Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2016
OR
o
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. 0-25766
Your Community Bankshares, Inc.
(Exact name of registrant as specified in its charter)
Indiana
|
|
35-1938254
|
(State or other jurisdiction of incorporation or
organization)
|
|
(I.R.S. Employer Identification Number)
|
|
|
|
101 W. Spring Street, New Albany, Indiana
|
|
47150
|
(Address of principal executive offices)
|
|
(Zip Code)
|
Registrants telephone number, including area code
812-944-2224
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.
x
Yes
o
No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
x
Yes
o
No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check One):
Large Accelerated Filer
o
|
|
Accelerated Filer
x
|
|
|
|
Non- Accelerated Filer
o
|
|
Smaller Reporting Company
o
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
o
Yes
x
No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.
o
Yes
o
No
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date: 5,453,271 shares of common stock were outstanding as of May 6, 2016.
Table of Contents
PART I - FINANCIAL INFORMATION
YOUR COMMUNITY BANKSHARES, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
|
|
March 31,
2016
|
|
December 31,
2015
|
|
|
|
(In thousands, except share data)
|
|
ASSETS
|
|
|
|
|
|
Cash and due from financial institutions
|
|
$
|
24,439
|
|
$
|
30,425
|
|
Interest-bearing deposits in other financial institutions
|
|
20,726
|
|
13,365
|
|
Securities available for sale
|
|
348,068
|
|
378,978
|
|
Loans held for sale
|
|
234
|
|
1,015
|
|
Loans, net of allowance for loan losses of $6,188 and $6,851
|
|
1,041,320
|
|
1,009,463
|
|
Federal Home Loan Bank and Federal Reserve stock
|
|
3,882
|
|
3,890
|
|
Accrued interest receivable
|
|
5,124
|
|
5,328
|
|
Premises and equipment, net
|
|
32,576
|
|
33,270
|
|
Company owned life insurance
|
|
33,381
|
|
33,127
|
|
Goodwill
|
|
4,945
|
|
4,945
|
|
Core deposit intangible
|
|
4,716
|
|
5,015
|
|
Foreclosed and repossessed assets
|
|
6,228
|
|
9,952
|
|
Other assets
|
|
24,828
|
|
27,242
|
|
Total Assets
|
|
$
|
1,550,467
|
|
$
|
1,556,015
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
|
|
|
|
|
Deposits
|
|
|
|
|
|
Non interest-bearing
|
|
$
|
283,518
|
|
$
|
286,739
|
|
Interest-bearing
|
|
954,446
|
|
975,325
|
|
Total deposits
|
|
1,237,964
|
|
1,262,064
|
|
Short-term borrowings
|
|
73,410
|
|
48,785
|
|
Other borrowings
|
|
97,551
|
|
108,347
|
|
Accrued interest payable
|
|
840
|
|
451
|
|
Other liabilities
|
|
7,785
|
|
9,282
|
|
Total liabilities
|
|
1,417,550
|
|
1,428,929
|
|
|
|
|
|
|
|
Commitments and contingent liabilities
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity
|
|
|
|
|
|
Common stock, $0.10 par value per share; 10,000,000 shares authorized; 5,776,237 shares issued in 2016 and 2015; 5,453,271 and 5,429,766 outstanding in 2016 and 2015, respectively
|
|
578
|
|
578
|
|
Additional paid-in capital
|
|
91,159
|
|
90,869
|
|
Retained earnings
|
|
42,554
|
|
39,512
|
|
Accumulated other comprehensive income
|
|
4,183
|
|
2,089
|
|
Treasury stock, at cost (2016- 322,966 shares, 2015- 346,471 shares)
|
|
(5,557
|
)
|
(5,962
|
)
|
Total shareholders equity
|
|
132,917
|
|
127,086
|
|
Total Liabilities and Shareholders Equity
|
|
$
|
1,550,467
|
|
$
|
1,556,015
|
|
See accompanying notes to condensed consolidated financial statements.
3
Table of Contents
PART I - FINANCIAL INFORMATION
YOUR COMMUNITY BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
|
|
Three Months Ended
March 31,
|
|
|
|
2016
|
|
2015
|
|
|
|
(In thousands, except share data)
|
|
Interest and dividend income
|
|
|
|
|
|
Loans, including fees
|
|
$
|
12,373
|
|
$
|
12,523
|
|
Taxable securities
|
|
1,153
|
|
1,340
|
|
Tax-exempt securities
|
|
1,027
|
|
743
|
|
Federal Home Loan Bank and Federal Reserve dividends
|
|
50
|
|
95
|
|
Interest-bearing deposits in other financial institutions
|
|
38
|
|
55
|
|
Interest and dividend income
|
|
14,641
|
|
14,756
|
|
|
|
|
|
|
|
Interest expense
|
|
|
|
|
|
Deposits
|
|
560
|
|
574
|
|
Short-term borrowings
|
|
67
|
|
22
|
|
Other borrowings
|
|
1,018
|
|
676
|
|
Interest expense
|
|
1,645
|
|
1,272
|
|
Net interest income
|
|
12,996
|
|
13,484
|
|
|
|
|
|
|
|
Provision for loan losses
|
|
|
|
106
|
|
|
|
|
|
|
|
Net interest income after provision for loan losses
|
|
12,996
|
|
13,378
|
|
|
|
|
|
|
|
Non-interest income
|
|
|
|
|
|
Service charges on deposit accounts
|
|
1,478
|
|
1,391
|
|
Commission income
|
|
46
|
|
47
|
|
Net gain on sales of available for sale securities
|
|
297
|
|
51
|
|
Mortgage banking income
|
|
78
|
|
117
|
|
Earnings on company owned life insurance
|
|
254
|
|
252
|
|
Interchange income
|
|
572
|
|
444
|
|
Amortization of tax credit investments
|
|
(350
|
)
|
(86
|
)
|
Other income
|
|
189
|
|
196
|
|
Non-interest income
|
|
2,564
|
|
2,412
|
|
|
|
|
|
|
|
Non-interest expense
|
|
|
|
|
|
Salaries and employee benefits
|
|
6,026
|
|
9,119
|
|
Occupancy
|
|
1,240
|
|
1,627
|
|
Equipment
|
|
512
|
|
581
|
|
Data processing
|
|
1,089
|
|
1,814
|
|
Marketing and advertising
|
|
145
|
|
210
|
|
Legal and professional service fees
|
|
623
|
|
1,558
|
|
FDIC insurance premiums
|
|
225
|
|
273
|
|
Foreclosed and repossessed assets, net
|
|
(110
|
)
|
344
|
|
Amortization of intangible assets
|
|
299
|
|
397
|
|
Other expense
|
|
1,187
|
|
2,001
|
|
Total non-interest expense
|
|
11,236
|
|
17,924
|
|
Income (loss) before income taxes
|
|
4,324
|
|
(2,134
|
)
|
|
|
|
|
|
|
Income tax expense (benefit)
|
|
629
|
|
(1,198
|
)
|
|
|
|
|
|
|
Net Income (loss)
|
|
3,695
|
|
(936
|
)
|
|
|
|
|
|
|
Preferred stock dividends
|
|
|
|
(110
|
)
|
|
|
|
|
|
|
Net income (loss) available (attributable) to common shareholders
|
|
$
|
3,695
|
|
$
|
(1,046
|
)
|
4
Table of Contents
|
|
Three Months Ended
March 31,
|
|
|
|
2016
|
|
2015
|
|
|
|
(In thousands, except share data)
|
|
Earnings (loss) per common share:
|
|
|
|
|
|
Basic
|
|
$
|
0.68
|
|
$
|
(0.19
|
)
|
Diluted
|
|
$
|
0.67
|
|
$
|
(0.19
|
)
|
|
|
|
|
|
|
Dividends per common share
|
|
$
|
0.12
|
|
$
|
0.12
|
|
See accompanying notes to condensed consolidated financial statements.
5
Table of Contents
PART I - FINANCIAL INFORMATION
YOUR COMMUNITY BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
|
|
Three Months Ended
March 31,
|
|
|
|
2016
|
|
2015
|
|
|
|
(In thousands)
|
|
Net income (loss)
|
|
$
|
3,695
|
|
$
|
(936
|
)
|
|
|
|
|
|
|
Other comprehensive income:
|
|
|
|
|
|
Unrealized gain on securities:
|
|
|
|
|
|
Unrealized gain arising during the period
|
|
3,545
|
|
3,039
|
|
Reclassification adjustment for gains included in net income
|
|
(297
|
)
|
(51
|
)
|
Tax effect
|
|
(1,137
|
)
|
(1,016
|
)
|
Net of tax
|
|
2,111
|
|
1,972
|
|
|
|
|
|
|
|
Defined benefit pension plans:
|
|
|
|
|
|
Net gain (loss) arising during the period
|
|
(31
|
)
|
6
|
|
Reclassification adjustment for amortization of unrecognized loss included in net periodic pension cost
|
|
5
|
|
4
|
|
Tax effect
|
|
9
|
|
(3
|
)
|
Net of tax
|
|
(17
|
)
|
7
|
|
|
|
|
|
|
|
Total other comprehensive income
|
|
2,094
|
|
1,979
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$
|
5,789
|
|
$
|
1,043
|
|
See accompanying notes to condensed consolidated financial statements.
6
Table of Contents
PART I FINANCIAL INFORMATION
YOUR COMMUNITY BANKSHARES, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY
(Dollar amounts in thousands, except per share data)
(Unaudited)
|
|
Common
Stock
|
|
Additional
Paid-In
Capital
|
|
Retained
Earnings
|
|
Accumulated
Other
Comprehensive
Income
|
|
Treasury
Stock
|
|
Total
Shareholders
Equity
|
|
Balance, January 1, 2016
|
|
$
|
578
|
|
$
|
90,869
|
|
$
|
39,512
|
|
$
|
2,089
|
|
$
|
(5,962
|
)
|
$
|
127,086
|
|
Net income
|
|
|
|
|
|
3,695
|
|
|
|
|
|
3,695
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
2,094
|
|
|
|
2,094
|
|
Dividends declared on common stock ($0.12 per share)
|
|
|
|
|
|
(653
|
)
|
|
|
|
|
(653
|
)
|
Issuance of treasury stock under dividend reinvestment plan
|
|
|
|
22
|
|
|
|
|
|
27
|
|
49
|
|
Stock activity under incentive compensation plans
|
|
|
|
(391
|
)
|
|
|
|
|
378
|
|
(13
|
)
|
Stock award expense
|
|
|
|
659
|
|
|
|
|
|
|
|
659
|
|
Balance, March 31, 2016
|
|
$
|
578
|
|
$
|
91,159
|
|
$
|
42,554
|
|
$
|
4,183
|
|
$
|
(5,557
|
)
|
$
|
132,917
|
|
See accompanying notes to condensed consolidated financial statements.
7
Table of Contents
PART I FINANCIAL INFORMATION
YOUR COMMUNITY BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
Three Months Ended
March 31,
|
|
|
|
2016
|
|
2015
|
|
|
|
(In thousands)
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
Net income (loss)
|
|
$
|
3,695
|
|
$
|
(936
|
)
|
Adjustments to reconcile net income (loss) to net cash from operating activities:
|
|
|
|
|
|
Provision for loan losses
|
|
|
|
106
|
|
Depreciation
|
|
616
|
|
934
|
|
Net amortization of securities
|
|
434
|
|
533
|
|
Amortization and accretion of purchase accounting adjustments, net
|
|
(625
|
)
|
(830
|
)
|
Net gain on sales of available for sale securities
|
|
(297
|
)
|
(51
|
)
|
Mortgage loans originated for sale
|
|
(3,134
|
)
|
(3,522
|
)
|
Proceeds from mortgage loan sales
|
|
3,992
|
|
5,190
|
|
Net gain on sales of mortgage loans
|
|
(77
|
)
|
(115
|
)
|
Earnings on company owned life insurance
|
|
(254
|
)
|
(252
|
)
|
Stock award compensation expense
|
|
659
|
|
202
|
|
Amortization of tax credit investments
|
|
350
|
|
86
|
|
Net loss on disposition of premises and equipment
|
|
11
|
|
|
|
Net loss on disposition of foreclosed and repossessed assets
|
|
33
|
|
74
|
|
Net change in:
|
|
|
|
|
|
Accrued interest receivable
|
|
204
|
|
(11
|
)
|
Accrued interest payable
|
|
389
|
|
(601
|
)
|
Other assets
|
|
950
|
|
(1,883
|
)
|
Other liabilities
|
|
(1,519
|
)
|
(3,695
|
)
|
Net cash from operating activities
|
|
5,427
|
|
(4,771
|
)
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
Acquisition of First Financial Service Corporation, net
|
|
|
|
12,979
|
|
Net change in interest-bearing deposits
|
|
(7,361
|
)
|
14,515
|
|
Available for sale securities:
|
|
|
|
|
|
Sales
|
|
23,693
|
|
38,877
|
|
Purchases
|
|
(2,723
|
)
|
(4,575
|
)
|
Maturities, prepayments and calls
|
|
13,111
|
|
12,647
|
|
Redemption of Federal Home Loan Bank stock
|
|
8
|
|
3,593
|
|
Loan originations and payments, net
|
|
(30,468
|
)
|
(2,210
|
)
|
Proceeds from the sale of foreclosed and repossessed assets
|
|
2,712
|
|
1,056
|
|
Proceeds from the sale of premises and equipment
|
|
242
|
|
|
|
Purchases of premises and equipment
|
|
(127
|
)
|
(553
|
)
|
Net cash from investing activities
|
|
(913
|
)
|
76,329
|
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
Net change in deposits
|
|
(23,741
|
)
|
(17,463
|
)
|
Net change in short-term borrowings
|
|
24,625
|
|
(6,590
|
)
|
Proceeds from issuance of other borrowings
|
|
150,000
|
|
|
|
Repayment of other borrowings
|
|
(160,695
|
)
|
(10,070
|
)
|
Taxes paid on stock award shares for employees
|
|
(117
|
)
|
(111
|
)
|
Issuance costs paid for common shares issued
|
|
|
|
(1,263
|
)
|
Proceeds from exercise of stock options
|
|
32
|
|
|
|
Redemption of acquired preferred shares and dividends
|
|
|
|
(2,445
|
)
|
Cash dividends paid on preferred shares
|
|
|
|
(110
|
)
|
Cash dividends paid on common shares
|
|
(604
|
)
|
(594
|
)
|
Net cash from financing activities
|
|
(10,500
|
)
|
(38,646
|
)
|
Net change in cash and due from financial institutions
|
|
(5,986
|
)
|
32,912
|
|
Cash and due from financial institutions at beginning of period
|
|
30,425
|
|
12,872
|
|
Cash and due from financial institutions at end of period
|
|
$
|
24,439
|
|
$
|
45,784
|
|
8
Table of Contents
PART I FINANCIAL INFORMATION
YOUR COMMUNITY BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
Three Months Ended
March 31,
|
|
|
|
2016
|
|
2015
|
|
|
|
(In thousands)
|
|
Supplemental cash flow information:
|
|
|
|
|
|
Interest paid
|
|
$
|
1,256
|
|
$
|
652
|
|
Income taxes paid, net of refunds
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental noncash disclosures:
|
|
|
|
|
|
Transfer from loans to foreclosed assets
|
|
649
|
|
9,486
|
|
Issuance of treasury shares under dividend reinvestment plan
|
|
27
|
|
32
|
|
Issuance of treasury shares for net settlement of stock options
|
|
15
|
|
18
|
|
Sale and financing of foreclosed assets
|
|
1,622
|
|
193
|
|
Issuance of common shares
|
|
|
|
25,031
|
|
Redemption of preferred shares and unpaid dividends of First Financial Service Corporation
|
|
|
|
18,043
|
|
Declared, unpaid dividends on preferred shares
|
|
|
|
110
|
|
|
|
|
|
|
|
|
|
See accompanying notes to condensed consolidated financial statements.
