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Section 1: 10-Q (10-Q)

fbss-10q_20180930.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 September 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 every 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.:

 

Large accelerated filer

 

 

Accelerated filer

Non-accelerated filer

 

 

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 whether 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 November 9, 2018.

 

 

 

 


FAUQUIER BANKSHARES, INC.

INDEX

 

Part I.  FINANCIAL INFORMATION

 

 

 

Page

Item 1.

Financial Statements

2

 

 

 

 

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

2

 

 

 

 

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

3

 

 

 

 

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

4

 

 

 

 

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

5

 

 

 

 

Consolidated Statements of Cash Flows (unaudited) for the Nine Months Ended September 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

37

 

 

 

Item 4.

Mine Safety Disclosures

37

 

 

 

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)

 

September 30,

2018

(Unaudited)

 

 

December 31,

2017

 

Assets

 

 

 

 

 

 

 

 

Cash and due from banks

 

$

5,383

 

 

$

5,868

 

Interest-bearing deposits in other banks

 

 

15,587

 

 

 

23,424

 

Federal funds sold

 

 

18

 

 

 

8

 

Securities available for sale, at fair value

 

 

72,629

 

 

 

72,153

 

Restricted investments

 

 

2,495

 

 

 

1,546

 

Loans

 

 

533,016

 

 

 

502,799

 

Allowance for loan losses

 

 

(5,214

)

 

 

(5,094

)

Loans, net

 

 

527,802

 

 

 

497,705

 

Premises and equipment, net

 

 

18,302

 

 

 

18,606

 

Accrued interest receivable

 

 

1,944

 

 

 

1,940

 

Other real estate owned, net

 

 

1,356

 

 

 

1,356

 

Bank-owned life insurance

 

 

13,505

 

 

 

13,234

 

Other assets

 

 

10,956

 

 

 

8,773

 

Total assets

 

$

669,977

 

 

$

644,613

 

Liabilities

 

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

 

 

Noninterest-bearing checking

 

$

114,032

 

 

$

115,682

 

Interest-bearing:

 

 

 

 

 

 

 

 

Checking

 

 

231,830

 

 

 

245,564

 

Savings and money market accounts

 

 

147,897

 

 

 

136,862

 

Time deposits

 

 

72,472

 

 

 

71,915

 

Total interest-bearing

 

 

452,199

 

 

 

454,341

 

Total deposits

 

 

566,231

 

 

 

570,023

 

Federal funds purchased

 

 

5,000

 

 

 

-

 

Federal Home Loan Bank advances

 

 

29,800

 

 

 

7,860

 

Junior subordinated debt

 

 

4,124

 

 

 

4,124

 

Other liabilities

 

 

6,545

 

 

 

6,464

 

Total liabilities

 

 

611,700

 

 

 

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

 

 

15,707

 

 

 

15,526

 

Retained earnings

 

 

43,683

 

 

 

40,491

 

Accumulated other comprehensive income (loss), net

 

 

(1,113

)

 

 

125

 

Total shareholders’ equity

 

 

58,277

 

 

 

56,142

 

Total liabilities and shareholders’ equity

 

$

669,977

 

 

$

644,613

 

 

See accompanying Notes to Consolidated Financial Statements.

2


Fauquier Bankshares, Inc. and Subsidiaries

Consolidated Statements of Income

(Unaudited)

For the Three and Nine Months Ended September 30, 2018 and 2017

 

 

 

For the Three Months Ended

 

 

For the Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

(In thousands, except per share data)

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Interest Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest and fees on loans

 

$

6,110

 

 

$

5,455

 

 

$

17,813

 

 

$

15,534

 

Interest and dividends on securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Taxable interest income

 

 

388

 

 

 

308

 

 

 

1,093

 

 

 

855

 

Tax-exempt interest

 

 

93

 

 

 

95

 

 

 

282

 

 

 

248

 

Dividends

 

 

50

 

 

 

21

 

 

 

103

 

 

 

72

 

Interest on deposits in other banks

 

 

53

 

 

 

122

 

 

 

313

 

 

 

420

 

Total interest income

 

 

6,694

 

 

 

6,001

 

 

 

19,604

 

 

 

17,129

 

Interest Expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest on deposits

 

 

635

 

 

 

413

 

 

 

1,631

 

 

 

1,146

 

Interest on federal funds purchased

 

 

16

 

 

 

-

 

 

 

40

 

 

 

-

 

Interest on Federal Home Loan Bank advances

 

 

152

 

 

 

52

 

 

 

371

 

 

 

198

 

