NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of and for the three months ended March 31, 2017
(Unaudited)
Note 1.
|
Basis of Presentation
|
These interim consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America (GAAP). However, these interim consolidated financial statements do not include all of the information and footnotes required by GAAP for complete financial
statements. The interim consolidated financial statements are unaudited and reflect all adjustments and reclassifications, which, in the opinion of management, are necessary for a fair presentation of the results of operations and financial
condition as of and for the interim periods presented. All adjustments and reclassifications are of a normal and recurring nature. Results for the period ended March 31, 2017 are not necessarily indicative of the results that may be expected
for any other interim period or for the year as a whole.
The interim consolidated financial statements of Citizens Holding Company include the accounts
of its wholly-owned subsidiary, The Citizens Bank of Philadelphia (the Bank and collectively with Citizens Holding Company, the Corporation). All significant intercompany transactions have been eliminated in consolidation.
For further information and significant accounting policies of the Corporation, see the Notes to Consolidated Financial Statements of Citizens Holding
Company included in the Corporations Annual Report on Form
10-K
for the year ended December 31, 2016, filed with the Securities and Exchange Commission on March 15, 2017.
Note 2.
|
Commitments and Contingent Liabilities
|
In the ordinary course of business, the Corporation enters into
commitments to extend credit to its customers. The unused portion of these commitments is not reflected in the accompanying financial statements. As of March 31, 2017, the Corporation had entered into loan commitments with certain customers
with an aggregate unused balance of $35,517,643 compared to an aggregate unused balance of $37,194,220 at December 31, 2016. There were $3,370,180 of letters of credit outstanding at March 31, 2017 and $3,456,180 at December 31, 2016.
The fair value of such commitments is not considered material because letters of credit and loan commitments often are not used in their entirety, if at all, before they expire. The balances of such letters and commitments should not be used to
project actual future liquidity requirements. However, the Corporation does incorporate expectations about the utilization under its credit-related commitments and into its asset and liability management program.
The Corporation is a party to lawsuits and other claims that arise in the ordinary course of business, all of which are being vigorously contested. In the
regular course of business, management evaluates estimated losses or costs related to litigation, and provisions are made for anticipated losses whenever management believes that such losses are probable and can be reasonably estimated. At the
present time, management believes, based on the advice of legal counsel, that the final resolution of pending legal proceedings will not likely have a material impact on the Corporations consolidated financial condition or results of
operations.
5
Note 3.
|
Net Income per Share
|
Net income per share - basic has been computed based on the weighted average
number of shares outstanding during each period. Net income per share - diluted has been computed based on the weighted average number of shares outstanding during each period plus the dilutive effect of outstanding stock options using the treasury
stock method. Net income per share was computed as follows:
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
|
|
Ended March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Basic weighted average shares outstanding
|
|
|
4,883,679
|
|
|
|
4,875,079
|
|
Dilutive effect of granted options
|
|
|
14,214
|
|
|
|
10,061
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average shares outstanding
|
|
|
4,897,893
|
|
|
|
4,885,140
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1,437,325
|
|
|
$
|
1,526,170
|
|
Net income per share-basic
|
|
$
|
0.29
|
|
|
$
|
0.31
|
|
Net income per share-diluted
|
|
$
|
0.29
|
|
|
$
|
0.31
|
|
Note 4.
|
Equity Compensation Plans
|
The Corporation has adopted the 2013 Incentive Compensation Plan (the
2013 Plan), which the Corporation intends to use for all future equity grants to employees, directors or consultants until the termination or expiration of the 2013 Plan.
Prior to the adoption of the 2013 Plan, the Corporation utilized two stock-based compensation plans, the 1999 Directors Stock Compensation Plan (the
Directors Plan) for directors, and the 1999 Employees Long-Term Incentive Plan (the Employees Plan) for employees, both of which have expired.
6
The following table is a summary of the stock option activity for the three months ended March 31, 2017.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Directors Plan
|
|
|
Employees Plan
|
|
|
2013 Plan
|
|
|
|
Number
of
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Number
of
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Number
of
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2016
|
|
|
78,000
|
|
|
$
|
21.08
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(4,500
|
)
|
|
|
20.58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2017
|
|
|
73,500
|
|
|
$
|
21.11
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The intrinsic value of options previously granted under the Directors Plan at March 31, 2017, was $268,800, the
intrinsic value of options previously granted under the Employees Plan at March 31, 2017, was $0, and since there were no options granted under the 2013 Plan during the three-month period ended March 31, 2017, the current intrinsic
value for the 2013 Plan at March 31, 2017 is $0, for an aggregate intrinsic value at March 31, 2017, of $268,800.
During the quarter ended
June 30, 2016, the Corporations directors received restricted stock grants totaling 7,500 shares of common stock under the 2013 Plan. These grants vest over a
one-year
period ending April 27,
2017 during which time the recipients have rights to vote the shares and to receive dividends. The grant date fair value of these shares was $161,325 and will be recognized over the
one-year
vesting period at
a cost of $13,444 per month less deferred taxes of $5,016 per month. Also during the quarter ended June 30, 2016, there were 1,500 shares of restricted stock that vested pursuant to an incentive plan for senior management.
The income tax topic of the Accounting Standards Codification (ASC) defines
the threshold for recognizing the benefits of tax return positions in the financial statements as
more-likely-than-not
to be sustained by the taxing authority. This topic also provides guidance on
the
de-recognition,
measurement and classification of income tax uncertainties, along with any related interest and penalties, and includes guidance concerning accounting for income tax uncertainties in
interim periods. As of March 31, 2017, the Corporation had no unrecognized tax benefits related to federal and state income tax matters. Therefore, the Corporation does not anticipate any material increase or decrease in the effective tax rate
during 2016 relative to any tax positions taken. It is the Corporations policy to recognize interest or penalties related to income tax matters in income tax expense.
The Corporation files a consolidated United States federal income tax return. The Corporation is currently open to audit under the statute of limitations by
the Internal Revenue Service for all tax years after 2013. The Corporations consolidated state income tax returns are also open to audit under the statute of limitations for the same period.