9
Table of Contents
YOUR COMMUNITY BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Presentation of Interim Information
Your Community Bankshares, Inc. (we, our, us, or the Company) is a bank holding company headquartered in New Albany, Indiana. Our wholly-owned banking subsidiary is Your Community Bank (Your Community Bank or YCB). YCB (at times referred to herein as the Bank) is a state-chartered commercial bank regulated by the Indiana Department of Financial Institutions. Your Community Bank is also regulated by the Federal Deposit Insurance Corporation and, with respect to its Kentucky branches, the Kentucky Office of Financial Institutions. The Company formed a captive insurance company in 2012, CBIN Insurance, Inc., which issues policies to the Companys subsidiaries to cover gaps in coverage and other risks not insured by its third-party provider.
Your Community Bank has three wholly-owned subsidiaries to manage its investment portfolio. CBSI Holdings, Inc. and CBSI Investments, Inc. are Nevada corporations which jointly own CBSI Investment Portfolio Management, LLC, a Nevada limited liability Company which holds and manages investment securities previously owned by Your Community Bank.
In June 2004 and June 2006, we completed placements of floating rate subordinated debentures through two trusts that we formed, Community Bank Shares (IN) Statutory Trust I and Trust II (Trusts). Also, in conjunction with the acquisition of First Financial Service Corporation in 2015, the Company acquired First Federal Statutory Trust II and III and assumed their underlying subordinated debentures. Because the Trusts are not consolidated with us, our financial statements reflect the subordinated debt we issued to the Trusts.
To prepare financial statements in conformity with U.S. generally accepted accounting principles management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided, and actual results could differ.
In the opinion of management, the unaudited consolidated financial statements include all normal adjustments considered necessary to present fairly the financial position as of March 31, 2016, the results of operations for the three months ended March 31, 2016 and 2015, and cash flows for the three months ended March 31, 2016 and 2015. All of these adjustments are of a normal, recurring nature. Interim results are not necessarily indicative of results for a full year.
The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. GAAP for interim financial information and with the instructions for Form 10-Q. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements.
For further information, refer to the consolidated financial statements and footnotes included in our annual report on Form 10-K for the year ended December 31, 2015. The consolidated financial statements include our accounts and our subsidiaries accounts. All material intercompany balances and transactions have been eliminated in consolidation.
Reclassifications: Some of the items in the prior year financial statements were reclassified to conform to the current presentation. Reclassifications had no effect on prior year net income or shareholders equity.
10
Table of Contents
YOUR COMMUNITY BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
2.
Recent Accounting Pronouncements
FASB ASC 842
In February 2016, the FASB issued its new lease accounting guidance in ASU No. 2016-02, Leases (Topic 842). Under the new guidance, lessees will be required to recognize the following for all leases, with the exception of short-term leases, at the commencement date: a lease liability, which is a lessees obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of-use asset, which is an asset that represents the lessees right to use, or control the use of, a specified asset for the lease term. Under the new guidance, lessor accounting in largely unchanged. The amendments in this update become effective for annual periods and interim periods within those annual periods beginning after December 15, 2018. We are currently evaluating the impact of adopting the new guidance on the consolidated financial statements, but it is expected to have a material impact.
3. Securities
The fair value of available for sale securities and the related gross unrealized gains and losses recognized in accumulated other comprehensive income were as follows:
|
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Fair
Value
|
|
|
|
(In thousands)
|
|
March 31, 2016:
|
|
|
|
|
|
|
|
|
|
Securities available for sale:
|
|
|
|
|
|
|
|
|
|
State and municipal
|
|
$
|
119,883
|
|
$
|
5,930
|
|
$
|
(48
|
)
|
$
|
125,765
|
|
Residential mortgage-backed agencies issued by U.S. Government sponsored entities
|
|
198,761
|
|
1,483
|
|
(586
|
)
|
199,658
|
|
U.S. Government sponsored entities and agencies
|
|
21,944
|
|
448
|
|
|
|
22,392
|
|
Mutual funds
|
|
250
|
|
3
|
|
|
|
253
|
|
Total securities available for sale
|
|
$
|
340,838
|
|
$
|
7,864
|
|
$
|
(634
|
)
|
$
|
348,068
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015:
|
|
|
|
|
|
|
|
|
|
Securities available for sale:
|
|
|
|
|
|
|
|
|
|
State and municipal
|
|
$
|
117,995
|
|
$
|
5,553
|
|
$
|
(56
|
)
|
$
|
123,492
|
|
Residential mortgage-backed agencies issued by U.S. Government sponsored entities
|
|
221,944
|
|
320
|
|
(1,933
|
)
|
220,331
|
|
U.S. Government sponsored entities and agencies
|
|
31,472
|
|
145
|
|
(154
|
)
|
31,463
|
|
Corporate
|
|
3,394
|
|
43
|
|
|
|
3,437
|
|
Mutual funds
|
|
250
|
|
5
|
|
|
|
255
|
|
Total securities available for sale
|
|
$
|
375,055
|
|
$
|
6,066
|
|
$
|
(2,143
|
)
|
$
|
378,978
|
|
Sales of available for sale securities were as follows.
|
|
Three Months Ended
March 31,
|
|
|
|
2016
|
|
2015
|
|
|
|
(In thousands)
|
|
Proceeds
|
|
$
|
23,693
|
|
$
|
38,877
|
|
Gross gains
|
|
297
|
|
366
|
|
Gross losses
|
|
|
|
(315
|
)
|
|
|
|
|
|
|
|
|
The tax provision applicable to these net realized gains amounted to $104,000 and $17,000, respectively.
The amortized cost and fair value of the contractual maturities of available for sale securities at March 31, 2016 were as follows. Mortgage-backed agencies and mutual funds which do not have a single maturity date are shown separately.
|
|
March 31, 2016
|
|
|
|
Amortized Cost
|
|
Fair Value
|
|
|
|
(In thousands)
|
|
Within one year
|
|
$
|
988
|
|
$
|
996
|
|
One to five years
|
|
10,446
|
|
11,033
|
|
Five to ten years
|
|
43,813
|
|
46,246
|
|
Beyond ten years
|
|
86,580
|
|
89,882
|
|
Residential mortgage-backed securities issued by U.S. Government sponsored entities
|
|
198,761
|
|
199,658
|
|
Mutual funds
|
|
250
|
|
253
|
|
Total
|
|
$
|
340,838
|
|
$
|
348,068
|
|
11
Table of Contents
YOUR COMMUNITY BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
3. Securities
(Continued)
Securities with unrealized losses at March 31, 2016 and December 31, 2015, aggregated by investment category and length of time that individual securities have been in a continuous loss position are as follows:
|
|
Less than 12 Months
|
|
12 Months or More
|
|
Total
|
|
|
|
Fair
|
|
Unrealized
|
|
Fair
|
|
Unrealized
|
|
Fair
|
|
Unrealized
|
|
|
|
Value
|
|
Loss
|
|
Value
|
|
Loss
|
|
Value
|
|
Loss
|
|
|
|
(In thousands)
|
|
March 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and municipal
|
|
$
|
3,802
|
|
$
|
(27
|
)
|
$
|
710
|
|
$
|
(21
|
)
|
$
|
4,512
|
|
$
|
(48
|
)
|
Residential mortgage-backed securities issued by U.S. Government sponsored entities
|
|
20,282
|
|
(33
|
)
|
34,908
|
|
(553
|
)
|
55,190
|
|
(586
|
)
|
Total temporarily impaired
|
|
$
|
24,084
|
|
$
|
(60
|
)
|
$
|
35,618
|
|
$
|
(574
|
)
|
$
|
59,702
|
|
$
|
(634
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and municipal
|
|
$
|
2,835
|
|
$
|
(16
|
)
|
$
|
3,041
|
|
$
|
(40
|
)
|
$
|
5,876
|
|
$
|
(56
|
)
|
Residential mortgaged-backed securities issued by U.S. Government sponsored agencies
|
|
114,227
|
|
(574
|
)
|
45,516
|
|
(1,359
|
)
|
159,743
|
|
(1,933
|
)
|
U.S. Government sponsored entities and agencies
|
|
|
|
|
|
8,861
|
|
(154
|
)
|
8,861
|
|
(154
|
)
|
Total temporarily impaired
|
|
$
|
117,062
|
|
$
|
(590
|
)
|
$
|
57,418
|
|
$
|
(1,553
|
)
|
$
|
174,480
|
|
$
|
(2,143
|
)
|
Management evaluates securities for other-than-temporary impairment (OTTI) at least on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation.
In determining OTTI, management considers many factors, including: (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, (3) whether the market decline was affected by macroeconomic conditions, and (4) whether the entity has the intent to sell the debt security or more likely than not will be required to sell the debt security before its anticipated recovery. The assessment of whether an other-than-temporary decline exists involves a high degree of subjectivity and judgment and is based on the information available to management at a point in time.
As of March 31, 2016, the Companys security portfolio consisted of 375 securities, 30 of which were in an unrealized loss position. The majority of the unrealized losses are related to the Companys residential mortgage-backed agencies issued by U.S. Government sponsored entities, as discussed below:
Residential mortgage-backed Securities issued by U.S. Government sponsored entities
At March 31, 2016, all of the mortgage-backed securities held by the Company were issued by U.S. government-sponsored entities, primarily Fannie Mae and Freddie Mac, institutions which the government has affirmed its commitment to support. Because the decline in fair value is attributable to changes in interest rates and illiquidity, and not credit quality, and because the Company does not have the intent to sell these mortgage-backed securities and it is likely that it will not be required to sell the securities before their anticipated recovery, the Company does not consider these securities to be other-than-temporarily impaired at March 31, 2016.
12
Table of Contents
YOUR COMMUNITY BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. Loans
Loans at March 31, 2016 and December 31, 2015 consisted of the following:
|
|
March 31,
2016
|
|
December 31,
2015
|
|
|
|
(In thousands)
|
|
Commercial
|
|
$
|
184,202
|
|
$
|
179,753
|
|
Construction
|
|
88,577
|
|
89,833
|
|
Commercial real estate:
|
|
|
|
|
|
Owner occupied nonfarm/residential
|
|
173,763
|
|
157,653
|
|
Other nonfarm/residential
|
|
200,229
|
|
191,016
|
|
Residential real estate:
|
|
|
|
|
|
Secured by first liens
|
|
306,025
|
|
301,597
|
|
Home equity
|
|
74,367
|
|
76,285
|
|
Consumer
|
|
20,345
|
|
20,177
|
|
Subtotal
|
|
1,047,508
|
|
1,016,314
|
|
Allowance for loan losses
|
|
(6,188
|
)
|
(6,851
|
)
|
Loans, net
|
|
$
|
1,041,320
|
|
$
|
1,009,463
|
|
During 2016 and 2015, substantially all of the Companys residential and commercial real estate loans were pledged as collateral to the Federal Home Loan Bank to secure advances.
Purchased Credit Impaired Loans:
The Company has purchased loans, for which there was, at acquisition, evidence of deterioration of credit quality since origination and it was probable, at acquisition, that all contractually required payments would not be collected. The carrying amount of those loans is as follows:
|
|
March 31,
2016
|
|
December 31,
2015
|
|
|
|
(In thousands)
|
|
Commercial
|
|
$
|
111
|
|
$
|
283
|
|
Construction
|
|
2,258
|
|
2,525
|
|
Commercial Real Estate
|
|
19,233
|
|
19,454
|
|
Residential Real Estate
|
|
10,554
|
|
11,668
|
|
Consumer
|
|
8
|
|
9
|
|
Carrying amount
|
|
$
|
32,164
|
|
$
|
33,939
|
|
There was $72,000 and $59,000 allowance for loan losses as of March 31, 2016 and December 31, 2015, respectively, for purchased credit impaired loans.
