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Section 1: 10-Q (10-Q)

evbn 20190331 Q1

Table of Contents



United States

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-Q

(Mark One)

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



For quarterly period ended March 31, 2019



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



For the transition period from             to ______



Commission file number    001-35021



EVANS BANCORP, INC.

(Exact name of registrant as specified in its charter)



          New York                            16-1332767

(State or other jurisdiction of         (I.R.S. Employer

incorporation or organization)       Identification No.)



One Grimsby Drive, Hamburg, NY        14075

(Address of principal executive offices)  (Zip Code)



(716) 926-2000

(Registrant's telephone number, including area code)



Not Applicable

 (Former name, former address and former fiscal year, if changed

 since last report)



Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  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 (§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 checkmark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 



Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes   No 

Securities registered pursuant to Section 12(b) of the Act:



 

 



 

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.50 par value

EVBN

NYSE American



 

 



Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: Common Stock, $.50 par value, 4,883,467 shares as of April 30, 2019.

 


 

Table of Contents





INDEX





EVANS BANCORP, INC. AND SUBSIDIARIES







 

 



 

 

PART 1.  FINANCIAL INFORMATION

PAGE



 

 

Item 1.

Financial Statements

 



 

 



Unaudited Consolidated Balance Sheets – March 31, 2019 and December 31, 2018



 

 



Unaudited Consolidated Statements of Income – Three months ended March 31, 2019 and 2018



 

 



Unaudited Consolidated Statements of Comprehensive Income – Three months ended March 31, 2019 and 2018



 

 



Unaudited Consolidated Statements of Changes in Stockholders’ Equity – Three months ended March 31, 2019 and 2018



 

 



Unaudited Consolidated Statements of Cash Flows - Three months ended March 31, 2019 and 2018



 

 



Notes to Unaudited Consolidated Financial Statements



 

 

Item 2.

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

31 



 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

38 



 

 

Item 4.

Controls and Procedures

39 



 

 

PART II.  OTHER INFORMATION

 

 



 

 

Item 1.

Legal Proceedings

40 



 

 

Item 1A.

Risk Factors

40 



 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

40 



 

 

Item 3.

Defaults Upon Senior Securities

40 



 

 

Item 4.

Mine Safety Disclosure

40 



 

 

Item 5.

Other Information

40 



 

 

Item 6.

Exhibits

41 



 

 



Signatures

42 



 

 



 

 







 

 


 

Table of Contents













 

 

 

 

 

 

PART I - FINANCIAL INFORMATION

 

 

 

 

 

 

ITEM 1 - FINANCIAL STATEMENTS

 

 

 

 

 

 



 

 

 

 

 

 

EVANS BANCORP, INC. AND SUBSIDIARIES

 

 

 

 

 

 

UNAUDITED CONSOLIDATED BALANCE SHEETS

 

 

 

 

 

 

MARCH 31, 2019 AND DECEMBER 31, 2018

 

 

 

 

 

 

(in thousands, except share and per share amounts)

 

 

 

 

 

 



 

March 31,

 

December 31,



 

2019

 

2018

ASSETS

 

 

 

 

 

 

Cash and due from banks

 

$

12,434 

 

$

13,997 

Interest-bearing deposits at banks

 

 

56,082 

 

 

25,918 

Securities:

 

 

 

 

 

 

Available for sale, at fair value (amortized cost: $140,240 at March 31, 2019;

 

 

138,831 

 

 

132,104 

$135,274 at December 31, 2018)

 

 

 

 

 

 

Held to maturity, at amortized cost (fair value: $1,903 at March 31, 2019;

 

 

1,900 

 

 

1,685 

$1,674 at December 31, 2018)

 

 

 

 

 

 

Federal Home Loan Bank common stock, at cost

 

 

1,474 

 

 

1,474 

Federal Reserve Bank common stock, at cost

 

 

1,939 

 

 

1,929 

Loans, net of allowance for loan losses of $15,207 at March 31, 2019

 

 

 

 

 

 

and $14,784 at December 31, 2018

 