7
The amortized cost and estimated fair value of securities
available-for-sale
and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive income were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Estimated
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Fair Value
|
|
Securities
available-for-sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of U.S. Government agencies
|
|
$
|
204,424,326
|
|
|
$
|
|
|
|
$
|
4,872,074
|
|
|
$
|
199,552,252
|
|
Mortgage backed securities
|
|
|
147,072,647
|
|
|
|
334,610
|
|
|
|
3,841,670
|
|
|
|
143,565,587
|
|
State, County, Municipals
|
|
|
148,270,381
|
|
|
|
1,305,634
|
|
|
|
5,738,592
|
|
|
|
143,837,423
|
|
Other investments
|
|
|
2,865,293
|
|
|
|
120,466
|
|
|
|
|
|
|
|
2,985,759
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
502,632,647
|
|
|
$
|
1,760,710
|
|
|
$
|
14,452,336
|
|
|
$
|
489,941,021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Estimated
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Fair Value
|
|
Securities
available-for-sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of U.S. Government agencies
|
|
$
|
207,080,794
|
|
|
$
|
|
|
|
$
|
7,114,186
|
|
|
$
|
199,966,608
|
|
Mortgage backed securities
|
|
|
152,765,924
|
|
|
|
340,419
|
|
|
|
4,841,633
|
|
|
|
148,264,710
|
|
State, County, Municipals
|
|
|
150,503,811
|
|
|
|
1,269,356
|
|
|
|
6,851,017
|
|
|
|
144,922,150
|
|
Other investments
|
|
|
2,869,761
|
|
|
|
101,345
|
|
|
|
|
|
|
|
2,971,106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
513,220,290
|
|
|
$
|
1,711,120
|
|
|
$
|
18,806,836
|
|
|
$
|
496,124,574
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amortized cost and estimated fair value of securities by contractual maturity at March 31, 2017 and December 31,
2016 are shown below. Actual maturities may differ from contractual maturities because issuers have the right to call or prepay certain obligations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
|
December 31, 2016
|
|
|
|
Amortized
|
|
|
Estimated
|
|
|
Amortized
|
|
|
Estimated
|
|
|
|
Cost
|
|
|
Fair Value
|
|
|
Cost
|
|
|
Fair Value
|
|
Available-for-sale
|
|
|
|
|
|
|
|
|
|
|
|
|
Due in one year or less
|
|
$
|
5,356,998
|
|
|
$
|
5,372,879
|
|
|
$
|
6,333,181
|
|
|
$
|
6,370,921
|
|
Due after one year through five years
|
|
|
52,866,510
|
|
|
|
52,817,589
|
|
|
|
30,059,503
|
|
|
|
30,278,557
|
|
Due after five years through ten years
|
|
|
103,343,414
|
|
|
|
101,454,474
|
|
|
|
126,336,589
|
|
|
|
122,562,724
|
|
Due after ten years
|
|
|
341,065,725
|
|
|
|
330,296,079
|
|
|
|
350,491,017
|
|
|
|
336,912,372
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
502,632,647
|
|
|
$
|
489,941,021
|
|
|
$
|
513,220,290
|
|
|
$
|
496,124,574
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8
The tables below show the Corporations gross unrealized losses and fair value of
available-for-sale
and
held-to-maturity
investments, aggregated by investment category and
length of time that individual investments were in a continuous loss position at March 31, 2017 and December 31, 2016.
A summary of unrealized
loss information for securities
available-for-sale,
categorized by security type follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
Less than 12 months
|
|
|
12 months or more
|
|
|
Total
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
Description of Securities
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
Obligations of U.S. government agencies
|
|
$
|
194,896
|
|
|
$
|
4,562
|
|
|
$
|
4,656
|
|
|
$
|
310
|
|
|
$
|
199,552
|
|
|
$
|
4,872
|
|
Mortgage backed securities
|
|
|
114,363
|
|
|
|
3,314
|
|
|
|
23,050
|
|
|
|
527
|
|
|
|
137,413
|
|
|
|
3,841
|
|
State, County, Municipal
|
|
|
88,822
|
|
|
|
5,594
|
|
|
|
3,381
|
|
|
|
145
|
|
|
|
92,203
|
|
|
|
5,739
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
398,081
|
|
|
$
|
13,470
|
|
|
$
|
31,087
|
|
|
$
|
982
|
|
|
$
|
429,168
|
|
|
$
|
14,452
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 months
|
|
|
12 months or more
|
|
|
Total
|
|
December 31, 2016
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
Description of Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of U.S. government agencies
|
|
$
|
195,363
|
|
|
$
|
6,753
|
|
|
$
|
4,604
|
|
|
$
|
362
|
|
|
$
|
199,967
|
|
|
$
|
7,115
|
|
Mortgage backed securities
|
|
|
117,438
|
|
|
|
4,183
|
|
|
|
24,353
|
|
|
|
658
|
|
|
|
141,791
|
|
|
|
4,841
|
|
State, County, Municipal
|
|
|
95,088
|
|
|
|
6,663
|
|
|
|
3,092
|
|
|
|
188
|
|
|
|
98,180
|
|
|
|
6,851
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
407,889
|
|
|
$
|
17,599
|
|
|
$
|
32,049
|
|
|
$
|
1,208
|
|
|
$
|
439,938
|
|
|
$
|
18,807
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Corporations unrealized losses on its obligations of United States government agencies, mortgage backed securities
and state, county and municipal bonds are the result of an upward trend in interest rates, mainly in the
mid-term
sector. None of the unrealized losses disclosed in the previous table are related to credit
deterioration. The Corporation has determined that none of the securities in this classification were other-than-temporarily impaired at March 31, 2017 nor at December 31, 2016.
9
The composition of net loans (in thousands) at March 31, 2017 and December 31, 2016 was
as follows:
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
|
December 31, 2016
|
|
Real Estate:
|
|
|
|
|
|
|
|
|
Land Development and Construction
|
|
$
|
26,757
|
|
|
$
|
23,793
|
|
Farmland
|
|
|
17,288
|
|
|
|
18,175
|
|
1-4
Family Mortgages
|
|
|
96,040
|
|
|
|
97,812
|
|
Commercial Real Estate
|
|
|
178,466
|
|
|
|
180,880
|
|
|
|
|
|
|
|
|
|
|
Total Real Estate Loans
|
|
|
318,551
|
|
|
|
320,660
|
|
|
|
|
Business Loans:
|
|
|
|
|
|
|
|
|
Commercial and Industrial Loans
|
|
|
55,728
|
|
|
|
53,761
|
|
Farm Production and Other Farm Loans
|
|
|
866
|
|
|
|
765
|
|
|
|
|
|
|
|
|
|
|
Total Business Loans
|
|
|
56,594
|
|
|
|
54,526
|
|
|
|
|
Consumer Loans:
|
|
|
|
|
|
|
|
|
Credit Cards
|
|
|
1,125
|
|
|
|
1,156
|
|
Other Consumer Loans
|
|
|
17,063
|
|
|
|
18,310
|
|
|
|
|
|
|
|
|
|
|
Total Consumer Loans
|
|
|
18,188
|
|
|
|
19,466
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Gross Loans
|
|
|
393,333
|
|
|
|
394,652
|
|
|
|
|
Unearned Income
|
|
|
(448
|
)
|
|
|
(601
|
)
|
Allowance for Loan Losses
|
|
|
(3,702
|
)
|
|
|
(3,903
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, net
|
|
$
|
389,183
|
|
|
$
|
390,148
|
|
|
|
|
|
|
|
|
|
|
Loans are considered to be past due if the required principal and interest payments have not been received as of the date such
payments were due. Loans are placed on
non-accrual
status, when, in managements opinion, the borrower may be unable to meet payment obligations as they become due, as well as when required by regulatory
provisions. Loans may be placed on
non-accrual
status regardless of whether such loans are considered past due. When interest accruals are discontinued, all unpaid accrued interest is reversed. Interest income
is subsequently recognized only to the extent cash payments are received in excess of principal due. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are
reasonably assured.