13
Table of Contents
YOUR COMMUNITY BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. Loans
(Continued)
Accretable yield, or income expected to be collected, is as follows:
|
|
Three Months Ended March 31,
|
|
|
|
2016
|
|
2015
|
|
|
|
(In thousands)
|
|
Balance, beginning of period
|
|
$
|
979
|
|
$
|
306
|
|
New loans purchased
|
|
|
|
1,632
|
|
Accretion of income
|
|
(57
|
)
|
(184
|
)
|
Reclassifications from nonaccretable difference
|
|
230
|
|
|
|
Balance, end of period
|
|
$
|
1,152
|
|
$
|
1,754
|
|
14
Table of Contents
YOUR COMMUNITY BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. Loans
(Continued)
The following table presents the activity in the allowance for loan losses by portfolio segment for the three months ending March 31, 2016 and 2015 (in thousands):
March 31, 2016
|
|
Commercial
|
|
Construction
|
|
Commercial
Real Estate
|
|
Residential
Real Estate
|
|
Consumer
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
1,907
|
|
$
|
1,943
|
|
$
|
1,368
|
|
$
|
1,374
|
|
$
|
259
|
|
$
|
6,851
|
|
Provision for loan losses
|
|
358
|
|
(32
|
)
|
(582
|
)
|
7
|
|
249
|
|
|
|
Loans charged-off
|
|
(578
|
)
|
|
|
|
|
(81
|
)
|
(191
|
)
|
(850
|
)
|
Recoveries
|
|
34
|
|
1
|
|
46
|
|
70
|
|
36
|
|
187
|
|
Ending balance
|
|
$
|
1,721
|
|
$
|
1,912
|
|
$
|
832
|
|
$
|
1,370
|
|
$
|
353
|
|
$
|
6,188
|
|
March 31, 2015
|
|
Commercial
|
|
Construction
|
|
Commercial
Real Estate
|
|
Residential
Real Estate
|
|
Consumer
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
970
|
|
$
|
1,992
|
|
$
|
1,268
|
|
$
|
2,133
|
|
$
|
102
|
|
$
|
6,465
|
|
Provision for loan losses
|
|
354
|
|
190
|
|
(586
|
)
|
150
|
|
(2
|
)
|
106
|
|
Loans charged-off
|
|
(124
|
)
|
|
|
(2
|
)
|
(147
|
)
|
(73
|
)
|
(346
|
)
|
Recoveries
|
|
19
|
|
|
|
788
|
|
26
|
|
62
|
|
895
|
|
Ending balance
|
|
$
|
1,219
|
|
$
|
2,182
|
|
$
|
1,468
|
|
$
|
2,162
|
|
$
|
89
|
|
$
|
7,120
|
|
15
Table of Contents
YOUR COMMUNITY BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. Loans
(Continued)
The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of March 31, 2016 and December 31, 2015 (in thousands):
March 31, 2016:
|
|
Commercial
|
|
Construction
|
|
Commercial
Real Estate
|
|
Residential
Real Estate
|
|
Consumer
|
|
Total
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending allowance balance attributable to loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
104
|
|
$
|
308
|
|
$
|
49
|
|
$
|
263
|
|
$
|
|
|
$
|
724
|
|
Collectively evaluated for impairment
|
|
1,617
|
|
1,599
|
|
718
|
|
1,105
|
|
353
|
|
5,392
|
|
Acquired with deteriorated credit quality
|
|
|
|
5
|
|
65
|
|
2
|
|
|
|
72
|
|
Total ending allowance balance
|
|
$
|
1,721
|
|
$
|
1,912
|
|
$
|
832
|
|
$
|
1,370
|
|
$
|
353
|
|
$
|
6,188
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans individually evaluated for impairment
|
|
$
|
3,407
|
|
$
|
1,851
|
|
$
|
1,225
|
|
$
|
1,898
|
|
$
|
|
|
$
|
8,381
|
|
Loans collectively evaluated for impairment
|
|
180,684
|
|
84,468
|
|
353,534
|
|
367,940
|
|
20,337
|
|
1,006,963
|
|
Loans acquired with deteriorated credit quality
|
|
111
|
|
2,258
|
|
19,233
|
|
10,554
|
|
8
|
|
32,164
|
|
Total ending loans balance
|
|
$
|
184,202
|
|
$
|
88,577
|
|
$
|
373,992
|
|
$
|
380,392
|
|
$
|
20,345
|
|
$
|
1,047,508
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
Construction
|
|
Commercial
Real Estate
|
|
Residential
Real Estate
|
|
Consumer
|
|
Total
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending allowance balance attributable to loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
497
|
|
$
|
368
|
|
$
|
1
|
|
$
|
325
|
|
$
|
|
|
$
|
1,191
|
|
Collectively evaluated for impairment
|
|
1,410
|
|
1,571
|
|
1,312
|
|
1,049
|
|
259
|
|
5,601
|
|
Acquired with deteriorated credit quality
|
|
|
|
4
|
|
55
|
|
|
|
|
|
59
|
|
Total ending allowance balance
|
|
$
|
1,907
|
|
$
|
1,943
|
|
$
|
1,368
|
|
$
|
1,374
|
|
$
|
259
|
|
$
|
6,851
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans individually evaluated for impairment
|
|
$
|
3,944
|
|
$
|
2,288
|
|
$
|
862
|
|
$
|
2,690
|
|
$
|
|
|
$
|
9,784
|
|
Loans collectively evaluated for impairment
|
|
175,526
|
|
85,020
|
|
328,353
|
|
363,524
|
|
20,168
|
|
972,591
|
|
Loans acquired with deteriorated credit quality
|
|
283
|
|
2,525
|
|
19,454
|
|
11,668
|
|
9
|
|
33,939
|
|
Total ending loans balance
|
|
$
|
179,753
|
|
$
|
89,833
|
|
$
|
348,669
|
|
$
|
377,882
|
|
$
|
20,177
|
|
$
|
1,016,314
|
|
16
Table of Contents
YOUR COMMUNITY BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. Loans
(Continued)
The following table presents information related to loans individually evaluated for impairment by class of loans as of and for the three month period ended March 31, 2016:
March 31, 2016:
|
|
Unpaid Principal
Balance
|
|
Recorded
Investment
|
|
Allowance for
Loan Losses
Allocated
|
|
Average
Recorded
Investment
|
|
Interest Income
Recognized and
Received
|
|
|
|
(In thousands)
|
|
With no related allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
5,589
|
|
$
|
3,240
|
|
$
|
|
|
$
|
3,063
|
|
$
|
41
|
|
Construction
|
|
|
|
|
|
|
|
47
|
|
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied nonfarm/nonresidential
|
|
80
|
|
80
|
|
|
|
40
|
|
|
|
Other nonfarm/nonresidential
|
|
331
|
|
331
|
|
|
|
334
|
|
5
|
|
Residential real estate:
|
|
|
|
|
|
|
|
|
|
|
|
Secured by first liens
|
|
|
|
|
|
|
|
87
|
|
|
|
Home equity
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
6,000
|
|
$
|
3,651
|
|
$
|
|
|
$
|
3,571
|
|
$
|
46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
167
|
|
$
|
167
|
|
104
|
|
$
|
612
|
|
$
|
2
|
|
Construction
|
|
1,851
|
|
1,851
|
|
308
|
|
2,023
|
|
21
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied nonfarm/nonresidential
|
|
295
|
|
295
|
|
47
|
|
147
|
|
|
|
Other nonfarm/nonresidential
|
|
519
|
|
519
|
|
2
|
|
522
|
|
7
|
|
Residential real estate:
|
|
|
|
|
|
|
|
|
|
|
|
Secured by first liens
|
|
1,283
|
|
1,283
|
|
224
|
|
1,589
|
|
12
|
|
Home equity
|
|
615
|
|
615
|
|
39
|
|
619
|
|
8
|
|
Consumer
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,730
|
|
$
|
4,730
|
|
$
|
724
|
|
$
|
5,512
|
|
$
|
50
|
|
17
Table of Contents
YOUR COMMUNITY BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. Loans
(Continued)
The following table presents loans individually evaluated for impairment by class of loans as of December 31, 2015:
December 31, 2015:
|
|
Unpaid Principal
Balance
|
|
Recorded
Investment
|
|
Allowance for
Loan Losses
Allocated
|
|
|
|
(In thousands)
|
|
With no related allowance recorded:
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
2,886
|
|
$
|
2,886
|
|
$
|
|
|
Construction
|
|
93
|
|
93
|
|
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
Owner occupied nonfarm/nonresidential
|
|
|
|
|
|
|
|
Other nonfarm/nonresidential
|
|
337
|
|
337
|
|
|
|
Residential real estate:
|
|
|
|
|
|
|
|
Secured by first liens
|
|
173
|
|
173
|
|
|
|
Home equity
|
|
|
|
|
|
|
|
Consumer
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,489
|
|
$
|
3,489
|
|
$
|
|
|
|
|
Unpaid Principal
Balance
|
|
Recorded
Investment
|
|
Allowance for
Loan Losses
Allocated
|
|
|
|
(In thousands)
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
2,916
|
|
$
|
1,058
|
|
$
|
497
|
|
Construction
|
|
2,195
|
|
2,195
|
|
368
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
Owner occupied nonfarm/nonresidential
|
|
|
|
|
|
|
|
Other nonfarm/nonresidential
|
|
525
|
|
525
|
|
1
|
|
Residential real estate:
|
|
|
|
|
|
|
|
Secured by first liens
|
|
1,895
|
|
1,895
|
|
285
|
|
Home equity
|
|
622
|
|
622
|
|
40
|
|
Consumer
|
|
|
|
|
|
|
|
Total
|
|
$
|
8,153
|
|
$
|
6,295
|
|
$
|
1,191
|
|
The recorded investment in loans excludes accrued interest receivable and loan origination fees, net due to immateriality. For purposes of this disclosure, the unpaid principal balance is not reduced for net charge-offs.
18
Table of Contents
YOUR COMMUNITY BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. Loans
(Continued)
The following table presents information for loans individually evaluated for impairment by class of loans for the three months ended March 31, 2015:
|
|
Average
Recorded
Investment
|
|
Interest Income
Recognized
and
Received
|
|
|
|
(In thousands)
|
|
With no related allowance recorded:
|
|
|
|
|
|
Commercial
|
|
$
|
4,261
|
|
$
|
4
|
|
Construction
|
|
3,902
|
|
7
|
|
Commercial real estate:
|
|
|
|
|
|
Owner occupied nonfarm/nonresidential
|
|
690
|
|
|
|
Other nonfarm/nonresidential
|
|
896
|
|
7
|
|
Residential real estate:
|
|
|
|
|
|
Secured by first liens
|
|
2,174
|
|
7
|
|
Home equity
|
|
7
|
|
|
|
Consumer
|
|
1
|
|
|
|
Total
|
|
$
|
11,931
|
|
$
|
25
|
|
|
|
|
|
|
|
With an allowance recorded:
|
|
|
|
|
|
Commercial
|
|
$
|
104
|
|
$
|
|
|
Construction
|
|
3,742
|
|
34
|
|
Commercial real estate:
|
|
|
|
|
|
Owner occupied nonfarm/nonresidential
|
|
201
|
|
2
|
|
Other nonfarm/nonresidential
|
|
|
|
|
|
Residential real estate:
|
|
|
|
|
|
Secured by first liens
|
|
1,738
|
|
17
|
|
Home equity
|
|
738
|
|
8
|
|
Consumer
|
|
9
|
|
|
|
Total
|
|
$
|
6,532
|
|
$
|
61
|
|
19
Table of Contents
YOUR COMMUNITY BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. Loans
(Continued)
The following table presents the recorded investment in nonaccrual and loans past due over 90 days still on accrual by class of loans as of March 31, 2016 and December 31, 2015:
|
|
March 31, 2016
|
|
December 31, 2015
|
|
|
|
Nonaccrual
|
|
Loans Past
Due Over 90
Days Still
Accruing
|
|
Nonaccrual
|
|
Loans Past
Due Over 90
Days Still
Accruing
|
|
|
|
(In thousands)
|
|
Commercial
|
|
$
|
400
|
|
$
|
|
|
$
|
944
|
|
$
|
|
|
Construction
|
|
|
|
|
|
|
|
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
Owner occupied nonfarm/nonresidential
|
|
370
|
|
|
|
41
|
|
|
|
Other nonfarm/nonresidential
|
|
|
|
|
|
|
|
|
|
Residential real estate:
|
|
|
|
|
|
|
|
|
|
Secured by first liens
|
|
1,606
|
|
|
|
2,810
|
|
89
|
|
Home equity
|
|
180
|
|
|
|
176
|
|
|
|
Consumer
|
|
16
|
|
|
|
42
|
|
|
|
Total
|
|
$
|
2,572
|
|
$
|
|
|
$
|
4,013
|
|
$
|
89
|
|
20
Table of Contents
YOUR COMMUNITY BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. Loans
(Continued)
The following table presents the aging of the recorded investment in past due loans as of March 31, 2016 and December 31, 2015 by class of loans:
March 31, 2016:
|
|
30 59
Days
Past
Due
|
|
60 89
Days
Past
Due
|
|
Greater
than 89
Days
Past
Due
|
|
Total
Past
Due
|
|
Loans Not
Past Due
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
208
|
|
$
|
531
|
|
$
|
400
|
|
$
|
1,139
|
|
$
|
183,063
|
|
Construction
|
|
|
|
|
|
|
|
|
|
88,577
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied nonfarm/nonresidential
|
|
473
|
|
95
|
|
370
|
|
938
|
|
172,825
|
|
Other nonfarm/nonresidential
|
|
|
|
|
|
|
|
|
|
200,229
|
|
Residential real estate:
|
|
|
|
|
|
|
|
|
|
|
|
Secured by first liens
|
|
2,575
|
|
69
|
|
1,606
|
|
4,250
|
|
301,775
|
|
Home equity
|
|
51
|
|
322
|
|
180
|
|
553
|
|
73,814
|
|
Consumer
|
|
155
|
|
32
|
|
16
|
|
203
|
|
20,142
|
|
Total
|
|
$
|
3,462
|
|
$
|
1,049
|
|
$
|
2,572
|
|
$
|
7,083
|
|
$
|
1,040,425
|
|
December 31, 2015:
|
|
30 59
Days Past
Due
|
|
60 89
Days
Past
Due
|
|
Greater
than 89
Days
Past
Due
|
|
Total
Past
Due
|
|
Loans Not
Past Due
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
373
|
|
$
|
29
|
|
$
|
944
|
|
$
|
1,346
|
|
$
|
178,407
|
|
Construction
|
|
|
|
34
|
|
|
|
34
|
|
89,799
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied nonfarm/nonresidential
|
|
34
|
|
160
|
|
41
|
|
235
|
|
157,418
|
|
Other nonfarm/nonresidential
|
|
|
|
|
|
|
|
|
|
191,016
|
|
Residential real estate:
|
|
|
|
|
|
|
|
|
|
|
|
Secured by first liens
|
|
3,801
|
|
1,194
|
|
2,787
|
|
7,782
|
|
293,815
|
|
Home equity
|
|
292
|
|
58
|
|
176
|
|
526
|
|
75,759
|
|
Consumer
|
|
342
|
|
20
|
|
42
|
|
404
|
|
19,773
|
|
Total
|
|
$
|
4,842
|
|
$
|
1,495
|
|
$
|
3,990
|
|
$
|
10,327
|
|
$
|
1,005,987
|
|
21
Table of Contents
YOUR COMMUNITY BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. Loans
(Continued)
Troubled Debt Restructurings:
Troubled debt restructurings totaled $10.2 million and $11.4 million March 31, 2016 and December 31, 2015, respectively. Of the total TDRs, $400,000 and $1.6 million were on non-accrual as of March 31, 2016 and December 31, 2015. The Company has allocated $584,000 and $1.1 million of specific reserves to customers whose loan terms have been modified in troubled debt restructurings as of March 31, 2016 and December 31, 2015, respectively. The Company did not have any commitments to lend additional amounts to customers with outstanding loans that are classified as troubled debt restructurings as of March 31, 2016 and December 31, 2015.