 

1,170,222 

 

 

1,141,146 

Properties and equipment, net of accumulated depreciation of $19,713 at March 31, 2019

 

 

 

 

 

 

and $19,416 at December 31, 2018

 

 

10,583 

 

 

10,485 

Goodwill and intangible assets

 

 

12,880 

 

 

12,992 

Bank-owned life insurance

 

 

28,922 

 

 

28,403 

Operating lease right-of-use asset (see Note 1)

 

 

4,142 

 

 

-    

Other assets

 

 

16,772 

 

 

18,074 



 

 

 

 

 

 

TOTAL ASSETS

 

$

1,456,181 

 

$

1,388,207 



 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

Demand

 

$

242,156 

 

$

231,902 

NOW

 

 

122,204 

 

 

110,450 

Savings

 

 

618,471 

 

 

571,479 

Time

 

 

292,892 

 

 

301,227 

Total deposits

 

 

1,275,723 

 

 

1,215,058 



 

 

 

 

 

 

Securities sold under agreement to repurchase

 

 

2,482 

 

 

3,142 

Other borrowings

 

 

10,000 

 

 

10,000 

Operating lease liability (see Note 1)

 

 

4,594 

 

 

-    

Other liabilities

 

 

17,617 

 

 

17,031 

Junior subordinated debentures

 

 

11,330 

 

 

11,330 

Total liabilities

 

 

1,321,746 

 

 

1,256,561 



 

 

 

 

 

 

STOCKHOLDERS' EQUITY:

 

 

 

 

 

 

Common stock, $.50 par value, 10,000,000 shares authorized; 4,860,316

 

 

 

 

 

 

and 4,852,868 shares issued at March 31, 2019 and December 31, 2018,

 

 

 

 

 

 

respectively, and 4,860,316 and 4,852,868 outstanding at March 31, 2019

 

 

 

 

 

 

and December 31, 2018, respectively

 

 

2,432 

 

 

2,429 

Capital surplus

 

 

61,448 

 

 

61,225 

Retained earnings

 

 

74,538 

 

 

73,345 

Accumulated other comprehensive loss, net of tax

 

 

(3,983)

 

 

(5,353)

Total stockholders' equity

 

 

134,435 

 

 

131,646 



 

 

 

 

 

 

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

 

$

1,456,181 

 

$

1,388,207 



 

 

 

 

 

 

See Notes to Unaudited Consolidated Financial Statements

 

 

 

 

 

 











1

 


 

Table of Contents









 

 

 

 

 

 

EVANS BANCORP, INC. AND SUBSIDIARIES

 

 

 

 

 

 

UNAUDITED CONSOLIDATED STATEMENTS OF INCOME

 

 

 

 

 

 

THREE MONTHS ENDED MARCH 31, 2019 AND 2018

 

 

 

 

 

 

(in thousands, except share and per share amounts)

 

 

 

 

 

 



 

Three Months Ended March 31,



 

2019

 

2018

INTEREST INCOME

 

 

 

 

 

 

Loans

 

$

14,362 

 

$

12,363 

Interest-bearing deposits at banks

 

 

249 

 

 

10 

Securities:

 

 

 

 

 

 

Taxable

 

 

801 

 

 

797 

Non-taxable

 

 

130 

 

 

196 

Total interest income

 

 

15,542 

 

 

13,366 

INTEREST EXPENSE

 

 

 

 

 

 

Deposits

 

 

2,843 

 

 

1,498 

Other borrowings

 

 

45 

 

 

298 

Junior subordinated debentures

 

 

146 

 

 

118 

Total interest expense

 

 

3,034 

 

 

1,914 

NET INTEREST INCOME  

 

 

12,508 

 

 

11,452 

PROVISION FOR LOAN LOSSES

 

 

538 

 

 

767 

NET INTEREST INCOME AFTER

 

 

 

 

 

 

PROVISION FOR LOAN LOSSES

 

 

11,970 

 

 

10,685 

NON-INTEREST INCOME

 

 

 

 

 

 

Deposit service charges

 