10
Period-end,
non-accrual
loans (in
thousands), segregated by class, were as follows:
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
|
December 31, 2016
|
|
Real Estate:
|
|
|
|
|
|
|
|
|
Land Development and Construction
|
|
$
|
128
|
|
|
$
|
133
|
|
Farmland
|
|
|
298
|
|
|
|
234
|
|
1-4
Family Mortgages
|
|
|
2,246
|
|
|
|
1,954
|
|
Commercial Real Estate
|
|
|
6,061
|
|
|
|
6,293
|
|
|
|
|
|
|
|
|
|
|
Total Real Estate Loans
|
|
|
8,733
|
|
|
|
8,614
|
|
|
|
|
Business Loans:
|
|
|
|
|
|
|
|
|
Commercial and Industrial Loans
|
|
|
153
|
|
|
|
239
|
|
|
|
|
|
|
|
|
|
|
Total Business Loans
|
|
|
153
|
|
|
|
239
|
|
|
|
|
Consumer Loans:
|
|
|
|
|
|
|
|
|
Other Consumer Loans
|
|
|
100
|
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
Total Consumer Loans
|
|
|
100
|
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Nonaccrual Loans
|
|
$
|
8,986
|
|
|
$
|
8,879
|
|
|
|
|
|
|
|
|
|
|
11
An aging analysis of past due loans (in thousands), segregated by class, as of March 31, 2017, was as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
30-89 Days
Past Due
|
|
|
Loans
90 or more
Days
Past Due
|
|
|
Total Past
Due Loans
|
|
|
Current
Loans
|
|
|
Total
Loans
|
|
|
Accruing
Loans
90 or more
Days
Past Due
|
|
Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land Development and Construction
|
|
$
|
151
|
|
|
$
|
78
|
|
|
$
|
229
|
|
|
$
|
26,528
|
|
|
$
|
26,757
|
|
|
$
|
|
|
Farmland
|
|
|
358
|
|
|
|
62
|
|
|
|
420
|
|
|
|
16,868
|
|
|
|
17,288
|
|
|
|
|
|
1-4
Family Mortgages
|
|
|
1,782
|
|
|
|
208
|
|
|
|
1,990
|
|
|
|
94,050
|
|
|
|
96,040
|
|
|
|
1
|
|
Commercial Real Estate
|
|
|
1,601
|
|
|
|
305
|
|
|
|
1,906
|
|
|
|
176,560
|
|
|
|
178,466
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Real Estate Loans
|
|
|
3,892
|
|
|
|
653
|
|
|
|
4,545
|
|
|
|
314,006
|
|
|
|
318,551
|
|
|
|
16
|
|
|
|
|
|
|
|
|
Business Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and Industrial Loans
|
|
|
207
|
|
|
|
61
|
|
|
|
268
|
|
|
|
55,460
|
|
|
|
55,728
|
|
|
|
|
|
Farm Production and Other Farm Loans
|
|
|
9
|
|
|
|
|
|
|
|
9
|
|
|
|
857
|
|
|
|
866
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Business Loans
|
|
|
216
|
|
|
|
61
|
|
|
|
277
|
|
|
|
56,317
|
|
|
|
56,594
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit Cards
|
|
|
17
|
|
|
|
5
|
|
|
|
22
|
|
|
|
1,103
|
|
|
|
1,125
|
|
|
|
5
|
|
Other Consumer Loans
|
|
|
485
|
|
|
|
43
|
|
|
|
528
|
|
|
|
16,535
|
|
|
|
17,063
|
|
|
|
43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Consumer Loans
|
|
|
502
|
|
|
|
48
|
|
|
|
550
|
|
|
|
17,638
|
|
|
|
18,188
|
|
|
|
48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Loans
|
|
$
|
4,610
|
|
|
$
|
762
|
|
|
$
|
5,372
|
|
|
$
|
387,961
|
|
|
$
|
393,333
|
|
|
$
|
64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
An aging analysis of past due loans (in thousands), segregated by class, as of December 31, 2016 was as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
30-89 Days
Past Due
|
|
|
Loans
90 or more
Days
Past Due
|
|
|
Total Past
Due Loans
|
|
|
Current
Loans
|
|
|
Total
Loans
|
|
|
Accruing
Loans
90 or more
Days
Past Due
|
|
Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land Development and Construction
|
|
$
|
208
|
|
|
$
|
78
|
|
|
$
|
286
|
|
|
$
|
23,507
|
|
|
$
|
23,793
|
|
|
$
|
|
|
Farmland
|
|
|
584
|
|
|
|
65
|
|
|
|
649
|
|
|
|
17,526
|
|
|
|
18,175
|
|
|
|
|
|
1-4
Family Mortgages
|
|
|
2,993
|
|
|
|
596
|
|
|
|
3,589
|
|
|
|
94,223
|
|
|
|
97,812
|
|
|
|
179
|
|
Commercial Real Estate
|
|
|
903
|
|
|
|
185
|
|
|
|
1,088
|
|
|
|
179,792
|
|
|
|
180,880
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Real Estate Loans
|
|
|
4,688
|
|
|
|
924
|
|
|
|
5,612
|
|
|
|
315,048
|
|
|
|
320,660
|
|
|
|
179
|
|
|
|
|
|
|
|
|
Business Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and Industrial Loans
|
|
|
66
|
|
|
|
186
|
|
|
|
252
|
|
|
|
53,509
|
|
|
|
53,761
|
|
|
|
|
|
Farm Production and Other Farm Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
765
|
|
|
|
765
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Business Loans
|
|
|
66
|
|
|
|
186
|
|
|
|
252
|
|
|
|
54,274
|
|
|
|
54,526
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit Cards
|
|
|
7
|
|
|
|
3
|
|
|
|
10
|
|
|
|
1,146
|
|
|
|
1,156
|
|
|
|
3
|
|
Other Consumer Loans
|
|
|
788
|
|
|
|
27
|
|
|
|
815
|
|
|
|
17,495
|
|
|
|
18,310
|
|
|
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Consumer Loans
|
|
|
795
|
|
|
|
30
|
|
|
|
825
|
|
|
|
18,641
|
|
|
|
19,466
|
|
|
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Loans
|
|
$
|
5,549
|
|
|
$
|
1,140
|
|
|
$
|
6,689
|
|
|
$
|
387,963
|
|
|
$
|
394,652
|
|
|
$
|
209
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans are considered impaired when, based on current information and events, it is probable the Corporation will be unable to
collect all amounts due in accordance with the original contractual terms of the loan agreement, including scheduled principal and interest payments. In determining which loans to evaluate for impairment, management looks at all loans over $100,000
that are past due loans, bankruptcy filings and any situation that might lend itself to cause a borrower to be unable to repay the loan according to the original agreement terms. If a loan is determined to be impaired and the collateral is deemed to
be insufficient to fully repay the loan, a specific reserve will be established. Interest payments on impaired loans are typically applied to principal unless collectability of the principal amount is reasonably assured, in which case interest is
recognized on a cash basis. Impaired loans or portions thereof, are
charged-off
when deemed uncollectible.