The detail of outstanding TDRs by class and modification type as of March 31, 2016 and December 31, 2015 follows:
March 31, 2016:
|
|
Recorded
Investment
|
|
Allowance for
Loan Losses
Allocated
|
|
|
|
(In thousands)
|
|
Commercial:
|
|
|
|
|
|
Extended maturity
|
|
$
|
18
|
|
18
|
|
Multiple modifications
|
|
417
|
|
|
|
Construction:
|
|
|
|
|
|
Extended maturity
|
|
63
|
|
|
|
Multiple modifications
|
|
1,851
|
|
308
|
|
Commercial real estate:
|
|
|
|
|
|
Owner occupied nonfarm/nonresidential
|
|
|
|
|
|
Interest only payments
|
|
168
|
|
|
|
Other nonfarm/nonresidential
|
|
|
|
|
|
Extended maturity
|
|
3,084
|
|
32
|
|
Multiple modifications
|
|
787
|
|
|
|
Residential real estate:
|
|
|
|
|
|
Secured by first liens
|
|
|
|
|
|
Interest rate reduction
|
|
314
|
|
133
|
|
Extended maturity
|
|
1,777
|
|
42
|
|
Multiple modifications
|
|
1,130
|
|
12
|
|
Home equity
|
|
|
|
|
|
Multiple modifications
|
|
615
|
|
39
|
|
Total
|
|
$
|
10,224
|
|
$
|
584
|
|
|
|
|
|
|
|
|
|
22
Table of Contents
YOUR COMMUNITY BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. Loans
(Continued)
December 31, 2015:
|
|
Recorded
Investment
|
|
Allowance for
Loan Losses
Allocated
|
|
|
|
(In thousands)
|
|
Commercial:
|
|
|
|
|
|
Extended maturity
|
|
$
|
890
|
|
$
|
390
|
|
Multiple modifications
|
|
35
|
|
18
|
|
Construction:
|
|
|
|
|
|
Extended maturity
|
|
93
|
|
|
|
Multiple modifications
|
|
2,195
|
|
368
|
|
Commercial real estate:
|
|
|
|
|
|
Owner occupied nonfarm/nonresidential
|
|
|
|
|
|
Interest only payments
|
|
171
|
|
|
|
Other nonfarm/nonresidential
|
|
|
|
|
|
Extended maturity
|
|
3,105
|
|
23
|
|
Multiple modifications
|
|
801
|
|
|
|
Residential real estate:
|
|
|
|
|
|
Secured by first liens
|
|
|
|
|
|
Interest rate reduction
|
|
316
|
|
134
|
|
Extended maturity
|
|
1,966
|
|
44
|
|
Multiple modifications
|
|
1,216
|
|
63
|
|
Home equity
|
|
|
|
|
|
Multiple modifications
|
|
622
|
|
40
|
|
Total
|
|
$
|
11,410
|
|
$
|
1,080
|
|
23
Table of Contents
YOUR COMMUNITY BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. Loans
(Continued)
A loan is considered in payment default once it is 30 days contractually past due under the modified terms. The following table summarizes the Companys TDRs by class, modification type and performance as of March 31, 2016 and December 31, 2015 (in thousands):
March 31, 2016:
|
|
TDRs Greater than
30 Days Past Due
and
Still Accruing
|
|
TDRs on
Nonaccrual
|
|
Total TDRs
Not
Performing
to
Modified
Terms
|
|
Total TDRs
Performing
to Modified
Terms
|
|
|
|
(In thousands)
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
Extended maturity
|
|
$
|
18
|
|
$
|
|
|
$
|
18
|
|
$
|
|
|
Multiple modifications
|
|
|
|
400
|
|
400
|
|
17
|
|
Construction:
|
|
|
|
|
|
|
|
|
|
Extended maturity
|
|
|
|
|
|
|
|
63
|
|
Multiple modifications
|
|
|
|
|
|
|
|
1,851
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
Owner occupied nonfarm/nonresidential
|
|
|
|
|
|
|
|
|
|
Interest only
|
|
|
|
|
|
|
|
168
|
|
Other nonfarm/nonresidential
|
|
|
|
|
|
|
|
|
|
Extended maturity
|
|
|
|
|
|
|
|
3,084
|
|
Multiple modifications
|
|
|
|
|
|
|
|
787
|
|
Residential:
|
|
|
|
|
|
|
|
|
|
Secured by first liens
|
|
|
|
|
|
|
|
|
|
Interest rate reduction
|
|
|
|
|
|
|
|
314
|
|
Extended maturity
|
|
63
|
|
|
|
63
|
|
1,714
|
|
Multiple modifications
|
|
124
|
|
|
|
124
|
|
1,006
|
|
Home equity
|
|
|
|
|
|
|
|
|
|
Multiple modifications
|
|
|
|
|
|
|
|
615
|
|
Total
|
|
$
|
205
|
|
$
|
400
|
|
$
|
605
|
|
$
|
9,619
|
|
24
Table of Contents
YOUR COMMUNITY BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. Loans
(Continued)
December 31, 2015:
|
|
TDRs Greater than
30 Days Past Due
and
Still Accruing
|
|
TDRs on
Nonaccrual
|
|
Total TDRs
Not
Performing
to
Modified
Terms
|
|
Total TDRs
Performing
to Modified
Terms
|
|
|
|
(In thousands)
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
Extended maturity
|
|
$
|
|
|
$
|
890
|
|
$
|
890
|
|
$
|
|
|
Multiple modifications
|
|
|
|
|
|
|
|
35
|
|
Construction:
|
|
|
|
|
|
|
|
|
|
Extended maturity
|
|
|
|
|
|
|
|
93
|
|
Multiple modifications
|
|
|
|
|
|
|
|
2,195
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
Owner occupied nonfarm/nonresidential
|
|
|
|
|
|
|
|
|
|
Interest only
|
|
|
|
|
|
|
|
171
|
|
Other nonfarm/nonresidential
|
|
|
|
|
|
|
|
|
|
Extended maturity
|
|
|
|
|
|
|
|
3,105
|
|
Multiple modifications
|
|
|
|
|
|
|
|
801
|
|
Residential:
|
|
|
|
|
|
|
|
|
|
Secured by first liens
|
|
|
|
|
|
|
|
|
|
Interest rate reduction
|
|
|
|
|
|
|
|
316
|
|
Extended maturity
|
|
|
|
64
|
|
64
|
|
1,902
|
|
Multiple modifications
|
|
|
|
615
|
|
615
|
|
601
|
|
Home equity
|
|
|
|
|
|
|
|
|
|
Multiple modifications
|
|
|
|
|
|
|
|
622
|
|
Total
|
|
$
|
|
|
$
|
1,569
|
|
$
|
1,569
|
|
$
|
9,841
|
|
There were two troubled debt restructurings totaling $240,000 that defaulted within 12 months of modification during the first quarter of 2016. There were no troubled debt restructurings that defaulted within 12 months of modification during the first quarter of 2015. TDRs that defaulted in 2016 within 12 months of modification did not impact the allowance for loan losses.
During the quarters ended March 31, 2016 and 2015, the terms of certain loans were modified as troubled debt restructurings. The modification of the terms of such loans included one or a combination of the following: a reduction of the stated interest rate of the loan; an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk; or adjustment of scheduled loan payments from principal and interest to interest only.
In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. This evaluation is performed under the companys internal underwriting policy.
25
Table of Contents
YOUR COMMUNITY BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. Loans
(Continued)
The following table presents loans by class modified as troubled debt restructurings that occurred during the quarters ended March 31, 2016 and 2015 and their performance, by modification type:
|
|
Number
of Loans
|
|
Pre-
Modification
Outstanding
Recorded
Investment
|
|
Post-
Modification
Outstanding
Recorded
Investment
|
|
TDRs
Performing
to Modified
Terms
|
|
TDRs Not
Performing to
Modified
Terms
|
|
March 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate:
|
|
|
|
|
|
|
|
|
|
|
|
Secured by first liens:
|
|
|
|
|
|
|
|
|
|
|
|
Multiple modifications
|
|
2
|
|
$
|
521
|
|
$
|
533
|
|
$
|
533
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
Multiple modifications
|
|
1
|
|
$
|
53
|
|
$
|
53
|
|
$
|
53
|
|
$
|
|
|
Loans modified as TDRs during the quarters ended March 31, 2016 and 2015 did not impact the allowance for loan losses.
Credit Quality Indicators:
The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk and groups these loans into categories called criticized and classified assets. The Company considers its criticized assets to be loans risk rated as Watch or Special Mention and its classified assets to be loans risk rated Substandard or Doubtful. On a monthly basis, the Company reviews its loans that are risk rated Watch, Special Mention, Substandard, or Doubtful to determine they are properly classified. In addition, the Company reviews loans rated as a pass that have exhibited signs that may require a classification change, such as past due greater than 30 days and other relevant information including: loan officer recommendations, knowledge of specific borrower circumstances, and receipt of borrower financial statements.
The Company uses the following definitions for its criticized loan risk ratings:
Watch.
Loans classified as watch are not considered rated or classified for regulatory purposes, but are considered criticized assets which exhibit modest deterioration in financial performance or external threats.
Special Mention.
Loans classified as special mention exhibit potential weaknesses that deserve managements close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan, or in the Companys credit position at some future date. Economic or market conditions exist which may affect the borrower more severely than other companies in its industry.
26
Table of Contents
YOUR COMMUNITY BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. Loans
(Continued)
The Company uses the following definitions for its classified loan risk ratings:
Substandard.
Loans classified as substandard are characterized by having well defined financial weakness. Substandard loans are usually evidenced by chronic or emerging past due performance and serious deficiencies in the primary source of repayment.
Doubtful.
Loans classified as doubtful have a well-defined and documented financial weaknesses. They have all the weaknesses of a substandard loan with the additional characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions, and values highly questionable and improbable. Generally, loans classified as doubtful are on non-accrual.