 

533 

 

 

509 

Insurance service and fees

 

 

2,442 

 

 

1,965 

Gain on loans sold

 

 

26 

 

 

-    

Bank-owned life insurance

 

 

159 

 

 

171 

Interchange fee income

 

 

421 

 

 

492 

Other

 

 

614 

 

 

649 

Total non-interest income

 

 

4,195 

 

 

3,786 

NON-INTEREST EXPENSE

 

 

 

 

 

 

Salaries and employee benefits

 

 

7,160 

 

 

6,627 

Occupancy

 

 

836 

 

 

758 

Advertising and public relations

 

 

167 

 

 

124 

Professional services

 

 

745 

 

 

653 

Technology and communications

 

 

893 

 

 

764 

Amortization of intangibles

 

 

112 

 

 

28 

FDIC insurance

 

 

207 

 

 

232 

Other

 

 

1,104 

 

 

985 

Total non-interest expense

 

 

11,224 

 

 

10,171 

INCOME BEFORE INCOME TAXES

 

 

4,941 

 

 

4,300 

INCOME TAX PROVISION

 

 

1,221 

 

 

981 

NET INCOME

 

$

3,720 

 

$

3,319 



 

 

 

 

 

 

Net income per common share-basic

 

$

0.77 

 

$

0.69 

Net income per common share-diluted

 

$

0.75 

 

$

0.68 

Cash dividends per common share

 

$

0.52 

 

$

0.46 

Weighted average number of common shares outstanding

 

 

4,855,815 

 

 

4,787,846 

Weighted average number of diluted shares outstanding

 

 

4,932,451 

 

 

4,912,289 



 

 

 

 

 

 

See Notes to Unaudited Consolidated Financial Statements

 

 

 

 

 

 



2

 


 

Table of Contents







 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

EVANS BANCORP, INC. AND SUBSIDIARIES

UNAUDITED STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME

THREE MONTHS ENDED MARCH 31, 2019 AND 2018

(in thousands)

 

 

 

 

 

 

 

 

 

 

 



 

 

Three Months Ended March 31,



 

 

 

2019

 

 

 

 

2018



 

 

 

 

 

 

 

 

 

 

 

NET INCOME

 

 

 

$

3,720 

 

 

 

 

$

3,319 



 

 

 

 

 

 

 

 

 

 

 

OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:

 

 

 

 

 

 

Unrealized gain/(loss) on available-for-sale securities

 

 

 

 

1,303 

 

 

 

 

 

(1,360)



 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

Defined benefit pension plans:

 

 

 

 

 

 

 

 

 

 

 

Amortization of prior service cost

 

 

 

 

 

 

 

 

 

Amortization of actuarial loss

 

 

 

 

61 

 

 

 

 

 

36 



 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

 

67 

 

 

 

 

 

42 



 

 

 

 

 

 

 

 

 

 

 

OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX

 

 

1,370 

 

 

 

 

 

(1,318)



 

 

 

 

 

 

 

 

 

 

 

COMPREHENSIVE INCOME

 

 

 

$

5,090 

 

 

 

 

$

2,001 



 

 

 

 

 

 

 

 

 

 

 

See Notes to Unaudited Consolidated Financial Statements

 

 

 

 

 

 

 

 

 

 

 











3

 


 

Table of Contents









 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

EVANS BANCORP, INC. AND SUBSIDIARIES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

 

 

 

THREE MONTHS ENDED MARCH 31, 2019 AND 2018

 

 

 

 

 

(in thousands, except share and per share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 



 

 

 

 

 

 

 

 

 

 

Other

 

 

 



 

Common

 

Capital

 

Retained

 

Comprehensive

 

 

 



 

Stock

 

Surplus

 

Earnings

 

Loss

 

Total

Balance, December 31, 2017

 

$

2,394 

 

$

59,444 

 

$

59,921 

 

$

(3,417)

 

$

118,342 

Cumulative-effect adjustment due to change in accounting principle

 

 

 

 

 

 

 

 

1,496 

 