13
Impaired loans (in thousands) as of March 31, 2017, segregated by class, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recorded
|
|
|
Recorded
|
|
|
|
|
|
|
|
|
|
|
|
|
Unpaid
|
|
|
Investment
|
|
|
Investment
|
|
|
Total
|
|
|
|
|
|
Average
|
|
|
|
Principal
|
|
|
With No
|
|
|
With
|
|
|
Recorded
|
|
|
Related
|
|
|
Recorded
|
|
|
|
Balance
|
|
|
Allowance
|
|
|
Allowance
|
|
|
Investment
|
|
|
Allowance
|
|
|
Allowance
|
|
Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land Development and Construction
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Farmland
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
|
|
1-4
Family Mortgages
|
|
|
684
|
|
|
|
|
|
|
|
684
|
|
|
|
684
|
|
|
|
171
|
|
|
|
211
|
|
Commercial Real Estate
|
|
|
5,241
|
|
|
|
|
|
|
|
5,241
|
|
|
|
5,241
|
|
|
|
479
|
|
|
|
474
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Real Estate Loans
|
|
|
5,925
|
|
|
|
|
|
|
|
5,925
|
|
|
|
5,925
|
|
|
|
650
|
|
|
|
699
|
|
|
|
|
|
|
|
|
Business Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and Industrial Loans
|
|
|
61
|
|
|
|
|
|
|
|
61
|
|
|
|
61
|
|
|
|
61
|
|
|
|
50
|
|
Farm Production and Other Farm Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Business Loans
|
|
|
61
|
|
|
|
|
|
|
|
61
|
|
|
|
61
|
|
|
|
61
|
|
|
|
50
|
|
|
|
|
|
|
|
|
Total Loans
|
|
$
|
5,986
|
|
|
$
|
|
|
|
$
|
5,986
|
|
|
$
|
5,986
|
|
|
$
|
711
|
|
|
$
|
749
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans (in thousands) as of December 31, 2016, segregated by class, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recorded
|
|
|
Recorded
|
|
|
|
|
|
|
|
|
|
|
|
|
Unpaid
|
|
|
Investment
|
|
|
Investment
|
|
|
Total
|
|
|
|
|
|
Average
|
|
|
|
Principal
|
|
|
With No
|
|
|
With
|
|
|
Recorded
|
|
|
Related
|
|
|
Recorded
|
|
|
|
Balance
|
|
|
Allowance
|
|
|
Allowance
|
|
|
Investment
|
|
|
Allowance
|
|
|
Allowance
|
|
Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land Development and Construction
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
43
|
|
Farmland
|
|
|
163
|
|
|
|
|
|
|
|
163
|
|
|
|
163
|
|
|
|
28
|
|
|
|
87
|
|
1-4
Family Mortgages
|
|
|
1,448
|
|
|
|
|
|
|
|
1,448
|
|
|
|
1,448
|
|
|
|
252
|
|
|
|
218
|
|
Commercial Real Estate
|
|
|
5,327
|
|
|
|
|
|
|
|
5,327
|
|
|
|
5,327
|
|
|
|
469
|
|
|
|
1,577
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Real Estate Loans
|
|
|
6,938
|
|
|
|
|
|
|
|
6,938
|
|
|
|
6,938
|
|
|
|
749
|
|
|
|
1,925
|
|
|
|
|
|
|
|
|
Business Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and Industrial Loans
|
|
|
126
|
|
|
|
|
|
|
|
126
|
|
|
|
126
|
|
|
|
38
|
|
|
|
19
|
|
Farm Production and Other Farm Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Business Loans
|
|
|
126
|
|
|
|
|
|
|
|
126
|
|
|
|
126
|
|
|
|
38
|
|
|
|
19
|
|
|
|
|
|
|
|
|
Total Loans
|
|
$
|
7,064
|
|
|
$
|
|
|
|
$
|
7,064
|
|
|
$
|
7,064
|
|
|
$
|
787
|
|
|
$
|
1,944
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
The following table presents troubled debt restructurings (in thousands, except for number of loans), segregated
by class:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-Modification
|
|
|
Post-Modification
|
|
|
|
|
|
|
Outstanding
|
|
|
Outstanding
|
|
|
|
Number of
|
|
|
Recorded
|
|
|
Recorded
|
|
March 31, 2017
|
|
Loans
|
|
|
Investment
|
|
|
Investment
|
|
|
|
|
|
Commercial real estate
|
|
|
3
|
|
|
$
|
4,871
|
|
|
$
|
3,272
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
3
|
|
|
$
|
4,871
|
|
|
$
|
3,272
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-Modification
|
|
|
Post-Modification
|
|
|
|
|
|
|
Outstanding
|
|
|
Outstanding
|
|
|
|
Number of
|
|
|
Recorded
|
|
|
Recorded
|
|
December 31, 2016
|
|
Loans
|
|
|
Investment
|
|
|
Investment
|
|
|
|
|
|
Commercial real estate
|
|
|
3
|
|
|
$
|
4,871
|
|
|
$
|
3,288
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
3
|
|
|
$
|
4,871
|
|
|
$
|
3,288
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in the Corporations troubled debt restructurings (in thousands, except for number of loans) are set forth in the
table below:
|
|
|
|
|
|
|
|
|
|
|
Number
|
|
|
Recorded
|
|
|
|
of Loans
|
|
|
Investment
|
|
Totals at January 1, 2017
|
|
|
3
|
|
|
$
|
3,288
|
|
Reductions due to:
|
|
|
|
|
|
|
|
|
Principal paydowns
|
|
|
|
|
|
|
(16
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Total at March 31, 2017
|
|
|
3
|
|
|
$
|
3,272
|
|
|
|
|
|
|
|
|
|
|
The allocated allowance for loan losses attributable to restructured loans was $174,274 at March 31, 2017 and
December 31, 2016. The Corporation had no remaining availability under commitments to lend additional funds on these troubled debt restructurings as of March 31, 2017.
15
The Corporation utilizes a risk grading matrix to assign a risk grade to each of its loans when originated and is
updated as factors related to the strength of the loan changes. Loans are graded on a scale of 1 to 9. A description of the general characteristics of the 9 risk grades follows.
Grade 1. MINIMAL RISK - These loans are without loss exposure to the Corporation. This classification is reserved for only the best, well secured loans to
borrowers with significant capital strength, low leverage, stable earnings and growth and other readily available financing alternatives. This type of loan would also include loans secured by a program of the government.
Grade 2. MODEST RISK - These loans include borrowers with solid credit quality and moderate risk of loss. These loans may be fully secured by certificates of
deposit with another reputable financial institution, or secured by readily marketable securities with acceptable margins.
Grade 3. AVERAGE RISK - This
is the rating assigned to the majority of the loans held by the Corporation. This includes loans with average loss exposure and average overall quality. These loans should liquidate through possessing adequate collateral and adequate earnings of the
borrower. In addition, these loans are properly documented and are in accordance with all aspects of the current loan policy.
Grade 4. ACCEPTABLE RISK -
Borrower generates sufficient cash flow to fund debt service but most working asset and capital expansion needs are provided from external sources. Profitability and key balance sheet ratios are usually close to peers but one or more may be higher
than peers.
Grade 5. MANAGEMENT ATTENTION - Borrower has significant weaknesses resulting from performance trends or management concerns. The financial
condition of the borrower has taken a negative turn and may be temporarily strained. Cash flow is weak but cash reserves remain adequate to meet debt service. Management weakness is evident.
Grade 6. OTHER LOANS ESPECIALLY MENTIONED (OLEM) - Loans in this category are fundamentally sound but possess some weaknesses. OLEM loans have
potential weaknesses which may, if not checked or corrected, weaken the asset or inadequately protect the banks credit position at some future date. These loans have an identifiable weakness in credit, collateral, or repayment ability but
there is no expectation of loss.
Grade 7. SUBSTANDARD ASSETS - Assets classified as substandard are inadequately protected by the current net worth and
paying capacity of the obligor or of the collateral pledged, if any. Assets classified as substandard must have a well-defined weakness based upon objective evidence. Assets classified as substandard are characterized by the distinct possibility
that the insured institution will sustain some loss if the deficiencies are not corrected. The possibility that liquidation would not be timely requires a substandard classification even if there is little likelihood of total loss.