Loans not meeting the criteria above that are listed as pass are included in groups of homogeneous loans. The risk category of loans by class of loans based on the most recent analysis performed as of March 31, 2016 and December 31, 2015 is as follows:
March 31, 2016:
|
|
Criticized
|
|
Classified
|
|
Pass
|
|
Total
|
|
|
|
(In thousands)
|
|
Commercial
|
|
$
|
6,542
|
|
$
|
3,439
|
|
$
|
174,221
|
|
$
|
184,202
|
|
Construction
|
|
4,075
|
|
1,914
|
|
82,588
|
|
88,577
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
Owner occupied nonfarm/residential
|
|
5,202
|
|
3,259
|
|
165,302
|
|
173,763
|
|
Other nonfarm/residential
|
|
15,134
|
|
11,453
|
|
173,642
|
|
200,229
|
|
Residential real estate:
|
|
|
|
|
|
|
|
|
|
Secured by first liens
|
|
18,050
|
|
4,533
|
|
283,442
|
|
306,025
|
|
Home equity
|
|
535
|
|
1,055
|
|
72,777
|
|
74,367
|
|
Consumer
|
|
3
|
|
25
|
|
20,317
|
|
20,345
|
|
Total
|
|
$
|
49,541
|
|
$
|
25,678
|
|
$
|
972,289
|
|
$
|
1,047,508
|
|
December 31, 2015:
|
|
Criticized
|
|
Classified
|
|
Pass
|
|
Total
|
|
|
|
(In thousands)
|
|
Commercial
|
|
$
|
7,318
|
|
$
|
4,076
|
|
$
|
168,359
|
|
$
|
179,753
|
|
Construction
|
|
4,270
|
|
3,490
|
|
82,073
|
|
89,833
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
Owner occupied nonfarm/residential
|
|
3,184
|
|
3,042
|
|
151,427
|
|
157,653
|
|
Other nonfarm/residential
|
|
13,434
|
|
13,460
|
|
164,122
|
|
191,016
|
|
Residential real estate:
|
|
|
|
|
|
|
|
|
|
Secured by first liens
|
|
19,005
|
|
7,238
|
|
275,354
|
|
301,597
|
|
Home equity
|
|
441
|
|
1,920
|
|
73,924
|
|
76,285
|
|
Consumer
|
|
28
|
|
36
|
|
20,113
|
|
20,177
|
|
Total
|
|
$
|
47,680
|
|
$
|
33,262
|
|
$
|
935,372
|
|
$
|
1,016,314
|
|
27
Table of Contents
YOUR COMMUNITY BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
5. Foreclosed and Repossessed Assets
The following table presents the major categories of foreclosed and repossessed assets Foreclosed and repossessed asset activity was as follows:
|
|
March 31,
2016
|
|
December 31,
2015
|
|
|
|
(In thousands)
|
|
Construction
|
|
$
|
1,841
|
|
$
|
1,917
|
|
Commercial real estate:
|
|
|
|
|
|
Owner occupied nonfarm/residential
|
|
702
|
|
791
|
|
Other nonfarm/residential
|
|
1,746
|
|
5,648
|
|
Residential real estate:
|
|
|
|
|
|
Secured by first liens
|
|
1,871
|
|
1,529
|
|
Consumer
|
|
68
|
|
67
|
|
|
|
$
|
6,228
|
|
$
|
9,952
|
|
Foreclosed and repossessed asset activity was as follows for the three months ended March 31, 2016 and 2015:
|
|
2016
|
|
2015
|
|
|
|
(In thousands)
|
|
Balance as of January 1
|
|
$
|
9,952
|
|
$
|
4,431
|
|
Loans transferred to foreclosed and repossessed assets
|
|
649
|
|
9,486
|
|
Foreclosed and repossessed assets acquired from First Financial Service Corporation
|
|
|
|
3,228
|
|
Direct write-downs
|
|
(177
|
)
|
(63
|
)
|
Sales
|
|
(4,196
|
)
|
(1,264
|
)
|
Balance as of March 31
|
|
$
|
6,228
|
|
$
|
15,818
|
|
Expenses for the three months ended March 31, 2016 and 2015 related to foreclosed and repossessed assets include:
|
|
2016
|
|
2015
|
|
|
|
(In thousands)
|
|
Net (gain)loss on sales
|
|
$
|
(144
|
)
|
$
|
11
|
|
Direct write-downs
|
|
177
|
|
63
|
|
Operating expenses, net of rental income
|
|
(143
|
)
|
270
|
|
|
|
$
|
(110
|
)
|
$
|
344
|
|
The Company was in process of foreclosure of residential real estate loans with outstanding balances of $1.5 million and $1.7 million as March 31, 2016 and December 31, 2015, respectively.
28
Table of Contents
YOUR COMMUNITY BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
6. Deposits
Deposits at March 31, 2016 and December 31, 2015 consisted of the following:
|
|
March 31,
2016
|
|
December 31,
2015
|
|
|
|
(In thousands)
|
|
Demand (NOW)
|
|
$
|
307,279
|
|
$
|
312,149
|
|
Money market accounts
|
|
209,517
|
|
212,233
|
|
Savings
|
|
143,319
|
|
137,765
|
|
Time deposits $250,000 and over
|
|
41,326
|
|
42,291
|
|
Time deposits less than $250,000
|
|
253,005
|
|
270,887
|
|
|
|
|
|
|
|
Total interest bearing deposits
|
|
954,446
|
|
975,325
|
|
|
|
|
|
|
|
Total non-interest bearing deposits
|
|
283,518
|
|
286,739
|
|
|
|
|
|
|
|
Total deposits
|
|
$
|
1,237,964
|
|
$
|
1,262,064
|
|
7. Earnings (Loss) Per Common Share
Earnings (loss) per share were computed as follows:
|
|
Three months ended
March 31,
|
|
|
|
2016
|
|
2015
|
|
|
|
(In thousands, except share
and per share amounts)
|
|
Basic:
|
|
|
|
|
|
Net income (loss)
|
|
$
|
3,695
|
|
$
|
(936
|
)
|
Preferred stock dividends
|
|
|
|
(110
|
)
|
Net income (loss) available (attributable) to common shareholders
|
|
$
|
3,695
|
|
$
|
(1,046
|
)
|
|
|
|
|
|
|
Average shares outstanding
|
|
5,449,364
|
|
5,374,819
|
|
|
|
|
|
|
|
Net income (loss) per common share, basic
|
|
$
|
0.68
|
|
$
|
(0.19
|
)
|
|
|
|
|
|
|
Diluted:
|
|
|
|
|
|
Net income (loss) available (attributable) to common shareholders
|
|
$
|
3,695
|
|
$
|
(1,046
|
)
|
Average shares:
|
|
|
|
|
|
Common shares outstanding for basic
|
|
5,449,364
|
|
5,374,819
|
|
Add: Dilutive effects of outstanding stock options
|
|
23,154
|
|
|
|
Add: Dilutive effects of outstanding stock awards
|
|
75,692
|
|
|
|
Average dilutive potential common shares
|
|
5,548,210
|
|
5,374,819
|
|
Net income (loss) per common share, diluted
|
|
$
|
0.67
|
|
$
|
(0.19
|
)
|
Stock options for 0 and 122,500 shares of common stock were excluded from the calculation of diluted net income per common share for the three months ended March 31, 2016 and 2015, respectively, because their effect was antidilutive.
29
Table of Contents
YOUR COMMUNITY BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
7. Earnings (Loss) Per Common Share
(Continued)
Restricted stock units of 0 and 77,675 common shares were excluded from the calculation of diluted net income per common share for the three months ended March 31, 2016 and 2015 because their effect was antidilutive.
8. Stock-Based Compensation Plans
The Company has three share based compensation plans as described below. Total compensation cost that has been charged against income for those plans was $659,000 and $202,000 for three months ended March 31, 2016 and 2015. The total income tax benefit was $231,000 and $71,000 for the respective periods.
Stock Options
: The Companys stock option plan provides for the granting of both incentive and nonqualified stock options and other share based awards, including restricted stock and deferred stock units, for up to 500,000 shares of common stock at exercise prices not less than the fair market value of the common stock on the date of grant and expiration dates of up to ten years. Terms of the options are determined by the Board of Directors at the date of grant and generally vest over periods of three to four years. Payment of the option price may be in cash or shares of common stock at fair market value on the exercise date at the election of the employee. Non-employee directors are eligible to receive only nonqualified stock options. As of March 31, 2016, the plan allows for additional option and share-based award grants of up to 339,000 shares.
The fair value of each option award is estimated on the date of grant using the Black-Scholes model. Expected volatilities are based on historical volatilities of the Companys common stock. The Company uses historical data to estimate option exercise and post-vesting termination behavior. The expected term of options granted is based on historical data and represents the period of time that options granted are expected to be outstanding, which takes into account that the options are not transferable. The risk-free interest rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of the grant.
A summary of the activity in the stock option plan for 2016 follows:
|
|
Shares
|
|
Weighted
Average
Exercise
Price
|
|
Weighted
Average
Remaining
Contractual
Term
|
|
Aggregate
Intrinsic
Value
|
|
|
|
(In thousands, except exercise prices)
|
|
Outstanding at beginning of year
|
|
76
|
|
$
|
22.20
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
(5
|
)
|
21.93
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
|
|
|
|
|
|
|
Outstanding at end of period
|
|
71
|
|
$
|
22.21
|
|
0.8
|
|
$
|
651
|
|
Vested and expected to vest
|
|
71
|
|
$
|
22.21
|
|
0.8
|
|
$
|
651
|
|
Exercisable at end of period
|
|
71
|
|
$
|
22.21
|
|
0.8
|
|
$
|
651
|
|
30
Table of Contents
YOUR COMMUNITY BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
8. Stock-Based Compensation Plans
(Continued)
For the three months ended March 31, 2016 no options were granted while 4,500 stock options were exercised. The Company received proceeds of $32,000 for the exercise of 1,500 stock options while the remainder were exercised using the cashless option, with the Company issuing net shares to option holders. The intrinsic value of stock options exercised during 2016 was $45,000. As of March 31, 2016, all outstanding stock options had vested and there was no remaining compensation cost to be recognized.
Performance Units Awards
: The Company may grant performance unit awards to employees for up to 275,000 shares of common stock. The level of performance shares eventually distributed is contingent upon the achievement of specific performance criteria within a specified award period set at the grant date. The Company estimates the progress toward achieving these objectives when estimating the number of awards expected to vest and correspondingly, periodic compensation expense.
The compensation cost attributable to these restricted performance units awards is based on both the fair market value of the shares at the grant date and the Companys stock price at the end of a reporting cycle. Thirty-five percent of the total award will be paid in cash and is therefore classified as a liability, with total compensation cost changing as the Companys stock price changes. The remaining sixty-five percent is classified as an equity award; total compensation cost is based on the fair market value of sixty-five percent of the total award on the date of grant. The compensation expense is recognized over the specified performance period.
As of March 31, 2016, there were no outstanding units granted under the Plan. There were no units outstanding during the periods ended March 31, 2016 and 2015. There were no modifications or cash paid to settle performance unit awards during the three month periods ending March 31, 2016 and 2015.
Restricted Stock Units
: Compensation expense is recognized over the vesting period of the awards based on the fair value of the stock at issue date. The fair value of the units was determined using the market value of the Companys stock on the grant date. The restricted stock units have vesting periods ranging from one to five years from the anniversary of the grant date.
A summary of changes in the Companys nonvested restricted stock units for the year follows:
|
|
Units
|
|
Weighted-Average
Grant-Date
Fair Value
|
|
|
|
(In thousands, except per share amounts)
|
|
Nonvested at beginning of year
|
|
191
|
|
$
|
27.31
|
|
Granted
|
|
8
|
|
33.52
|
|
Vested
|
|
(23
|
)
|
25.96
|
|
Forfeited
|
|
|
|
|
|
Nonvested at March 31, 2016
|
|
176
|
|
$
|
27.78
|
|
31
Table of Contents
YOUR COMMUNITY BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
8. Stock-Based Compensation Plans
(Continued)
As of March 31, 2016, there was $3.3 million of total unrecognized compensation cost related to nonvested restricted stock units granted under the Plan. The cost is expected to be recognized over a weighted-average period of 2.8 years. The fair value of units vested during the three months ended March 31, 2016 and 2015 was $747,000 and $536,000. There were no modifications or cash paid to settle restricted stock units during the three month periods ended March 31, 2016 and 2015.
9. Fair Value
Fair value is the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair value:
Level 1
: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.
Level 2
: Significant other observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, and other inputs that are observable or can be corroborated by observable market data.
Level 3
: Significant unobservable inputs that reflect a companys own assumptions about the assumptions that market participants would use in pricing an asset or liability.
The Company used the following methods and significant assumptions to estimate fair value.
Securities
: The fair values of securities available for sale are determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1 inputs) or matrix pricing, which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities relationship to other benchmark quoted securities (Level 2 inputs). In instances where broker quotes are used, these quotes are obtained from market makers or broker-dealers recognized to be market participants. These valuation methods are classified as Level 2 in the fair value hierarchy.
Impaired Loans
: Impaired loans are evaluated at the time the loan is identified as impaired and are recorded at the lower of the carrying amount of the loan or the fair value of the underlying collateral. For collateral dependent loans, the fair value of real estate is primarily determined based on appraisals by qualified licensed appraisers. These appraisals may use a single valuation approach or a combination depending on the type of collateral including the comparable sales or income capitalization approach. The appraisals are discounted to reflect managements estimate of the fair value of the collateral given the current circumstances and condition of the collateral including the market for the particular collateral and managements experience with similar types of collateral. Impaired loans are evaluated quarterly for additional impairment. Fair value of impaired loans is classified as Level 3 in the fair value hierarchy.
32
Table of Contents
YOUR COMMUNITY BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
9. Fair Value
(Continued)
Foreclosed and Repossessed Assets:
Foreclosed and repossessed assets are initially recorded at fair value less estimated costs to sell when acquired. The fair value of foreclosed and repossessed assets is primarily determined based on appraisals by qualified appraisers whose qualifications have been reviewed by the Company. The appraisals are discounted to reflect managements estimate of the fair value of the collateral given the current circumstances of the collateral and reduced by managements estimate of costs to dispose of the asset. Also, management reviews the assumptions included the appraisals and makes adjustments where circumstances warrant such as recent experience with similar assets. Fair value of foreclosed and repossessed assets is classified as Level 3 in the fair value hierarchy.