 

 

 

 

1,496 

Net Income

 

 

 

 

 

 

 

 

3,319 

 

 

 

 

 

3,319 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

(1,318)

 

 

(1,318)

Cash dividends ($0.46 per common share)

 

 

 

 

 

 

 

 

(2,202)

 

 

 

 

 

(2,202)

Stock compensation expense

 

 

 

 

 

186 

 

 

 

 

 

 

 

 

186 

Reissued 1,057 restricted shares

 

 

 

 

 

-    

 

 

 

 

 

 

 

 

-    

Issued 16,368 restricted shares

 

 

 

 

(8)

 

 

 

 

 

 

 

 

-    

Issued 3,404 shares in stock option exercises

 

 

 

 

48 

 

 

 

 

 

 

 

 

50 

Balance, March 31, 2018

 

$

2,404 

 

$

59,670 

 

$

62,534 

 

$

(4,735)

 

$

119,873 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2018

 

$

2,429 

 

$

61,225 

 

$

73,345 

 

$

(5,353)

 

$

131,646 

Net Income

 

 

 

 

 

 

 

 

3,720 

 

 

 

 

 

3,720 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

1,370 

 

 

1,370 

Cash dividends ($0.52 per common share)

 

 

 

 

 

 

 

 

(2,527)

 

 

 

 

 

(2,527)

Stock compensation expense

 

 

 

 

 

201 

 

 

 

 

 

 

 

 

201 

Reissued 500 restricted shares

 

 

 

 

 

 

 

 

 

 

 

 

 

 

-    

Issued 4,934 restricted shares, net of forfeitures

 

 

 

 

(2)

 

 

 

 

 

 

 

 

-    

Issued 2,514 shares in stock option exercises

 

 

 

 

24 

 

 

 

 

 

 

 

 

25 

Balance, March 31, 2019

 

$

2,432 

 

$

61,448 

 

$

74,538 

 

$

(3,983)

 

$

134,435 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See Notes to Unaudited Consolidated Financial Statements

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

















4

 


 

Table of Contents





 

 

 

 

 

 



 

 

 

 

 

 

EVANS BANCORP, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

THREE MONTHS ENDED MARCH 31, 2019 AND 2018

(in thousands)



 

Three Months Ended March 31,



 

 

2019

 

 

2018

OPERATING ACTIVITIES:

 

 

 

 

 

 

Interest received

 

$

15,323 

 

$

13,392 

Fees received

 

 

4,424 

 

 

3,395 

Interest paid

 

 

(2,999)

 

 

(1,871)

Cash paid to employees and vendors

 

 

(12,685)

 

 

(11,122)

Income taxes paid

 

 

-    

 

 

(8)

Proceeds from sale of loans held for resale

 

 

2,071 

 

 

-    

Originations of loans held for resale

 

 

(2,045)

 

 

-    



 

 

 

 

 

 

Net cash provided by operating activities

 

 

4,089 

 

 

3,786 



 

 

 

 

 

 

INVESTING ACTIVITIES:

 

 

 

 

 

 

Available for sales securities:

 

 

 

 

 

 

Purchases

 

 

(10,568)

 

 

(47,853)

Proceeds from maturities, calls, and payments

 

 

5,523 

 

 

33,127 

Held to maturity securities:

 

 

 

 

 

 

Purchases

 

 

(224)

 

 

-    

Proceeds from maturities, calls, and payments

 

 

10 

 

 

610 

Cash paid for bank-owned life insurance

 

 

(360)

 

 

-    

Proceeds from bank-owned life insurance claims

 

 

-    

 

 

675 

Additions to properties and equipment

 

 

(426)

 

 

(162)

Purchase of tax credit investment

 

 

(19)

 

 

(129)

Net increase in loans

 

 

(29,454)

 

 

(48,445)



 

 

 

 

 

 

Net cash used in investing activities

 

 

(35,518)

 

 

(62,177)



 

 

 

 

 

 

FINANCING ACTIVITIES:

 

 

 

 

 

 

Repayments of short-term borrowings, net

 