16
Grade 8. DOUBTFUL - A loan classified as doubtful has all the weaknesses of a substandard classification and the
added characteristic that the weakness makes collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable or improbable. The possibility of loss is extremely high, but because of certain
important and reasonable specific pending factors which may work to the advantage and strengthening of the asset, its classification as an estimated loss is deferred until its more exact status may be determined. A doubtful classification could
reflect the fact that the primary source of repayment is gone and serious doubt exists as to the quality of a secondary source of repayment.
Grade 9.
LOSS - Loans classified as loss are considered uncollectible and of such little value that their continuance as bankable assets is not warranted. This classification does not mean that the asset has absolutely no recovery or salvage value, but
rather it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may occur in the future. Also included in this classification is the defined loss portion of loans rated substandard assets and
doubtful assets.
These internally assigned grades are updated on a continual basis throughout the course of the year and represent managements most
updated judgment regarding grades at March 31, 2017.
The following table details the amount of gross loans (in thousands), segregated by loan grade
and class, as of March 31, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Special
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Satisfactory
|
|
|
Mention
|
|
|
Substandard
|
|
|
Doubtful
|
|
|
Loss
|
|
|
Total
|
|
|
|
1,2,3,4
|
|
|
5,6
|
|
|
7
|
|
|
8
|
|
|
9
|
|
|
Loans
|
|
Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land Development and Construction
|
|
$
|
26,082
|
|
|
$
|
333
|
|
|
$
|
342
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
26,757
|
|
Farmland
|
|
|
15,780
|
|
|
|
604
|
|
|
|
904
|
|
|
|
|
|
|
|
|
|
|
|
17,288
|
|
1-4
Family Mortgages
|
|
|
84,941
|
|
|
|
2,116
|
|
|
|
8,983
|
|
|
|
|
|
|
|
|
|
|
|
96,040
|
|
Commercial Real Estate
|
|
|
159,175
|
|
|
|
11,089
|
|
|
|
8,202
|
|
|
|
|
|
|
|
|
|
|
|
178,466
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Real Estate Loans
|
|
|
285,978
|
|
|
|
14,142
|
|
|
|
18,431
|
|
|
|
|
|
|
|
|
|
|
|
318,551
|
|
|
|
|
|
|
|
|
Business Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and Industrial Loans
|
|
|
54,004
|
|
|
|
1,459
|
|
|
|
204
|
|
|
|
|
|
|
|
61
|
|
|
|
55,728
|
|
Farm Production and Other Farm Loans
|
|
|
832
|
|
|
|
25
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
866
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Business Loans
|
|
|
54,836
|
|
|
|
1,484
|
|
|
|
213
|
|
|
|
|
|
|
|
61
|
|
|
|
56,594
|
|
|
|
|
|
|
|
|
Consumer Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit Cards
|
|
|
1,120
|
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
1,125
|
|
Other Consumer Loans
|
|
|
16,692
|
|
|
|
70
|
|
|
|
300
|
|
|
|
1
|
|
|
|
|
|
|
|
17,063
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Consumer Loans
|
|
|
17,812
|
|
|
|
70
|
|
|
|
305
|
|
|
|
1
|
|
|
|
|
|
|
|
18,188
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Loans
|
|
$
|
358,626
|
|
|
$
|
15,696
|
|
|
$
|
18,949
|
|
|
$
|
1
|
|
|
$
|
61
|
|
|
$
|
393,333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
The following table details the amount of gross loans (in thousands) segregated by loan grade and class, as of
December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Satisfactory
1,2,3,4
|
|
|
Special
Mention
5,6
|
|
|
Substandard
7
|
|
|
Doubtful
8
|
|
|
Loss
9
|
|
|
Total
Loans
|
|
Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land Development and Construction
|
|
$
|
23,038
|
|
|
$
|
186
|
|
|
$
|
569
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
23,793
|
|
Farmland
|
|
|
16,448
|
|
|
|
776
|
|
|
|
951
|
|
|
|
|
|
|
|
|
|
|
|
18,175
|
|
1-4 Family Mortgages
|
|
|
86,043
|
|
|
|
1,754
|
|
|
|
10,015
|
|
|
|
|
|
|
|
|
|
|
|
97,812
|
|
Commercial Real Estate
|
|
|
161,323
|
|
|
|
11,072
|
|
|
|
8,485
|
|
|
|
|
|
|
|
|
|
|
|
180,880
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Real Estate Loans
|
|
|
286,852
|
|
|
|
13,788
|
|
|
|
20,020
|
|
|
|
|
|
|
|
|
|
|
|
320,660
|
|
Business Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and Industrial Loans
|
|
|
51,985
|
|
|
|
1,427
|
|
|
|
349
|
|
|
|
|
|
|
|
|
|
|
|
53,761
|
|
Farm Production and Other Farm Loans
|
|
|
727
|
|
|
|
28
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
765
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Business Loans
|
|
|
52,712
|
|
|
|
1,455
|
|
|
|
359
|
|
|
|
|
|
|
|
|
|
|
|
54,526
|
|
Consumer Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit Cards
|
|
|
1,153
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
1,156
|
|
Other Consumer Loans
|
|
|
18,027
|
|
|
|
149
|
|
|
|
132
|
|
|
|
2
|
|
|
|
|
|
|
|
18,310
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Consumer Loans
|
|
|
19,180
|
|
|
|
149
|
|
|
|
135
|
|
|
|
2
|
|
|
|
|
|
|
|
19,466
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Loans
|
|
$
|
358,744
|
|
|
$
|
15,392
|
|
|
$
|
20,514
|
|
|
$
|
2
|
|
|
$
|
|
|
|
$
|
394,652
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The allowance for loan losses is a reserve established through a provision for loan losses charged to expense, which
represents managements best estimate of probable losses within the existing portfolio of loans. The allowance, in the judgment of management, is necessary to reserve for estimated loan losses and risks inherent in the loan portfolio.
The allowance on the majority of the loan portfolio is calculated using a historical chargeoff percentage applied to the current loan balances by loan
segment. This historical period is the average of the previous twenty quarters with the most current quarters weighted more heavily to show the effect of the most recent chargeoff activity. This percentage is also adjusted for economic factors such
as local unemployment and general business conditions, both local and nationwide.
The group of loans that are considered to be impaired are individually
evaluated for possible loss and a specific reserve is established to cover any loss contingency. Loans that are determined to be a loss with no benefit of remaining in the portfolio are charged off to the allowance. These specific reserves are
reviewed periodically for continued impairment and adequacy of the specific reserve and are adjusted when necessary.