Assets measured at fair value on a recurring basis are summarized below:
|
|
|
|
Fair Value Measurements Using
|
|
|
|
Assets at Fair
Value
|
|
Quoted
Prices in
Active
Markets
for
Identical
Assets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs (Level 3)
|
|
|
|
|
|
(in thousands)
|
|
Assets (March 31, 2016)
:
|
|
|
|
|
|
|
|
|
|
Available for sale securities:
|
|
|
|
|
|
|
|
|
|
State and municipal
|
|
$
|
125,765
|
|
$
|
|
|
$
|
125,765
|
|
$
|
|
|
U.S. Government sponsored entities and agencies
|
|
22,392
|
|
|
|
22,392
|
|
|
|
Residential mortgage-backed securities issued by U.S. Government sponsored entities
|
|
199,658
|
|
|
|
199,658
|
|
|
|
Mutual Funds
|
|
253
|
|
|
|
253
|
|
|
|
Total available for sale securities
|
|
$
|
348,068
|
|
$
|
|
|
$
|
348,068
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets (December 31, 2015)
:
|
|
|
|
|
|
|
|
|
|
Available for sale securities:
|
|
|
|
|
|
|
|
|
|
State and municipal
|
|
$
|
123,492
|
|
$
|
|
|
$
|
123,492
|
|
$
|
|
|
U.S. Government sponsored entities and agencies
|
|
31,463
|
|
|
|
31,463
|
|
|
|
Residential mortgage-backed securities issued by U.S. Government sponsored entities
|
|
220,331
|
|
|
|
220,331
|
|
|
|
Corporates
|
|
3,437
|
|
|
|
3,437
|
|
|
|
Mutual Funds
|
|
255
|
|
|
|
255
|
|
|
|
Total available for sale securities
|
|
$
|
378,978
|
|
$
|
|
|
$
|
378,978
|
|
$
|
|
|
33
Table of Contents
YOUR COMMUNITY BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
9. Fair Value
(Continued)
Assets measured at fair value on a nonrecurring basis are summarized below.
|
|
|
|
Fair Value Measurements Using
|
|
|
|
Assets at
Fair Value
|
|
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
|
|
|
(in thousands)
|
|
Assets (March 31, 2016)
:
|
|
|
|
|
|
|
|
|
|
Impaired loans:
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
64
|
|
$
|
|
|
$
|
|
|
$
|
64
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
Owner occupied nonfarm/nonresidential
|
|
248
|
|
|
|
|
|
248
|
|
Residential real estate:
|
|
|
|
|
|
|
|
|
|
Secured by first liens
|
|
1,059
|
|
|
|
|
|
1,059
|
|
|
|
|
|
|
|
|
|
|
|
Foreclosed and repossessed assets:
|
|
|
|
|
|
|
|
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
Owner occupied nonfarm/nonresidential
|
|
500
|
|
|
|
|
|
500
|
|
Residential real estate:
|
|
|
|
|
|
|
|
|
|
Secured by first liens
|
|
90
|
|
|
|
|
|
90
|
|
|
|
|
|
|
|
|
|
|
|
Assets (December 31, 2015)
:
|
|
|
|
|
|
|
|
|
|
Impaired loans:
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
560
|
|
$
|
|
|
$
|
|
|
$
|
560
|
|
Residential real estate:
|
|
|
|
|
|
|
|
|
|
Secured by first liens
|
|
1,610
|
|
|
|
|
|
1,610
|
|
|
|
|
|
|
|
|
|
|
|
Foreclosed and repossessed assets:
|
|
|
|
|
|
|
|
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
Owner occupied nonfarm/nonresidential
|
|
119
|
|
|
|
|
|
119
|
|
34
Table of Contents
YOUR COMMUNITY BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
9. Fair Value
(Continued)
The Company measures for impairment using the fair value of the collateral less costs to sell for collateral-dependent loans. The Companys collateral dependent impaired loans had a carrying value of $1.7 million as of March 31, 2016 with a valuation allowance of $375,000, resulting in provision for loan losses of $53,000 for the three months ended March 31, 2016. The Company recorded $27,000 in provision for loan losses for collateral-dependent impaired loans for the three months ended March 31, 2015. Impaired loans totaled $9.8 million as of December 31, 2015, which included collateral dependent loans with a carrying value of $3.0 million and a valuation allowance of $782,000.
The Company evaluates the fair value of foreclosed and repossessed assets at the time they are transferred from loans and on a quarterly basis thereafter. During the three months ended March 31, 2016 and 2015, the Company recognized $177,000 and $63,000 of charges to write down foreclosed and repossessed assets to their fair value.
The following table presents quantitative information about level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis at March 31, 2016:
|
|
Fair Value
|
|
Valuation
Technique
|
|
Unobservable
Input
|
|
Range (Weighted
Average)
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
March 31, 2016:
|
|
|
|
|
|
|
|
|
|
Impaired Loans:
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
64
|
|
Sales comparison approach
|
|
Adjustments for differences between comparable sales
|
|
28%
|
|
Commercial real estate
|
|
248
|
|
Sales comparison approach
|
|
Adjustments for differences between comparable sales
|
|
40%
|
|
Residential real estate
|
|
1,059
|
|
Sales comparison approach
|
|
Adjustments for differences between comparable sales
|
|
19%-37% (30%)
|
|
|
|
|
|
|
|
|
|
|
|
Foreclosed and repossessed assets:
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
500
|
|
Sales comparison approach
|
|
Adjustments for differences between comparable sales
|
|
17%
|
|
Residential real estate
|
|
90
|
|
Sales comparison approach
|
|
Adjustments for differences between comparable sales
|
|
11%
|
|
|
|
|
|
|
|
|
|
|
|
|
35
Table of Contents
YOUR COMMUNITY BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
9. Fair Value
(Continued)
|
|
Fair Value
|
|
Valuation
Technique
|
|
Unobservable
Input
|
|
Range (Weighted
Average)
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
December 31, 2015:
|
|
|
|
|
|
|
|
|
|
Impaired Loans:
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
560
|
|
Sales comparison approach
|
|
Adjustments for differences between comparable sales
|
|
28%-81% (72%)
|
|
Residential real estate
|
|
1,610
|
|
Sales comparison approach
|
|
Adjustments for differences between comparable sales
|
|
19%-37% (30%)
|
|
|
|
|
|
|
|
|
|
|
|
Foreclosed and repossessed assets:
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
$
|
119
|
|
Sales comparison approach
|
|
Adjustments for differences between comparable sales
|
|
33%
|
|
36
Table of Contents
YOUR COMMUNITY BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
9. Fair Value
(Continued)
Fair value of Financial Instruments
Carrying amount and estimated fair values of financial instruments, not previously presented, at March 31, 2016 and December 31, 2015 were as follows:
|
|
|
|
Fair Value Measurements Using
|
|
|
|
Carrying
Amount
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
|
|
(in thousands)
|
|
March 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from financial institutions
|
|
$
|
24,439
|
|
$
|
24,439
|
|
$
|
|
|
$
|
|
|
$
|
24,439
|
|
Interest-bearing deposits in other financial institutions
|
|
20,726
|
|
20,726
|
|
|
|
|
|
20,726
|
|
Loans held for sale
|
|
234
|
|
|
|
242
|
|
|
|
242
|
|
Loans, net
|
|
1,041,508
|
|
|
|
|
|
1,055,946
|
|
1,055,946
|
|
Accrued interest receivable
|
|
5,124
|
|
20
|
|
1,840
|
|
3,264
|
|
5,124
|
|
Federal Home Loan Bank and Federal Reserve Stock
|
|
3,882
|
|
n/a
|
|
n/a
|
|
n/a
|
|
n/a
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
1,237,964
|
|
|
|
1,237,889
|
|
|
|
1,237,889
|
|
Short-term borrowings
|
|
73,410
|
|
|
|
74,015
|
|
|
|
74,015
|
|
Other borrowings
|
|
97,551
|
|
|
|
40,168
|
|
50,766
|
|
90,934
|
|
Accrued interest payable
|
|
840
|
|
|
|
288
|
|
552
|
|
840
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from financial institutions
|
|
$
|
30,425
|
|
$
|
30,425
|
|
$
|
|
|
$
|
|
|
$
|
30,425
|
|
Interest-bearing deposits in other financial institutions
|
|
13,365
|
|
13,365
|
|
|
|
|
|
13,365
|
|
Loans held for sale
|
|
1,015
|
|
|
|
1,038
|
|
|
|
1,038
|
|
Loans, net
|
|
1,009,463
|
|
|
|
|
|
1,023,175
|
|
1,023,175
|
|
Accrued interest receivable
|
|
5,328
|
|
17
|
|
1,879
|
|
3,432
|
|
5,328
|
|
Federal Home Loan Bank and Federal Reserve Stock
|
|
3,890
|
|
n/a
|
|
n/a
|
|
n/a
|
|
n/a
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
1,262,064
|
|
|
|
1,261,084
|
|
|
|
1,261,084
|
|
Short-term borrowings
|
|
48,785
|
|
|
|
48,776
|
|
|
|
48,776
|
|
Other borrowings
|
|
108,347
|
|
|
|
51,269
|
|
50,472
|
|
101,741
|
|
Accrued interest payable
|
|
451
|
|
|
|
366
|
|
85
|
|
451
|
|
37
Table of Contents
YOUR COMMUNITY BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
9. Fair Value
(Continued)
The methods and assumptions, not previously presented, used to estimate fair values are described as follows:
(a) Cash and Cash Equivalents
The carrying amounts of cash and short-term instruments approximate fair values and are classified as Level 1.
(b) FHLB and FRB Stock
It is not practical to determine the fair value of FHLB and FRB stock due to restrictions placed on transferability.
(c) Loans
Fair values of loans, excluding loans held for sale, are estimated as follows: For variable rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values resulting in a Level 3 classification. Fair values for other 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 resulting in a Level 3 classification. Impaired loans are valued at the lower of cost or fair value as described previously. The methods utilized to estimate the fair value of loans do not necessarily represent an exit price.
The fair value of loans held for sale is estimated based upon binding contracts and quotes from third party investors resulting in a Level 2 classification.
(d) Deposits
The fair value disclosed for demand deposits are, by definition, equal to the amount payable on demand at the reporting date resulting in a Level 2 classification. Fair values for fixed rate certificates of deposit are estimated using a discounted cash flows calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits resulting in a Level 2 classification.
(e) Other Borrowings
The fair values of the Companys long-term borrowings are estimated using discounted cash flow analyses based on the current borrowing rates for similar types of borrowing arrangements resulting in a Level 2 classification.
The fair values of the Companys Subordinated Debentures are estimated using discounted cash flow analyses based on the current borrowing rates for similar types of borrowing arrangements resulting in a Level 3 classification.
38
Table of Contents
YOUR COMMUNITY BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
9. Fair Value
(Continued)
(f) Accrued Interest Receivable/Payable
The carrying amounts of accrued interest approximate fair value resulting in a Level 1, Level 2, or Level 3 classification depending upon the classification of the associated asset or liability.
(g) Off-balance Sheet Instruments
Fair values for off-balance sheet, credit-related financial instruments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties credit standing. The fair value of commitments is not material.
10. Accumulated Other Comprehensive Income (Loss)
The changes in accumulated other comprehensive income (loss) by component, net of tax, is presented below for the three month periods ended March 31, 2016 and 2015:
|
|
Unrealized Gains and
Losses on Available-for-
Sale Securities
|
|
Defined Benefit
Pension Items
|
|
Total
|
|
|
|
(In thousands)
|
|
March 31, 2016:
|
|
|
|
|
|
|
|
Balance, beginning of period
|
|
$
|
2,589
|
|
$
|
(500
|
)
|
$
|
2,089
|
|
Other comprehensive income (loss) before reclassifications
|
|
2,305
|
|
(21
|
)
|
2,284
|
|
Amounts reclassified from accumulated other comprehensive income (loss)
|
|
(193
|
)
|
3
|
|
(190
|
)
|
Balance, end of period
|
|
$
|
4,701
|
|
$
|
(518
|
)
|
$
|
4,183
|
|
|
|
|
|
|
|
|
|
March 31, 2015:
|
|
|
|
|
|
|
|
Balance, beginning of period
|
|
$
|
2,280
|
|
$
|
(471
|
)
|
$
|
1,809
|
|
Other comprehensive income before reclassifications
|
|
2,006
|
|
4
|
|
2,010
|
|
Amounts reclassified from accumulated other comprehensive income (loss)
|
|
(34
|
)
|
3
|
|
(31
|
)
|
Balance, end of period
|
|
$
|
4,252
|
|
$
|
(464
|
)
|
$
|
3,788
|
|
39
Table of Contents
YOUR COMMUNITY BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
10. Accumulated Other Comprehensive Income (Loss)
(Continued)
The following is a detail of amounts reclassified out of each component of accumulated other comprehensive income (loss) for the three months ending March 31, 2016 and 2015:
March 31, 2016:
Details about Accumulated Other
Comprehensive Income (Loss)
Components
|
|
Amount Reclassified From
Accumulated Other
Comprehensive Income (Loss)
|
|
Affected Line Item in the
Statement Where Net Income
Is Presented
|
|
|
|
(In Thousands)
|
|
|
|
Unrealized gains and losses on available-for-sale securities
|
|
$
|
(297
|
)
|
Net gain on sales of available-for-sale securities
|
|
|
|
104
|
|
Income tax expense
|
|
|
|
$
|
(193
|
)
|
Net of tax
|
|
|
|
|
|
|
|
Amortization of defined benefit pension plan unrecognized loss
|
|
$
|
5
|
|
Salaries and employee benefits
|
|
|
|
(2
|
)
|
Income tax expense
|
|
|
|
$
|
3
|
|
Net of tax
|
|
|
|
|
|
|
|
Total reclassifications for the period
|
|
$
|
(190
|
)
|
Net of tax
|
|
March 31, 2015
Details about Accumulated Other
Comprehensive Income (Loss)
Components
|
|
Amount Reclassified From
Accumulated Other
Comprehensive Income (Loss)
|
|
Affected Line Item in the
Statement Where Net Income
Is Presented
|
|
|
|
(In Thousands)
|
|
|
|
Unrealized gains and losses on available-for-sale securities
|
|
$
|
(51
|
)
|
Net gain on sales of available-for-sale securities
|
|
|
|
17
|
|
Income tax expense
|
|
|
|
$
|
(34
|
)
|
Net of tax
|
|
|
|
|
|
|
|
Amortization of defined benefit pension plan unrecognized loss
|
|
$
|
4
|
|
Salaries and employee benefits
|
|
|
|
(1
|
)
|
Income tax expense
|
|
|
|
$
|
3
|
|
Net of tax
|
|
|
|
|
|
|
|
Total reclassifications for the period
|
|
$
|
(31
|
)
|
Net of tax
|
|
11. Subsequent Event Merger Agreement
On May 3, 2016, the Company entered into a definitive agreement and plan of merger with WesBanco, Inc. (WesBanco) providing for the merger of the Company with and into WesBanco. The merger agreement provides that Company shareholders will receive 0.964 of a share of WesBanco common stock plus $7.70 in cash for each share of Company common stock they own on the date the merger becomes effective. The merger is expected to be completed in the third or fourth quarter of 2016. Consummation of the merger is subject to approval of the merger agreement by the Companys shareholders, receipt of required regulatory approvals, the aggregate amount of certain Company loans not exceeding an agreed upon amount, and other customary conditions.