 

(660)

 

 

(25,755)

Net increase in deposits

 

 

60,665 

 

 

83,204 

Issuance of common stock

 

 

25 

 

 

50 



 

 

 

 

 

 

Net cash provided by financing activities

 

 

60,030 

 

 

57,499 



 

 

 

 

 

 

Net increase (decrease) in cash and cash equivalents

 

 

28,601 

 

 

(892)



 

 

 

 

 

 

CASH AND CASH EQUIVALENTS:

 

 

 

 

 

 

Beginning of period

 

 

39,915 

 

 

21,330 



 

 

 

 

 

 

End of period

 

$

68,516 

 

$

20,438 



 

 

 

 

 

 

See Notes to Unaudited Consolidated Financial Statements

 

 

 

 

 

 



5

 


 

Table of Contents





 

 

 

 

 

 



 

 

 

 

 

 

EVANS BANCORP, INC. AND SUBSIDIARIES

 

 

 

 

 

 

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

 

 

 

 

THREE MONTHS ENDED MARCH 31, 2019 AND 2018

 

 

 

 

 

 

(in thousands)

 

 

 

 

 

 



 

Three Months Ended March 31,



 

 

2019

 

 

2018



 

 

 

 

 

 

RECONCILIATION OF NET INCOME TO NET CASH

 

 

 

 

 

 

PROVIDED BY OPERATING ACTIVITIES:

 

 

 

 

 

 



 

 

 

 

 

 

Net income

 

$

3,720 

 

$

3,319 



 

 

 

 

 

 

Adjustments to reconcile net income to net cash

 

 

 

 

 

 

provided by operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

505 

 

 

446 

Deferred tax expense

 

 

12 

 

 

144 

Provision for loan losses

 

 

538 

 

 

767 

Loss on tax credit investment

 

 

148 

 

 

-    

Refundable state historic tax credit received (accrued)

 

 

17 

 

 

-    

Gain on loans sold

 

 

(26)

 

 

-    

Change in fair value of equity securities

 

 

-    

 

 

(147)

Stock compensation expense

 

 

201 

 

 

186 

Proceeds from sale of loans held for resale

 

 

2,071 

 

 

-    

Originations of loans held for resale

 

 

(2,045)

 

 

-    

Changes in assets and liabilities affecting cash flow:

 

 

 

 

 

 

Other assets

 

 

(4,528)

 

 

(1,060)

Other liabilities

 

 

3,476 

 

 

131 



 

 

 

 

 

 

NET CASH PROVIDED BY OPERATING ACTIVITIES

 

$

4,089 

 

$

3,786 



 

 

 

 

 

 

See Notes to Unaudited Consolidated Financial Statements

 

 

 

 

 

 















6

 


 

Table of Contents



EVANS BANCORP, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

THREE MONTHS ENDED MARCH  31, 2019 AND 2018



1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES



The accounting and reporting policies followed by Evans Bancorp, Inc. (the “Company”), a financial holding company, and its two direct, wholly-owned subsidiaries: (i) Evans Bank, National Association (the “Bank”), and the Bank’s subsidiaries, Evans National Leasing, Inc. (“ENL”), and Evans National Holding Corp. (“ENHC”); and (ii) Evans National Financial Services, LLC (“ENFS”), and ENFS’s subsidiary, The Evans Agency, LLC (“TEA”), and TEA’s subsidiaries, Frontier Claims Services, Inc. (“FCS”) and ENB Associates Inc. (“ENBA”), in the preparation of the accompanying interim unaudited consolidated financial statements conform with U.S. generally accepted accounting principles (“GAAP”) and with general practice within the industries in which it operates.  Except as the context otherwise requires, the Company and its direct and indirect subsidiaries are collectively referred to in this report as the “Company.”



The results of operations for the three month period ended March 31, 2019 are not necessarily indicative of the results to be expected for the full year.  The accompanying unaudited consolidated financial statements should be read in conjunction with the Audited Consolidated Financial Statements and the Notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2018 (“10-K”).  The Company’s significant accounting policies are disclosed in Note 1 to the 10-K.



