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Section 1: 10-Q (10-Q)

fbss-10q_20180331.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

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

For the quarterly period ended March 31, 2018

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 No.: 000-25805

 

Fauquier Bankshares, Inc.

(Exact name of registrant as specified in its charter)

 

 

Virginia

 

54-1288193

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

10 Courthouse Square, Warrenton, Virginia

 

20186

(Address of principal executive offices)

 

(Zip Code)

 

(540) 347-2700

(Registrant’s telephone number, including area code)

 

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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. (Check one):

 

Large accelerated filer

 

 

Accelerated filer

Non-accelerated filer

(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 to not use 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 if the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.)  Yes No

The registrant had 3,773,603 shares of common stock outstanding as of May 11, 2018.

 

 

 

 


FAUQUIER BANKSHARES, INC.

INDEX

 

Part I.  FINANCIAL INFORMATION

 

 

 

Page

Item 1.

Financial Statements

2

 

 

 

 

Consolidated Balance Sheets as of March 31, 2018 (unaudited) and December 31, 2017

2

 

 

 

 

Consolidated Statements of Income (unaudited) for the Three Months Ended March 31, 2018 and 2017

3

 

 

 

 

Consolidated Statements of Comprehensive Income (unaudited) for the Three Months Ended March 31, 2018 and 2017

4

 

 

 

 

Consolidated Statements of Changes in Shareholders’ Equity (unaudited) for the Three Months Ended March 31, 2018 and 2017

5

 

 

 

 

Consolidated Statements of Cash Flows (unaudited) for the Three Months Ended March 31, 2018 and 2017

6

 

 

 

 

Notes to Consolidated Financial Statements

7

 

 

 

Item 2.

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

26

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

36

 

 

 

Item 4.

Controls and Procedures

36

 

 

 

Part II.  OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

37

 

 

 

Item 1A.

Risk Factors

37

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

37

 

 

 

Item 3.

Defaults Upon Senior Securities

37

 

 

 

Item 4.

Mine Safety Disclosures

37

 

 

 

Item 5.

Other Information

37

 

 

 

Item 6.

Exhibits

38

 

 

 

SIGNATURES

39

 

1


Part I. FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

Fauquier Bankshares, Inc. and Subsidiaries

Consolidated Balance Sheets

 

(In thousands, except share and per share data)

 

March 31,

2018

(Unaudited)

 

 

December 31,

2017

 

Assets

 

 

 

 

 

 

 

 

Cash and due from banks

 

$

7,522

 

 

$

5,868

 

Interest-bearing deposits in other banks

 

 

59,700

 

 

 

23,424

 

Federal funds sold

 

 

14

 

 

 

8

 

Securities available for sale, at fair value

 

 

69,683

 

 

 

72,153

 

Restricted investments

 

 

2,837

 

 

 

1,546

 

Mortgage loans held for sale

 

 

400

 

 

 

Loans

 

 

503,091

 

 

 

502,799

 

Allowance for loan losses

 

 

(5,400

)

 

 

(5,094

)

Loans, net

 

 

497,691

 

 

 

497,705

 

Premises and equipment, net

 

 

18,386

 

 

 

18,606

 

Accrued interest receivable

 

 

1,822

 

 

 

1,940

 

Other real estate owned, net

 

 

1,356

 

 

 

1,356

 

Bank-owned life insurance

 

 

13,323

 

 

 

13,234

 

Other assets

 

 

9,386

 

 

 

8,773

 

Total assets

 

$

682,120

 

 

$

644,613

 

Liabilities

 

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

 

 

Noninterest-bearing

 

$

117,997

 

 

$

115,682

 

Interest-bearing:

 

 

 

 

 

 

 

 

Checking

 

 

233,488

 

 

 

245,564

 

Savings and money market accounts

 

 

154,529

 

 

 

136,862

 

Time deposits

 

 

71,227

 

 

 

71,915

 

Total interest-bearing

 

 

459,244

 

 

 

454,341

 

Total deposits

 

 

577,241

 

 

 

570,023

 

Federal Home Loan Bank advances

 

 

37,840

 

 

 

7,860

 

Junior subordinated debt

 

 

4,124

 

 

 

4,124

 

Other liabilities

 

 

6,249

 

 

 

6,464

 

Total liabilities

 

 

625,454

 

 

 

588,471

 

Shareholders’ Equity

 

 

 

 

 

 

 

 

Common stock, par value, $3.13; and additional paid-in capital; authorized 8,000,000 shares; issued and outstanding: 3,773,603 and 3,762,677 shares including 22,569 and 18,062 non-vested shares; respectively

 

 

15,634

 

 

 

15,526

 

Retained earnings

 

 

41,624

 

 

 

40,491

 

Accumulated other comprehensive income (loss), net

 

 

(592

)

 

 

125

 

Total shareholders’ equity

 

 

56,666

 

 

 

56,142

 

Total liabilities and shareholders’ equity

 

$

682,120

 

 

$

644,613

 

 

See accompanying Notes to Consolidated Financial Statements.

2


Fauquier Bankshares, Inc. and Subsidiaries

Consolidated Statements of Income

(Unaudited)

For the Three Months Ended March 31, 2018 and 2017

 

(In thousands, except per share data)

 

March 31, 2018

 

 

March 31, 2017

 

Interest Income

 

 

 

 

 

 

 

 

Interest and fees on loans

 

$

5,753

 

 

$

4,946

 

Interest and dividends on securities available for sale:

 

 

 

 

 

 

 

 

Taxable interest income

 

 

349

 

 

 

254

 

Tax-exempt interest

 

 

94

 

 

 

61

 

Dividends

 

 

20

 

 

 

24

 

Interest on deposits in other banks

 

 

154

 

 

 

130

 

Total interest income

 

 

6,370

 

 

 

5,415

 

Interest Expense

 

 

 

 

 

 

 

 

Interest on deposits

 

 

444

 

 

 

340

 

Interest on federal funds purchased

 

 

19

 

 

 

Interest on Federal Home Loan Bank advances

 

 

140

 

 

 

80

 

Junior subordinated debt

 

 

49

 

 

 

49

 

Total interest expense

 

 

652

 

 

 

469

 

Net interest income

 

 

5,718

 

 

 

4,946

 

Provision for loan losses

 

 

300

 

 

 

50

 

Net interest income after provision for loan losses

 

 

5,418

 

 

 

4,896

 

Noninterest Income

 

 

 

 

 

 

 

 

Trust and estate

 

 

372

 

 

 

361

 

Brokerage fees

 

 

41

 

 

 

57

 

Service charges on deposit accounts

 

 

444

 

 

 

485

 

Interchange fee income, net

 

 

285

 

 

 

286

 

Bank-owned life insurance

 

 

89

 

 

 

89

 

Other service charges, commissions and other income

 

 

91

 

 

 

133

 

Gain on call of securities available for sale

 

 

535

 

 

 

Gain on sale of mortgage loans held for sale, net

 

 

6

 

 

 

Total noninterest income

 

 

1,863

 

 

 

1,411

 

Noninterest Expenses

 

 

 

 

 

 

 

 

Salaries and benefits

 

 

2,968

 

 

 

2,819

 

Occupancy

 

 

605

 

 

 

597

 

Furniture and equipment

 

 

272

 

 

 

398

 

Marketing

 

 

108

 

 

 

140

 

Legal, audit and consulting

 

 

228

 

 

 

279

 

Data processing

 

 

256

 

 

 

328

 

Federal Deposit Insurance Corporation

 

 

100

 

 

 

80

 

Other operating expenses

 

 

944

 

 

 

773

 

Total noninterest expenses

 

 

5,481

 

 

 

5,414

 

Income before income taxes

 

 

1,800

 

 

 

893

 

Income tax expense

 

 

214

 

 

 

125

 

Net Income

 

$

1,586

 

 

$

768

 

Earnings per share, basic

 

$

0.42

 

 

$

0.20

 

Earnings per share, assuming dilution

 

$

0.42

 

 

$

0.20

 

Dividends per share

 

$

0.12

 

 

$

0.12

 

 

See accompanying Notes to Consolidated Financial Statements.

 

3


Fauquier Bankshares, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income

(Unaudited)

For the Three Months Ended March 31, 2018 and 2017

 

(In thousands)

 

March 31, 2018

 

 

March 31, 2017

 

Net income

 

$

1,586

 

 

$

768

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

Change in fair value of securities available for sale, net of tax of $149 and $(192), respectively

 

 

(437

)

 

 

373

 

Reclassification adjustment for gain included in net income, net of tax, $112 and $0, respectively

 

 

(423

)

 

 

Interest rate swap, net of tax of $(38) and $(7), respectively

 

 

143

 

 

 

14

 

Total other comprehensive income (loss), net of tax of $223 and $(199), respectively

 

 

(717

)

 

 

387

 

Total comprehensive income

 

$

869

 

 

$

1,155

 

 

 

 

 

See accompanying Notes to Consolidated Financial Statements.

4


Fauquier Bankshares, Inc. and Subsidiaries

Consolidated Statements of Changes in Shareholders’ Equity

(Unaudited)

For the Three Months Ended March 31, 2018 and 2017

 

(In thousands)

 

Common

Stock and Additional Paid-In Capital

 

 

Retained

Earnings

 

 

Accumulated

Other

Comprehensive

Income (Loss)

 

 

Total

 

Balance, December 31, 2016

 

$

15,364

 

 

$

39,824

 

 

$

(737

)

 

$

54,451

 

Net income

 

 

 

 

768

 

 

 

 

 

768

 

Other comprehensive income, net of tax effect of ($199)

 

 

 

 

 

 

387

 

 

 

387

 

Cash dividends ($0.12 per share)

 

 

 

 

(452

)

 

 

 

 

(452

)

Amortization of unearned compensation, restricted stock awards

 

 

30

 

 

 

 

 

 

 

30

 

Issuance of common stock - vested shares  (5,139 shares)

 

 

90

 

 

 

 

 

 

 

90

 

Repurchase of common stock (382 shares)

 

 

(7

)

 

 

 

 

 

 

(7

)

Balance, March 31, 2017

 

$

15,477

 

 

$

40,140

 

 

$

(350

)

 

$

55,267

 

Balance, December 31, 2017

 

$

15,526

 

 

$

40,491

 

 

$

125

 

 

$

56,142

 

Net income

 

 

 

 

1,586

 

 

 

 

 

1,586

 

Other comprehensive loss, net of tax of $223

 

 

 

 

 

 

(717

)

 

 

(717

)

Cash dividends ($0.12 per share)

 

 

 

 

(453

)

 

 

 

 

(453

)

Amortization of unearned compensation, restricted stock awards

 

 

31

 

 

 

 

 

 

 

31

 

Issuance of common stock - vested shares (3,961 shares)

 

 

85

 

 

 

 

 

 

 

85

 

Repurchase of common stock (368 shares)

 

 

(8

)

 

 

 

 

 

 

(8

)

Balance, March 31, 2018

 

$

15,634

 

 

$

41,624

 

 

$

(592

)

 

$

56,666

 

 

See accompanying Notes to Consolidated Financial Statements.

5


Fauquier Bankshares, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)

For the Three Months Ended March 31, 2018 and 2017

 

(In thousands)

 

March 31, 2018

 

 

March 31, 2017

 

Cash Flows from Operating Activities

 

 

 

 

 

 

 

 

Net income

 

$

1,586

 

 

$

768

 

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

313

 

 

 

356

 

Provision for loan losses

 

 

300

 

 

 

50

 

(Gain) loss on interest rate swaps

 

 

2

 

 

 

(6

)

Gain on securities available for sale

 

 

(535

)

 

 

Amortization of security premiums, net

 

 

94

 

 

 

16

 

Amortization of unearned compensation, net of forfeiture

 

 

50

 

 

 

45

 

Issuance of vested restricted stock

 

 

85

 

 

 

90

 

Bank-owned life insurance income

 

 

(89

)

 

 

(89

)

Origination of mortgage loans held for sale

 

 

(628

)

 

 

Proceeds from mortgage loans held for sale

 

 

234

 

 

 

Gain on mortgage loans held for sale

 

 

(6

)

 

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Increase in other assets

 

 

(76

)

 

 

(37

)

Decrease in other liabilities

 

 

(178

)

 

 

(142

)

Net cash provided by operating activities

 

 

1,152

 

 

 

1,051

 

Cash Flows from Investing Activities

 

 

 

 

 

 

 

 

Proceeds from maturities, calls and principal payments of

securities available for sale

 

 

3,766

 

 

 

4,077

 

Purchase of securities available for sale

 

 

(1,962

)

 

 

(9,964

)

Purchase of premises and equipment

 

 

(93

)

 

 

(141

)

Purchase of restricted investments, net

 

 

(1,291

)

 

 

(21

)

Loan originations, net

 

 

(374

)

 

 

7,376

 

Net cash provided by investing activities

 

 

46

 

 

 

1,327

 

Cash Flows from Financing Activities

 

 

 

 

 

 

 

 

Increase in demand deposits, NOW accounts and savings accounts

 

 

7,907

 

 

 

7,552

 

Decrease in time deposits

 

 

(688

)

 

 

(2,606

)

Increase (decrease) in FHLB advances

 

 

29,980

 

 

 

(19

)

Cash dividends paid on common stock

 

 

(453

)

 

 

(452

)

Repurchase of common stock

 

 

(8

)

 

 

(7

)

Net cash provided by financing activities

 

 

36,738

 

 

 

4,468

 

Increase in cash and cash equivalents

 

 

37,936

 

 

 

6,846

 

Cash and Cash Equivalents

 

 

 

 

 

 

 

 

Beginning

 

 

29,300

 

 

 

67,846

 

Ending

 

$

67,236

 

 

$

74,692

 

Supplemental Disclosures of Cash Flow Information

 

 

 

 

 

 

 

 

Cash payments for:

 

 

 

 

 

 

 

 

Interest

 

$

628

 

 

$

475

 

Supplemental Disclosures of Noncash Investing Activities

 

 

 

 

 

 

 

 

Unrealized gain (loss) on securities available for sale, net of tax effect

 

$

(437

)

 

$

373

 

Unrealized gain on interest rate swap, net of taxes

 

$

143

 

 

$

14

 

 

See accompanying Notes to Consolidated Financial Statements.

6


FAUQUIER BANKSHARES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Note 1.  General

The consolidated financial statements include the accounts of Fauquier Bankshares, Inc. (the “Company”) and its wholly-owned subsidiary, The Fauquier Bank (the “Bank”), and the Bank’s wholly-owned subsidiaries, Fauquier Bank Services, Inc. and Specialty Properties Acquisitions - VA, LLC. Specialty Properties Acquisitions - VA, LLC was formed with the sole purpose of holding foreclosed property. The consolidated financial statements do not include the accounts of Fauquier Statutory Trust II, a wholly-owned subsidiary of the Company. In consolidation, significant intercompany financial balances and transactions have been eliminated.  In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial position as of March 31, 2018 and the results of operations for the three months ended March 31, 2018 and 2017, in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).    The notes included herein should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company’s 2017 Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”).

The results of operations for the three months ended March 31, 2018 are not necessarily indicative of the results expected for the full year or any other interim period.

Certain amounts in the 2017 consolidated financial statements have been reclassified to conform to the 2018 presentation. No reclassifications were significant and there was no effect on net income.

Recent Accounting Pronouncements

 

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, “Leases (Topic 842).” Among other things, in the amendments in ASU 2016-02, lessees will be required to recognize the following for all leases (with the exception of short-term leases) at the commencement date: (1) A lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (2) A right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Under the new guidance, lessor accounting is largely unchanged. Certain targeted improvements were made to align, where necessary, lessor accounting with the lessee accounting model and Topic 606, Revenue from Contracts with Customers. The amendments in this ASU are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application is permitted upon issuance. Lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. Lessees and lessors may not apply a full retrospective transition approach. The Company is currently assessing the impact that ASU 2016-02 will have on its consolidated financial statements. To date, the Company has not completed its analysis of those leases and is unable to quantify the impact at this time.  

 

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.”  The amendments in this ASU, among other things, require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. In addition, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. The amendments in this ASU are effective for SEC filers for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company is currently assessing the impact that ASU 2016-13 will have on its consolidated financial statements. The Company’s management is addressing compliance requirements, data gathering and archiving resources, and analyzing the potential impact of this standard.  

 

In March 2017, the FASB issued ASU No. 2017‐08, “Receivables—Nonrefundable Fees and Other Costs (Subtopic 310‐20), Premium Amortization on Purchased Callable Debt Securities.” The amendments in this ASU shorten the amortization period for certain callable debt securities purchased at a premium. Upon adoption of the standard, premiums on these qualifying callable debt securities will be amortized to the earliest call date.  Discounts on purchased debt securities will continue to be accreted to maturity. The amendments are effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years.  Early adoption is permitted, including adoption in an interim period. Upon transition, entities should apply the guidance on a modified retrospective basis, with a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption and provide the disclosures required for a change in accounting principle. The Company is currently assessing the impact that ASU 2017‐08 will have on its consolidated financial statements.

 

In August 2017, the FASB issued ASU No. 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities.”  The amendments in this ASU modify the designation and measurement guidance for hedge accounting as well as provide for increased transparency regarding the presentation of economic results on both the financial statements and related footnotes.  Certain aspects of hedge effectiveness assessments will also be simplified upon implementation of this update.   The amendments are effective for annual periods,

7


including interim periods within those annual periods, beginning after December 15, 2018.  Early adoption is permitted, including adoption in any interim period.  The Company is currently assessing the impact that ASU 2017‐12 will have on its consolidated financial statements.

 

In February 2018, the FASB issued ASU No. 2018-03, “Technical Corrections and Improvements to Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.”  The amendments provide targeted improvements to address certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. Specifically, the amendments include clarifications related to:  measurement elections, transition requirements, and adjustments associated with equity securities without readily determinable fair values; fair value measurement requirements for forward contracts and purchased options on equity securities; presentation requirements for hybrid financial liabilities for which the fair value option has been elected; and measurement requirements for liabilities denominated in a foreign currency for which the fair value option has been elected. The amendments are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years beginning after June 15, 2018.  Early adoption is permitted.  The Company does not expect the adoption of ASU 2018-03 to have a material impact on its consolidated financial statements.

Note 2.  Securities

The amortized cost and fair value of securities available for sale, with unrealized gains and losses follows:

 

 

 

March 31, 2018

 

(In thousands)

 

Amortized

Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

(Losses)

 

 

Fair Value

 

Obligations of U.S. Government corporations and agencies

 

$

53,313

 

 

$

26

 

 

$

(1,315

)

 

$

52,024

 

Obligations of states and political subdivisions

 

 

14,754

 

 

 

60

 

 

 

(208

)

 

 

14,606

 

Corporate bonds

 

 

2,362

 

 

 

313

 

 

 

 

 

2,675

 

Mutual funds

 

 

388

 

 

 

 

 

(10

)

 

 

378

 

 

 

$

70,817

 

 

$

399

 

 

$

(1,533

)

 

$

69,683

 

 

 

 

December 31, 2017

 

(In thousands)

 

Amortized

Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

(Losses)

 

 

Fair Value

 

Obligations of U.S. Government corporations and agencies

 

$

52,872

 

 

$

113

 

 

$

(608

)

 

$

52,377

 

Obligations of states and political subdivisions

 

 

15,124

 

 

 

191

 

 

 

(60

)

 

 

15,255

 

Corporate bonds

 

 

3,816

 

 

 

476

 

 

 

(153

)

 

 

4,139

 

Mutual funds

 

 

386

 

 

 

 

 

(4

)

 

 

382

 

 

 

$

72,198

 

 

$

780

 

 

$

(825

)

 

$

72,153

 

 

The amortized cost and fair value of securities available for sale, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations without penalties.

 

 

 

March 31, 2018

 

(In thousands)

 

Amortized

Cost

 

 

Fair Value

 

Due in one year or less

 

$

2,007

 

 

$

2,001

 

Due after one year through five years

 

 

4,358

 

 

 

4,259

 

Due after five years through ten years

 

 

24,239

 

 

 

23,712

 

Due after ten years

 

 

39,825

 

 

 

39,333

 

Mutual funds

 

 

388

 

 

 

378

 

 

 

$

70,817

 

 

$

69,683

 

 

During the three months ended March 31, 2018, no securities were sold, proceeds from calls and principal repayments were $3.8 million and securities totaling $2.0 million were purchased. During the three months ended March 31, 2017, no securities were sold, proceeds from calls and principal repayments were $4.1 million and securities totaling $10.0 million were purchased.  There were no impairment losses on securities during the three months ended March 31, 2018 and 2017, respectively.

8


The following table shows the Company’s securities with gross unrealized losses, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at March 31, 2018 and December 31, 2017, respectively.

 

(In thousands)

 

Less than 12 Months

 

 

12 Months or More

 

 

Total

 

March 31, 2018

 

Fair Value

 

 

Unrealized

(Losses)

 

 

Fair Value

 

 

Unrealized

(Losses)

 

 

Fair Value

 

 

Unrealized

(Losses)

 

Obligations of U.S. Government corporations and

agencies

 

$

39,016

 

 

$

(897

)

 

$

9,590

 

 

$

(418

)

 

$

48,606

 

 

$

(1,315

)

Obligations of states and political subdivisions

 

 

9,013

 

 

 

(208

)

 

 

-

 

 

 

-

 

 

 

9,013

 

 

 

(208

)

Corporate bonds

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Mutual funds

 

 

378

 

 

 

(10

)

 

 

-

 

 

 

-

 

 

 

378

 

 

 

(10

)

Total temporary impaired securities

 

$

48,407

 

 

$

(1,115

)

 

$

9,590

 

 

$

(418

)

 

$

57,997

 

 

$

(1,533

)

 

(In thousands)

 

Less than 12 Months

 

 

12 Months or More

 

 

Total

 

December 31, 2017

 

Fair Value

 

 

Unrealized

(Losses)

 

 

Fair Value

 

 

Unrealized

(Losses)

 

 

Fair Value

 

 

Unrealized

(Losses)

 

Obligations of U.S. Government corporations and

agencies

 

$

32,512

 

 

$

(330

)

 

$

10,008

 

 

$

(278

)

 

$

42,520

 

 

$

(608

)

Obligations of states and political subdivisions

 

 

4,172

 

 

 

(60

)

 

 

 

 

 

 

4,172

 

 

 

(60

)

Corporate bonds

 

 

 

 

 

 

1,540

 

 

 

(153

)

 

 

1,540

 

 

 

(153

)

Mutual funds

 

 

382

 

 

 

(4

)

 

 

 

 

 

 

382

 

 

 

(4

)

Total temporary impaired securities

 

$

37,066

 

 

$

(394

)

 

$

11,548

 

 

$

(431

)

 

$

48,614

 

 

$

(825

)

 

At March 31, 2018 there were approximately 80 securities that were in a loss position due to market conditions, primarily interest rates, and not due to credit concerns.

 

The nature of securities which were temporarily impaired at March 31, 2018 included two corporate bonds with a cost basis net of other-than-temporary impairment (“OTTI”) totaling $2.4 million. The value of these corporate bonds is based on quoted market prices for similar assets. They are “Class B” or subordinated “mezzanine” tranche of pooled trust preferred securities. The trust preferred securities are collateralized by the interest and principal payments made on trust preferred capital offerings by a geographically diversified pool of approximately 55 different financial institutions per bond. They have an estimated maturity of 16 years. These bonds could have been called by the Company at par on the five year anniversary date of issuance, which has already passed for all the bonds. The bonds reprice every three months at a fixed rate index above the three-month London Interbank Offered Rate (“LIBOR”). These bonds have sufficient collateralization and cash flow projections to satisfy their valuation based on the cash flow as of March 31, 2018. These bonds are projected to repay the full outstanding interest and principal and are classified as performing corporate bond investments. During the three months ended March 31, 2018, one corporate bond went to auction and was settled at its face value of $2.0 million, resulting in a gain of $535,000.  During the three months ended March 31, 2018 and 2017, $50,000 and $32,000 of interest income was recorded, respectively.  

Additional information regarding each of the pooled trust preferred securities as of March 31, 2018 follows:

(Dollars in thousands)

Cost, net of OTTI

 

 

Fair Value (1)

 

 

Percent of Underlying Collateral Performing

 

 

Percent of Underlying Collateral in Deferral

 

 

Percent of Underlying Collateral in Default

 

 

Cumulative Amount of OTTI

 

 

Cumulative Other Comprehensive Income,

net of tax

 

$

1,698

 

 

$

1,850

 

 

 

81.0

%

 

 

2.9

%

 

 

16.1

%

 

$

321

 

 

$

(101

)

 

664

 

 

 

825

 

 

 

88.8

%

 

 

4.4

%

 

 

6.8

%

 

 

336

 

 

 

(106

)

$

2,362

 

 

$

2,675

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

657

 

 

$

(207

)

(1)

Current Moody’s Ratings is B2.

The following roll forward reflects the amount related to credit losses recognized in earnings :

 

(In thousands)

 

 

 

 

Beginning balance as of December 31, 2017

 

$

1,201

 

Increases in cash flows expected to be collected that are recognized over the remaining life of the securities

 

 

(9

)

Reduction for security called during the period

 

 

(535

)

Ending balance as of March 31, 2018

 

$

657

 

 

9


The carrying value of securities pledged to secure deposits and for other purposes amounted to $51.8 million and $47.6 million at March 31, 2018 and December 31, 2017, respectively.

Note 3.  Loans and Allowance for Loan Losses

 

The Company segregates its loan portfolio into several loan segments:  commercial and industrial, real estate, consumer and student loans.  Real estate loans are segregated into the following classes: construction and land, commercial real estate, residential real estate and home equity lines of credit.  The following tables present the total allowance for loan losses, the allowance by impairment methodology (individually evaluated for impairment or collectively evaluated for impairment), and total loans and loans by impairment methodology (individually evaluated for impairment or collectively evaluated for impairment).   

 

 

 

As of and for the Three Months Ended March 31, 2018

 

(In thousands)

 

Commercial and Industrial

 

 

Commercial Real Estate

 

 

Construction and Land

 

 

Consumer

 

 

Student

 

 

Residential

Real Estate

 

 

Home Equity Lines of Credit

 

 

Unallocated

 

 

Total

 

Allowance for Loan Losses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance,

December 31, 2017

 

$

518

 

 

$

1,609

 

 

$

879

 

 

$

105

 

 

$

72

 

 

$

1,174

 

 

$

387

 

 

$

350

 

 

$

5,094

 

Charge-offs

 

 

(39

)

 

 

-

 

 

 

-

 

 

 

(3

)

 

 

(9

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(51

)

Recoveries

 

 

6

 

 

 

-

 

 

 

-

 

 

 

3

 

 

 

-

 

 

 

47

 

 

 

1

 

 

 

-

 

 

 

57

 

Provision (recovery)

 

 

160

 

 

 

99

 

 

 

72

 

 

 

(2

)

 

 

10

 

 

 

(36

)

 

 

4

 

 

 

(7

)

 

 

300

 

Ending balance, March 31, 2018

 

$

645

 

 

$

1,708

 

 

$

951

 

 

$

103

 

 

$

73

 

 

$

1,185

 

 

$

392

 

 

$

343

 

 

$