18
The following table details activity in the allowance for loan losses by portfolio segment for the three months
ended March 31, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real
|
|
|
Business
|
|
|
|
|
|
|
|
March 31, 2017
|
|
Estate
|
|
|
Loans
|
|
|
Consumer
|
|
|
Total
|
|
Beginning Balance, January 1, 2017
|
|
$
|
3,117,134
|
|
|
$
|
257,554
|
|
|
$
|
528,108
|
|
|
$
|
3,902,796
|
|
Provision for possible loan losses
|
|
|
(282,820
|
)
|
|
|
175,477
|
|
|
|
(43,877
|
)
|
|
|
(151,220
|
)
|
Chargeoffs
|
|
|
4,107
|
|
|
|
67,850
|
|
|
|
12,046
|
|
|
|
84,003
|
|
Recoveries
|
|
|
12,465
|
|
|
|
254
|
|
|
|
21,622
|
|
|
|
34,341
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net chargeoffs
|
|
|
(8,358
|
)
|
|
|
67,596
|
|
|
|
(9,576
|
)
|
|
|
49,662
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
$
|
2,842,672
|
|
|
$
|
365,435
|
|
|
$
|
493,807
|
|
|
$
|
3,701,914
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period end allowance allocated to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans individually evaluated for impairment
|
|
$
|
649,449
|
|
|
$
|
61,288
|
|
|
$
|
|
|
|
$
|
710,737
|
|
Loans collectively evaluated for impairment
|
|
|
2,193,223
|
|
|
|
304,147
|
|
|
|
493,807
|
|
|
|
2,991,177
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance, March 31, 2017
|
|
$
|
2,842,672
|
|
|
$
|
365,435
|
|
|
$
|
493,807
|
|
|
$
|
3,701,914
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table details activity in the allowance for loan losses by portfolio segment for the three months ended
March 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real
|
|
|
Business
|
|
|
|
|
|
|
|
March 31, 2016
|
|
Estate
|
|
|
Loans
|
|
|
Consumer
|
|
|
Total
|
|
Beginning Balance, January 1, 2016
|
|
$
|
5,238,895
|
|
|
$
|
643,248
|
|
|
$
|
591,560
|
|
|
$
|
6,473,703
|
|
Provision for possible loan losses
|
|
|
(5,593
|
)
|
|
|
(39,517
|
)
|
|
|
105,608
|
|
|
|
60,498
|
|
Chargeoffs
|
|
|
1,557,871
|
|
|
|
79
|
|
|
|
12,361
|
|
|
|
1,570,311
|
|
Recoveries
|
|
|
8,806
|
|
|
|
6,005
|
|
|
|
30,041
|
|
|
|
44,852
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net chargeoffs
|
|
|
1,549,065
|
|
|
|
(5,926
|
)
|
|
|
(17,680
|
)
|
|
|
1,525,459
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
$
|
3,684,237
|
|
|
$
|
609,657
|
|
|
$
|
714,848
|
|
|
$
|
5,008,742
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period end allowance allocated to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans individually evaluated for impairment
|
|
$
|
1,379,937
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,379,937
|
|
Loans collectively evaluated for impairment
|
|
|
2,304,300
|
|
|
|
609,657
|
|
|
|
714,848
|
|
|
|
3,628,805
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance, March 31, 2016
|
|
$
|
3,684,237
|
|
|
$
|
609,657
|
|
|
$
|
714,848
|
|
|
$
|
5,008,742
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
The Corporations recorded investment in loans as of March 31, 2017 and December 31, 2016 related
to each balance in the allowance for possible loan losses by portfolio segment and disaggregated on the basis of the Corporations impairment methodology was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real
|
|
|
Business
|
|
|
|
|
|
|
|
March 31, 2017
|
|
Estate
|
|
|
Loans
|
|
|
Consumer
|
|
|
Total
|
|
Loans individually evaluated for specific impairment
|
|
$
|
5,925
|
|
|
$
|
61
|
|
|
$
|
|
|
|
$
|
5,986
|
|
Loans collectively evaluated for general impairment
|
|
|
312,626
|
|
|
|
56,533
|
|
|
|
18,188
|
|
|
|
387,347
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
318,551
|
|
|
$
|
56,594
|
|
|
$
|
18,188
|
|
|
$
|
393,333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real
|
|
|
Business
|
|
|
|
|
|
|
|
December 31, 2016
|
|
Estate
|
|
|
Loans
|
|
|
Consumer
|
|
|
Total
|
|
Loans individually evaluated for specific impairment
|
|
$
|
6,938
|
|
|
$
|
126
|
|
|
$
|
|
|
|
$
|
7,064
|
|
Loans collectively evaluated for general impairment
|
|
|
313,722
|
|
|
|
54,400
|
|
|
|
19,466
|
|
|
|
387,588
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
320,660
|
|
|
$
|
54,526
|
|
|
$
|
19,466
|
|
|
$
|
394,652
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
Note 8.
|
Fair Value of Financial Instruments
|
The fair value topic of the ASC establishes a framework for
measuring fair value and requires enhanced disclosures about fair value measurements. This topic clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants. This topic also requires disclosure about how fair value was determined for assets and liabilities and establishes a hierarchy for which these assets and liabilities must be grouped, based on
significant levels of inputs as follows:
|
|
|
Level 1
|
|
Quoted prices (unadjusted) in active markets for identical assets or liabilities;
|
|
|
Level 2
|
|
Inputs other than quoted prices in active markets for identical assets and liabilities included in Level 1 that are observable for the asset or liability, either directly or indirectly, such as quoted prices for similar assets
or liabilities in active markets, or quoted prices for identical or similar assets or liabilities in markets that are not active; or
|
|
|
Level 3
|
|
Unobservable inputs for an asset or liability, such as discounted cash flow models or valuations.
|
The determination of where assets and liabilities fall within this hierarchy is based upon the lowest level of input that is
significant to the fair value measurement.
The following table presents assets and liabilities that were measured at fair value on a recurring basis as
of March 31, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using:
|
|
|
|
Quoted Prices
in Active
Markets for
Identical
Assets
|
|
|
Significant
Other
Observable
Inputs
|
|
|
Significant
Unobservable
Inputs
|
|
|
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Totals
|
|
Securities available for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of U.S. Government Agencies
|
|
$
|
|
|
|
$
|
199,552,252
|
|
|
$
|
|
|
|
$
|
199,552,252
|
|
Mortgage-backed securities
|
|
|
|
|
|
|
143,565,587
|
|
|
|
|
|
|
|
143,565,587
|
|
State, county and municipal obligations
|
|
|
|
|
|
|
143,837,423
|
|
|
|
|
|
|
|
143,837,423
|
|
Other investments
|
|
|
|
|
|
|
|
|
|
|
2,985,759
|
|
|
|
2,985,759
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
|
$
|
486,955,262
|
|
|
$
|
2,985,759
|
|
|
$
|
489,941,021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
The following table presents assets and liabilities that were measured at fair value on a recurring basis as of
December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using:
|
|
|
|
Quoted Prices
in Active
Markets for
Identical
Assets
|
|
|
Significant
Other
Observable
Inputs
|
|
|
Significant
Unobservable
Inputs
|
|
|
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Totals
|
|
Securities available for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of U.S. Government Agencies
|
|
$
|
|
|
|
$
|
199,966,608
|
|
|
$
|
|
|
|
$
|
199,966,608
|
|
Mortgage-backed securities
|
|
|
|
|
|
|
148,264,710
|
|
|
|
|
|
|
|
148,264,710
|
|
State, county and municipal obligations
|
|
|
|
|
|
|
144,922,150
|
|
|
|
|
|
|
|
144,922,150
|
|
Other investments
|
|
|
|
|
|
|
|
|
|
|
2,971,106
|
|
|
|
2,971,106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
|
$
|
493,153,468
|
|
|
$
|
2,971,106
|
|
|
$
|
496,124,574
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table reports the activity in assets measured at fair value on a recurring basis using significant unobservable
inputs:
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using:
|
|
|
|
Significant Unobservable Inputs
|
|
|
|
(Level 3)
|
|
|
|
Structured Financial Product
|
|
|
|
As of March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Beginning Balance
|
|
$
|
2,971,106
|
|
|
$
|
2,915,709
|
|
|
|
|
Principal payments received
|
|
|
(4,466
|
)
|
|
|
(15,190
|
)
|
Unrealized gains included in other comprehensive income
|
|
|
19,119
|
|
|
|
25,668
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
$
|
2,985,759
|
|
|
$
|
2,926,187
|
|
|
|
|
|
|
|
|
|
|
The Corporation recorded no gains or losses in earnings for the period ended March 31, 2017 or December 31, 2016
that were attributable to the change in unrealized gains or losses relating to assets still held at the reporting date.