The Financial Accounting Standards Board (“FASB”) establishes changes to U.S. GAAP in the form of accounting standards updates (“ASUs”) to the FASB Accounting Standards Codification.  The Company considers the applicability and impact of all ASUs when they are issued by FASB.  ASUs listed below were adopted by the Company during its current fiscal year.  ASUs not listed below did not have a material impact on the Company’s consolidated financial position, results of operations, cash flows or disclosures.



On January 1, 2019, the Company adopted ASU 2016-02 Leases and all subsequent amendments (collectively, “ASU 2016-02”). The objective of this ASU is to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements to meet that objective.  The main difference between previous GAAP and this ASU is the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous GAAP.  Under this new guidance, a lessee should recognize in the statement of financial position a liability to make lease payments and a right-of-use (“ROU”) asset representing its right to use the underlying asset for the lease term.  The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee have not significantly changed from previous GAAP. 



ASU 2016-02 required a modified retrospective transition approach, applying the new standard to all leases existing at the date of initial application. The Company elected to use the effective date, January 1, 2019, as our date of initial application. Consequently, financial information will not be updated and the disclosures required under the new standard will not be provided for dates and periods before January 1, 2019.  In addition, the Company elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed us to carry forward the historical lease classification.



Under ASU 2016-02, leases are classified as finance or operating, with the classification affecting the pattern and classification of expense recognition in the income statement. The Company’s leases, consisting of property leases for certain of our bank branches and insurance agency offices, are classified as operating leases. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As these leases do not provide an implicit rate, we use our incremental borrowing rate in determining the present value of lease payments. Our lease terms include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Leases with an initial term of 12 months or less are not recorded on the balance sheet. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

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ASU 2016-02 had a material impact on the Company’s consolidated balance sheets, but did not have an impact on the consolidated statements of income or the consolidated statements of cash flows. The most significant impacts upon adoption on January 1, 2019 were the recognition of $4.3 million of ROU assets and $4.7 million of lease liabilities, including $0.4 million of liabilities that were reported in other liabilities in the Company’s December 31, 2018 consolidated balance sheet. ROU assets and lease liability were $4.1 million and $4.6 million, respectively, at March 31, 2019.  Operating lease expenses during the three months ended March 31, 2019 were $178 thousand and are included in other non-interest expense on the consolidated statement of income. Cash paid for amounts included in the measurement of lease liabilities during the three months ended March 31, 2019 was $184 thousand and is included in cash flows from operating activities on the consolidated statement of cash flows. The weighted average discount rate related to the Company’s leases was 3.5% as of March 31, 2019.  The weighted average remaining lease term related to the Company’s leases was 9.0 years as of March 31, 2019.  Future minimum lease payments under non-cancellable leases as of March 31, 2019 were as follows:





 



 



Year Ending December 31,

2019 (excluding the three months ended March 31, 2019)

552 
2020  749 
2021  682 
2022  694 
2023  589 

Thereafter

2,092 

Total future minimum lease payments

5,358 

Less imputed interest

764 

Total

4,594 



 

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2. SECURITIES



The amortized cost of securities and their approximate fair value at March 31, 2019 and December 31, 2018 were as follows:





 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

March 31, 2019



 

(in thousands)



 

 

 

 

 

 

 

 



 

Amortized

 

Unrealized

 

Fair



 

Cost

 

Gains

 

Losses

 

Value



 

 

 

 

 

 

 

 

 

 

 

 

Available for Sale:

 

 

 

 

 

 

 

 

 

 

 

 

Debt securities:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government agencies

 

$

39,160 

 

$

139 

 

$

(309)

 

$

38,990 

States and political subdivisions

 

 

20,212 

 

 

143 

 

 

(14)

 

 

20,341 

Total debt securities

 

$

59,372 

 

$

282 

 

$

(323)

 

$

59,331 



 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities:

 

 

 

 

 

 

 

 

 

 

 

 

FNMA

 

