards require (permit) assets or liabilities to be measured at fair value but does not expand the use of fair value in any new circumstances. In this standard, FASB clarified the principle that fair value should be based on the assumptions market participants would use when pricing the asset or liability. In support of this principle, the standard establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. As of March 31, 2017 and December 31, 2016, respectively, there were no transfers into or out of Levels 1-3.

 

The fair value hierarchy is as follows:

 

Level 1 – Inputs are unadjusted quoted prices for identical assets or liabilities in active markets.

 

Level 2 – Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets and liabilities in active markets, such as interest rates and yield curves that are observable at commonly quoted intervals.

 

Level 3 – Inputs are unobservable inputs for the asset or liability and significant to the fair value. These may be internally developed using the Company’s best information and assumptions that a market participant would consider.

 

ASC Topic 820 also provides guidance on determining fair value when the volume and level of activity for the asset or liability have significantly decreased and on identifying circumstances when a transaction may not be considered orderly.

 

The Company is required to disclose assets and liabilities measured at fair value on a recurring basis separate from those measured at fair value on a nonrecurring basis. Nonfinancial assets measured at fair value on a nonrecurring basis would include foreclosed real estate, long-lived assets, and core deposit intangible assets, which are reviewed when circumstances or other events indicate that impairment may have occurred. 

 

Valuation Methods for Instruments Measured at Fair Value on a Recurring Basis

 

Following is a description of the Company’s valuation methodologies used for assets and liabilities recorded at fair value on a recurring basis:

 

Available-for-Sale Securities

 

The fair value measurements of the Company’s investment securities are determined by a third party pricing service which considers observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions, among other things. The fair value measurements are subject to independent verification to another pricing source by management each quarter for reasonableness. Securities classified as available-for-sale are reported at fair value utilizing Level 2 inputs.

 

Mortgage Servicing Rights

 

The fair value of mortgage servicing rights is based on the discounted value of estimated future cash flows utilizing contractual cash flows, servicing rate, constant prepayment rate, servicing cost, and discount rate factors. Accordingly, the fair value is estimated based on a valuation model that calculates the present value of estimated future net servicing income. The model incorporates assumptions that market participants use in estimating future net servicing income, including estimates of prepayment speeds, market discount rates, cost to service, float earnings rates, and other ancillary income, including late fees. The valuation models estimate the present value of estimated future net servicing income. The Company classifies its servicing rights as Level 3.

 
          Fair Value Measurements  
          Quoted Prices              
          in Active              
          Markets for     Other     Significant  
          Identical     Observable     Unobservable  
          Assets     Inputs     Inputs  
(in thousands)   Fair Value     (Level 1)     (Level 2)     (Level 3)  
March 31, 2017                                
Assets:                                
U.S. government and federal agency obligations   $ 13,271     $ 0       13,271     $ 0  
Government sponsored enterprises     35,190       0       35,190       0  
Obligations of states and political subdivisions     46,397       0       46,397       0  
Mortgage-backed securities     121,312       0       121,312       0  
Mortgage servicing rights     2,877       0       0       2,877  
Total   $ 219,047     $ 0     $ 216,170     $ 2,877  
                                 
December 31, 2016                                
Assets:                                
U.S. government and federal agency obligations   $ 13,364     $ 0       13,364     $ 0  
Government sponsored enterprises     32,459       0       32,459       0  
Obligations of states and political subdivisions     42,032       0       42,032       0  
Mortgage-backed securities     126,657       0       126,657       0  
Mortgage servicing rights     2,584       0       0       2,584  
Total   $ 217,096     $ 0     $ 214,512     $ 2,584  

 

The changes in Level 3 assets and liabilities measured at fair value on a recurring basis are summarized as follows:

 

    Fair Value Measurements Using  
    Significant Unobservable Inputs  
    (Level 3)  
    Mortgage Servicing Rights  
(in thousands)   Three Months Ended March 31,  
    2017     2016  
Balance at beginning of period   $ 2,584     $ 2,847  
Total gains or losses (realized/unrealized):                
Included in earnings     244       (155 )
Included in other comprehensive income     0       0  
Purchases     0       0  
Sales     0       0  
Issues     49       53  
Settlements     0       0  
Balance at end of period   $ 2,877     $ 2,745  

 

The change in valuation of mortgage servicing rights arising from inputs and assumptions increased $375,000 and $3,000 for the three months ended March 31, 2017 and 2016, respectively.

 
    Quantitative Information about Level 3 Fair Value Measurements      
    Valuation Technique   Unobservable Inputs   Input Value  
            Three Months Ended March 31,  
            2017     2016  
Mortgage servicing rights    Discounted cash flows   Weighted average constant prepayment rate     8.29 %     10.30 %
        Weighted average note rate     3.85 %     3.91 %
        Weighted average discount rate     9.72 %     9.19 %
        Weighted average expected life (in years)     6.50       5.70  

 

Valuation methods for instruments measured at fair value on a nonrecurring basis

 

Following is a description of the Company’s valuation methodologies used for assets and liabilities recorded at fair value on a nonrecurring basis:

 

Impaired Loans

 

The Company does not record loans at fair value on a recurring basis other than loans that are considered impaired. The net carrying value of impaired loans is generally based on fair values of the underlying collateral obtained through independent appraisals or internal evaluations, or by discounting the total expected future cash flows. Once the fair value of the collateral has been determined and any impairment amount calculated, a specific reserve allocation is made. Because many of these inputs are not observable, the measurements are classified as Level 3. As of March 31, 2017, the Company identified $7.7 million in impaired loans that had specific allowances for losses aggregating $1.1 million. Related to these loans, there was $20,000 in charge-offs recorded during the three months ended March 31, 2017. As of March 31, 2016, the Company identified $5.2 million in impaired loans that had specific allowances for losses aggregating $1.3 million. Related to these loans, there was $560,000 in charge-offs recorded during the three months ended March 31, 2016.

 

Other Real Estate and Foreclosed Assets

 

Other real estate and foreclosed assets consisted of loan collateral that has been repossessed through foreclosure. This collateral is comprised of commercial and residential real estate and other non-real estate property, including autos, manufactured homes, and construction equipment. Other real estate assets are recorded as held for sale initially at the lower of the loan balance or fair value of the collateral less estimated selling costs. The Company relies on external appraisals and assessment of property values by internal staff. In the case of non-real estate collateral, reliance is placed on a variety of sources, including external estimates of value and judgment based on experience and expertise of internal specialists. Subsequent to foreclosure, valuations are updated periodically, and the assets may be written down to reflect a new cost basis. Because many of these inputs are not observable, the measurements are classified as Level 3.

  
          Fair Value Measurements Using        
          Quoted Prices                 Three  
          in Active                 Months  
          Markets for     Other     Significant     Ended  
          Identical     Observable     Unobservable     March 31,  
    Total     Assets     Inputs     Inputs     Total Gains  
(in thousands)   Fair Value     (Level 1)     (Level 2)     (Level 3)     (Losses)*  
March 31, 2017                                        
Assets:                                        
Impaired loans:                                        
Commercial, financial, & agricultural   $ 803     $ 0     $ 0     $ 803     $ (1 )
Real estate construction - commercial     42       0       0       42       0  
Real estate mortgage - residential     4,410       0       0       4,410       (3 )
Real estate mortgage - commercial     1,308       0       0       1,308       (4 )
Consumer     47       0       0       47       (12 )
Total   $ 6,610     $ 0     $ 0     $ 6,610     $ (20 )
Other real estate and foreclosed assets   $ 13,625     $ 0     $ 0     $ 13,625     $ 15  
                                         
March 31, 2016                                        
Assets:                                        
Impaired loans:                                        
Commercial, financial, & agricultural   $ 248     $ 0     $ 0     $ 248     $ (359 )
Real estate construction - commercial     44       0       0       44       0  
Real estate mortgage - residential     3,170       0       0       3,170       (35 )
Real estate mortgage - commercial     243       0       0       243       (154 )
Consumer     100       0       0       100       (12 )
Total   $ 3,805     $ 0     $ 0     $ 3,805     $ (560 )
Other real estate and foreclosed assets   $ 15,471     $ 0     $ 0     $ 15,471     $ 33  

 

* Total gains (losses) reported for other real estate and foreclosed assets includes charge-offs, valuation write downs, and net losses taken during the periods reported.
XML 31 R20.htm IDEA: XBRL DOCUMENT v3.7.0.1
Fair Value of Financial Instruments
3 Months Ended
Mar. 31, 2017
Financial Instruments, Owned, at Fair Value [Abstract]  
Fair Value of Financial Instruments
(13) Fair Value of Financial Instruments

 

The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate such value:

 

Loans

 

The fair values of loans are estimated by discounting the expected future cash flows using the current rates at which similar loans could be made to borrowers with similar credit ratings and for the same remaining maturities. The net carrying amount of impaired loans is generally based on the fair values of collateral obtained through independent appraisals or internal evaluations, or by discounting the total expected future cash flows. This method of estimating fair value does not incorporate the exit-price concept of fair value prescribed by ASC Topic 820.

 

Investment Securities

 

A detailed description of the fair value measurement of the debt instruments in the available-for-sale sections of the investment security portfolio is provided in the Fair Value Measurement section above. A schedule of investment securities by category and maturity is provided in the notes on Investment Securities.

 

Federal Home Loan Bank (FHLB) Stock

 

Ownership of equity securities of FHLB is restricted and there is no established market for their resale. The carrying amount is a reasonable estimate of fair value.

 

Federal Funds Sold, Cash, and Due from Banks

 

The carrying amounts of short-term federal funds sold and securities purchased under agreements to resell, interest earning deposits with banks, and cash and due from banks approximate fair value. Federal funds sold and securities purchased under agreements to resell classified as short-term generally mature in 90 days or less.

 

Mortgage Servicing Rights

 

The fair value of mortgage servicing rights is based on the discounted value of estimated future cash flows utilizing contractual cash flows, servicing rate, constant prepayment rate, servicing cost, and discount rate factors. Accordingly, the fair value is estimated based on a valuation model that calculates the present value of estimated future net servicing income. The model incorporates assumptions that market participants use in estimating future net servicing income, including estimates of prepayment speeds, market discount rates, cost to service, float earnings rates, and other ancillary income, including late fees.

 

Cash Surrender Value - Life Insurance

 

The fair value of Bank owned life insurance (BOLI) approximates the carrying amount. Upon liquidation of these investments, the Company would receive the cash surrender value which equals the carrying amount.

 

Accrued Interest Receivable and Payable

 

For accrued interest receivable and payable, the carrying amount is a reasonable estimate of fair value because of the short maturity for these financial instruments.

 

Deposits

 

The fair value of deposits with no stated maturity, such as noninterest-bearing demand, NOW accounts, savings, and money market, is equal to the amount payable on demand. The fair value of time deposits is based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently offered for deposits of similar remaining maturities.

 

Securities Sold under Agreements to Repurchase and Interest-bearing Demand Notes to U.S. Treasury

 

For securities sold under agreements to repurchase and interest-bearing demand notes to U.S. Treasury, the carrying amount is a reasonable estimate of fair value, as such instruments reprice in a short time period.

 

Subordinated Notes and Other Borrowings

 

The fair value of subordinated notes and other borrowings is based on the discounted value of contractual cashflows. The discount rate is estimated using the rates currently offered for other borrowed money of similar remaining maturities.

 

A summary of the carrying amounts and fair values of the Company’s financial instruments at March 31, 2017 and December 31, 2016 is as follows:

 

                March 31, 2017  
                Fair Value Measurements  
                Quoted Prices              
                in Active           Net  
                Markets for     Other     Significant  
    March 31, 2017     Identical     Observable     Unobservable  
    Carrying     Fair     Assets     Inputs     Inputs  
(in thousands)   Amount     Value     (Level 1)     (Level 2)     (Level 3)  
Assets:                                        
Cash and due from banks   $ 16,746     $ 16,746     $ 16,746     $ 0     $ 0  
Federal funds sold and overnight interest-bearing deposits     6,427       6,427       6,427       0       0  
Investment in available-for-sale securities     216,170       216,170       0       216,170       0  
Loans, net     999,920       993,219       0       0       993,219  
Investment in FHLB stock     5,212       5,212       0       5,212       0  
Mortgage servicing rights     2,877       2,877       0       0       2,877  
Cash surrender value - life insurance     2,430       2,430       0       2,430       0  
Accrued interest receivable     4,702       4,702       4,702       0       0  
    $ 1,254,484     $ 1,247,783     $ 27,875     $ 223,812     $ 996,096  
Liabilities:                                        
Deposits:                                        
Non-interest bearing demand   $ 239,059     $ 239,059     $ 239,059     $ 0     $ 0  
Savings, interest checking and money market     519,379       519,379       519,379       0       0  
Time deposits     284,566       282,822       0       0       282,822  
Federal funds purchased and securities sold under agreements to repurchase     31,512       31,512       31,512       0       0  
Subordinated notes     49,486       34,228       0       34,228       0  
Federal Home Loan Bank advances     91,900       92,225       0       92,225       0  
Accrued interest payable     452       452       452       0       0  
    $ 1,216,354     $ 1,199,677     $ 790,402     $ 126,453     $ 282,822  
 
                December 31, 2016  
                Fair Value Measurements  
                Quoted Prices              
                in Active           Net  
                Markets for     Other     Significant  
    December 31, 2016     Identical     Observable     Unobservable  
    Carrying     Fair     Assets     Inputs     Inputs  
(in thousands)   amount     value     (Level 1)     (Level 2)     (Level 3)  
Assets:                                        
Cash and due from banks   $ 25,589     $ 25,589     $ 25,589     $ 0     $ 0  
Federal funds sold and overnight interest-bearing deposits     1,406       1,406       1,406       0       0  
Investment in available-for-sale securities     214,512       214,512       0       214,512       0  
Loans, net     964,143       959,929       0       0       959,929  
Investment in FHLB stock     5,149       5,149       0       5,149       0  
Mortgage servicing rights     2,584       2,584       0       0       2,584  
Cash surrender value - life insurance     2,409       2,409       0       2,409       0  
Accrued interest receivable     5,183       5,183       5,183       0       0  
    $ 1,220,975     $ 1,216,761     $ 32,178     $ 222,070     $ 962,513  
Liabilities:                                        
Deposits:                                        
Non-interest bearing demand   $ 235,975     $ 235,975     $ 235,975     $ 0     $ 0  
Savings, interest checking and money market     468,731       468,731       468,731       0       0  
Time deposits     305,960       304,334       0       0       304,334  
Federal funds purchased and securities sold under agreements to repurchase     31,015       31,015       31,015       0       0  
Subordinated notes     49,486       33,712       0       33,712       0  
Other borrowings     93,392       93,209       0       93,209       0  
Accrued interest payable     498       498       498       0       0  
    $ 1,185,057     $ 1,167,474     $ 736,219     $ 126,921     $ 304,334  

 

Off-Balance Sheet Financial Instruments

 

The fair value of commitments to extend credit and standby letters of credit is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements, the likelihood of the counterparties drawing on such financial instruments, and the present creditworthiness of such counterparties. The Company believes such commitments have been made on terms that are competitive in the markets in which it operates.

 

Limitations

 

The fair value estimates provided are made at a point in time based on market information and information about the financial instruments. Because no market exists for a portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the fair value estimates.
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Repurchase Reserve Liability
3 Months Ended
Mar. 31, 2017
Repurchase Reserve Liability [Abstract]  
Repurchase Reserve Liability
(14) Repurchase Reserve Liability

 

The Company’s repurchase reserve liability for estimated losses incurred on sold loans was $160,000 at both March 31, 2017 and December 31, 2016. This liability represents management’s estimate of the potential repurchase or make-whole liability for residential mortgage loans originated for sale that may arise from representation and warranty claims that could relate to a variety of issues, including but not limited to, misrepresentation of facts, appraisal issues, or program requirements that may not meet investor guidelines. At March 31, 2017, the Company was servicing 2,843 loans sold to the secondary market with a balance of approximately $291.00 million compared to 2,877 loans sold with a balance of approximately $294.4 million at December 31, 2016.

 

    Three Months Ended March 31,  
(in thousands)   2017     2016  
Balance at beginning of year   $ 160     $ 160  
Provision for repurchase liability     0       0  
Reimbursement of expenses     0       0  
Balance at end of year   $ 160     $ 160  
XML 33 R22.htm IDEA: XBRL DOCUMENT v3.7.0.1
Commitments and Contingencies
3 Months Ended
Mar. 31, 2017
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies
(15) Commitments and Contingencies

 

The Company issues financial instruments with off-balance-sheet risk in the normal course of business of meeting the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. These instruments may involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized in the consolidated balance sheets.

 

The Company’s extent of involvement and maximum potential exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of these instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for financial instruments included on its consolidated balance sheets. At March 31, 2017, no amounts have been accrued for any estimated losses for these financial instruments.

 

The contractual amount of off-balance-sheet financial instruments were as follows as of the dates indicated:

 

    March 31,     December 31,  
(in thousands)   2017     2016  
Commitments to extend credit   $ 238,425     $ 253,375  
Commitments to originate residential first and second mortgage loans     3,751       2,626  
Standby letters of credit     23,570       2,745  
Total     265,746       258,746  

 

Commitments

 

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since certain of the commitments and letters of credit are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the customer. Collateral held varies, but may include accounts receivable, inventory, furniture and equipment, and real estate.

 

Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. These standby letters of credit are primarily issued to support contractual obligations of the Company’s customers. The approximate remaining term of standby letters of credit range from one month to five years at March 31, 2017.

 

Pending Litigation

 

The Company and its subsidiaries are defendants in various legal actions incidental to the Company’s past and current business activities. Based on the Company’s analysis, and considering the inherent uncertainties associated with litigation, management does not believe that it is reasonably possible that these legal actions will materially adversely affect the Company’s consolidated financial condition or results of operations in the near term. The Company records a loss accrual for all legal matters for which it deems a loss is probable and can be reasonably estimated. Some legal matters, which are at early stages in the legal process, have not yet progressed to the point where a loss is deemed probable or an amount can be estimated.
XML 34 R23.htm IDEA: XBRL DOCUMENT v3.7.0.1
Summary of Significant Accounting Policies (Policies)
3 Months Ended
Mar. 31, 2017
Accounting Policies [Abstract]  
Stock Dividend
Stock Dividend On July 1, 2016, the Company paid a special stock dividend of four percent to shareholders of record at the close of business on June 15, 2016. For all periods presented, share information, including basic and diluted earnings per share, has been adjusted retroactively to reflect this change.
New accounting principles adopted in 2017

The following represents significant new accounting principles adopted in 2017:

 

Stock Compensation The FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, in March 2016, in order to reduce complexity in this area and improve the usefulness of information provided to users. Amendments which will affect public companies include the recognition of excess tax benefits and deficiencies in income tax expense or benefit in the income statement, guidance as to the classification of excess tax benefits on the statement of cash flows, an election to account for award forfeitures as they occur, and the ability to withhold taxes up to the maximum statutory rate in the applicable jurisdictions without triggering liability classification of the award. The Company adopted the ASU on January 1, 2017 and elected to recognize forfeitures as they occur. As allowed by the ASU, the Company’s adoption was prospective, therefore prior periods have not been adjusted. The adoption of the ASU could result in increased volatility to reported income tax expense related to excess tax benefits and tax deficiencies for employee share-based transactions, however, the actual amounts recognized in income tax expense will be dependent on the amount of employee share-based transactions and the stock price at the time of vesting or exercise. The adoption of the ASU did not have a significant effect on the Company’s consolidated financial statements.

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Loans and Allowance for Loan Losses (Tables)
3 Months Ended
Mar. 31, 2017
Loans and Leases Receivable Disclosure [Abstract]  
Schedule of summary of loans, by major class within the Company's loan portfolio
    March 31,     December 31,  
(in thousands)   2017     2016  
Commercial, financial, and agricultural   $ 182,493     $ 182,881  
Real estate construction - residential     20,299       18,907  
Real estate construction - commercial     70,143       55,653  
Real estate mortgage - residential     263,882       259,900  
Real estate mortgage - commercial     442,266       426,470  
Installment and other consumer     31,099       30,218  
Total loans   $ 1,010,182     $ 974,029  
Schedule of summary of the allowance for loan losses
    Three Months Ended March 31, 2017  
    Commercial,     Real Estate     Real Estate     Real Estate     Real Estate     Installment              
    Financial, &     Construction -     Construction -     Mortgage -     Mortgage -     and Other     Un-        
(in thousands)   Agricultural     Residential     Commercial     Residential     Commercial     Consumer     allocated     Total  
Balance at beginning of period   $ 2,753     $ 108     $ 413     $ 2,385     $ 3,793       274     $ 160     $ 9,886  
Additions:                                                                
Provision for loan losses     (384 )     (59 )     166       (276 )     945       72       (114 )     350  
Deductions:                                                                
Loans charged off     28       0       0       20       14       51       0       113  
Less recoveries on loans     (19 )     (50 )     0       (36 )     (7 )     (27 )     0       (139 )
Net loan charge-offs (recoveries)     9       (50 )     0       (16 )     7       24       0       (26 )
Balance at end of period   $ 2,360     $ 99     $ 579     $ 2,125     $ 4,731     $ 322     $ 46     $ 10,262  

 

    Three Months Ended March 31, 2016  
    Commercial,     Real Estate     Real Estate     Real Estate     Real Estate     Installment              
    Financial, &     Construction -     Construction -     Mortgage -     Mortgage -     and Other     Un-        
(in thousands)   Agricultural     Residential     Commercial     Residential     Commercial     Consumer     allocated     Total  
Balance at beginning of period   $ 2,153     $ 59     $ 644     $ 2,439     $ 2,935     $ 273     $ 101     $ 8,604  
Additions:                                                                
Provision for loan losses     (12 )     (15 )     33       32       276       (6 )     (58 )     250  
Deductions:                                                                
Loans charged off     103       0       1       206       82       56       0       448  
Less recoveries on loans     (97 )     0       (11 )     (8 )     (61 )     (48 )     0       (225 )
Net loan charge-offs (recoveries)     6       0       (10 )     198       21       8       0       223  
Balance at end of period   $ 2,135     $ 44     $ 687     $ 2,273     $ 3,190     $ 259     $ 43     $ 8,631  

 

The following table provides the balance in the allowance for loan losses at March 31, 2017 and December 31, 2016, and the related loan balance by impairment methodology.

 

    Commercial,     Real Estate     Real Estate     Real Estate     Real Estate     Installment              
    Financial, and     Construction -     Construction -     Mortgage -     Mortgage -     and Other     Un-        
(in thousands)   Agricultural     Residential     Commercial     Residential     Commercial     Consumer     allocated     Total  
March 31, 2017                                                                
Allowance for loan losses:                                                                
Individually evaluated for impairment   $ 446     $ 0     $ 7     $ 354     $ 284     $ 12     $ 0     $ 1,103  
Collectively evaluated for impairment     1,914       99       572       1,771       4,447       310       46       9,159  
Total   $ 2,360     $ 99     $ 579     $ 2,125     $ 4,731     $ 322     $ 46     $ 10,262  
Loans outstanding:                                                                
Individually evaluated for impairment   $ 1,655     $ 0     $ 49     $ 5,575     $ 1,986     $ 59     $ 0     $ 9,324  
Collectively evaluated for impairment     180,838       20,299       70,094       258,307       440,280       31,040       0       1,000,858  
Total   $ 182,493     $ 20,299     $ 70,143     $ 263,882     $ 442,266     $ 31,099     $ 0     $ 1,010,182  
                                                                 
December 31, 2016                                                                
Allowance for loan losses:                                                                
Individually evaluated for impairment   $ 469     $ 0     $ 7     $ 319     $ 277     $ 8     $ 0     $ 1,080  
Collectively evaluated for impairment     2,284       108       406       2,066       3,516       266       160       8,806  
Total   $ 2,753     $ 108     $ 413     $ 2,385     $ 3,793     $ 274     $ 160     $ 9,886  
Loans outstanding:                                                                
Individually evaluated for impairment   $ 1,617     $ 0     $ 49     $ 5,471     $ 1,918     $ 89     $ 0     $ 9,144  
Collectively evaluated for impairment     181,264       18,907       55,604       254,429       424,552       30,129       0       964,885  
Total   $ 182,881     $ 18,907     $ 55,653     $ 259,900     $ 426,470     $ 30,218     $ 0     $ 974,029  
Schedule of impaired loans
    March 31,     December 31,  
(in thousands)   2017     2016  
Non-accrual loans   $ 3,526     $ 3,429  
Performing TDRs     5,798       5,715  
Total impaired loans   $ 9,324     $ 9,144  
 
          Unpaid        
    Recorded     Principal     Specific  
(in thousands)   Investment     Balance     Reserves  
March 31, 2017                        
With no related allowance recorded:                        
Commercial, financial and agricultural   $ 406     $ 561     $ 0  
Real estate - residential     811       822       0  
Real estate - commercial     394       394       0  
Total   $ 1,611     $ 1,777     $ 0  
With an allowance recorded:                        
Commercial, financial and agricultural   $ 1,249     $ 1,279     $ 446  
Real estate - construction commercial     49       55       7  
Real estate - residential     4,764       4,823       354  
Real estate - commercial     1,592       1,802       284  
Installment and other consumer     59       86       12  
Total   $ 7,713     $ 8,045     $ 1,103  
Total impaired loans   $ 9,324     $ 9,822     $ 1,103  

 

          Unpaid        
    Recorded     Principal     Specific  
(in thousands)   Investment     Balance     Reserves  
December 31, 2016                        
With no related allowance recorded:                        
Commercial, financial and agricultural   $ 564     $ 706     $ 0  
Real estate - residential     1,550       1,557       0  
Total   $ 2,114     $ 2,263     $ 0  
With an allowance recorded:                        
Commercial, financial and agricultural   $ 1,053     $ 1,078     $ 469  
Real estate - construction commercial     49       56       7  
Real estate - residential     3,921       3,990       319  
Real estate - commercial     1,918       1,988       277  
Installment and other consumer     89       116       8  
Total   $ 7,030     $ 7,228     $ 1,080  
Total impaired loans   $ 9,144     $ 9,491     $ 1,080  
 
    Three Months Ended March 31,  
    2017     2016  
          Interest           Interest  
    Average     Recognized     Average     Recognized  
    Recorded     For the     Recorded     For the  
(in thousands)   Investment     Period Ended     Investment     Period Ended  
With no related allowance recorded:                                
Commercial, financial and agricultural   $ 555     $ 1     $ 1,520     $ 15  
Real estate - construction commercial     0       0       118       0  
Real estate - residential     807       4       1,513       39  
Real estate - commercial     589       2       2,622       42  
Installment and other consumer     40       0       0       0  
Total   $ 1,991     $ 7     $ 5,773     $ 96  
With an allowance recorded:                                
Commercial, financial and agricultural   $ 1,192     $ 11     $ 984     $ 12  
Real estate - construction commercial     50       0       65       0  
Real estate - residential     4,511       43       4,553       120  
Real estate - commercial     1,494       15       764       0  
Installment and other consumer     51       0       135       0  
Total   $ 7,298     $ 69     $ 6,501     $ 132  
Total impaired loans   $ 9,289     $ 76     $ 12,274     $ 228  
Schedule of aging information for the Company's past due and non-accrual loans
    Current or           90 Days              
    Less Than           Past Due              
    30 Days     30 - 89 Days     And Still              
(in thousands)   Past Due     Past Due     Accruing     Non-Accrual     Total  
March 31, 2017                                        
Commercial, Financial, and Agricultural   $ 181,368     $ 220     $ 0     $ 905     $ 182,493  
Real Estate Construction - Residential     20,299       0       0       0       20,299  
Real Estate Construction - Commercial     69,997       97       0       49       70,143  
Real Estate Mortgage - Residential     259,360       2,484       22       2,016       263,882  
Real Estate Mortgage - Commercial     440,489       1,280       0       497       442,266  
Installment and Other Consumer     30,877       154       9       59       31,099  
Total   $ 1,002,390     $ 4,235     $ 31     $ 3,526     $ 1,010,182  
December 31, 2016                                        
Commercial, Financial, and Agricultural   $ 181,609     $ 290     $ 0     $ 982     $ 182,881  
Real Estate Construction - Residential     18,681       226       0       0       18,907  
Real Estate Construction - Commercial     55,603       0       0       50       55,653  
Real Estate Mortgage - Residential     254,758       3,200       54       1,888       259,900  
Real Estate Mortgage - Commercial     425,260       790       0       420       426,470  
Installment and Other Consumer     29,920       198       11       89       30,218  
Total   $ 965,831     $ 4,704     $ 65     $ 3,429     $ 974,029  
Schedule of risk categories by class
(in thousands)   Commercial,
Financial, &
Agricultural
    Real Estate
Construction -
Residential
    Real Estate
Construction -
Commercial
    Real Estate
Mortgage -
Residential
    Real Estate
Mortgage -
Commercial
    Installment
and Other
Consumer
    Total  
At March 31, 2017                                                        
Watch   $ 6,647     $ 1,221     $ 1,666     $ 19,571     $ 48,984     $ 0     $ 78,089  
Substandard     689       640       97       2,546       425       22       4,419  
Performing TDRs     750       0       0       3,559       1,489       0       5,798  
Non-accrual     905       0       49       2,016       497       59       3,526  
Total   $ 8,991     $ 1,861     $ 1,812     $ 27,692     $ 51,395     $ 81     $ 91,832  
At December 31, 2016                                                        
Watch   $ 10,295     $ 665     $ 1,113     $ 16,577     $ 44,611     $ 0     $ 73,261  
Substandard     798       640       0       2,159       426       24       4,047  
Performing TDRs     635       0       0       3,582       1,498       0       5,715  
Non-accrual     982       0       50       1,888       420       89       3,429  
Total   $ 12,710     $ 1,305     $ 1,163     $ 24,206     $ 46,955     $ 113     $ 86,452  
Schedule of summary of loans that were modified as TDRs
    Three Months Ended March 31,  
    2017     2016  
    Recorded Investment (1)     Recorded Investment (1)  
(in thousands)   Number of
Contracts
    Pre-
Modification
    Post-
Modification
    Number of
Contracts
    Pre-
Modification
    Post-
Modification
 
Troubled Debt Restructurings                                                
Commercial, financial and agricultural     1     $ 131     $ 131       0     $ 0     $ 0  
Real estate mortgage - residential     0       0       0       1       78       78  
Real estate mortgage - commercial     1       56       56       0       0       0  
Total     2     $ 187     $ 187       1     $ 78     $ 78  

 

(1) The amounts reported post-modification are inclusive of all partial pay-downs and charge-offs, and no portion of the debt was forgiven. Loans modified as a TDR that were fully paid down, charged-off or foreclosed upon during the period ended are not reported.
XML 36 R25.htm IDEA: XBRL DOCUMENT v3.7.0.1
Other Real Estate and Repossessed Assets (Tables)
3 Months Ended
Mar. 31, 2017
Other Real Estate [Abstract]  
Schedule of summary of real estate and other assets acquired in settlement of loans
    March 31,     December 31,  
(in thousands)   2017     2016  
Commercial   $ 783     $ 809  
Real estate construction - commercial     12,380       12,380  
Real estate mortgage - residential     584       647  
Real estate mortgage - commercial     2,909       3,439  
Repossessed assets     13       16  
Total   $ 16,669     $ 17,291  
Less valuation allowance for other real estate owned     (3,044 )     (3,129 )
Total other real estate and repossessed assets   $ 13,625     $ 14,162  
Schedule of changes in the net carrying amount of other real estate owned and repossessed assets
    Three Months Ended March 31,  
    2017     2016  
Balance at beginning of period   $ 17,291     $ 19,225  
Additions     103       742  
Proceeds from sales     (658 )     (1,274 )
Charge-offs against the valuation allowance for other real estate owned, net     (117 )     (46 )
Net gain on sales     50       49  
Total other real estate and repossessed assets   $ 16,669     $ 18,696  
Less valuation allowance for other real estate owned     (3,044 )     (3,225 )
Balance at end of period   $ 13,625     $ 15,471  
Schedule of summary of activity in valuation allowance for other real estate owned in settlement of loans
    Three Months Ended March 31,  
(in thousands)   2017     2016  
Balance, beginning of period   $ 3,129     $ 3,233  
Provision for other real estate owned     32       38  
Charge-offs     (117 )     (46 )
Balance, end of period   $ 3,044     $ 3,225  
XML 37 R26.htm IDEA: XBRL DOCUMENT v3.7.0.1
Investment Securities (Tables)
3 Months Ended
Mar. 31, 2017
Investments Debt And Equity Securities [Abstract]  
Schedule of amortized cost, contractual maturity, gross unrealized gains and losses, and fair value of debt securities classified as available-for-sale
    Total                    
    Amortized     Gross Unrealized     Fair  
(in thousands)   Cost     Gains     Losses     Value  
March 31, 2017                                
U.S. government and federal agency obligations   $ 13,560     $ 0     $ (289 )   $ 13,271  
Government sponsored enterprises     35,521       0       (331 )     35,190  
Obligations of states and political subdivisions     46,733       180       (516 )     46,397  
Mortgage-backed securities:                                
Residential - government agencies     121,996       132       (1,816 )     120,312  
Commercial - government agencies     990       10       0       1,000  
Total mortgage-backed securities     122,986       142       (1,816 )     121,312  
Total available-for-sale securities   $ 218,800     $ 322     $ (2,952 )   $ 216,170  
                                 
December 31, 2016                                
U.S. government and federal agency obligations   $ 13,667     $ 0     $ (303 )   $ 13,364  
Government sponsored enterprises     32,786       2       (329 )     32,459  
Obligations of states and political subdivisions     42,666       123       (757 )     42,032  
Mortgage-backed securities:                                
Residential - government agencies     127,527       124       (1,995 )     125,656  
Commercial - government agencies     989       12       0       1,001  
Total mortgage-backed securities     128,516       136       (1,995 )     126,657  
Total available-for-sale securities   $ 217,635     $ 261     $ (3,384 )   $ 214,512  
Schedule of amortized cost and fair value of debt securities classified as available-for-sale by contractual maturity
    Amortized     Fair  
(in thousands)   Cost     Value  
Due in one year or less   $ 4,136     $ 4,138  
Due after one year through five years     59,006       58,628  
Due after five years through ten years     26,630       26,123  
Due after ten years     6,042       5,969  
Total     95,814       94,858  
Mortgage-backed securities     122,986       121,312  
Total available-for-sale securities   $ 218,800     $ 216,170  
Schedule of gross unrealized losses on debt securities and fair value of related securities aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position
    Less than 12 months     12 months or more     Total     Total  
    Fair     Unrealized     Fair     Unrealized     Fair     Unrealized  
(in thousands)   Value     Losses     Value     Losses     Value     Losses  
At March 31, 2017                                                
U.S. government and federal agency obligations   $ 8,362     $ (168 )   $ 4,909     $ (121 )   $ 13,271     $ (289 )
Government sponsored enterprises     34,190       (331 )     0       0       34,190       (331 )
Obligations of states and political subdivisions     28,205       (516 )     0       0       28,205       (516 )
Mortgage-backed securities:                                                
Residential - government agencies     81,414       (1,381 )     23,717       (435 )     105,131       (1,816 )
Total   $ 152,171     $ (2,396 )   $ 28,626     $ (556 )   $ 180,797     $ (2,952 )
                                                 
(in thousands)                                                
At December 31, 2016                                                
U.S. government and federal agency obligations   $ 13,365     $ (303 )   $ 0     $ 0     $ 13,365     $ (303 )
Government sponsored enterprises     29,432       (329 )     0       0       29,432       (329 )
Obligations of states and political subdivisions     32,318       (757 )     0       0       32,318       (757 )
Mortgage-backed securities:                                                
Residential - government agencies     109,772       (1,848 )     3,742       (147 )     113,514       (1,995 )
Total   $ 184,887     $ (3,237 )   $ 3,742     $ (147 )   $ 188,629     $ (3,384 )
Schedule of components of investment securities gains (losses), which are recognized in earnings
    Three Months Ended March 31,  
(in thousands)   2017     2016  
Gains realized on sales   $ 0     $ 472  
Losses realized on sales     0       0  
Other-than-temporary impairment recognized     0       0  
Investment securities gains   $ 0     $ 472  
XML 38 R27.htm IDEA: XBRL DOCUMENT v3.7.0.1
Intangible Assets (Tables)
3 Months Ended
Mar. 31, 2017
Intangible Assets  
Schedule of changes in mortgage servicing rights (MSRs)
    Three Months Ended March 31,  
(in thousands)   2017     2016  
Balance at beginning of period   $ 2,584     $ 2,847  
Originated mortgage servicing rights     49       53  
Changes in fair value:                
Due to change in model inputs and assumptions (1)     375       (3 )
Other changes in fair value (2)     (131 )     (152 )
Balance at end of period   $ 2,877     $ 2,745  

 

(1) The change in fair value resulting from changes in valuation inputs or assumptions used in the valuation model reflects the change in discount rates and prepayment speed assumptions primarily due to changes in interest rates.
(2) Other changes in fair value reflect changes due to customer payments and passage of time.
Schedule of key data and assumptions used in estimating the fair value of the Company's MSRs
    Three Months Ended March 31,  
    2017     2016  
Weighted average constant prepayment rate     8.29 %     10.30 %
Weighted average note rate     3.85 %     3.91 %
Weighted average discount rate     9.72 %     9.19 %
Weighted average expected life (in years)     6.50       5.70  
XML 39 R28.htm IDEA: XBRL DOCUMENT v3.7.0.1
Federal Funds Purchased and Securities Sold Under Agreements to Repurchase (Tables)
3 Months Ended
Mar. 31, 2017
Federal Funds Purchased and Securities Sold under Agreements to Repurchase [Abstract]  
Schedule of federal funds purchased and securities sold under agreements to repurchase
    March 31,     December 31,  
    2017     2016  
Federal funds purchased   $ 0     $ 992  
Repurchase agreements     31,512       30,023  
Total   $ 31,512     $ 31,015  
Schedule of repurchase agreements by remaining maturity of the agreements
Repurchase Agreements   Remaining Contractual Maturity of the Agreements  
    Overnight     Less     Greater        
    and     than     than        
(in thousands)   continuous     90 days     90 days     Total  
At March 31, 2017                                
U.S. government and federal agency obligations   $ 3,513     $ 0     $ 0     $ 3,513  
Government sponsored enterprises     7,291       0       0       7,291  
Asset-backed securities     20,708       0       0       20,708  
Total   $ 31,512     $ 0     $ 0     $ 31,512  
                                 
At December 31, 2016                                
U.S. government and federal agency obligations   $ 3,489     $ 0     $ 0     $ 3,489  
Government sponsored enterprises     7,324       0       0       7,324  
Asset-backed securities     19,210       0       0       19,210  
Total   $ 30,023     $ 0     $ 0     $ 30,023  
XML 40 R29.htm IDEA: XBRL DOCUMENT v3.7.0.1
Stockholders' Equity (Tables)
3 Months Ended
Mar. 31, 2017
Stockholders' Equity Note [Abstract]  
Schedule of the change in the components of the accumulated other comprehensive income (loss)
    Three months ended March 31, 2017  
          Unrecognized Net     Accumulated  
    Unrealized     Pension and     Other  
    Gain (Loss)     Postretirement     Comprehensive  
(in thousands)   on Securities (1)     Costs (2)     Loss  
Balance at beginning of period   $ (1,936 )   $ (1,865 )   $ (3,801 )
Other comprehensive income, before reclassifications     493       22       515  
Amounts reclassified from accumulated other comprehensive income (loss)     0       0       0  
Current period other comprehensive income, before tax     493       22       515  
Income tax expense     (187 )     (8 )     (195 )
Current period other comprehensive income, net of tax     306       14       320  
Balance at end of period   $ (1,630 )   $ (1,851 )   $ (3,481 )

 

    Three months ended March 31, 2016  
          Unrecognized Net     Accumulated  
    Unrealized     Pension and     Other  
    Gain (Loss)     Postretirement     Comprehensive  
(in thousands)   on Securities (1)     Costs (2)     Loss  
Balance at beginning of period   $ (591 )   $ (1,427 )   $ (2,018 )
Other comprehensive income, before reclassifications     2,006       21       2,027  
Amounts reclassified from accumulated other comprehensive income (loss)     (472 )     0       (472 )
Current period other comprehensive income, before tax     1,534       21       1,555  
Income tax expense     (583 )     (8 )     (591 )
Current period other comprehensive income, net of tax     951       13       964  
Balance at end of period   $ 360     $ (1,414 )   $ (1,054 )

 

(1) The pre-tax amounts reclassified from accumulated other comprehensive loss are included in gain on sale of investment securities in the consolidated statements of income.

(2) The pre-tax amounts reclassified from accumulated other comprehensive loss are included in the computation of net periodic pension cost.
XML 41 R30.htm IDEA: XBRL DOCUMENT v3.7.0.1
Employee Benefit Plans (Tables)
3 Months Ended
Mar. 31, 2017
Compensation and Retirement Disclosure [Abstract]  
Schedule of summary of employee benefits charged to operating expenses
    Three Months Ended March 31,  
(in thousands)   2017     2016  
Payroll taxes   $ 356     $ 296  
Medical plans     426       512  
401k match and profit sharing     250       181  
Pension plan     352       307  
Other     16       16  
Total employee benefits   $ 1,400     $ 1,312  
Schedule of components of net pension cost
    Estimated     Actual  
(in thousands)   2017     2016  
Service cost - benefits earned during the year   $ 1,343     $ 1,179  
Interest costs on projected benefit obligations     1,008       956  
Expected return on plan assets     (1,123 )     (1,057 )
Expected administrative expenses     88       70  
Amortization of prior service cost     79       79  
Amortization of unrecognized net loss     11       0  
Net periodic pension expense   $ 1,406     $ 1,227  
                 
Pension expense - three months ended March 31, (actual)   $ 352     $ 307  
XML 42 R31.htm IDEA: XBRL DOCUMENT v3.7.0.1
Stock Compensation (Tables)
3 Months Ended
Mar. 31, 2017
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Schedule of summary of Company's stock option activity
                Weighted        
          Weighted     Average     Aggregate  
    Number     average     Contractual     Intrinsic  
    of     Exercise     Term     Value  
    Shares     Price     (in years)     ($000)  
Outstanding, beginning of period     44,458     $ 20.11                  
Granted     0       0.00                  
Exercised     0       0.00                  
Forfeited or expired     (4,345 )     20.34                  
Outstanding, March 31, 2017     40,113     $ 20.08       0.75     $ 110,931  
Exercisable, March 31, 2017     38,844     $ 20.24       0.73     $ 103,647  
XML 43 R32.htm IDEA: XBRL DOCUMENT v3.7.0.1
Earnings per Share (Tables)
3 Months Ended
Mar. 31, 2017
Earnings Per Share [Abstract]  
Schedule of calculations of basic and diluted earnings (loss) per share
    Three Months Ended March 31,  
(dollars in thousands, except per share data)   2017     2016  
Basic earnings per share:                
Net income available to shareholders   $ 2,100     $ 1,998  
Basic earnings per share   $ 0.37     $ 0.35  
Diluted earnings per share:                
Net income available to shareholders   $ 2,100     $ 1,998  
Average shares outstanding     5,615,300       5,654,066  
Effect of dilutive stock options     4,726       0  
Average shares outstanding including dilutive stock options     5,620,026       5,654,066  
Diluted earnings per share   $ 0.37       0.35  
Schedule of outstanding shares of the common stock
    Number of shares  
    March 31,     December 31,     March 31,  
    2017     2016     2016  
Outstanding, beginning of year     5,616,607       5,441,190       5,441,190  
Issuance of stock:                        
4% stock dividend     0       217,155       0  
Purchase of treasury stock     (1,400 )     (41,738 )     (8,635 )
Outstanding, end of year     5,615,207       5,616,607       5,432,555  
XML 44 R33.htm IDEA: XBRL DOCUMENT v3.7.0.1
Fair Value Measurements (Tables)
3 Months Ended
Mar. 31, 2017
Fair Value Disclosures [Abstract]  
Schedule of assets and liabilities recorded at fair value on a recurring basis
          Fair Value Measurements  
          Quoted Prices              
          in Active              
          Markets for     Other     Significant  
          Identical     Observable     Unobservable  
          Assets     Inputs     Inputs  
(in thousands)   Fair Value     (Level 1)     (Level 2)     (Level 3)  
March 31, 2017                                
Assets:                                
U.S. government and federal agency obligations   $ 13,271     $ 0       13,271     $ 0  
Government sponsored enterprises     35,190       0       35,190       0  
Obligations of states and political subdivisions     46,397       0       46,397       0  
Mortgage-backed securities     121,312       0       121,312       0  
Mortgage servicing rights     2,877       0       0       2,877  
Total   $ 219,047     $ 0     $ 216,170     $ 2,877  
                                 
December 31, 2016                                
Assets:                                
U.S. government and federal agency obligations   $ 13,364     $ 0       13,364     $ 0  
Government sponsored enterprises     32,459       0       32,459       0  
Obligations of states and political subdivisions     42,032       0       42,032       0  
Mortgage-backed securities     126,657       0       126,657       0  
Mortgage servicing rights     2,584       0       0       2,584  
Total   $ 217,096     $ 0     $ 214,512     $ 2,584  
Schedule of summary of changes in Level 3 assets and liabilities measured at fair value on a recurring basis
    Fair Value Measurements Using  
    Significant Unobservable Inputs  
    (Level 3)  
    Mortgage Servicing Rights  
(in thousands)   Three Months Ended March 31,  
    2017     2016  
Balance at beginning of period   $ 2,584     $ 2,847  
Total gains or losses (realized/unrealized):                
Included in earnings     244       (155 )
Included in other comprehensive income     0       0  
Purchases     0       0  
Sales     0       0  
Issues     49       53  
Settlements     0       0  
Balance at end of period   $ 2,877     $ 2,745  
Schedule of quantitative Information about Level 3 Fair Value Measurements
    Quantitative Information about Level 3 Fair Value Measurements      
    Valuation Technique   Unobservable Inputs   Input Value  
            Three Months Ended March 31,  
            2017     2016  
Mortgage servicing rights    Discounted cash flows   Weighted average constant prepayment rate     8.29 %     10.30 %
        Weighted average note rate     3.85 %     3.91 %
        Weighted average discount rate     9.72 %     9.19 %
        Weighted average expected life (in years)     6.50       5.70  
Schedule of valuation methods for instruments measured at fair value on a nonrecurring basis
          Fair Value Measurements Using        
          Quoted Prices                 Three  
          in Active                 Months  
          Markets for     Other     Significant     Ended  
          Identical     Observable     Unobservable     March 31,  
    Total     Assets     Inputs     Inputs     Total Gains  
(in thousands)   Fair Value     (Level 1)     (Level 2)     (Level 3)     (Losses)*  
March 31, 2017                                        
Assets:                                        
Impaired loans:                                        
Commercial, financial, & agricultural   $ 803     $ 0     $ 0     $ 803     $ (1 )
Real estate construction - commercial     42       0       0       42       0  
Real estate mortgage - residential     4,410       0       0       4,410       (3 )
Real estate mortgage - commercial     1,308       0       0       1,308       (4 )
Consumer     47       0       0       47       (12 )
Total   $ 6,610     $ 0     $ 0     $ 6,610     $ (20 )
Other real estate and foreclosed assets   $ 13,625     $ 0     $ 0     $ 13,625     $ 15  
                                         
March 31, 2016                                        
Assets:                                        
Impaired loans:                                        
Commercial, financial, & agricultural   $ 248     $ 0     $ 0     $ 248     $ (359 )
Real estate construction - commercial     44       0       0       44       0  
Real estate mortgage - residential     3,170       0       0       3,170       (35 )
Real estate mortgage - commercial     243       0       0       243       (154 )
Consumer     100       0       0       100       (12 )
Total   $ 3,805     $ 0     $ 0     $ 3,805     $ (560 )
Other real estate and foreclosed assets   $ 15,471     $ 0     $ 0     $ 15,471     $ 33  

 

* Total gains (losses) reported for other real estate and foreclosed assets includes charge-offs, valuation write downs, and net losses taken during the periods reported.
XML 45 R34.htm IDEA: XBRL DOCUMENT v3.7.0.1
Fair Value of Financial Instruments (Tables)
3 Months Ended
Mar. 31, 2017
Financial Instruments, Owned, at Fair Value [Abstract]  
Schedule of summary of the carrying amounts and fair values of financial instruments
                March 31, 2017  
                Fair Value Measurements  
                Quoted Prices              
                in Active           Net  
                Markets for     Other     Significant  
    March 31, 2017     Identical     Observable     Unobservable  
    Carrying     Fair     Assets     Inputs     Inputs  
(in thousands)   Amount     Value     (Level 1)     (Level 2)     (Level 3)  
Assets:                                        
Cash and due from banks   $ 16,746     $ 16,746     $ 16,746     $ 0     $ 0  
Federal funds sold and overnight interest-bearing deposits     6,427       6,427       6,427       0       0  
Investment in available-for-sale securities     216,170       216,170       0       216,170       0  
Loans, net     999,920       993,219       0       0       993,219  
Investment in FHLB stock     5,212       5,212       0       5,212       0  
Mortgage servicing rights     2,877       2,877       0       0       2,877  
Cash surrender value - life insurance     2,430       2,430       0       2,430       0  
Accrued interest receivable     4,702       4,702       4,702       0       0  
    $ 1,254,484     $ 1,247,783     $ 27,875     $ 223,812     $ 996,096  
Liabilities:                                        
Deposits:                                        
Non-interest bearing demand   $ 239,059     $ 239,059     $ 239,059     $ 0     $ 0  
Savings, interest checking and money market     519,379       519,379       519,379       0       0  
Time deposits     284,566       282,822       0       0       282,822  
Federal funds purchased and securities sold under agreements to repurchase     31,512       31,512       31,512       0       0  
Subordinated notes     49,486       34,228       0       34,228       0  
Federal Home Loan Bank advances     91,900       92,225       0       92,225       0  
Accrued interest payable     452       452       452       0       0  
    $ 1,216,354     $ 1,199,677     $ 790,402     $ 126,453     $ 282,822  

 

                December 31, 2016  
                Fair Value Measurements  
                Quoted Prices              
                in Active           Net  
                Markets for     Other     Significant  
    December 31, 2016     Identical     Observable     Unobservable  
    Carrying     Fair     Assets     Inputs     Inputs  
(in thousands)   amount     value     (Level 1)     (Level 2)     (Level 3)  
Assets:                                        
Cash and due from banks   $ 25,589     $ 25,589     $ 25,589     $ 0     $ 0  
Federal funds sold and overnight interest-bearing deposits     1,406       1,406       1,406       0       0  
Investment in available-for-sale securities     214,512       214,512       0       214,512       0  
Loans, net     964,143       959,929       0       0       959,929  
Investment in FHLB stock     5,149       5,149       0       5,149       0  
Mortgage servicing rights     2,584       2,584       0       0       2,584  
Cash surrender value - life insurance     2,409       2,409       0       2,409       0  
Accrued interest receivable     5,183       5,183       5,183       0       0  
    $ 1,220,975     $ 1,216,761     $ 32,178     $ 222,070     $ 962,513  
Liabilities:                                        
Deposits:                                        
Non-interest bearing demand   $ 235,975     $ 235,975     $ 235,975     $ 0     $ 0  
Savings, interest checking and money market     468,731       468,731       468,731       0       0  
Time deposits     305,960       304,334       0       0       304,334  
Federal funds purchased and securities sold under agreements to repurchase     31,015       31,015       31,015       0       0  
Subordinated notes     49,486       33,712       0       33,712       0  
Other borrowings     93,392       93,209       0       93,209       0  
Accrued interest payable     498       498       498       0       0  
    $ 1,185,057     $ 1,167,474     $ 736,219     $ 126,921     $ 304,334  
XML 46 R35.htm IDEA: XBRL DOCUMENT v3.7.0.1
Repurchase Reserve Liability (Tables)
3 Months Ended
Mar. 31, 2017
Repurchase Reserve Liability [Abstract]  
Schedule of repurchase reserve liability
    Three Months Ended March 31,  
(in thousands)   2017     2016  
Balance at beginning of year   $ 160     $ 160  
Provision for repurchase liability     0       0  
Reimbursement of expenses     0       0  
Balance at end of year   $ 160     $ 160  
XML 47 R36.htm IDEA: XBRL DOCUMENT v3.7.0.1
Commitments and Contingencies (Tables)
3 Months Ended
Mar. 31, 2017
Commitments and Contingencies Disclosure [Abstract]  
Schedule of contractual amount of off-balance-sheet financial instruments
    March 31,     December 31,  
(in thousands)   2017     2016  
Commitments to extend credit   $ 238,425     $ 253,375  
Commitments to originate residential first and second mortgage loans     3,751       2,626  
Standby letters of credit     23,570       2,745  
Total     265,746       258,746  
XML 48 R37.htm IDEA: XBRL DOCUMENT v3.7.0.1
Summary of Significant Accounting Policies (Detail Textuals)
3 Months Ended 12 Months Ended
Mar. 31, 2017
Mar. 31, 2016
Dec. 31, 2016
Accounting Policies [Abstract]      
Special stock dividend, payment date Jul. 01, 2016    
Special stock dividend, rate percent 4.00% 4.00% 4.00%
Special stock dividend, record date Jun. 15, 2016    
XML 49 R38.htm IDEA: XBRL DOCUMENT v3.7.0.1
Loans and Allowance for Loan Losses (Details) - USD ($)
$ in Thousands
Mar. 31, 2017
Dec. 31, 2016
Loans and Leases Receivable Disclosure [Line Items]    
Total loans $ 1,010,182 $ 974,029
Commercial, financial, and agricultural    
Loans and Leases Receivable Disclosure [Line Items]    
Total loans 182,493 182,881
Residential real estate | Construction    
Loans and Leases Receivable Disclosure [Line Items]    
Total loans 20,299 18,907
Residential real estate | Mortgage    
Loans and Leases Receivable Disclosure [Line Items]    
Total loans 263,882 259,900
Commercial real estate | Construction    
Loans and Leases Receivable Disclosure [Line Items]    
Total loans 70,143 55,653
Commercial real estate | Mortgage    
Loans and Leases Receivable Disclosure [Line Items]    
Total loans 442,266 426,470
Installment and other consumer    
Loans and Leases Receivable Disclosure [Line Items]    
Total loans $ 31,099 $ 30,218
XML 50 R39.htm IDEA: XBRL DOCUMENT v3.7.0.1
Loans and Allowance for Loan Losses (Details 1) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2017
Mar. 31, 2016
Summary of the allowance for loan losses    
Balance at beginning of period $ 9,886 $ 8,604
Additions:    
Provision for loan losses 350 250
Deductions:    
Loans charged off 113 448
Less recoveries on loans (139) (225)
Net loan charge-offs (recoveries) (26) 223
Balance at end of period 10,262 8,631
Commercial, financial, and agricultural    
Summary of the allowance for loan losses    
Balance at beginning of period 2,753 2,153
Additions:    
Provision for loan losses (384) (12)
Deductions:    
Loans charged off 28 103
Less recoveries on loans (19) (97)
Net loan charge-offs (recoveries) 9 6
Balance at end of period 2,360 2,135
Residential real estate | Construction    
Summary of the allowance for loan losses    
Balance at beginning of period 108 59
Additions:    
Provision for loan losses (59) (15)
Deductions:    
Loans charged off 0 0
Less recoveries on loans (50) 0
Net loan charge-offs (recoveries) (50) 0
Balance at end of period 99 44
Residential real estate | Mortgage    
Summary of the allowance for loan losses    
Balance at beginning of period 2,385 2,439
Additions:    
Provision for loan losses (276) 32
Deductions:    
Loans charged off 20 206
Less recoveries on loans (36) (8)
Net loan charge-offs (recoveries) (16) 198
Balance at end of period 2,125 2,273
Commercial real estate | Construction    
Summary of the allowance for loan losses    
Balance at beginning of period 413 644
Additions:    
Provision for loan losses 166 33
Deductions:    
Loans charged off 0 1
Less recoveries on loans 0 (11)
Net loan charge-offs (recoveries) 0 (10)
Balance at end of period 579 687
Commercial real estate | Mortgage    
Summary of the allowance for loan losses    
Balance at beginning of period 3,793 2,935
Additions:    
Provision for loan losses 945 276
Deductions:    
Loans charged off 14 82
Less recoveries on loans (7) (61)
Net loan charge-offs (recoveries) 7 21
Balance at end of period 4,731 3,190
Installment Loans to Individuals    
Summary of the allowance for loan losses    
Balance at beginning of period 274 273
Additions:    
Provision for loan losses 72 (6)
Deductions:    
Loans charged off 51 56
Less recoveries on loans (27) (48)
Net loan charge-offs (recoveries) 24 8
Balance at end of period 322 259
Unallocated    
Summary of the allowance for loan losses    
Balance at beginning of period 160 101
Additions:    
Provision for loan losses (114) (58)
Deductions:    
Loans charged off 0 0
Less recoveries on loans 0 0
Net loan charge-offs (recoveries) 0 0
Balance at end of period $ 46 $ 43
XML 51 R40.htm IDEA: XBRL DOCUMENT v3.7.0.1
Loans and Allowance for Loan Losses (Details 2) - USD ($)
$ in Thousands
Mar. 31, 2017
Dec. 31, 2016
Mar. 31, 2016
Dec. 31, 2015
Allowance for loan losses:        
Individually evaluated for impairment $ 1,103 $ 1,080    
Collectively evaluated for impairment 9,159 8,806    
Total 10,262 9,886 $ 8,631 $ 8,604
Loans outstanding:        
Individually evaluated for impairment 9,324 9,144    
Collectively evaluated for impairment 1,000,858 964,885    
Total 1,010,182 974,029    
Commercial, financial, and agricultural        
Allowance for loan losses:        
Individually evaluated for impairment 446 469    
Collectively evaluated for impairment 1,914 2,284    
Total 2,360 2,753 2,135 2,153
Loans outstanding:        
Individually evaluated for impairment 1,655 1,617    
Collectively evaluated for impairment 180,838 181,264    
Total 182,493 182,881    
Residential real estate | Construction        
Allowance for loan losses:        
Individually evaluated for impairment 0 0    
Collectively evaluated for impairment 99 108    
Total 99 108 44 59
Loans outstanding:        
Individually evaluated for impairment 0 0    
Collectively evaluated for impairment 20,299 18,907    
Total 20,299 18,907    
Residential real estate | Mortgage        
Allowance for loan losses:        
Individually evaluated for impairment 354 319    
Collectively evaluated for impairment 1,771 2,066    
Total 2,125 2,385 2,273 2,439
Loans outstanding:        
Individually evaluated for impairment 5,575 5,471    
Collectively evaluated for impairment 258,307 254,429    
Total 263,882 259,900    
Commercial real estate | Construction        
Allowance for loan losses:        
Individually evaluated for impairment 7 7    
Collectively evaluated for impairment 572 406    
Total 579 413 687 644
Loans outstanding:        
Individually evaluated for impairment 49 49    
Collectively evaluated for impairment 70,094 55,604    
Total 70,143 55,653    
Commercial real estate | Mortgage        
Allowance for loan losses:        
Individually evaluated for impairment 284 277    
Collectively evaluated for impairment 4,447 3,516    
Total 4,731 3,793 3,190 2,935
Loans outstanding:        
Individually evaluated for impairment 1,986 1,918    
Collectively evaluated for impairment 440,280 424,552    
Total 442,266 426,470    
Installment and other consumer        
Allowance for loan losses:        
Individually evaluated for impairment 12 8    
Collectively evaluated for impairment 310 266    
Total 322 274 259 273
Loans outstanding:        
Individually evaluated for impairment 59 89    
Collectively evaluated for impairment 31,040 30,129    
Total 31,099 30,218    
Unallocated        
Allowance for loan losses:        
Individually evaluated for impairment 0 0    
Collectively evaluated for impairment 46 160    
Total 46 160 $ 43 $ 101
Loans outstanding:        
Individually evaluated for impairment 0 0    
Collectively evaluated for impairment 0 0    
Total $ 0 $ 0    
XML 52 R41.htm IDEA: XBRL DOCUMENT v3.7.0.1
Loans and Allowance for Loan Losses (Details 3) - USD ($)
$ in Thousands
Mar. 31, 2017
Dec. 31, 2016
Categories of impaired loans    
Non-accrual loans $ 3,526 $ 3,429
Performing TDRs 5,798 5,715
Total impaired loans $ 9,324 $ 9,144
XML 53 R42.htm IDEA: XBRL DOCUMENT v3.7.0.1
Loans and Allowance for Loan Losses (Details 4) - USD ($)
$ in Thousands
Mar. 31, 2017
Dec. 31, 2016
Mar. 31, 2016
Financing Receivable, Impaired [Line Items]      
Recorded Investment, With no related allowance recorded $ 1,611 $ 2,114  
Unpaid Principal Balance, With no related allowance recorded 1,777 2,263  
Recorded Investment, With an allowance recorded 7,713 7,030 $ 5,200
Unpaid Principal Balance, With an allowance recorded 8,045 7,228  
Specific Reserves, With an allowance recorded 1,103 1,080 $ 1,300
Total impaired loans, Recorded Investment 9,324 9,144  
Total impaired loans, Unpaid Principal Balance 9,822 9,491  
Commercial, financial, and agricultural      
Financing Receivable, Impaired [Line Items]      
Recorded Investment, With no related allowance recorded 406 564  
Unpaid Principal Balance, With no related allowance recorded 561 706  
Recorded Investment, With an allowance recorded 1,249 1,053  
Unpaid Principal Balance, With an allowance recorded 1,279 1,078  
Specific Reserves, With an allowance recorded 446 469  
Real estate - residential      
Financing Receivable, Impaired [Line Items]      
Recorded Investment, With no related allowance recorded 811 1,550  
Unpaid Principal Balance, With no related allowance recorded 822 1,557  
Recorded Investment, With an allowance recorded 4,764 3,921  
Unpaid Principal Balance, With an allowance recorded 4,823 3,990  
Specific Reserves, With an allowance recorded 354 319  
Real estate - commercial      
Financing Receivable, Impaired [Line Items]      
Recorded Investment, With no related allowance recorded 394    
Unpaid Principal Balance, With no related allowance recorded 394    
Recorded Investment, With an allowance recorded 1,592 1,918  
Unpaid Principal Balance, With an allowance recorded 1,802 1,988  
Specific Reserves, With an allowance recorded 284 277  
Real estate - commercial | Construction      
Financing Receivable, Impaired [Line Items]      
Recorded Investment, With an allowance recorded 49 49  
Unpaid Principal Balance, With an allowance recorded 55 56  
Specific Reserves, With an allowance recorded 7 7  
Installment Loans to Individuals      
Financing Receivable, Impaired [Line Items]      
Recorded Investment, With an allowance recorded 59 89  
Unpaid Principal Balance, With an allowance recorded 86 116  
Specific Reserves, With an allowance recorded $ 12 $ 8  
XML 54 R43.htm IDEA: XBRL DOCUMENT v3.7.0.1
Loans and Allowance for Loan Losses (Details 5) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2017
Mar. 31, 2016
With no related allowance recorded:    
With no related allowance recorded, Average Recorded Investment $ 1,991 $ 5,773
With no related allowance recorded, Interest Recognized For The Period Ended 7 96
With an allowance recorded:    
With an allowance recorded, Average Recorded Investment 7,298 6,501
With an allowance recorded, Interest Recognized For The Period Ended 69 132
Total average recorded investment 9,289 12,274
Total interest income recognized during the period 76 228
Commercial, financial, and agricultural    
With no related allowance recorded:    
With no related allowance recorded, Average Recorded Investment 555 1,520
With no related allowance recorded, Interest Recognized For The Period Ended 1 15
With an allowance recorded:    
With an allowance recorded, Average Recorded Investment 1,192 984
With an allowance recorded, Interest Recognized For The Period Ended 11 12
Real estate - residential    
With no related allowance recorded:    
With no related allowance recorded, Average Recorded Investment 807 1,513
With no related allowance recorded, Interest Recognized For The Period Ended 4 39
With an allowance recorded:    
With an allowance recorded, Average Recorded Investment 4,511 4,553
With an allowance recorded, Interest Recognized For The Period Ended 43 120
Real estate - commercial    
With no related allowance recorded:    
With no related allowance recorded, Average Recorded Investment 589 2,622
With no related allowance recorded, Interest Recognized For The Period Ended 2 42
With an allowance recorded:    
With an allowance recorded, Average Recorded Investment 1,494 764
With an allowance recorded, Interest Recognized For The Period Ended 15 0
Real estate - commercial | Construction    
With no related allowance recorded:    
With no related allowance recorded, Average Recorded Investment 0 118
With no related allowance recorded, Interest Recognized For The Period Ended 0 0
With an allowance recorded:    
With an allowance recorded, Average Recorded Investment 50 65
With an allowance recorded, Interest Recognized For The Period Ended 0 0
Installment and other consumer    
With no related allowance recorded:    
With no related allowance recorded, Average Recorded Investment 40 0
With no related allowance recorded, Interest Recognized For The Period Ended 0 0
With an allowance recorded:    
With an allowance recorded, Average Recorded Investment 51 135
With an allowance recorded, Interest Recognized For The Period Ended $ 0 $ 0
XML 55 R44.htm IDEA: XBRL DOCUMENT v3.7.0.1
Loans and Allowance for Loan Losses (Details 6) - USD ($)
$ in Thousands
Mar. 31, 2017
Dec. 31, 2016
Aging information for the Company's past due and non-accrual loans    
Financing Receivable, Recorded Investment, 90 Days Past Due and Still Accruing $ 31 $ 65
Financing Receivable, Recorded Investment, Nonaccrual 3,526 3,429
Loans 1,010,182 974,029
Current or Less Than 30 Days Past Due    
Aging information for the Company's past due and non-accrual loans    
Financing receivable, recorded investment, past due 1,002,390 965,831
30 - 89 Days Past Due    
Aging information for the Company's past due and non-accrual loans    
Financing receivable, recorded investment, past due 4,235 4,704
Commercial, financial, and agricultural    
Aging information for the Company's past due and non-accrual loans    
Financing Receivable, Recorded Investment, 90 Days Past Due and Still Accruing 0 0
Financing Receivable, Recorded Investment, Nonaccrual 905 982
Loans 182,493 182,881
Commercial, financial, and agricultural | Current or Less Than 30 Days Past Due    
Aging information for the Company's past due and non-accrual loans    
Financing receivable, recorded investment, past due 181,368 181,609
Commercial, financial, and agricultural | 30 - 89 Days Past Due    
Aging information for the Company's past due and non-accrual loans    
Financing receivable, recorded investment, past due 220 290
Residential real estate | Construction    
Aging information for the Company's past due and non-accrual loans    
Financing Receivable, Recorded Investment, 90 Days Past Due and Still Accruing 0 0
Financing Receivable, Recorded Investment, Nonaccrual 0 0
Loans 20,299 18,907
Residential real estate | Construction | Current or Less Than 30 Days Past Due    
Aging information for the Company's past due and non-accrual loans    
Financing receivable, recorded investment, past due 20,299 18,681
Residential real estate | Construction | 30 - 89 Days Past Due    
Aging information for the Company's past due and non-accrual loans    
Financing receivable, recorded investment, past due 0 226
Residential real estate | Mortgage    
Aging information for the Company's past due and non-accrual loans    
Financing Receivable, Recorded Investment, 90 Days Past Due and Still Accruing 22 54
Financing Receivable, Recorded Investment, Nonaccrual 2,016 1,888
Loans 263,882 259,900
Residential real estate | Mortgage | Current or Less Than 30 Days Past Due    
Aging information for the Company's past due and non-accrual loans    
Financing receivable, recorded investment, past due 259,360 254,758
Residential real estate | Mortgage | 30 - 89 Days Past Due    
Aging information for the Company's past due and non-accrual loans    
Financing receivable, recorded investment, past due 2,484 3,200
Commercial real estate | Construction    
Aging information for the Company's past due and non-accrual loans    
Financing Receivable, Recorded Investment, 90 Days Past Due and Still Accruing 0 0
Financing Receivable, Recorded Investment, Nonaccrual 49 50
Loans 70,143 55,653
Commercial real estate | Construction | Current or Less Than 30 Days Past Due    
Aging information for the Company's past due and non-accrual loans    
Financing receivable, recorded investment, past due 69,997 55,603
Commercial real estate | Construction | 30 - 89 Days Past Due    
Aging information for the Company's past due and non-accrual loans    
Financing receivable, recorded investment, past due 97 0
Commercial real estate | Mortgage    
Aging information for the Company's past due and non-accrual loans    
Financing Receivable, Recorded Investment, 90 Days Past Due and Still Accruing 0 0
Financing Receivable, Recorded Investment, Nonaccrual 497 420
Loans 442,266 426,470
Commercial real estate | Mortgage | Current or Less Than 30 Days Past Due    
Aging information for the Company's past due and non-accrual loans    
Financing receivable, recorded investment, past due 440,489 425,260
Commercial real estate | Mortgage | 30 - 89 Days Past Due    
Aging information for the Company's past due and non-accrual loans    
Financing receivable, recorded investment, past due 1,280 790
Installment and other consumer    
Aging information for the Company's past due and non-accrual loans    
Financing Receivable, Recorded Investment, 90 Days Past Due and Still Accruing 9 11
Financing Receivable, Recorded Investment, Nonaccrual 59 89
Loans 31,099 30,218
Installment and other consumer | Current or Less Than 30 Days Past Due    
Aging information for the Company's past due and non-accrual loans    
Financing receivable, recorded investment, past due 30,877 29,920
Installment and other consumer | 30 - 89 Days Past Due    
Aging information for the Company's past due and non-accrual loans    
Financing receivable, recorded investment, past due $ 154 $ 198
XML 56 R45.htm IDEA: XBRL DOCUMENT v3.7.0.1
Loans and Allowance for Loan Losses (Details 7) - USD ($)
$ in Thousands
Mar. 31, 2017
Dec. 31, 2016
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment    
Financing receivable $ 1,010,182 $ 974,029
Watch    
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment    
Financing receivable 78,089 73,261
Substandard    
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment    
Financing receivable 4,419 4,047
Performing TDRs    
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment    
Financing receivable 5,798 5,715
Non-accrual    
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment    
Financing receivable 3,526 3,429
Total    
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment    
Financing receivable 91,832 86,452
Commercial, financial, and agricultural    
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment    
Financing receivable 182,493 182,881
Commercial, financial, and agricultural | Watch    
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment    
Financing receivable 6,647 10,295
Commercial, financial, and agricultural | Substandard    
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment    
Financing receivable 689 798
Commercial, financial, and agricultural | Performing TDRs    
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment    
Financing receivable 750 635
Commercial, financial, and agricultural | Non-accrual    
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment    
Financing receivable 905 982
Commercial, financial, and agricultural | Total    
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment    
Financing receivable 8,991 12,710
Residential real estate | Construction    
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment    
Financing receivable 20,299 18,907
Residential real estate | Construction | Watch    
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment    
Financing receivable 1,221 665
Residential real estate | Construction | Substandard    
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment    
Financing receivable 640 640
Residential real estate | Construction | Performing TDRs    
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment    
Financing receivable 0 0
Residential real estate | Construction | Non-accrual    
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment    
Financing receivable 0 0
Residential real estate | Construction | Total    
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment    
Financing receivable 1,861 1,305
Residential real estate | Mortgage    
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment    
Financing receivable 263,882 259,900
Residential real estate | Mortgage | Watch    
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment    
Financing receivable 19,571 16,577
Residential real estate | Mortgage | Substandard    
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment    
Financing receivable 2,546 2,159
Residential real estate | Mortgage | Performing TDRs    
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment    
Financing receivable 3,559 3,582
Residential real estate | Mortgage | Non-accrual    
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment    
Financing receivable 2,016 1,888
Residential real estate | Mortgage | Total    
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment    
Financing receivable 27,692 24,206
Real estate - commercial | Construction    
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment    
Financing receivable 70,143 55,653
Real estate - commercial | Construction | Watch    
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment    
Financing receivable 1,666 1,113
Real estate - commercial | Construction | Substandard    
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment    
Financing receivable 97 0
Real estate - commercial | Construction | Performing TDRs    
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment    
Financing receivable 0 0
Real estate - commercial | Construction | Non-accrual    
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment    
Financing receivable 49 50
Real estate - commercial | Construction | Total    
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment    
Financing receivable 1,812 1,163
Real estate - commercial | Mortgage    
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment    
Financing receivable 442,266 426,470
Real estate - commercial | Mortgage | Watch    
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment    
Financing receivable 48,984 44,611
Real estate - commercial | Mortgage | Substandard    
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment    
Financing receivable 425 426
Real estate - commercial | Mortgage | Performing TDRs    
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment    
Financing receivable 1,489 1,498
Real estate - commercial | Mortgage | Non-accrual    
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment    
Financing receivable 497 420
Real estate - commercial | Mortgage | Total    
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment    
Financing receivable 51,395 46,955
Installment and other consumer    
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment    
Financing receivable 31,099 30,218
Installment and other consumer | Watch    
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment    
Financing receivable 0 0
Installment and other consumer | Substandard    
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment    
Financing receivable 22 24
Installment and other consumer | Performing TDRs    
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment    
Financing receivable 0 0
Installment and other consumer | Non-accrual    
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment    
Financing receivable 59 89
Installment and other consumer | Total    
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment    
Financing receivable $ 81 $ 113
XML 57 R46.htm IDEA: XBRL DOCUMENT v3.7.0.1
Loans and Allowance for Loan Losses (Details 8)
$ in Thousands
3 Months Ended
Mar. 31, 2017
USD ($)
Contract
Mar. 31, 2016
USD ($)
Contract
Loans that were modified as TDRs    
Number of Contracts | Contract [1] 2 1
Pre- Modification [1] $ 187 $ 78
Post- Modification [1] $ 187 $ 78
Commercial, financial, and agricultural    
Loans that were modified as TDRs    
Number of Contracts | Contract [1] 1 0
Pre- Modification [1] $ 131 $ 0
Post- Modification [1] $ 131 $ 0
Residential real estate | Mortgage    
Loans that were modified as TDRs    
Number of Contracts | Contract [1] 0 1
Pre- Modification [1] $ 0 $ 78
Post- Modification [1] $ 0 $ 78
Commercial real estate | Mortgage    
Loans that were modified as TDRs    
Number of Contracts | Contract [1] 1 0
Pre- Modification [1] $ 56 $ 0
Post- Modification [1] $ 56 $ 0
[1] The amounts reported post-modification are inclusive of all partial pay-downs and charge-offs, and no portion of the debt was forgiven. Loans modified as a TDR that were fully paid down, charged-off or foreclosed upon during the period ended are not reported.
XML 58 R47.htm IDEA: XBRL DOCUMENT v3.7.0.1
Loans and Allowance for Loan Losses (Detail Textuals)
1 Months Ended 3 Months Ended
Mar. 31, 2016
USD ($)
Mar. 31, 2017
USD ($)
Contract
Mar. 31, 2016
USD ($)
Contract
Dec. 31, 2016
USD ($)
Loans and Leases Receivable Disclosure [Line Items]        
Amount of loans pledged as collateral to the Federal Home Loan Bank   $ 499,100,000    
Look back period 3 years   5 years  
Impaired loans individually evaluated for impairment   9,324,000   $ 9,144,000
Impaired loans were evaluated based on the fair value of the loan's collateral   5,300,000   4,500,000
Specific allowance related to impaired loans $ 1,300,000 1,103,000 $ 1,300,000 1,080,000
Impaired loans with no reserve allocation   $ 1,611,000   $ 2,114,000
Impaired loans required no reserve allocation, percentage   17.00%   23.00%
Interest income recognized on impaired loans   $ 76,000 $ 228,000  
Troubled debt restructurings   6,400,000   $ 6,300,000
Amount of specific reserves related to TDRs which were allocated to the allowance for loan losses   $ 473,000   410,000
Number of contracts modified | Contract [1]   2 1  
Performing TDRs        
Loans and Leases Receivable Disclosure [Line Items]        
Troubled debt restructurings   $ 5,800,000   5,700,000
Nonperforming TDRs        
Loans and Leases Receivable Disclosure [Line Items]        
Troubled debt restructurings   $ 573,000   $ 619,000
[1] The amounts reported post-modification are inclusive of all partial pay-downs and charge-offs, and no portion of the debt was forgiven. Loans modified as a TDR that were fully paid down, charged-off or foreclosed upon during the period ended are not reported.
XML 59 R48.htm IDEA: XBRL DOCUMENT v3.7.0.1
Other Real Estate and Repossessed Assets (Details) - USD ($)
$ in Thousands
Mar. 31, 2017
Dec. 31, 2016
Mar. 31, 2016
Dec. 31, 2015
Summary of real estate and other assets acquired in settlement of loans        
Repossessed assets $ 13 $ 16    
Total 16,669 17,291 $ 18,696 $ 19,225
Less valuation allowance for other real estate owned (3,044) (3,129) (3,225) $ (3,233)
Total other real estate and repossessed assets 13,625 14,162 $ 15,471  
Commercial        
Summary of real estate and other assets acquired in settlement of loans        
Real estate acquired through foreclosure 783 809    
Commercial real estate | Construction        
Summary of real estate and other assets acquired in settlement of loans        
Real estate acquired through foreclosure 12,380 12,380    
Commercial real estate | Mortgage        
Summary of real estate and other assets acquired in settlement of loans        
Real estate acquired through foreclosure 2,909 3,439    
Residential real estate | Mortgage        
Summary of real estate and other assets acquired in settlement of loans        
Real estate acquired through foreclosure $ 584 $ 647    
XML 60 R49.htm IDEA: XBRL DOCUMENT v3.7.0.1
Other Real Estate and Repossessed Assets (Details 1) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2017
Mar. 31, 2016
Schedule of real estate acquired in settlement of loans    
Balance at beginning of period $ 17,291 $ 19,225
Additions 103 742
Proceeds from sales (658) (1,274)
Charge-offs against the valuation allowance for other real estate owned, net (117) (46)
Net gain on sales 50 49
Total other real estate and repossessed assets 16,669 18,696
Less valuation allowance for other real estate owned (3,044) (3,225)
Balance at end of period $ 13,625 $ 15,471
XML 61 R50.htm IDEA: XBRL DOCUMENT v3.7.0.1
Other Real Estate and Repossessed Assets (Details 2) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2017
Mar. 31, 2016
Summary of activity in valuation allowance for other real estate owned in settlement of loans    
Balance, beginning of period $ 3,129 $ 3,233
Provision for other real estate owned 32 38
Charge-offs (117) (46)
Balance, end of period $ 3,044 $ 3,225
XML 62 R51.htm IDEA: XBRL DOCUMENT v3.7.0.1
Other Real Estate and Repossessed Assets (Detail Textuals) - USD ($)
Mar. 31, 2017
Dec. 31, 2016
Other Real Estate [Abstract]    
Consumer mortgage loans in process of foreclosure $ 194,000 $ 162,000
XML 63 R52.htm IDEA: XBRL DOCUMENT v3.7.0.1
Investment Securities (Details) - USD ($)
$ in Thousands
Mar. 31, 2017
Dec. 31, 2016
Amortized cost and fair value of debt securities    
Total Amortized Cost $ 218,800 $ 217,635
Gross Unrealized Gains 322 261
Gross Unrealized Losses (2,952) (3,384)
Fair value 216,170 214,512
U.S. government and federal agency obligations    
Amortized cost and fair value of debt securities    
Total Amortized Cost 13,560 13,667
Gross Unrealized Gains 0 0
Gross Unrealized Losses (289) (303)
Fair value 13,271 13,364
Government sponsored enterprises    
Amortized cost and fair value of debt securities    
Total Amortized Cost 35,521 32,786
Gross Unrealized Gains 0 2
Gross Unrealized Losses (331) (329)
Fair value 35,190 32,459
Obligations of states and political subdivisions    
Amortized cost and fair value of debt securities    
Total Amortized Cost 46,733 42,666
Gross Unrealized Gains 180 123
Gross Unrealized Losses (516) (757)
Fair value 46,397 42,032
Mortgage-backed securities    
Amortized cost and fair value of debt securities    
Total Amortized Cost 122,986 128,516
Gross Unrealized Gains 142 136
Gross Unrealized Losses (1,816) (1,995)
Fair value 121,312 126,657
Mortgage-backed securities | Residential - government agencies    
Amortized cost and fair value of debt securities    
Total Amortized Cost 121,996 127,527
Gross Unrealized Gains 132 124
Gross Unrealized Losses (1,816) (1,995)
Fair value 120,312 125,656
Mortgage-backed securities | Commercial - government agencies    
Amortized cost and fair value of debt securities    
Total Amortized Cost 990 989
Gross Unrealized Gains 10 12
Gross Unrealized Losses 0 0
Fair value $ 1,000 $ 1,001
XML 64 R53.htm IDEA: XBRL DOCUMENT v3.7.0.1
Investment Securities (Details 1) - USD ($)
$ in Thousands
Mar. 31, 2017
Dec. 31, 2016
Amortized Cost    
Due in one year or less $ 4,136  
Due after one year through five years 59,006  
Due after five years through ten years 26,630  
Due after ten years 6,042  
Total 95,814  
Mortgage-backed securities 122,986  
Total available-for-sale securities 218,800 $ 217,635
Fair Value    
Due in one year or less 4,138  
Due after one year through five years 58,628  
Due after five year through ten years 26,123  
Due after ten years 5,969  
Total 94,858  
Mortgage-backed securities 121,312  
Total available-for-sale securities $ 216,170 $ 214,512
XML 65 R54.htm IDEA: XBRL DOCUMENT v3.7.0.1
Investment Securities (Details 2) - USD ($)
$ in Thousands
Mar. 31, 2017
Dec. 31, 2016
Fair Value    
Less than 12 months $ 152,171 $ 184,887
12 months or more 28,626 3,742
Total 180,797 188,629
Unrealized Losses    
Less than 12 months (2,396) (3,237)
12 months or more (556) (147)
Total (2,952) (3,384)
U.S. government and federal agency obligations    
Fair Value    
Less than 12 months 8,362 13,365
12 months or more 4,909 0
Total 13,271 13,365
Unrealized Losses    
Less than 12 months (168) (303)
12 months or more (121) 0
Total (289) (303)
Government sponsored enterprises    
Fair Value    
Less than 12 months 34,190 29,432
12 months or more 0 0
Total 34,190 29,432
Unrealized Losses    
Less than 12 months (331) (329)
12 months or more 0 0
Total (331) (329)
Obligations of states and political subdivisions    
Fair Value    
Less than 12 months 28,205 32,318
12 months or more 0 0
Total 28,205 32,318
Unrealized Losses    
Less than 12 months (516) (757)
12 months or more 0 0
Total (516) (757)
Mortgage-backed securities | Residential - government agencies    
Fair Value    
Less than 12 months 81,414 109,772
12 months or more 23,717 3,742
Total 105,131 113,514
Unrealized Losses    
Less than 12 months (1,381) (1,848)
12 months or more (435) (147)
Total $ (1,816) $ (1,995)
XML 66 R55.htm IDEA: XBRL DOCUMENT v3.7.0.1
Investment Securities (Details 3) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2017
Mar. 31, 2016
Investments Debt And Equity Securities [Abstract]    
Gains realized on sales $ 0 $ 472
Losses realized on sales 0 0
Other-than-temporary impairment recognized 0 0
Investment securities gains $ 0 $ 472
XML 67 R56.htm IDEA: XBRL DOCUMENT v3.7.0.1
Investment Securities (Detail Textuals)
$ in Thousands
3 Months Ended 12 Months Ended
Mar. 31, 2017
USD ($)
Security
Dec. 31, 2016
USD ($)
Security
Investments Debt And Equity Securities [Abstract]    
Available for sale securities reported at cost in other assets $ 9,800 $ 9,800
Available for sale securities, pledged $ 176,800 $ 167,600
Number of securities consisted in portfolio | Security 309 298
Number of securities in loss position | Security 205 216
Aggregate fair value of securities in loss position $ 180,800 $ 188,600
Loss position for 12 months or longer 28,626 3,742
Gross unrealized losses $ 3,000 $ 3,400
XML 68 R57.htm IDEA: XBRL DOCUMENT v3.7.0.1
Intangible Assets (Details) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2017
Mar. 31, 2016
Changes in mortgage servicing rights    
Balance at beginning of period $ 2,584  
Changes in fair value:    
Balance at end of period 2,877  
Mortgage servicing rights (MSRs)    
Changes in mortgage servicing rights    
Balance at beginning of period 2,584 $ 2,847
Originated mortgage servicing rights 49 53
Changes in fair value:    
Due to change in model inputs and assumptions [1] 375 (3)
Other changes in fair value [2] (131) (152)
Balance at end of period $ 2,877 $ 2,745
[1] The change in fair value resulting from changes in valuation inputs or assumptions used in the valuation model reflects the change in discount rates and prepayment speed assumptions primarily due to changes in interest rates.
[2] Other changes in fair value reflect changes due to customer payments and passage of time.
XML 69 R58.htm IDEA: XBRL DOCUMENT v3.7.0.1
Intangible Assets (Details 1) - Mortgage servicing rights (MSRs)
3 Months Ended
Mar. 31, 2017
Mar. 31, 2016
Assumptions used in estimating the fair value of mortgage service rights    
Weighted average constant prepayment rate 8.29% 10.30%
Weighted average note rate 3.85% 3.91%
Weighted average discount rate 9.72% 9.19%
Weighted average expected life (in years) 6 years 6 months 5 years 8 months 12 days
XML 70 R59.htm IDEA: XBRL DOCUMENT v3.7.0.1
Intangible Assets (Detail Textuals) - Mortgage servicing rights (MSRs) - USD ($)
3 Months Ended
Mar. 31, 2017
Mar. 31, 2016
Dec. 31, 2016
Finite-Lived Intangible Assets [Line Items]      
Mortgage loans serviced for others $ 291,000,000 $ 308,100,000 $ 294,400,000
Mortgage loan servicing fees reported as non-interest income $ 209,000 $ 210,000  
XML 71 R60.htm IDEA: XBRL DOCUMENT v3.7.0.1
Federal Funds Purchased and Securities Sold Under Agreements to Repurchase (Details) - USD ($)
$ in Thousands
Mar. 31, 2017
Dec. 31, 2016
Federal Funds Purchased and Securities Sold under Agreements to Repurchase [Abstract]    
Federal funds purchased $ 0 $ 992
Repurchase agreements 31,512 30,023
Total $ 31,512 $ 31,015
XML 72 R61.htm IDEA: XBRL DOCUMENT v3.7.0.1
Federal Funds Purchased and Securities Sold Under Agreements to Repurchase (Details 1) - USD ($)
$ in Thousands
Mar. 31, 2017
Dec. 31, 2016
Transfer of Certain Financial Assets Accounted for as Secured Borrowings [Line Items]    
Repurchase agreements $ 31,512 $ 30,023
U.S. government and federal agency obligations    
Transfer of Certain Financial Assets Accounted for as Secured Borrowings [Line Items]    
Repurchase agreements 3,513 3,489
Government sponsored enterprises    
Transfer of Certain Financial Assets Accounted for as Secured Borrowings [Line Items]    
Repurchase agreements 7,291 7,324
Asset-backed securities    
Transfer of Certain Financial Assets Accounted for as Secured Borrowings [Line Items]    
Repurchase agreements 20,708 19,210
Overnight and continuous    
Transfer of Certain Financial Assets Accounted for as Secured Borrowings [Line Items]    
Repurchase agreements 31,512 30,023
Overnight and continuous | U.S. government and federal agency obligations    
Transfer of Certain Financial Assets Accounted for as Secured Borrowings [Line Items]    
Repurchase agreements 3,513 3,489
Overnight and continuous | Government sponsored enterprises    
Transfer of Certain Financial Assets Accounted for as Secured Borrowings [Line Items]    
Repurchase agreements 7,291 7,324
Overnight and continuous | Asset-backed securities    
Transfer of Certain Financial Assets Accounted for as Secured Borrowings [Line Items]    
Repurchase agreements 20,708 19,210
Less than 90 days    
Transfer of Certain Financial Assets Accounted for as Secured Borrowings [Line Items]    
Repurchase agreements 0 0
Less than 90 days | U.S. government and federal agency obligations    
Transfer of Certain Financial Assets Accounted for as Secured Borrowings [Line Items]    
Repurchase agreements 0 0
Less than 90 days | Government sponsored enterprises    
Transfer of Certain Financial Assets Accounted for as Secured Borrowings [Line Items]    
Repurchase agreements 0 0
Less than 90 days | Asset-backed securities    
Transfer of Certain Financial Assets Accounted for as Secured Borrowings [Line Items]    
Repurchase agreements 0 0
Greater than 90 days    
Transfer of Certain Financial Assets Accounted for as Secured Borrowings [Line Items]    
Repurchase agreements 0 0
Greater than 90 days | U.S. government and federal agency obligations    
Transfer of Certain Financial Assets Accounted for as Secured Borrowings [Line Items]    
Repurchase agreements 0 0
Greater than 90 days | Government sponsored enterprises    
Transfer of Certain Financial Assets Accounted for as Secured Borrowings [Line Items]    
Repurchase agreements 0 0
Greater than 90 days | Asset-backed securities    
Transfer of Certain Financial Assets Accounted for as Secured Borrowings [Line Items]    
Repurchase agreements $ 0 $ 0
XML 73 R62.htm IDEA: XBRL DOCUMENT v3.7.0.1
Income Taxes (Detail Textuals) - USD ($)
3 Months Ended
Mar. 31, 2017
Mar. 31, 2016
Income Tax Disclosure [Abstract]    
Effective income tax rate reconciliation, percent 34.20% 32.60%
Capital losses carry forwards $ 219,000  
Deferred tax asset, valuation reserve $ 83,000  
XML 74 R63.htm IDEA: XBRL DOCUMENT v3.7.0.1
Stockholders' Equity (Details) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2017
Mar. 31, 2016
Unrealized Gain (Loss) on Securities    
Accumulated Other Comprehensive Income (Loss)    
Balance at beginning of period [1] $ (1,936) $ (591)
Other comprehensive income, before reclassifications [1] 493 2,006
Amounts reclassified from accumulated other comprehensive income (loss) [1] 0 (472)
Current period other comprehensive income, before tax [1] 493 1,534
Income tax expense [1] (187) (583)
Current period other comprehensive income, net of tax [1] 306 951
Balance at end of period [1] (1,630) 360
Unrecognized Net Pension and Postretirement Costs    
Accumulated Other Comprehensive Income (Loss)    
Balance at beginning of period [2] (1,865) (1,427)
Other comprehensive income, before reclassifications [2] 22 21
Amounts reclassified from accumulated other comprehensive income (loss) [2] 0 0
Current period other comprehensive income, before tax [2] 22 21
Income tax expense [2] (8) (8)
Current period other comprehensive income, net of tax [2] 14 13
Balance at end of period [2] (1,851) (1,414)
Accumulated Other Comprehensive (Loss) Income    
Accumulated Other Comprehensive Income (Loss)    
Balance at beginning of period (3,801) (2,018)
Other comprehensive income, before reclassifications 515 2,027
Amounts reclassified from accumulated other comprehensive income (loss) 0 (472)
Current period other comprehensive income, before tax 515 1,555
Income tax expense (195) (591)
Current period other comprehensive income, net of tax 320 964
Balance at end of period (3,481) (1,054)
Balance at beginning of period (3,801)  
Current period other comprehensive income, net of tax 320 $ 964
Balance at end of period $ (3,481)  
[1] The pre-tax amounts reclassified from accumulated other comprehensive loss are included in gain on sale of investment securities in the consolidated statements of income.
[2] The pre-tax amounts reclassified from accumulated other comprehensive loss are included in the computation of net periodic pension cost.
XML 75 R64.htm IDEA: XBRL DOCUMENT v3.7.0.1
Employee Benefit Plans (Details) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2017
Mar. 31, 2016
Summary of employee benefits charged to operating expenses    
Payroll taxes $ 356 $ 296
Medical plans 426 512
401k match and profit sharing 250 181
Pension plan 352 307
Other 16 16
Total employee benefits $ 1,400 $ 1,312
XML 76 R65.htm IDEA: XBRL DOCUMENT v3.7.0.1
Employee Benefit Plans (Details 1) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2017
Mar. 31, 2016
Components of net pension cost    
Pension expense - three months ended March 31, (actual) $ 352 $ 307
Pension    
Components of net pension cost    
Service cost - benefits earned during the year 1,343 1,179
Interest costs on projected benefit obligations 1,008 956
Expected return on plan assets (1,123) (1,057)
Expected administrative expenses 88 70
Amortization of prior service cost 79 79
Amortization of unrecognized net loss 11 0
Net periodic pension expense 1,406 1,227
Pension expense - three months ended March 31, (actual) $ 352 $ 307
XML 77 R66.htm IDEA: XBRL DOCUMENT v3.7.0.1
Employee Benefit Plans (Detail Textuals) - Pension - USD ($)
1 Months Ended 3 Months Ended
Sep. 15, 2017
Mar. 31, 2017
Defined Benefit Plan Disclosure    
Employer match (as a percent)   3.00%
Defined benefit plan contributions by employer percent   6.00%
Defined benefit plan, minimum required contribution   $ 842,000
Subsequent event    
Defined Benefit Plan Disclosure    
Contribution to the defined benefit plan for the current plan year $ 1,200,000  
XML 78 R67.htm IDEA: XBRL DOCUMENT v3.7.0.1
Stock Compensation (Details)
$ / shares in Units, $ in Thousands
3 Months Ended
Mar. 31, 2017
USD ($)
$ / shares
shares
Number of Shares  
Outstanding, beginning of period (in shares) | shares 44,458
Granted (in shares) | shares 0
Exercised (in shares) | shares 0
Forfeited or expired (in shares) | shares (4,345)
Outstanding, March 31, 2017 (in shares) | shares 40,113
Exercisable, March 31, 2017 (in shares) | shares 38,844
Weighted average Exercise Price  
Outstanding, beginning of period (in dollars per share) | $ / shares $ 20.11
Granted (in dollars per share) | $ / shares 0.00
Exercised (in dollars per share) | $ / shares 0.00
Forfeited or expired (in dollars per share) | $ / shares 20.34
Outstanding, March 31, 2017 (in dollars per share) | $ / shares 20.08
Exercisable, March 31, 2017 (in dollars per share) | $ / shares $ 20.24
Weighted Average Contractual Term (in years)  
Outstanding, March 31, 2017 9 months
Exercisable, March 31, 2017 8 months 23 days
Aggregate Intrinsic Value  
Outstanding, March 31, 2017 | $ $ 110,931
Exercisable, March 31, 2017 | $ $ 103,647
XML 79 R68.htm IDEA: XBRL DOCUMENT v3.7.0.1
Stock Compensation (Detail Textuals) - USD ($)
3 Months Ended 12 Months Ended
Mar. 31, 2017
Mar. 31, 2016
Dec. 31, 2016
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]      
Maximum number of options granted to purchase shares (in shares) 557,706    
Special stock dividend, rate percent 4.00% 4.00% 4.00%
Date of dividend payment Jul. 01, 2016    
Stock based compensation expense $ 1,000 $ 5,000  
Total unrecognized compensation expense related to non-vested stock awards $ 2,000    
Weighted average period is expected to be recognized 3 months 4 days    
Minimum      
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]      
Options vesting period 4 years    
Maximum      
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]      
Options vesting period 5 years    
XML 80 R69.htm IDEA: XBRL DOCUMENT v3.7.0.1
Earnings per Share (Details) - USD ($)
$ / shares in Units, $ in Thousands
3 Months Ended
Mar. 31, 2017
Mar. 31, 2016
Basic earnings per share:    
Net income available to shareholders $ 2,100 $ 1,998
Basic earnings per share (in dollars per share) $ 0.37 $ 0.35
Diluted earnings per share:    
Net income available to shareholders $ 2,100 $ 1,998
Average shares outstanding 5,615,300 5,654,066
Effect of dilutive stock options 4,726 0
Average shares outstanding including dilutive stock options 5,620,026 5,654,066
Diluted earnings per share (in dollars per share) $ 0.37 $ 0.35
XML 81 R70.htm IDEA: XBRL DOCUMENT v3.7.0.1
Earnings per Share (Details 1) - shares
3 Months Ended 12 Months Ended
Mar. 31, 2017
Mar. 31, 2016
Dec. 31, 2016
Schedule Of Common Stock Outstanding [Roll Forward]      
Outstanding, beginning of year 5,616,607 5,441,190 5,441,190
Issuance of stock: 4% stock dividend 0 0 217,155
Purchase of treasury stock (1,400) (8,635) (41,738)
Outstanding, end of year 5,615,207 5,432,555 5,616,607
XML 82 R71.htm IDEA: XBRL DOCUMENT v3.7.0.1
Earnings per Share (Parentheticals) (Details 1)
3 Months Ended 12 Months Ended
Mar. 31, 2017
Mar. 31, 2016
Dec. 31, 2016
Earnings Per Share [Abstract]      
Special stock dividend, rate percent 4.00% 4.00% 4.00%
XML 83 R72.htm IDEA: XBRL DOCUMENT v3.7.0.1
Earnings per Share (Detail Textuals)
3 Months Ended 12 Months Ended
Mar. 31, 2017
Mar. 31, 2016
Dec. 31, 2016
Earnings Per Share [Abstract]      
Special stock dividend, payment date Jul. 01, 2016    
Special stock dividend, rate percent 4.00% 4.00% 4.00%
Special stock dividend, record date Jun. 15, 2016    
XML 84 R73.htm IDEA: XBRL DOCUMENT v3.7.0.1
Earnings per Share (Detail Textuals 1) - USD ($)
$ / shares in Units, $ in Millions
3 Months Ended 12 Months Ended
Mar. 31, 2017
Mar. 31, 2016
Dec. 31, 2016
Aug. 06, 2015
Earnings Per Share [Abstract]        
Antidilutive securities excluded from computation of earnings per share, amount 20,787 44,458    
Share repurchase plan, Authorized amount       $ 2.0
Total number of common stock repurchased 45,293      
Average price per share of total common stock repurchased $ 15.04      
Number of common stock repurchased 1,400 8,635 41,738  
Average price per share of common stock repurchased $ 17.88      
Value used to purchase shares under the plan       $ 1.3
XML 85 R74.htm IDEA: XBRL DOCUMENT v3.7.0.1
Fair Value Measurements (Details) - USD ($)
$ in Thousands
Mar. 31, 2017
Dec. 31, 2016
Assets:    
Available for sale debt securities, fair value $ 216,170 $ 214,512
Mortgage servicing rights, fair value 2,877 2,584
Quoted Prices in Active Markets for Identical Assets (Level 1)    
Assets:    
Available for sale debt securities, fair value 0 0
Mortgage servicing rights, fair value 0 0
Other Observable Inputs (Level 2)    
Assets:    
Available for sale debt securities, fair value 216,170 214,512
Mortgage servicing rights, fair value 0 0
Significant Unobservable Inputs (Level 3)    
Assets:    
Available for sale debt securities, fair value 0 0
Mortgage servicing rights, fair value 2,877 2,584
Recurring    
Assets:    
Assets, Total 219,047 217,096
Recurring | U.S. government and federal agency obligations    
Assets:    
Available for sale debt securities, fair value 13,271 13,364
Recurring | Government sponsored enterprises    
Assets:    
Available for sale debt securities, fair value 35,190 32,459
Recurring | Obligations of states and political subdivisions    
Assets:    
Available for sale debt securities, fair value 46,397 42,032
Recurring | Mortgage-backed securities    
Assets:    
Available for sale debt securities, fair value 121,312 126,657
Recurring | Mortgage servicing rights    
Assets:    
Mortgage servicing rights, fair value 2,877 2,584
Recurring | Quoted Prices in Active Markets for Identical Assets (Level 1)    
Assets:    
Assets, Total 0 0
Recurring | Quoted Prices in Active Markets for Identical Assets (Level 1) | U.S. government and federal agency obligations    
Assets:    
Available for sale debt securities, fair value 0 0
Recurring | Quoted Prices in Active Markets for Identical Assets (Level 1) | Government sponsored enterprises    
Assets:    
Available for sale debt securities, fair value 0 0
Recurring | Quoted Prices in Active Markets for Identical Assets (Level 1) | Obligations of states and political subdivisions    
Assets:    
Available for sale debt securities, fair value 0 0
Recurring | Quoted Prices in Active Markets for Identical Assets (Level 1) | Mortgage-backed securities    
Assets:    
Available for sale debt securities, fair value 0 0
Recurring | Quoted Prices in Active Markets for Identical Assets (Level 1) | Mortgage servicing rights    
Assets:    
Mortgage servicing rights, fair value 0 0
Recurring | Other Observable Inputs (Level 2)    
Assets:    
Assets, Total 216,170 214,512
Recurring | Other Observable Inputs (Level 2) | U.S. government and federal agency obligations    
Assets:    
Available for sale debt securities, fair value 13,271 13,364
Recurring | Other Observable Inputs (Level 2) | Government sponsored enterprises    
Assets:    
Available for sale debt securities, fair value 35,190 32,459
Recurring | Other Observable Inputs (Level 2) | Obligations of states and political subdivisions    
Assets:    
Available for sale debt securities, fair value 46,397 42,032
Recurring | Other Observable Inputs (Level 2) | Mortgage-backed securities    
Assets:    
Available for sale debt securities, fair value 121,312 126,657
Recurring | Other Observable Inputs (Level 2) | Mortgage servicing rights    
Assets:    
Mortgage servicing rights, fair value 0 0
Recurring | Significant Unobservable Inputs (Level 3)    
Assets:    
Assets, Total 2,877 2,584
Recurring | Significant Unobservable Inputs (Level 3) | U.S. government and federal agency obligations    
Assets:    
Available for sale debt securities, fair value 0 0
Recurring | Significant Unobservable Inputs (Level 3) | Government sponsored enterprises    
Assets:    
Available for sale debt securities, fair value 0 0
Recurring | Significant Unobservable Inputs (Level 3) | Obligations of states and political subdivisions    
Assets:    
Available for sale debt securities, fair value 0 0
Recurring | Significant Unobservable Inputs (Level 3) | Mortgage-backed securities    
Assets:    
Available for sale debt securities, fair value 0 0
Recurring | Significant Unobservable Inputs (Level 3) | Mortgage servicing rights    
Assets:    
Mortgage servicing rights, fair value $ 2,877 $ 2,584
XML 86 R75.htm IDEA: XBRL DOCUMENT v3.7.0.1
Fair Value Measurements (Details 1) - Recurring - Significant Unobservable Inputs (Level 3) - Mortgage servicing rights - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2017
Mar. 31, 2016
Fair value of assets    
Balance at beginning of period $ 2,584 $ 2,847
Total gains or losses (realized/unrealized): Included in earnings 244 (155)
Total gains or losses (realized/unrealized): Included in other comprehensive income 0 0
Purchases 0 0
Sales 0 0
Issues 49 53
Settlements 0 0
Balance at end of period $ 2,877 $ 2,745
XML 87 R76.htm IDEA: XBRL DOCUMENT v3.7.0.1
Fair Value Measurements (Details 2) - Recurring - Significant Unobservable Inputs (Level 3) - Mortgage servicing rights
3 Months Ended
Mar. 31, 2017
Mar. 31, 2016
Quantitative Information    
Weighted average constant prepayment rate 8.29% 10.30%
Weighted average note rate (as a percent) 3.85% 3.91%
Weighted average discount rate 9.72% 9.19%
Weighted average expected life (in years) 6 years 6 months 5 years 8 months 12 days
XML 88 R77.htm IDEA: XBRL DOCUMENT v3.7.0.1
Fair Value Measurements (Details 3) - Nonrecurring - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2017
Mar. 31, 2016
Total Fair Value    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Impaired loans $ 6,610 $ 3,805
Other real estate and foreclosed assets 13,625 15,471
Total Fair Value | Commercial, financial, and agricultural    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Impaired loans 803 248
Total Fair Value | Commercial real estate | Construction    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Impaired loans 42 44
Total Fair Value | Commercial real estate | Mortgage    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Impaired loans 1,308 243
Total Fair Value | Residential real estate | Mortgage    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Impaired loans 4,410 3,170
Total Fair Value | Consumer    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Impaired loans 47 100
Total Gains (Losses)    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Gains (losses) on impaired loans [1] (20) (560)
Gains (losses) on other real estate owned and repossessed assets [1] 15 33
Total Gains (Losses) | Commercial, financial, and agricultural    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Gains (losses) on impaired loans [1] (1) (359)
Total Gains (Losses) | Commercial real estate | Construction    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Gains (losses) on impaired loans [1] 0 0
Total Gains (Losses) | Commercial real estate | Mortgage    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Gains (losses) on impaired loans [1] (4) (154)
Total Gains (Losses) | Residential real estate | Mortgage    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Gains (losses) on impaired loans [1] (3) (35)
Total Gains (Losses) | Consumer    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Gains (losses) on impaired loans [1] (12) (12)
Quoted Prices in Active Markets for Identical Assets (Level 1)    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Impaired loans 0 0
Other real estate and foreclosed assets 0 0
Quoted Prices in Active Markets for Identical Assets (Level 1) | Commercial, financial, and agricultural    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Impaired loans 0 0
Quoted Prices in Active Markets for Identical Assets (Level 1) | Commercial real estate | Construction    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Impaired loans 0 0
Quoted Prices in Active Markets for Identical Assets (Level 1) | Commercial real estate | Mortgage    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Impaired loans 0 0
Quoted Prices in Active Markets for Identical Assets (Level 1) | Residential real estate | Mortgage    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Impaired loans 0 0
Quoted Prices in Active Markets for Identical Assets (Level 1) | Consumer    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Impaired loans 0 0
Other Observable Inputs (Level 2)    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Impaired loans 0 0
Other real estate and foreclosed assets 0 0
Other Observable Inputs (Level 2) | Commercial, financial, and agricultural    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Impaired loans 0 0
Other Observable Inputs (Level 2) | Commercial real estate | Construction    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Impaired loans 0 0
Other Observable Inputs (Level 2) | Commercial real estate | Mortgage    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Impaired loans 0 0
Other Observable Inputs (Level 2) | Residential real estate | Mortgage    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Impaired loans 0 0
Other Observable Inputs (Level 2) | Consumer    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Impaired loans 0 0
Significant Unobservable Inputs (Level 3)    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Impaired loans 6,610 3,805
Other real estate and foreclosed assets 13,625 15,471
Significant Unobservable Inputs (Level 3) | Commercial, financial, and agricultural    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Impaired loans 803 248
Significant Unobservable Inputs (Level 3) | Commercial real estate | Construction    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Impaired loans 42 44
Significant Unobservable Inputs (Level 3) | Commercial real estate | Mortgage    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Impaired loans 1,308 243
Significant Unobservable Inputs (Level 3) | Residential real estate | Mortgage    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Impaired loans 4,410 3,170
Significant Unobservable Inputs (Level 3) | Consumer    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Impaired loans $ 47 $ 100
[1] Total gains (losses) reported for other real estate and foreclosed assets includes charge-offs, valuation write downs, and net losses taken during the periods reported.
XML 89 R78.htm IDEA: XBRL DOCUMENT v3.7.0.1
Fair Value Measurements (Detail Textuals) - USD ($)
3 Months Ended
Mar. 31, 2017
Mar. 31, 2016
Dec. 31, 2016
Fair Value Disclosures [Abstract]      
Gains included in earnings attributable to change in unrealized gains or losses $ 375,000 $ 3,000  
Impaired loans with a specific allowance 7,713,000 5,200,000 $ 7,030,000
Specific allowance related to impaired loans 1,103,000 1,300,000 $ 1,080,000
Impaired financing receivable charge offs $ 20,000 $ 560,000  
XML 90 R79.htm IDEA: XBRL DOCUMENT v3.7.0.1
Fair Value of Financial Instruments (Details) - USD ($)
$ in Thousands
Mar. 31, 2017
Dec. 31, 2016
Assets:    
Cash and due from banks $ 16,746 $ 25,589
Federal funds sold and overnight interest-bearing deposits 6,427 1,406
Investment in available-for-sale securities, at fair value 216,170 214,512
Mortgage servicing rights 2,877 2,584
Accrued interest receivable 4,702 5,183
Deposits:    
Non-interest bearing demand 239,059 235,975
Savings, interest checking and money market 519,379 468,731
Accrued interest payable 452 498
Carrying Amount    
Assets:    
Cash and due from banks 16,746 25,589
Federal funds sold and overnight interest-bearing deposits 6,427 1,406
Investment in available-for-sale securities, at fair value 216,170 214,512
Loans, net 999,920 964,143
Investment in FHLB stock 5,212 5,149
Mortgage servicing rights 2,877 2,584
Cash surrender value - life insurance 2,430 2,409
Accrued interest receivable 4,702 5,183
Assets, Total 1,254,484 1,220,975
Deposits:    
Non-interest bearing demand 239,059 235,975
Savings, interest checking and money market 519,379 468,731
Time deposits 284,566 305,960
Federal funds purchased and securities sold under agreements to repurchase 31,512 31,015
Subordinated notes 49,486 49,486
Federal Home Loan Bank advances 91,900  
Other borrowings   93,392
Accrued interest payable 452 498
Liabilities, Total 1,216,354 1,185,057
Fair Value    
Assets:    
Cash and due from banks 16,746 25,589
Federal funds sold and overnight interest-bearing deposits 6,427 1,406
Investment in available-for-sale securities, at fair value 216,170 214,512
Loans, net 993,219 959,929
Investment in FHLB stock 5,212 5,149
Mortgage servicing rights 2,877 2,584
Cash surrender value - life insurance 2,430 2,409
Accrued interest receivable 4,702 5,183
Assets, Total 1,247,783 1,216,761
Deposits:    
Non-interest bearing demand 239,059 235,975
Savings, interest checking and money market 519,379 468,731
Time deposits 282,822 304,334
Federal funds purchased and securities sold under agreements to repurchase 31,512 31,015
Subordinated notes 34,228 33,712
Federal Home Loan Bank advances 92,225  
Other borrowings   93,209
Accrued interest payable 452 498
Liabilities, Total 1,199,677 1,167,474
Quoted Prices in Active Markets for Identical Assets (Level 1)    
Assets:    
Cash and due from banks 16,746 25,589
Federal funds sold and overnight interest-bearing deposits 6,427 1,406
Investment in available-for-sale securities, at fair value 0 0
Loans, net 0 0
Investment in FHLB stock 0 0
Mortgage servicing rights 0 0
Cash surrender value - life insurance 0 0
Accrued interest receivable 4,702 5,183
Assets, Total 27,875 32,178
Deposits:    
Non-interest bearing demand 239,059 235,975
Savings, interest checking and money market 519,379 468,731
Time deposits 0 0
Federal funds purchased and securities sold under agreements to repurchase 31,512 31,015
Subordinated notes 0 0
Federal Home Loan Bank advances 0  
Other borrowings   0
Accrued interest payable 452 498
Liabilities, Total 790,402 736,219
Other Observable Inputs (Level 2)    
Assets:    
Cash and due from banks 0 0
Federal funds sold and overnight interest-bearing deposits 0 0
Investment in available-for-sale securities, at fair value 216,170 214,512
Loans, net 0 0
Investment in FHLB stock 5,212 5,149
Mortgage servicing rights 0 0
Cash surrender value - life insurance 2,430 2,409
Accrued interest receivable 0 0
Assets, Total 223,812 222,070
Deposits:    
Non-interest bearing demand 0 0
Savings, interest checking and money market 0 0
Time deposits 0 0
Federal funds purchased and securities sold under agreements to repurchase 0 0
Subordinated notes 34,228 33,712
Federal Home Loan Bank advances 92,225  
Other borrowings   93,209
Accrued interest payable 0 0
Liabilities, Total 126,453 126,921
Net Significant Unobservable Inputs (Level 3)    
Assets:    
Cash and due from banks 0 0
Federal funds sold and overnight interest-bearing deposits 0 0
Investment in available-for-sale securities, at fair value 0 0
Loans, net 993,219 959,929
Investment in FHLB stock 0 0
Mortgage servicing rights 2,877 2,584
Cash surrender value - life insurance 0 0
Accrued interest receivable 0 0
Assets, Total 996,096 962,513
Deposits:    
Non-interest bearing demand 0 0
Savings, interest checking and money market 0 0
Time deposits 282,822 304,334
Federal funds purchased and securities sold under agreements to repurchase 0 0
Subordinated notes 0 0
Federal Home Loan Bank advances 0  
Other borrowings   0
Accrued interest payable 0 0
Liabilities, Total $ 282,822 $ 304,334
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Repurchase Reserve Liability (Details) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2017
Mar. 31, 2016
Assets Sold Under Agreements To Repurchase [Roll Forward]    
Balance at beginning of year $ 160 $ 160
Provision for repurchase liability 0 0
Reimbursement of expenses 0 0
Balance at end of year $ 160 $ 160
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Repurchase Reserve Liability (Detail Textuals)
$ in Thousands
3 Months Ended 12 Months Ended
Mar. 31, 2017
USD ($)
Security
Dec. 31, 2016
USD ($)
Security
Mar. 31, 2016
USD ($)
Dec. 31, 2015
USD ($)
Repurchase Reserve Liability [Abstract]        
Repurchase reserve liability $ 160 $ 160 $ 160 $ 160
Number of loans sold to the secondary market | Security 2,843 2,877    
Balance of loans sold to the secondary market $ 291,000 $ 294,400    
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Commitments and Contingencies (Details) - USD ($)
$ in Thousands
Mar. 31, 2017
Dec. 31, 2016
Contractual amount of off-balance-sheet financial instruments    
Total contractual amount of off-balance-sheet financial instruments $ 265,746 $ 258,746
Commitments to extend credit    
Contractual amount of off-balance-sheet financial instruments    
Total contractual amount of off-balance-sheet financial instruments 238,425 253,375
Commitments to originate residential first and second mortgage loans    
Contractual amount of off-balance-sheet financial instruments    
Total contractual amount of off-balance-sheet financial instruments 3,751 2,626
Standby letters of credit    
Contractual amount of off-balance-sheet financial instruments    
Total contractual amount of off-balance-sheet financial instruments $ 23,570 $ 2,745
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Commitments and Contingencies (Detail Textuals)
3 Months Ended
Mar. 31, 2017
USD ($)
Contractual amount of off-balance-sheet financial instruments  
Amounts accrued for estimated losses for the financial instruments $ 0
Minimum  
Contractual amount of off-balance-sheet financial instruments  
Remaining term of standby letters of credit 1 month
Maximum  
Contractual amount of off-balance-sheet financial instruments  
Remaining term of standby letters of credit 5 years
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