22
The following table presents information as of March 31, 2017 about significant unobservable inputs (Level
3) used in the valuation of assets and liabilities measured at fair value on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
Financial instrument
|
|
Fair Value
|
|
|
Valuation Technique
|
|
Significant
Unobservable Inputs
|
|
Range of Inputs
|
Trust preferred securities
|
|
$
|
2,985,759
|
|
|
Discounted cash flows
|
|
Default rate
|
|
0-100%
|
For assets measured at fair value on a nonrecurring basis during 2017 that were still held on the Corporations balance
sheet at March 31, 2017, the following table provides the hierarchy level and the fair value of the related assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using:
|
|
|
|
Quoted Prices
in Active
Markets for
Identical
Assets
|
|
|
Significant
Other
Observable
Inputs
|
|
|
Significant
Unobservable
Inputs
|
|
|
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Totals
|
|
|
|
|
|
|
Impaired loans
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,515,509
|
|
|
$
|
2,515,509
|
|
Other real estate owned
|
|
|
|
|
|
|
|
|
|
|
1,413,700
|
|
|
|
1,413,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3,929,209
|
|
|
$
|
3,929,209
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents information as of March 31, 2017 about significant unobservable inputs (Level 3) used in the
valuation of assets and liabilities measured at fair value on a nonrecurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial instrument
|
|
Fair Value
|
|
|
Valuation Technique
|
|
Significant Unobservable
Inputs
|
|
Range of
Inputs
|
|
Impaired loans
|
|
$
|
2,515,509
|
|
|
Appraised value of collateral less
estimated costs to sell
|
|
Estimated costs to sell
|
|
|
25
|
%
|
|
|
|
|
|
OREO
|
|
|
1,413,700
|
|
|
Appraised value of collateral less
estimated costs to sell
|
|
Estimated costs to sell
|
|
|
25
|
%
|
23
For assets measured at fair value on a nonrecurring basis during 2016 that were still held on the
Corporations balance sheet at December 31, 2016, the following table provides the hierarchy level and the fair value of the related assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using:
|
|
|
|
Quoted Prices
in Active
Markets for
Identical
Assets
|
|
|
Significant
Other
Observable
Inputs
|
|
|
Significant
Unobservable
Inputs
|
|
|
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Totals
|
|
|
|
|
|
|
Impaired loans
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3,591,516
|
|
|
$
|
3,591,516
|
|
Other real estate owned
|
|
|
|
|
|
|
|
|
|
|
1,893,949
|
|
|
|
1,893,949
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
|
$
|
|
|
|
$
|
5,485,465
|
|
|
$
|
5,485,465
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans with a carrying value of $5,985,642 and $7,064,185 had an allocated allowance for loan losses of $710,737 and
$786,893 at March 31, 2017 and December 31, 2016, respectively. The allocated allowance is based on the carrying value of the impaired loan and the fair value of the underlying collateral less estimated costs to sell.
Real estate acquired through foreclosure or deed in lien, sometimes referred to as other real estate owned (OREO) acquired during the three-month
period ended March 31, 2017, and recorded at fair value, less costs to sell, was $11,200, of which $0 was acquired and sold during this period. There were no writedowns during the period on properties owned. OREO acquired during 2016 and
recorded at fair value, less costs to sell, was $2,187,125. There were $220,419 in additional writedowns during 2016 on OREO acquired in previous years.
The financial instruments topic of the ASC requires disclosure of financial instruments fair values, as well as the methodology and significant
assumptions used in estimating fair values. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions
used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of
the instrument. The financial instruments topic of the ASC excludes certain financial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Corporation and
may not be indicative of amounts that might ultimately be realized upon disposition or settlement of those assets and liabilities.
24
The following represents the carrying value and estimated fair value of the Corporations financial
instruments at March 31, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using:
|
|
March 31, 2017
|
|
Carrying
Value
|
|
|
Quoted Prices
in Active
Markets for
Identical
Assets
|
|
|
Significant
Other
Observable
Inputs
|
|
|
Significant
Unobservable
Inputs
|
|
|
Total
Fair
Value
|
|
|
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
|
|
Financial assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
27,706,912
|
|
|
$
|
27,706,912
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
27,706,912
|
|
Interest bearing deposits with banks
|
|
|
73,714,719
|
|
|
|
73,714,719
|
|
|
|
|
|
|
|
|
|
|
|
73,714,719
|
|
Securities
available-for-sale
|
|
|
489,941,021
|
|
|
|
|
|
|
|
486,955,262
|
|
|
|
2,985,759
|
|
|
|
489,941,021
|
|
Net loans
|
|
|
389,183,439
|
|
|
|
|
|
|
|
|
|
|
|
389,851,680
|
|
|
|
389,851,680
|
|
|
|
|
|
|
|
Financial liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
789,214,876
|
|
|
$
|
595,106,483
|
|
|
$
|
|
|
|
$
|
194,261,809
|
|
|
$
|
789,368,292
|
|
Federal Home Loan Bank advances
|
|
|
20,000,000
|
|
|
|
|
|
|
|
|
|
|
|
20,214,525
|
|
|
|
20,214,525
|
|
Securities Sold under Agreement to Repurchase
|
|
|
141,098,287
|
|
|
|
141,098,287
|
|
|
|
|
|
|
|
|
|
|
|
141,098,287
|
|
25
The following represents the carrying value and estimated fair value of the Corporations financial
instruments at December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
Carrying
Value
|
|
|
Quoted Prices
in Active
Markets for
Identical
Assets
|
|
|
Significant
Other
Observable
Inputs
|
|
|
Significant
Unobservable
Inputs
|
|
|
Total
Fair
Value
|
|
|
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
|
|
Financial assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
21,688,557
|
|
|
$
|
21,688,557
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
21,688,557
|
|
Interest bearing deposits with banks
|
|
|
48,603,182
|
|
|
|
48,603,182
|
|
|
|
|
|
|
|
|
|
|
|
48,603,182
|
|
Securities
available-for-sale
|
|
|
496,124,574
|
|
|
|
|
|
|
|
493,153,468
|
|
|
|
2,971,106
|
|
|
|
496,124,574
|
|
Net loans
|
|
|
390,148,343
|
|
|
|
|
|
|
|
|
|
|
|
391,106,337
|
|
|
|
391,106,337
|
|
|
|
|
|
|
|
Financial liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
760,152,340
|
|
|
$
|
563,440,632
|
|
|
$
|
|
|
|
$
|
196,859,851
|
|
|
$
|
760,300,483
|
|
Federal Home Loan Bank advances
|
|
|
20,000,000
|
|
|
|
|
|
|
|
|
|
|
|
20,283,999
|
|
|
|
20,283,999
|
|
Securities Sold under Agreement to Repurchase
|
|
|
150,282,913
|
|
|
|
150,282,913
|
|
|
|
|
|
|
|
|
|
|
|
150,282,913
|
|
The fair value estimates, methods and assumptions used by the Corporation in estimating its fair value disclosures for
financial statements were as follows:
Cash and Due from Banks and Interest Bearing Deposits with Banks
The carrying amounts reported in the balance sheet for these instruments approximate fair value because of their immediate and shorter-term maturities, which
are considered to be three months or less when purchased.
Securities
Available-for-Sale
Fair values for investment securities are based on
quoted market prices, when available (Level 1). If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments (Level 2). When neither quoted prices nor comparable instruments are available,
unobservable inputs are needed to form an expected future cash flow analysis to establish fair values (Level 3).
The Corporation owns certain beneficial
interests in one collateralized debt obligation secured by community bank trust preferred securities. These interests do not trade in a liquid market, and therefore, market quotes are not a reliable indicator of their ultimate realizability. The
Corporation utilizes a discounted cash flow model using inputs of (1) market yields of trust-preferred securities as the discount rate and (2) expected cash flows which are estimated using assumptions related to defaults, deferrals and
prepayments to determine the fair values of these
26
beneficial interests. Many of the factors that adjust the timing and extent of cash flows are based on judgment and not directly observable in the markets. Therefore, these fair values are
classified as Level 3 valuations for accounting and disclosure purposes. Since observable transactions in these securities are extremely rare, the Corporation uses assumptions that a market participant would use in valuing these instruments.
These assumptions primarily include cash flow estimates and market discount rates. The cash flow estimates are sensitive to the assumptions related to the ability of the issuers to pay the underlying trust preferred securities according to their
terms. The market discount rates depend on transactions, which are rare given the lack of interest of investors in these types of beneficial interests.
Net Loans
For variable-rate loans that reprice
frequently and with no significant change in credit risk, fair values are based on carrying values. The fair values for other loans, including impaired loans, (i.e., commercial real estate and rental property mortgage loans, commercial and
industrial loans, financial institution loans, and agricultural loans) are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality.
Deposits
The fair values for demand deposits, NOW and
money market accounts and savings accounts are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). The carrying amounts for variable-rate, fixed-term money market accounts and time deposits
approximate their fair values at the reporting date. Fair values for fixed-rate time deposits are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated
expected monthly maturities on time deposits.
Federal Home Loan Bank (FHLB) Borrowings
The fair value of FHLB advances is based on a discounted cash flow analysis.
Securities Sold Under Agreement to Repurchase
Due to the
short term nature of these instruments, which is generally three months or less, the carrying amount is equal to the fair value.
Off-Balance
Sheet Instruments
The fair value of commitments to extend credit and letters of credit are estimated
using fees currently charged to enter into similar agreements. The fees associated with these financial instruments are not material.
27
Note 9.
|
Recent Accounting Pronouncements
|
In March 2016, the FASB issued ASU
No. 2016-09,
Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting
(ASU
2016-09).
ASU
2016-09
is intended to reduce complexity in accounting standards by simplifying several aspects of the accounting for share-based payment transactions, including (1) accounting for income taxes;
(2) classification of excess tax benefits on the statement of cash flow; (3) forfeitures; (4) minimum statutory tax withholding requirements; and (5) classification of employee taxes paid on the statement of cash flows when an
employer withholds shares for tax withholding purposes. The amendments of ASU
2016-09
are effective for interim and annual periods beginning after December 15, 2016. Management is currently evaluating the
impact this ASU will have on the Companys consolidated financial statements.
On June 16, 2016, the Financial Accounting Standards Board
(FASB) issued Accounting Standards Update (ASU)
No. 2016-13,
Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
(ASU
2016-13).
The update will significantly change the way entities recognize impairment on many financial assets by requiring immediate recognition of estimated credit losses expected to
occur over the assets remaining life. The FASB describes this impairment recognition model as the current expected credit loss (CECL) model and believes the CECL model will result in more timely recognition of credit losses since
the CECL model incorporates expected credit losses versus incurred credit losses. The scope of FASBs CECL model would include loans,
held-to-maturity
debt
instruments, lease receivables, loan commitments and financial guarantees that are not accounted for at fair value. For public companies, this update becomes effective for interim and annual periods beginning after December 15, 2019. Management
is currently evaluating the impact this ASU will have on the Companys consolidated financial statements and will continue to monitor FASBs progress on this topic.
In August 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU)
No. 2016-15,
Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments
(ASU
2016-15).
ASU
2016-15
is intended to reduce the diversity in practice in how certain cash receipts and cash payments are presented and classified in the Statement of Cash Flows, including (1) debt prepayment or debt
extinguishment costs, (2) settlement of
zero-coupon
debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the
borrowing, (3) contingent consideration payments made after a business combination, (4) proceeds from the settlement of insurance claims, (5) proceeds from the settlement of corporate-owned life insurance policies, including
bank-owned life insurance policies, (6) distributions received from equity method investees, (7) beneficial interests in securitization transactions and (8) separately identifiable cash flows and application of the predominance
principle. For public companies, this amendment becomes effective for interim and annual periods beginning after December 15, 2017. The ASU only impacts the presentation of specific items within the Statement of Cash Flows and is not expected
to have a material impact to the Company.
In February 2016, the FASB issued ASU
No. 2016-02,
Leases
(Topic 842)
(ASU
2016-02). ASU
2016-02
amends the accounting model and disclosure requirements for leases. The current accounting model for
leases distinguishes between capital leases, which are recognized on-
28
balance sheet, and operating leases, which are not. Under the new standard, the lease classifications are defined as finance leases, which are similar to capital leases under current GAAP,
and operating leases. Further, a lessee will recognize a lease liability and a
right-of-use
asset for all leases with a term greater than 12 months on its balance
sheet regardless of the leases classification, which may significantly increase reported assets and liabilities. The accounting model and disclosure requirements for lessors remains substantially unchanged from current GAAP. ASU
2016-02
is effective for annual and interim periods in fiscal years beginning after December 15, 2018. Management is currently evaluating the impact ASU
2016-02
will
have on the Companys financial position and results of operations.
In March 2017, the FASB issued ASU
No. 2017-08,
Receivables- Nonrefundable Fees and Other Costs (Subtopic
310-20)
(ASU
2017-08). ASU
2017-08
shortens the amortization period for certain callable debt securities held at a premium. Specifically, amendments require the premium to be amortized to the earliest call date. The amendments do not require
an accounting change for securities held at a discount; the discount continues to be amortized to maturity. The amendments in this update more closely align the amortization period of premiums and discounts to expectations incorporated in market
pricing on the underlying securities due to market participants pricing securities to the call date that produces the worst yield when the coupon is above current market rates, and pricing securities to maturity when the coupon is below market rates
in anticipation that the borrower will act in its economic best interest. Therefore, the amendments more closely align interest income recorded on bonds held at a premium or a discount with the economics of the underlying instrument. ASU
2017-08
is effective for annual and interim periods in fiscal years beginning after December 15, 2018. Management is currently evaluating the impact ASU
2017-08
will have
on the Companys financial position and results of operations.
29