40
Table of Contents
PART I - ITEM 2
MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
YOUR COMMUNITY BANKSHARES, INC.
Safe Harbor Statement for Forward-Looking Statements
This report may contain forward-looking statements within the meaning of the federal securities laws. These statements are not historical facts, but rather statements based on our current expectations regarding our business strategies and their intended results and our future performance. Forward-looking statements are preceded by terms such as expects, believes, anticipates, intends and similar expressions.
Forward-looking statements are not guarantees of future performance. Numerous risks and uncertainties could cause or contribute to our actual results, performance, and achievements to be materially different from those expressed or implied by the forward-looking statements. Factors that may cause or contribute to these differences include, without limitation, general economic conditions, including changes in market interest rates and changes in monetary and fiscal policies of the federal government; legislative and regulatory changes; competitive conditions in the banking markets served by our subsidiaries; the adequacy of the allowance for losses on loans and the level of future provisions for losses on loans; and other factors disclosed periodically in our filings with the Securities and Exchange Commission.
Because of the risks and uncertainties inherent in forward-looking statements, readers are cautioned not to place undue reliance on them, whether included in this report or made elsewhere from time to time by us or on our behalf. We assume no obligation to update any forward-looking statements.
Financial Condition
Total assets as of March 31, 2016 remained flat at $1.6 billion compared to December 31, 2015 while the asset mix shifted during the period as net loans increased by $31.9 million while securities available for sale decreased by $30.9 million. Also during the period, the Companys foreclosed and repossessed assets decreased to $6.2 million as of March 31, 2016 from $10.0 million as of December 31, 2015. Total liabilities decreased by $11.4 million as the increase in short-term borrowings of $24.6 million was offset by decreases in total deposits of $24.1 million and other borrowings of $10.8 million.
Net loans increased by $31.9 million to $1.0 billion as of March 31, 2016 with the majority of the increase in commercial real estate. During 2015 and extending into 2016, the Company has focused its efforts on growing the loan portfolio through the addition of experienced business service lenders in the markets in which it operates. To continue to increase net interest income and offset margin pressure, management has focused on reducing the securities portfolio and shifting to higher yielding commercial loans.
Securities available for sale decreased by $30.9 million to $348.1 million as of March 31, 2016 from $379.0 million at December 31, 2015 primarily due to sales of $23.7 million and maturities, prepayments and calls of $13.1 million, offset by purchases of $2.7 million. The securities portfolio serves as a source of liquidity and earnings and plays an important part in the management of interest rate risk. The current strategy for the investment portfolio is to maintain an overall average repricing term between 3.0 and 3.5 years to limit exposure to rising interest rates.
41
Table of Contents
Total deposits decreased by $24.1 million to $1.2 billion as of March 31, 2016 from $1.3 billion as of December 31, 2015. The decrease is attributable to seasonal fluctuation in some of the Companys municipal deposit relationships as tax receipts increase the balance in those accounts during the fourth quarter and are distributed in the first quarter.
Net Income (Loss) Available (Attributable) to Common Shareholders
. Net income available to common shareholders was $3.7 million for the three months ended March 31, 2016 as compared to a net loss attributable to common shareholders of $1.0 million for the same period in 2015. Basic and diluted earnings per common share were $0.68 and $0.67 for the first quarter of 2016 as compared to basic and diluted loss per common share of $0.19 for 2015. The increase in net income available to common shareholders was attributable to substantial merger and integration expenses related to the acquisition of First Financial Service Corporation (FFKY) during the first quarter of 2015 that were not repeated in 2016. The annualized return on average assets and average shareholders equity were 0.95% and 11.34% for the three months ended March 31, 2016, respectively, compared to -0.23% and -2.57% for the equivalent period in 2015.
Net interest income
. Net interest income decreased to $13.0 million for the three months ended March 31, 2016 from $13.5 million in 2015 while the net interest margin on a fully taxable equivalent basis increased to 3.91% from 3.87% over the same periods. The increase in net interest margin was due to a shift in asset mix from lower yielding taxable investments to higher yielding loans, offset by an increase in the average cost of other borrowings. The average balance of taxable securities decreased to $244.7 million for the first three months of 2016 as compared to $318.7 million in 2015 while the average balance of loans increased to $1.0 billion from $993.5 million over the same periods. For the three months ended March 31, 2016, the average yield of taxable securities was 1.90% as compared to 4.89% for loans. Also impacting the average yield on loans was accretion income of $417,000 in 2016 as compared to $601,000 in 2015. The average balance of interest-bearing liabilities decreased to $1.1 billion for the three months ended March 31, 2016 from $1.2 billion in 2015 while the average cost increased to 0.58% from 0.43% over the respective periods. The increase was due to the issuance of $25.0 million of subordinated debt by YCB during the fourth quarter of 2015 which currently has a fixed rate of 6.25%.
42
Table of Contents
Average Balance Sheets
. The following tables set forth certain information relating to our average balance sheets and reflect the average yields earned and rates paid. Such yields and costs are derived by dividing income or expense by the average balance of assets or liabilities, respectively, for the periods presented. Average balances are computed on daily average balances. For analytical purposes, net interest margin and net interest spread are adjusted to a taxable equivalent adjustment basis to recognize the income tax savings on tax-exempt assets, such as state and municipal securities. A tax rate of 35% was used in adjusting interest on tax-exempt assets to a fully taxable equivalent (FTE) basis. Loans held for sale and loans no longer accruing interest are included in total loans.
|
|
Three Months Ended March 31,
|
|
|
|
2016
|
|
2015
|
|
|
|
Average
Balance
|
|
Interest
|
|
Average
Yield/Cost
|
|
Average
Balance
|
|
Interest
|
|
Average
Yield/Cost
|
|
|
|
(In thousands)
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing deposits in other financial institutions
|
|
$
|
12,327
|
|
$
|
38
|
|
1.24
|
%
|
$
|
63,092
|
|
$
|
56
|
|
0.36
|
%
|
Taxable securities
|
|
244,685
|
|
1,153
|
|
1.90
|
|
318,695
|
|
1,340
|
|
1.70
|
|
Tax-exempt securities
|
|
118,927
|
|
1,579
|
|
5.34
|
|
83,217
|
|
1,125
|
|
5.49
|
|
Total loans and fees
(1) (2) (3)
|
|
1,037,140
|
|
12,600
|
|
4.89
|
|
993,536
|
|
12,620
|
|
5.15
|
|
Federal Home Loan Bank and Federal Reserve stock
|
|
3,886
|
|
49
|
|
5.07
|
|
6,484
|
|
95
|
|
5.94
|
|
Total earning assets
|
|
1,416,965
|
|
15,419
|
|
4.38
|
|
1,465,024
|
|
15,236
|
|
4.22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Allowance for loan losses
|
|
(6,318
|
)
|
|
|
|
|
(6,838
|
)
|
|
|
|
|
Non-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from financial institutions
|
|
27,396
|
|
|
|
|
|
38,987
|
|
|
|
|
|
Premises and equipment, net
|
|
33,078
|
|
|
|
|
|
38,136
|
|
|
|
|
|
Other assets
|
|
90,794
|
|
|
|
|
|
124,855
|
|
|
|
|
|
Total assets
|
|
$
|
1,561,915
|
|
|
|
|
|
$
|
1,660,164
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings and other
|
|
$
|
653,364
|
|
$
|
266
|
|
0.16
|
%
|
$
|
697,094
|
|
$
|
265
|
|
0.15
|
%
|
Time deposits
|
|
307,936
|
|
294
|
|
0.38
|
|
377,230
|
|
309
|
|
0.33
|
|
Short-term borrowings
|
|
62,788
|
|
67
|
|
0.43
|
|
38,253
|
|
22
|
|
0.23
|
|
Other borrowings
|
|
111,685
|
|
1,018
|
|
3.67
|
|
87,999
|
|
676
|
|
3.12
|
|
Total interest-bearing liabilities
|
|
1,135,773
|
|
1,645
|
|
0.58
|
|
1,200,576
|
|
1,272
|
|
0.43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest bearing deposits
|
|
283,859
|
|
|
|
|
|
279,879
|
|
|
|
|
|
Accrued interest payable and other liabilities
|
|
11,288
|
|
|
|
|
|
12,026
|
|
|
|
|
|
Stockholders equity
|
|
130,995
|
|
|
|
|
|
167,683
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
1,561,915
|
|
|
|
|
|
$
|
1,660,164
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (taxable equivalent basis)
|
|
|
|
$
|
13,774
|
|
|
|
|
|
$
|
13,964
|
|
|
|
Less: taxable equivalent adjustment
|
|
|
|
(778
|
)
|
|
|
|
|
(480
|
)
|
|
|
Net interest income
|
|
|
|
$
|
12,996
|
|
|
|
|
|
$
|
13,484
|
|
|
|
Net interest spread
|
|
|
|
|
|
3.80
|
%
|
|
|
|
|
3.79
|
%
|
Net interest margin
|
|
|
|
|
|
3.91
|
|
|
|
|
|
3.87
|
|
(1)
The amount of direct loan origination cost (income) included in interest on loans was $(2) and $21 for the three months ended March 31, 2016 and 2015.
(2)
Calculations include non-accruing loans in the average loan amounts outstanding.
(3)
The amount of accretion recorded for acquired loans included in interest income was $417 and $601 for the three months ended March 31, 2016 and 2015.
43
Table of Contents
Rate/Volume Analysis
. The table below illustrates the extent to which changes in interest rates and changes in the volume of interest-earning assets and interest-bearing liabilities affected our interest income and interest expense on a FTE basis during the periods indicated. Information is provided in each category with respect to (i) changes attributable to changes in volume (changes in volume multiplied by prior rate), (ii) changes attributable to changes in rate (changes in rate multiplied by prior volume), and (iii) the net change. The changes attributable to the combined impact of volume and rate have been allocated proportionately to the changes due to volume and the changes due to rate.
|
|
Three Months Ended
March 31, 2016 compared to
Three Months Ended
March 31, 2015
Increase/(Decrease) Due to
|
|
|
|
Total Net
Change
|
|
Volume
|
|
Rate
|
|
|
|
(In thousands)
|
|
Interest income
:
|
|
|
|
|
|
|
|
Interest-bearing deposits in other financial institutions
|
|
$
|
(18
|
)
|
$
|
(72
|
)
|
$
|
54
|
|
Taxable securities
|
|
(187
|
)
|
(336
|
)
|
149
|
|
Tax-exempt securities
|
|
454
|
|
474
|
|
(20
|
)
|
Total loans and fees
|
|
(20
|
)
|
542
|
|
(562
|
)
|
Federal Home Loan Bank and Federal Reserve stock
|
|
(46
|
)
|
(34
|
)
|
(12
|
)
|
Total increase (decrease) in interest income
|
|
183
|
|
574
|
|
(391
|
)
|
|
|
|
|
|
|
|
|
Interest expense
:
|
|
|
|
|
|
|
|
Savings and other
|
|
1
|
|
(17
|
)
|
18
|
|
Time deposits
|
|
(15
|
)
|
(62
|
)
|
47
|
|
Short-term borrowings
|
|
45
|
|
19
|
|
26
|
|
Other borrowings
|
|
342
|
|
202
|
|
140
|
|
Total increase (decrease) in interest expense
|
|
373
|
|
142
|
|
231
|
|
Increase (decrease) in net interest income
|
|
$
|
(190
|
)
|
$
|
432
|
|
$
|
(622
|
)
|
44
Table of Contents
Allowance and Provision for Loan Losses
. Our financial performance depends on the quality of the loans we originate and managements ability to assess the degree of risk in existing loans when it determines the allowance for loan losses. An increase in loan charge-offs or non-performing loans or an inadequate allowance for loan losses could have an adverse effect on net income. The allowance is determined based on the application of loss estimates to graded loans by categories.
Summary of Loan Loss Experience:
|
|
Three Months Ended
March 31,
|
|
Activity for the period ended:
|
|
2016
|
|
2015
|
|
|
|
(In thousands)
|
|
Beginning balance
|
|
$
|
6,851
|
|
$
|
6,465
|
|
Charge-offs:
|
|
|
|
|
|
Residential real estate
|
|
(81
|
)
|
(133
|
)
|
Commercial real estate
|
|
|
|
(2
|
)
|
Construction
|
|
|
|
|
|
Commercial
|
|
(578
|
)
|
(124
|
)
|
Home equity
|
|
|
|
(14
|
)
|
Consumer
|
|
(191
|
)
|
(73
|
)
|
Total
|
|
(850
|
)
|
(346
|
)
|
|
|
|
|
|
|
Recoveries:
|
|
|
|
|
|
Residential real estate
|
|
60
|
|
5
|
|
Commercial real estate
|
|
46
|
|
788
|
|
Construction
|
|
1
|
|
|
|
Commercial
|
|
34
|
|
19
|
|
Home equity
|
|
10
|
|
21
|
|
Consumer
|
|
36
|
|
62
|
|
Total
|
|
187
|
|
895
|
|
Net loan (charge-offs) recoveries
|
|
(663
|
)
|
549
|
|
|
|
|
|
|
|
Provision
|
|
|
|
106
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
6,188
|
|
$
|
7,120
|
|
45
Table of Contents
The Company did not record a provision for loan losses during the first three months of 2016 compared to $106,000 for 2015 while net loan charge-offs increased to $663,000 from net recoveries of $549,000 over the same periods. The Company continues to see continued improvement in credit quality as non-performing loans decreased to $2.6 million as of March 31, 2016 from $4.1 million at December 31, 2015 while classified loans decreased to $25.7 million from $33.3 million over the respective periods. Additionally, loans individually evaluated for impairment declined to $8.4 million as of March 31, 2016 from $9.8 million at December 31, 2015 while loans with acquired deteriorated credit decreased to $32.2 million from $33.9 million, respectively.