Junior subordinated debt

 

 

50

 

 

 

50

 

 

 

149

 

 

 

149

 

Total interest expense

 

 

853

 

 

 

515

 

 

 

2,191

 

 

 

1,493

 

Net interest income

 

 

5,841

 

 

 

5,486

 

 

 

17,413

 

 

 

15,636

 

Provision for loan losses

 

 

195

 

 

 

110

 

 

 

507

 

 

 

395

 

Net interest income after provision for loan losses

 

 

5,646

 

 

 

5,376

 

 

 

16,906

 

 

 

15,241

 

Noninterest Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trust and estate fees

 

 

379

 

 

 

379

 

 

 

1,154

 

 

 

1,151

 

Brokerage fees

 

 

45

 

 

 

38

 

 

 

132

 

 

 

129

 

Service charges on deposit accounts

 

 

413

 

 

 

467

 

 

 

1,261

 

 

 

1,452

 

Interchange fee income, net

 

 

319

 

 

 

302

 

 

 

931

 

 

 

923

 

Bank-owned life insurance

 

 

91

 

 

 

91

 

 

 

271

 

 

 

271

 

Other service charges, commissions and other income

 

 

44

 

 

 

11

 

 

 

168

 

 

 

167

 

Gain on call of securities available for sale

 

 

-

 

 

 

1

 

 

 

838

 

 

 

1

 

Gain on sale of mortgage loans held for sale, net

 

 

33

 

 

 

1

 

 

 

56

 

 

 

1

 

Total noninterest income

 

 

1,324

 

 

 

1,290

 

 

 

4,811

 

 

 

4,095

 

Noninterest Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and benefits

 

 

2,999

 

 

 

2,683

 

 

 

8,937

 

 

 

8,271

 

Occupancy

 

 

599

 

 

 

568

 

 

 

1,770

 

 

 

1,750

 

Furniture and equipment

 

 

243

 

 

 

252

 

 

 

760

 

 

 

898

 

Marketing

 

 

190

 

 

 

142

 

 

 

468

 

 

 

378

 

Legal, audit and consulting

 

 

263

 

 

 

263

 

 

 

763

 

 

 

809

 

Data processing

 

 

360

 

 

 

298

 

 

 

961

 

 

 

942

 

Federal Deposit Insurance Corporation

 

 

86

 

 

 

84

 

 

 

279

 

 

 

225

 

Other operating expenses

 

 

744

 

 

 

708

 

 

 

2,601

 

 

 

2,290

 

Total noninterest expenses

 

 

5,484

 

 

 

4,998

 

 

 

16,539

 

 

 

15,563

 

Income before income taxes

 

 

1,486

 

 

 

1,668

 

 

 

5,178

 

 

 

3,773

 

Income tax expense

 

 

169

 

 

 

387

 

 

 

616

 

 

 

734

 

Net Income

 

$

1,317

 

 

$

1,281

 

 

$

4,562

 

 

$

3,039

 

Earnings per share, basic

 

$

0.35

 

 

$

0.34

 

 

$

1.21

 

 

$

0.81

 

Earnings per share, diluted

 

$

0.35

 

 

$

0.34

 

 

$

1.21

 

 

$

0.81

 

Dividends per share

 

$

0.12

 

 

$

0.12

 

 

$

0.36

 

 

$

0.36

 

 

See accompanying Notes to Consolidated Financial Statements.

 

3


Fauquier Bankshares, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income

(Unaudited)

For the Three and Nine Months Ended September 30, 2018 and 2017

 

 

 

For the Three Months Ended

 

 

For the Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

(In thousands)

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Net income

 

$

1,317

 

 

$

1,281

 

 

$

4,562

 

 

$

3,039

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in fair value of securities available for sale, net of tax, $101, $(54), $219 and $(476), respectively

 

 

(379

)

 

 

104

 

 

 

(826

)

 

 

919

 

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

 

 

-

 

 

 

-

 

 

 

(662

)

 

 

-

 

Interest rate swaps, net of tax, $(16), $(2), $(66) and $2, respectively

 

 

61

 

 

 

4

 

 

 

250

 

 

 

(4

)

Total other comprehensive income (loss), net of tax, $85, $(56), $330 and $(474), respectively

 

 

(318

)

 

 

108

 

 

 

(1,238

)

 

 

915

 

Total comprehensive income

 

$

999

 

 

$

1,389

 

 

$

3,324

 

 

$

3,954

 

 

 

 

 

See accompanying Notes to Consolidated Financial Statements.