$

27,135 

 

$

29 

 

$

(332)

 

$

26,832 

FHLMC

 

 

16,181 

 

 

20 

 

 

(192)

 

 

16,009 

GNMA

 

 

1,608 

 

 

 

 

(23)

 

 

1,594 

SBA

 

 

8,991 

 

 

 

 

(146)

 

 

8,848 

CMO

 

 

26,953 

 

 

15 

 

 

(751)

 

 

26,217 

Total mortgage-backed securities

 

$

80,868 

 

$

76 

 

$

(1,444)

 

$

79,500 



 

 

 

 

 

 

 

 

 

 

 

 

Total securities designated as available for sale

 

$

140,240 

 

$

358 

 

$

(1,767)

 

$

138,831 



 

 

 

 

 

 

 

 

 

 

 

 

Held to Maturity:

 

 

 

 

 

 

 

 

 

 

 

 

Debt securities

 

 

 

 

 

 

 

 

 

 

 

 

States and political subdivisions

 

$

1,900 

 

$

16 

 

$

(13)

 

$

1,903 



 

 

 

 

 

 

 

 

 

 

 

 

Total securities designated as held to maturity

 

$

1,900 

 

$

16 

 

$

(13)

 

$

1,903 







 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

December 31, 2018



 

(in thousands)



 

 

 

 

 

 

 

 



 

Amortized

 

Unrealized

 

Fair



 

Cost

 

Gains

 

Losses

 

Value



 

 

 

 

 

 

 

 

 

 

 

 

Available for Sale:

 

 

 

 

 

 

 

 

 

 

 

 

Debt securities:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government agencies

 

$

34,597 

 

$

 

$

(671)

 

$

33,928 

States and political subdivisions

 

 

22,168 

 

 

69 

 

 

(64)

 

 

22,173 

Total debt securities

 

$

56,765 

 

$

71 

 

$

(735)

 

$

56,101 



 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities:

 

 

 

 

 

 

 

 

 

 

 

 

FNMA

 

$

27,747 

 

$

21 

 

$

(729)

 

$

27,039 

FHLMC

 

 

14,645 

 

 

11 

 

 

(431)

 

 

14,225 

GNMA

 

 

1,660 

 

 

 

 

(36)

 

 

1,630 

SBA

 

 

9,432 

 

 

-    

 

 

(299)

 

 

9,133 

CMO

 

 

25,025 

 

 

 

 

(1,055)

 

 

23,976 

Total mortgage-backed securities

 

$

78,509 

 

$

44 

 

$

(2,550)

 

$

76,003 



 

 

 

 

 

 

 

 

 

 

 

 

Total securities designated as available for sale

 

$

135,274 

 

$

115 

 

$

(3,285)

 

$

132,104 



 

 

 

 

 

 

 

 

 

 

 

 

Held to Maturity:

 

 

 

 

 

 

 

 

 

 

 

 

Debt securities

 

 

 

 

 

 

 

 

 

 

 

 

States and political subdivisions

 

$

1,685 

 

$

11 

 

$

(22)

 

$

1,674 



 

 

 

 

 

 

 

 

 

 

 

 

Total securities designated as held to maturity

 

$

1,685 

 

$

11 

 

$

(22)

 

$

1,674 



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



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Available for sale securities with a total fair value of $117 million and $94 million at March 31, 2019 and December 31, 2018, respectively, were pledged as collateral to secure public deposits and for other purposes required or permitted by law.



The scheduled maturities of debt and mortgage-backed securities at March 31, 2019 and December 31, 2018 are summarized below.  All maturity amounts are contractual maturities.  Actual maturities may differ from contractual maturities because certain issuers have the right to call or prepay obligations with or without call premiums.







 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

March 31, 2019

 

December 31, 2018



 

Amortized

 

Estimated

 

Amortized

 

Estimated



 

cost

 

fair value

 

cost

 

fair value



 

 

(in thousands)

 

 

(in thousands)



 

 

 

 

 

 

 

 

 

 

 

 

Debt securities available for sale: