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Section 1: 10-Q (10-Q)

fbss-10q_20180630.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 June 30, 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 Interactive Data File required to be submitted 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 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 3,773,836 shares of common stock outstanding as of August 10, 2018.

 

 

 

 


FAUQUIER BANKSHARES, INC.

INDEX

 

Part I.  FINANCIAL INFORMATION

 

 

 

Page

Item 1.

Financial Statements

2

 

 

 

 

Consolidated Balance Sheets as of June 30, 2018 (unaudited) and December 31, 2017

2

 

 

 

 

Consolidated Statements of Income (unaudited) for the Three and Six Months Ended June 30, 2018 and 2017

3

 

 

 

 

Consolidated Statements of Comprehensive Income (unaudited) for the Three and Six Months Ended June 30, 2018 and 2017

4

 

 

 

 

Consolidated Statements of Changes in Shareholders’ Equity (unaudited) for the Six Months Ended June 30, 2018 and 2017

5

 

 

 

 

Consolidated Statements of Cash Flows (unaudited) for the Six Months Ended June 30, 2018 and 2017

6

 

 

 

 

Notes to Consolidated Financial Statements

7

 

 

 

Item 2.

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

25

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

37

 

 

 

Item 4.

Controls and Procedures

37

 

 

 

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

38

 

 

 

Item 4.

Mine Safety Disclosures

38

 

 

 

Item 5.

Other Information

38

 

 

 

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)

 

June 30,

2018

(Unaudited)

 

 

December 31,

2017

 

Assets

 

 

 

 

 

 

 

 

Cash and due from banks

 

$

7,929

 

 

$

5,868

 

Interest-bearing deposits in other banks

 

 

16,744

 

 

 

23,424

 

Federal funds sold

 

 

11

 

 

 

8

 

Securities available for sale, at fair value

 

 

73,079

 

 

 

72,153

 

Restricted investments

 

 

1,561

 

 

 

1,546

 

Mortgage loans held for sale

 

 

344

 

 

 

-

 

Loans

 

 

510,601

 

 

 

502,799

 

Allowance for loan losses

 

 

(4,978

)

 

 

(5,094

)

Loans, net

 

 

505,623

 

 

 

497,705

 

Premises and equipment, net

 

 

18,509

 

 

 

18,606

 

Accrued interest receivable

 

 

1,867

 

 

 

1,940

 

Other real estate owned, net

 

 

1,356

 

 

 

1,356

 

Bank-owned life insurance

 

 

13,414

 

 

 

13,234

 

Other assets

 

 

11,092

 

 

 

8,773

 

Total assets

 

$

651,529

 

 

$

644,613

 

Liabilities

 

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

 

 

Noninterest-bearing checking

 

$

114,065

 

 

$

115,682

 

Interest-bearing:

 

 

 

 

 

 

 

 

Checking

 

 

230,999

 

 

 

245,564

 

Savings and money market accounts

 

 

150,453

 

 

 

136,862

 

Time deposits

 

 

70,318

 

 

 

71,915

 

Total interest-bearing

 

 

451,770

 

 

 

454,341

 

Total deposits

 

 

565,835

 

 

 

570,023

 

Federal funds purchased

 

 

7,820

 

 

 

-

 

Federal Home Loan Bank advances

 

 

9,998

 

 

 

7,860

 

Junior subordinated debt

 

 

4,124

 

 

 

4,124

 

Other liabilities

 

 

6,054

 

 

 

6,464

 

Total liabilities

 

 

593,831

 

 

 

588,471

 

Shareholders’ Equity

 

 

 

 

 

 

 

 

Common stock, par value, $3.13; and additional paid-in capital; authorized 8,000,000 shares; issued and outstanding: 3,773,836 and 3,762,677 shares including 22,569 and 18,062 non-vested shares; respectively

 

 

15,673

 

 

 

15,526

 

Retained earnings

 

 

42,820

 

 

 

40,491

 

Accumulated other comprehensive income (loss), net

 

 

(795

)

 

 

125

 

Total shareholders’ equity

 

 

57,698

 

 

 

56,142

 

Total liabilities and shareholders’ equity

 

$

651,529

 

 

$

644,613

 

 

See accompanying Notes to Consolidated Financial Statements.

2


Fauquier Bankshares, Inc. and Subsidiaries

Consolidated Statements of Income

(Unaudited)

For the Three and Six Months Ended June 30, 2018 and 2017

 

 

 

For the Three Months Ended

 

 

For the Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

(In thousands, except per share data)

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Interest Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest and fees on loans

 

$

5,950

 

 

$

5,133

 

 

$

11,703

 

 

$

10,079

 

Interest and dividends on securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Taxable interest income

 

 

356

 

 

 

294

 

 

 

705

 

 

 

548

 

Tax-exempt interest

 

 

95

 

 

 

92

 

 

 

189

 

 

 

153

 

Dividends

 

 

33

 

 

 

27

 

 

 

53

 

 

 

51

 

Interest on deposits in other banks

 

 

106

 

 

 

167

 

 

 

260

 

 

 

297

 

Total interest income

 

 

6,540

 

 

 

5,713

 

 

 

12,910

 

 

 

11,128

 

Interest Expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest on deposits

 

 

553

 

 

 

392

 

 

 

997

 

 

 

733

 

Interest on federal funds purchased

 

 

5

 

 

 

-

 

 

 

24

 

 

 

-

 

Interest on Federal Home Loan Bank advances

 

 

79

 

 

 

67

 

 

 

219

 

 

 

147

 

Junior subordinated debt

 

 

49

 

 

 

50

 

 

 

98

 

 

 

98

 

Total interest expense

 

 

686

 

 

 

509

 

 

 

1,338

 

 

 

978

 

Net interest income

 

 

5,854

 

 

 

5,204

 

 

 

11,572

 

 

 

10,150

 

Provision for loan losses

 

 

12

 

 

 

235

 

 

 

312

 

 

 

285

 

Net interest income after provision for loan losses

 

 

5,842

 

 

 

4,969

 

 

 

11,260

 

 

 

9,865

 

Noninterest Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trust and estate fees

 

 

403

 

 

 

412

 

 

 

775

 

 

 

772

 

Brokerage fees

 

 

47

 

 

 

34

 

 

 

88

 

 

 

91

 

Service charges on deposit accounts

 

 

404

 

 

 

499

 

 

 

848

 

 

 

985

 

Interchange fee income, net

 

 

327

 

 

 

335

 

 

 

612

 

 

 

620

 

Bank-owned life insurance

 

 

91

 

 

 

91

 

 

 

180

 

 

 

180

 

Other service charges, commissions and other income

 

 

31

 

 

 

22

 

 

 

122

 

 

 

157

 

Gain on call of securities available for sale

 

 

303

 

 

 

-

 

 

 

838

 

 

 

-

 

Gain on sale of mortgage loans held for sale, net

 

 

18

 

 

 

-

 

 

 

24

 

 

 

-

 

Total noninterest income

 

 

1,624

 

 

 

1,393

 

 

 

3,487

 

 

 

2,805

 

Noninterest Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and benefits

 

 

2,970

 

 

 

2,770

 

 

 

5,938

 

 

 

5,589

 

Occupancy

 

 

567

 

 

 

584

 

 

 

1,172

 

 

 

1,181

 

Furniture and equipment

 

 

245

 

 

 

248

 

 

 

517

 

 

 

646

 

Marketing

 

 

170

 

 

 

95

 

 

 

278

 

 

 

236

 

Legal, audit and consulting

 

 

272

 

 

 

266

 

 

 

500

 

 

 

546

 

Data processing

 

 

346

 

 

 

316

 

 

 

602

 

 

 

644

 

Federal Deposit Insurance Corporation

 

 

93

 

 

 

61

 

 

 

193

 

 

 

141

 

Other operating expenses

 

 

911

 

 

 

810

 

 

 

1,855

 

 

 

1,582

 

Total noninterest expenses

 

 

5,574

 

 

 

5,150

 

 

 

11,055

 

 

 

10,565

 

Income before income taxes

 

 

1,892

 

 

 

1,212

 

 

 

3,692

 

 

 

2,105

 

Income tax expense

 

 

233

 

 

 

222

 

 

 

447

 

 

 

347

 

Net Income

 

$

1,659

 

 

$

990

 

 

$

3,245

 

 

$

1,758

 

Earnings per share, basic

 

$

0.44

 

 

$

0.26

 

 

$

0.86

 

 

$

0.47

 

Earnings per share, diluted

 

$

0.44

 

 

$

0.26

 

 

$

0.86

 

 

$

0.47

 

Dividends per share

 

$

0.12

 

 

$

0.12

 

 

$

0.24

 

 

$

0.24

 

 

See accompanying Notes to Consolidated Financial Statements.

 

3


Fauquier Bankshares, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income

(Unaudited)

For the Three and Six Months Ended June 30, 2018 and 2017

 

 

 

For the Three Months Ended

 

 

For the Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

(In thousands)

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Net income

 

$

1,659

 

 

$

990

 

 

$

3,245

 

 

$

1,758

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in fair value of securities available for sale, net of tax, $3, $(228), $118 and $(416), respectively

 

 

(10

)

 

 

442

 

 

 

(447

)

 

 

815

 

Reclassification adjustment for gains included in net income, net of tax, $64, $-, $176 and $-, respectively

 

 

(239

)

 

 

-

 

 

 

(662

)

 

 

-

 

Interest rate swaps, net of tax, $(12), $11, $(50) and $4, respectively

 

 

46

 

 

 

(22

)

 

 

189

 

 

 

(8

)

Total other comprehensive income (loss), net of tax, $55, $(217), $244 and $(412), respectively

 

 

(203

)

 

 

420

 

 

 

(920

)

 

 

807

 

Total comprehensive income

 

$

1,456

 

 

$

1,410

 

 

$

2,325

 

 

$

2,565

 

 

 

 

 

See accompanying Notes to Consolidated Financial Statements.

4


Fauquier Bankshares, Inc. and Subsidiaries

Consolidated Statements of Changes in Shareholders’ Equity

(Unaudited)

For the Six Months Ended June 30, 2018 and 2017

 

(In thousands, except share and per share data)

 

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

 

 

-

 

 

 

1,758

 

 

 

-

 

 

 

1,758

 

Other comprehensive income, net of tax effect of $(412)

 

 

-

 

 

 

-

 

 

 

807

 

 

 

807

 

Cash dividends ($0.24 per share)

 

 

-

 

 

 

(904

)

 

 

-

 

 

 

(904

)

Amortization of unearned compensation, restricted stock awards

 

 

64

 

 

 

-

 

 

 

-

 

 

 

64

 

Issuance of common stock - non-vested shares (3,984 shares)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

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

 

 

90

 

 

 

-

 

 

 

-

 

 

 

90

 

Repurchase of common stock (382 shares)

 

 

(7

)

 

 

-

 

 

 

-

 

 

 

(7

)

Balance, June 30, 2017

 

$

15,511

 

 

$

40,678

 

 

$

70

 

 

$

56,259

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2017

 

$

15,526

 

 

$

40,491

 

 

$

125

 

 

$

56,142

 

Net income

 

 

-

 

 

 

3,245

 

 

 

-

 

 

 

3,245

 

Other comprehensive loss, net of tax of $244

 

 

-

 

 

 

-

 

 

 

(920

)

 

 

(920

)

Cash dividends ($0.24 per share)

 

 

-

 

 

 

(906

)

 

 

-

 

 

 

(906

)

Amortization of unearned compensation, restricted stock awards

 

 

65

 

 

 

-

 

 

 

-

 

 

 

65

 

Reclassification of net unrealized gains on equity securities from Accumulated Other Comprehensive Income per ASU 2016-01

 

 

-

 

 

 

(10

)

 

 

-

 

 

 

(10

)

Issuance of common stock - non-vested shares (7,333 shares)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Issuance of common stock - vested shares (4,194 shares)

 

 

90

 

 

 

-

 

 

 

-

 

 

 

90

 

Repurchase of common stock (368 shares)

 

 

(8

)

 

 

-

 

 

 

-

 

 

 

(8

)

Balance, June 30, 2018

 

$

15,673

 

 

$

42,820

 

 

$

(795

)

 

$

57,698

 

 

See accompanying Notes to Consolidated Financial Statements.

5


Fauquier Bankshares, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)

For the Six Months Ended June 30, 2018 and 2017

 

 

 

For the Six Months Ended

 

 

 

June 30,

 

(In thousands)

 

2018

 

 

2017

 

Cash Flows from Operating Activities

 

 

 

 

 

 

 

 

Net income

 

$

3,245

 

 

$

1,758

 

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

627

 

 

 

693

 

Provision for loan losses

 

 

312

 

 

 

285

 

Gain on interest rate swaps

 

 

(2

)

 

 

(13

)

Gain on calls of securities available for sale

 

 

(838

)

 

 

-

 

Amortization of security premiums, net

 

 

187

 

 

 

59

 

Amortization of unearned compensation, net of forfeiture

 

 

105

 

 

 

106

 

Issuance of vested restricted stock

 

 

90

 

 

 

90

 

Bank-owned life insurance income

 

 

(180

)

 

 

(180

)

Originations of mortgage loans held for sale

 

 

(1,132

)

 

 

-

 

Proceeds from mortgage loans held for sale

 

 

811

 

 

 

-

 

Gain on mortgage loans held for sale

 

 

(24

)

 

 

-

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

(Increase) decrease in other assets

 

 

(1,346

)

 

 

51

 

Decrease in other liabilities

 

 

(370

)

 

 

(708

)

Net cash provided by operating activities

 

 

1,485

 

 

 

2,141

 

Cash Flows from Investing Activities

 

 

 

 

 

 

 

 

Proceeds from maturities, calls and principal payments of

securities available for sale

 

 

7,376

 

 

 

7,614

 

Purchase of securities available for sale

 

 

(9,441

)

 

 

(20,458

)

Purchase of premises and equipment

 

 

(530

)

 

 

(351

)

(Purchase) redemption of restricted investments, net

 

 

(15

)

 

 

236

 

Loan originations, net

 

 

(8,347

)

 

 

(4,973

)

Net cash used in investing activities

 

 

(10,957

)

 

 

(17,932

)

Cash Flows from Financing Activities

 

 

 

 

 

 

 

 

Increase (decrease) in noninterest-bearing checking, interest-bearing checking and savings and money market accounts

 

 

(2,591

)

 

 

25,554

 

Increase (decrease) in time deposits

 

 

(1,597

)

 

 

191

 

Increase (decrease) in FHLB advances

 

 

2,138

 

 

 

(5,038

)

Increase in federal funds purchased

 

 

7,820

 

 

 

-

 

Cash dividends paid on common stock

 

 

(906

)

 

 

(904

)

Repurchase of common stock

 

 

(8

)

 

 

(7

)

Net cash provided by financing activities

 

 

4,856

 

 

 

19,796

 

Increase (decrease) in cash and cash equivalents

 

 

(4,616

)

 

 

4,005

 

Cash and Cash Equivalents

 

 

 

 

 

 

 

 

Beginning

 

 

29,300

 

 

 

67,846

 

Ending

 

$

24,684

 

 

$

71,851

 

Supplemental Disclosures of Cash Flow Information

 

 

 

 

 

 

 

 

Cash payments for:

 

 

 

 

 

 

 

 

Interest

 

$

1,331

 

 

$

987

 

Supplemental Disclosures of Noncash Investing Activities

 

 

 

 

 

 

 

 

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

 

$

(447

)

 

$

815

 

Unrealized gain (loss) on interest rate swaps, net of tax

 

$

189

 

 

$

(8

)

 

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 June 30, 2018 and the results of operations for the three and six months ended June 30, 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 and six months ended June 30, 2018 and 2017 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, to date, has not completed its analysis of those leases and is unable to quantify the impact that ASU 2016-02 will have on its consolidated financial statements at this time; however, based on the current nature of its leases, the Company does not expect any significant adjustments.  

 

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

7


annual periods, 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.

 

In June 2018, the FASB issued ASU 2018-07, “Compensation- Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting.”  The amendments expand the scope of Topic 718 to include share-based payments issued to nonemployees for goods or services, which were previously excluded. The amendments will align the accounting for share-based payments to nonemployees and employees more similarly. The amendments are effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years.  Early adoption is permitted.  The Company does not expect the adoption of ASU 2018-07 to have a material impact on its consolidated financial statements.

Note 2.  Securities

In January 2016, the FASB issued ASU No. 2016-01, "Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities." This ASU requires an entity, among other things, to measure equity investments at fair value through net income, with certain exceptions.  The Company began measuring its equity investments at fair value through net income and reclassified $10,000 of Accumulated Other Comprehensive Income (“AOCI”) to retained earnings for the six months ended June 30, 2018, with no effect on total shareholders' equity.

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

 

 

 

June 30, 2018

 

(In thousands)

 

Amortized

Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

(Losses)

 

 

Fair Value

 

Obligations of U.S. Government corporations and agencies

 

$

59,153

 

 

$

25

 

 

$

(1,543

)

 

$

57,635

 

Obligations of states and political subdivisions

 

 

14,705

 

 

 

70

 

 

 

(181

)

 

 

14,594

 

Corporate bonds

 

 

669

 

 

 

181

 

 

 

-

 

 

 

850

 

 

 

$

74,527

 

 

$

276

 

 

$

(1,724

)

 

$

73,079

 

 

 

 

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

 

 

8


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.

 

 

 

June 30, 2018

 

(In thousands)

 

Amortized

Cost

 

 

Fair Value

 

Due in one year or less

 

$

2,003

 

 

$

1,999

 

Due after one year through five years

 

 

4,316

 

 

 

4,208

 

Due after five years through ten years

 

 

26,594

 

 

 

25,911

 

Due after ten years

 

 

41,614

 

 

 

40,961

 

 

 

$

74,527

 

 

$

73,079

 

 

During the six months ended June 30, 2018, no securities were sold, proceeds from calls and principal repayments were $7.4 million and securities totaling $9.4 million were purchased. During the six months ended June 30, 2017, no securities were sold, proceeds from calls and principal repayments were $7.6 million and securities totaling $20.5 million were purchased.  There were no impairment losses on securities during the six months ended June 30, 2018 and 2017 respectively.

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 June 30, 2018 and December 31, 2017, respectively.

 

(In thousands)

 

Less than 12 Months

 

 

12 Months or More

 

 

Total

 

June 30, 2018

 

Fair Value

 

 

Unrealized

(Losses)

 

 

Fair Value

 

 

Unrealized

(Losses)

 

 

Fair Value

 

 

Unrealized

(Losses)

 

Obligations of U.S. Government corporations and

agencies

 

$

42,118

 

 

$

(1,089

)

 

$

9,255

 

 

$

(454

)

 

$

51,373

 

 

$

(1,543

)

Obligations of states and political subdivisions

 

 

7,839

 

 

 

(161

)

 

 

587

 

 

 

(20

)

 

 

8,426

 

 

 

(181

)

Total temporary impaired securities

 

$

49,957

 

 

$

(1,250

)

 

$

9,842

 

 

$

(474

)

 

$

59,799

 

 

$

(1,724

)

 

(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

 

 

$