4


Fauquier Bankshares, Inc. and Subsidiaries

Consolidated Statements of Changes in Shareholders’ Equity

(Unaudited)

For the Nine Months Ended September 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

 

 

-

 

 

 

3,039

 

 

 

-

 

 

 

3,039

 

Other comprehensive income, net of tax effect of $(474)

 

 

-

 

 

 

-

 

 

 

915

 

 

 

915

 

Cash dividends ($0.36 per share)

 

 

-

 

 

 

(1,356

)

 

 

-

 

 

 

(1,356

)

Amortization of unearned compensation, restricted stock awards

 

 

53

 

 

 

-

 

 

 

-

 

 

 

53

 

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, September 30, 2017

 

$

15,500

 

 

$

41,507

 

 

$

178

 

 

$

57,185

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2017

 

$

15,526

 

 

$

40,491

 

 

$

125

 

 

$

56,142

 

Net income

 

 

-

 

 

 

4,562

 

 

 

-

 

 

 

4,562

 

Other comprehensive loss, net of tax of $330

 

 

-

 

 

 

-

 

 

 

(1,238

)

 

 

(1,238

)

Cash dividends ($0.36 per share)

 

 

-

 

 

 

(1,360

)

 

 

-

 

 

 

(1,360

)

Amortization of unearned compensation, restricted stock awards

 

 

99

 

 

 

-

 

 

 

-

 

 

 

99

 

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, September 30, 2018

 

$

15,707

 

 

$

43,683

 

 

$

(1,113

)

 

$

58,277

 

 

See accompanying Notes to Consolidated Financial Statements.

5


Fauquier Bankshares, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)

For the Nine Months Ended September 30, 2018 and 2017

 

 

 

For the Nine Months Ended

 

 

 

September 30,

 

(In thousands)

 

2018

 

 

2017

 

Cash Flows from Operating Activities

 

 

 

 

 

 

 

 

Net income

 

$

4,562

 

 

$

3,039

 

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

943

 

 

 

1,018

 

Provision for loan losses

 

 

507

 

 

 

395

 

Gain on interest rate swaps

 

 

(3

)

 

 

(8

)

Gain on calls of securities available for sale

 

 

(838

)

 

 

-

 

Amortization of security premiums, net

 

 

275

 

 

 

118

 

Amortization of unearned compensation, net of forfeiture

 

 

166

 

 

 

90

 

Issuance of vested restricted stock

 

 

90

 

 

 

90

 

Bank-owned life insurance income

 

 

(271

)

 

 

(271

)

Originations of mortgage loans held for sale

 

 

(2,042

)

 

 

(440

)

Proceeds from mortgage loans held for sale

 

 

2,098

 

 

 

-

 

Gain on mortgage loans held for sale

 

 

(56

)

 

 

-

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Increase in other assets

 

 

(1,121

)

 

 

(13

)

Increase (decrease) in other liabilities

 

 

111

 

 

 

(442

)

Net cash provided by operating activities

 

 

4,421

 

 

 

3,576

 

Cash Flows from Investing Activities

 

 

 

 

 

 

 

 

Proceeds from maturities, calls and principal payments of

securities available for sale

 

 

10,187

 

 

 

10,905

 

Purchase of securities available for sale

 

 

(12,371

)

 

 

(26,792

)

Purchase of premises and equipment

 

 

(639

)

 

 

(407

)

(Purchase) redemption of restricted investments, net

 

 

(949

)

 

 

236

 

Loan originations, net

 

 

(30,742

)

 

 

(27,108

)

Net cash used in investing activities

 

 

(34,514

)

 

 

(43,166

)

Cash Flows from Financing Activities

 

 

 

 

 

 

 

 

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

 

 

(4,348

)

 

 

6,204

 

Increase in time deposits

 

 

557

 

 

 

3,848

 

Increase (decrease) in FHLB advances

 

 

21,940

 

 

 

(5,056

)

Increase in federal funds purchased

 

 

5,000

 

 

 

-

 

Cash dividends paid on common stock

 

 

(1,360

)

 

 

(1,356

)

Repurchase of common stock

 

 

(8

)

 

 

(7

)

Net cash provided by financing activities

 

 

21,781

 

 

 

3,633

 

Decrease in cash and cash equivalents

 

 

(8,312

)

 

 

(35,957

)

Cash and Cash Equivalents

 

 

 

 

 

 

 

 

Beginning

 

 

29,300

 

 

 

67,846

 

Ending

 

$

20,988

 

 

$

31,889

 

Supplemental Disclosures of Cash Flow Information

 

 

 

 

 

 

 

 

Cash payments for:

 

 

 

 

 

 

 

 

Interest

 

$

2,075

 

 

$

1,482

 

Income taxes

 

$

868

 

 

$

-

 

Supplemental Disclosures of Noncash Investing Activities

 

 

 

 

 

 

 

 

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

 

$

(826

)

 

$

919

 

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

 

$

250

 

 

$

(4

)

 

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 September 30, 2018 and the results of operations for the three and nine months ended September 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 nine months ended September 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 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 June 2018, the FASB issued ASU No. 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.

 

In August 2018, the FASB issued ASU No. 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement.”  The amendments modify the disclosure requirements in Topic 820 to add disclosures regarding changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements and the narrative description of measurement uncertainty. Certain disclosure requirements in Topic 820 are also removed or modified. The amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years.  Certain of the amendments are to be applied prospectively while others are to be applied retrospectively. Early adoption is permitted.  The Company does not expect the adoption of ASU 2018-13 to have a material impact on its consolidated financial statements.

 

In August 2018, the FASB issued ASU No. 2018-14, “Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans.”  These amendments modify the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. Certain disclosure requirements have been deleted while the following disclosure requirements have been added: the weighted-average interest crediting rates for cash balance plans and other plans with promised interest crediting rates and an explanation of the reasons for significant gains and losses related to changes in the benefit obligation for the period. The amendments also clarify the disclosure requirements in paragraph 715-20-50-3, which state that the following information for defined benefit pension plans should be disclosed: The projected benefit obligation (PBO) and fair value of plan assets for plans with PBOs in excess of plan assets and the accumulated benefit obligation (ABO) and fair value of plan assets for plans with ABOs in excess of plan assets. The amendments are effective for fiscal years ending after December 15, 2020. Early adoption is permitted.  The Company does not expect the adoption of ASU 2018-14 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 nine months ended September 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:

 

 

 

September 30, 2018

 

(In thousands)

 

Amortized

Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

(Losses)

 

 

Fair Value

 

Obligations of U.S. Government corporations and agencies

 

$

59,228

 

 

$

17

 

 

$

(1,849

)

 

$

57,396

 

Obligations of states and political subdivisions

 

 

14,655

 

 

 

15

 

 

 

(287

)

 

 

14,383

 

Corporate bonds

 

 

674

 

 

 

176

 

 

 

-

 

 

 

850

 

 

 

$

74,557

 

 

$

208

 

 

$

(2,136

)

 

$

72,629

 

 

 

 

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.

 

 

 

September 30, 2018

 

(In thousands)

 

Amortized

Cost

 

 

Fair Value

 

Due in one year or less

 

$

1,002

 

 

$

1,000

 

Due after one year through five years

 

 

7,017

 

 

 

6,843

 

Due after five years through ten years

 

 

23,675

 

 

 

22,932

 

Due after ten years

 

 

42,863

 

 

 

41,854

 

 

 

$

74,557

 

 

$

72,629

 

 

During the nine months ended September 30, 2018, no securities were sold, proceeds from calls and principal repayments were $10.2 million and securities totaling $12.4 million were purchased. During the nine months ended September 30, 2017, no securities were sold, proceeds from calls and principal repayments were $10.9 million and securities totaling $26.8 million were purchased.  There were no impairment losses on securities during the nine months ended September 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 September 30, 2018 and December 31, 2017, respectively.

 

(In thousands)

 

Less than 12 Months

 

 

12 Months or More

 

 

Total

 

September 30, 2018

 

Fair Value

 

 

Unrealized

(Losses)

 

 

Fair Value

 

 

Unrealized

(Losses)

 

 

Fair Value

 

 

Unrealized

(Losses)

 

Obligations of U.S. Government corporations and

agencies

 

$

40,066

 

 

$

(1,047

)

 

$

15,829

 

 

$

(802

)

 

$

55,895

 

 

$

(1,849

)

Obligations of states and political subdivisions

 

 

10,613

 

 

 

(237

)

 

 

1,161

 

 

 

(50

)

 

 

11,774

 

 

 

(287

)

Total temporary impaired securities

 

$

50,679

 

 

$

(1,284

)

 

$

16,990

 

 

$

(852

)

 

$

67,669

 

 

$

(2,136

)

 

(In thousands)

 

Less than 12 Months

 

 

12 Months or More

 

 

Total

 

December 31, 2017

 

Fair Value

 

 

Unrealized

(Losses)

 

 

Fair Value

 

 

Unrealized

(Losses)

 

 

Fair Value