The Company did not record a provision for loan losses in the first quarter of 2016 due to the improving credit trends noted above as well as reductions in the allocation for loans collectively evaluated for impairment. The Company applies an allocation for loans collectively evaluated for impairment based on an average of the previous 12 quarters net charge-off rate, adjusted for certain qualitative factors by call report code. Due to the Companys improving credit quality and reduction in net charge-offs, the rate applied has decreased substantially. The reduction in the rate applied to loans collectively for impairment has been partially offset by an increase in the balance of loans. Also, during the first quarter of 2016, the Company did not identify any significant new impaired credits or substantially increase its exposure on any previously identified impaired credits.
Federal regulations require insured institutions to classify their assets on a regular basis. The regulations provide for three categories of classified loans: substandard, doubtful and loss. The regulations also contain a special mention and a specific allowance category. Special mention is defined as loans that do not currently expose an insured institution to a sufficient degree of risk to warrant classification but do possess credit deficiencies or potential weaknesses deserving managements close attention. Assets classified as substandard or doubtful require the institution to establish general allowances for loan losses. If an asset or portion thereof is classified as loss, the insured institution must either establish specified allowances for loan losses in the amount of 100% of the portion of the asset classified loss, or charge off such amount. The Company continues to closely monitor its loan portfolio to identify any additional problem credits, deterioration in underlying collateral values, and credits requiring further downgrades in accordance with the Companys internal policies. As of March 31, 2016, management believes it has provided for probable incurred losses within the loan portfolio based on information currently available to the Company.
46
Table of Contents
Asset Quality.
Loans, including impaired loans, are placed on non-accrual status when they become past due ninety days or more as to principal or interest, unless they are adequately secured and in the process of collection. When these loans are placed on non-accrual status, all unpaid accrued interest is reversed and the loans remain on non-accrual status until the loan becomes current or the loan is deemed uncollectible and is charged off. Impaired loans are those loans for which it is probable that all scheduled interest and principal payments will not be received based on the contractual terms of the loan agreement. A loan is impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. Loans, for which the terms have been modified, and for which the borrower is experiencing financial difficulties, are considered troubled debt restructurings and classified as impaired. TDRs totaled $10.2 million and $11.4 million at March 31, 2016 and December 31, 2015, respectively, while $400,000 and $1.6 million were included in the Companys non-accrual loans as of the same dates.
The Companys non-performing assets as of March 31, 2016 and December 31, 2015 were as follows:
|
|
March 31,
2016
|
|
December 31,
2015
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
Loans on non-accrual status
|
|
$
|
2,572
|
|
$
|
4,013
|
|
Loans past due over 90 days still on accrual
|
|
|
|
89
|
|
Total non-performing loans
|
|
2,572
|
|
4,102
|
|
Foreclosed and repossessed assets
|
|
6,228
|
|
9,952
|
|
Total non-performing assets
|
|
$
|
8,800
|
|
$
|
14,054
|
|
|
|
|
|
|
|
Non-performing loans to total loans
|
|
0.25
|
%
|
0.40
|
%
|
Non-performing assets to total loans
|
|
0.84
|
|
1.38
|
|
Allowance as a percent of non-performing loans
|
|
240.59
|
|
170.72
|
|
Allowance as a percent of total loans
|
|
0.59
|
|
0.67
|
|
47
Table of Contents
Non-interest income
. Non-interest income increased to $2.6 million for the three months ended March 31, 2016 from $2.4 million for the equivalent period in 2015 as increases in net gains on sales of available for sale securities and interchange income were partially offset by an increase in impairment on tax credit investments. During the first quarter of 2016, the Company sold $23.7 million of securities, realizing a net gain on sale of $297,000 as compared to net gains of $51,000 in 2015. The Company sold the securities to fund the increase in the loan portfolio and offset reductions in deposits. Interchange income increased to $572,000 for the three months ended March 31, 2016 from $444,000 for the same period in 2015. The increase was due in part to a reduction in fees associated with processing debit card transactions as well as an increase in interchange revenue. The Company recognized amortization of its tax credit investments of $350,000 in the first quarter of 2016 as compared to $86,000 in 2015. The increase was recorded primarily on low income housing investments acquired from FFKY which generate tax credits of $876,000 annually through 2020 and expire in 2021 during which $107,000 of credits will be generated. The Company has a remaining investment in low income housing acquired from FFKY of $6.1 million at March 31, 2016 which will be amortized over the remainder of the period in which tax credits are generated.
Non-interest expense
. Non-interest expense decreased to $11.2 million for the three months ended March 31, 2016 from $17.9 million due to merger and integration charges incurred during the first quarter of 2015 associated with the acquisition of FFKY. Salaries and employee benefits decreased to $6.0 million from $9.1 million due to $2.1 million of employee termination-related expenses during 2015 that were not repeated in 2016 including change in control payments, severance, retention bonuses and salaries for former FFKY personnel on the data conversion team. The decrease in employee termination expenses was partially offset by an increase in stock based compensation of $457,000. Occupancy expense declined to $1.2 million in 2016 from $1.6 million in 2015 as the Company incurred $308,000 of merger and integration charges associated with the acquisition of FFKY in 2015. Data processing expense was $1.1 million for the first three months of 2016 as compared to $1.8 million due primarily to $631,000 of contract cancellation fees incurred during 2015. Legal and professional fees decreased to $623,000 from $1.6 million as the Company incurred expense associated with the FFKY acquisition in 2015 for valuation services, legal fees to effect the acquisition, and fees for investment banking services. Foreclosed assets, net were $(110,000) in 2016 as compared to $344,000 in 2015 as the Company recognized higher rental income on commercial real estate properties during 2016. Other expenses declined by $814,000 to $1.2 million due to reductions in postage and charitable contributions.
Income tax expense
. Income tax expense was $629,000 for the three months ended March 31, 2016 as compared to an income tax benefit of $1.2 million in 2015 while the effective tax rate for the respective periods were 14.5% and -56.2%. The increase in income tax expense and effective tax rate from 2015 to 2016 was attributable to merger and integration expenses incurred during the first quarter of 2015 associated with the acquisition of FFKY which were not repeated in 2016. Due to the merger and integration charges, the Company had a loss before income taxes in 2015 of $2.1 million as compared to income before income taxes of $4.3 million in 2016.
48
Table of Contents
Liquidity and Capital Resources
Liquidity levels are adjusted in order to meet funding needs for deposit outflows, repayment of borrowings, and loan commitments and to meet asset/liability objectives. Our primary sources of funds are customer deposits, customer repurchase agreements, proceeds from loan repayments, maturing securities and FHLB advances. While loan repayments and maturities are a predictable source of funds, deposit flows and mortgage prepayments are greatly influenced by market interest rates, general economic conditions and competition. At March 31, 2016, we had cash and interest-bearing deposits with banks of $45.2 million and unpledged securities available-for-sale with a fair value of $137.8 million. If we require funds beyond the funds we are able to generate internally, we have $36.6 million in additional aggregate borrowing capacity with the Federal Home Loan Bank of Indianapolis based on our current FHLB stock holdings and unused federal funds lines of credit with various nonaffiliated financial institutions of $18.5 million. Management believes the Companys liquidity sources are adequate to meet its operational needs.
The Company is subject to various regulatory capital requirements administered by federal banking agencies. At March 31, 2016, the Company and its subsidiaries exceed the regulatory minimums and met the regulatory definition of well-capitalized based on the most recent regulatory definition as detailed below:
March 31, 2016:
|
|
Tier 1 Capital
to Total
Average
Assets
|
|
Common
Equity Tier 1
Capital to
Risk-Adjusted
Total Assets
|
|
Tier 1 Capital
to Risk-
Adjusted
Total Assets
|
|
Total Capital
to Risk-
Adjusted
Total Asset
|
|
Consolidated
|
|
9.5
|
%
|
9.7
|
%
|
12.2
|
%
|
14.8
|
%
|
Your Community Bank
|
|
9.7
|
%
|
12.3
|
%
|
12.3
|
%
|
14.9
|
%
|
|
|
|
|
|
|
|
|
|
|
Minimum for banks to be well capitalized under regulatory capital requirements:
|
|
5.0
|
%
|
6.5
|
%
|
8.0
|
%
|
10.0
|
%
|
December 31, 2015:
|
|
Tier 1 Capital
to Total
Average
Assets
|
|
Common
Equity Tier 1
Capital to
Risk-Adjusted
Total Assets
|
|
Tier 1 Capital
to Risk-
Adjusted
Total Assets
|
|
Total Capital
to Risk-
Adjusted
Total Asset
|
|
Consolidated
|
|
9.2
|
%
|
9.7
|
%
|
12.0
|
%
|
14.7
|
%
|
Your Community Bank
|
|
9.7
|
%
|
12.4
|
%
|
12.4
|
%
|
15.0
|
%
|
|
|
|
|
|
|
|
|
|
|
Minimum for banks to be well capitalized under regulatory capital requirements:
|
|
5.0
|
%
|
6.5
|
%
|
8.0
|
%
|
10.0
|
%
|
49
Table of Contents
Each of the federal bank regulatory agencies has established risk-based capital requirements for banking organizations. The Basel III regulatory capital reforms became effective for the Company and YCB on January 1, 2015, and include new minimum risk-based capital and leverage ratios. These rules refine the definition of what constitutes capital for purposes of calculating those ratios, including the definitions of Tier 1 capital and Tier 2 capital. The final rules allow banks and their holding companies with less than $250 billion in assets a one-time opportunity to opt-out of a requirement to include unrealized gains and losses in accumulated other comprehensive income in their capital calculation. The Company and YCB opted out of this requirement. The rules also establish a capital conservation buffer of 2.5%, to be phased in over three years, above the regulatory minimum risk-based capital ratios. Once the capital conservation buffer is fully phased in, the minimum ratios are a common equity Tier 1 risk-based capital ratio of 7.0%, a Tier 1 risk-based capital ratio of 8.5%, and a total risk-based capital ratio of 10.5%. The phase-in of the capital conservation buffer requirement begins in January 2016 at 0.625% of risk-weighted assets and will increase each year until fully implemented in January 2019. An institution is subject to limitations on paying dividends, engaging in share repurchases and paying discretionary bonuses if capital levels fall below minimum levels plus the buffer amounts. These limitations establish a maximum percentage of eligible retained income that could be utilized for such actions.
Off Balance Sheet Arrangements and Contractual Obligations
The Company uses off balance sheet financial instruments, such as commitments to make loans, credit lines and letters of credit to meet customer financing needs. These agreements provide credit or support the credit of others and usually have expiration dates but may expire without being used. In addition to credit risk, the Company also has liquidity risk associated with these commitments as funding for these obligations could be required immediately. The contractual amount of these financial instruments with off balance sheet risk was as follows at March 31, 2016:
|
|
(In thousands)
|
|
Commitments to make loans
|
|
$
|
18,413
|
|
Unused lines of credit
|
|
214,299
|
|
Standby letters of credit
|
|
3,720
|
|
Total
|
|
$
|
236,432
|
|
Aggregate Contractual Obligations
As of March 31, 2016:
(Dollars in thousands)
|
|
Total
|
|
Less than
1 year
|
|
1-3 years
|
|
3-5 years
|
|
More than
5 years
|
|
Time deposits
|
|
$
|
294,331
|
|
$
|
174,175
|
|
$
|
76,251
|
|
$
|
37,110
|
|
$
|
6,795
|
|
Short-term borrowings
|
|
73,410
|
|
73,410
|
|
|
|
|
|
|
|
Other borrowings
|
|
97,551
|
|
22,257
|
|
15,317
|
|
2,000
|
|
57,977
|
|
Defined benefit plan
|
|
1,038
|
|
361
|
|
196
|
|
98
|
|
383
|
|
Lease commitments
|
|
7,848
|
|
1,252
|
|
1,904
|
|
1,554
|
|
3,138
|
|
Total
|
|
$
|
474,178
|
|
$
|
271,455
|
|
$
|
93,668
|
|
$
|
40,762
|
|
$
|
68,293
|
|
Time deposits represent certificates of deposit issued by the Company.
Short-term borrowings consist of repurchase agreements of $46.9 million, federal funds purchased of $26.5 million, and note payable of $30,000. The note payable represents amounts due for the participation in construction of a low income housing development project and is payable on demand.
Other borrowings consist of FHLB advances of $31.8 million, subordinated debentures of $57.8 million, and a term loan of $8.0 million. FHLB advances represent the amounts that are due from the FHLB and consist of fixed rate advances. Subordinated debentures represent the scheduled maturities of subordinated debentures issued to trusts formed by the Company in connection with the issuance of trust preferred securities. The term loan represents the scheduled maturities of holding company debt.
The defined benefit plan represents expected benefit payments to be paid to participants.
Lease commitments represent the total minimum lease payments under noncancelable operating leases, before considering renewal options that generally are present.
50
Table of Contents
PART I - ITEM 3
QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
Asset/liability management is the process of balance sheet control designed to ensure safety and soundness and to maintain liquidity and regulatory capital standards while maintaining acceptable net interest income. Interest rate risk is the exposure to adverse changes in net interest income as a result of market fluctuations in interest rates. Management continually monitors interest rate and liquidity risk so that it can implement appropriate funding, investment, and other balance sheet strategies. Management considers market interest rate risk to be our most significant ongoing business risk consideration.
We currently contract with an independent third party consulting firm to measure our interest rate risk position. The consulting firm utilizes an earnings simulation model to analyze net interest income sensitivity. Current balance sheet amounts, current yields and costs, corresponding maturity and repricing amounts and rates, other relevant information, and certain assumptions made by management are combined with gradual movements in interest rates of 200 basis points up at December 31, 2015 and March 31, 2016 within the model to estimate their combined effects on net interest income over a one-year horizon. A majority of our loans are indexed to the prime, therefore, the Company has excluded an evaluation of the effect on net interest income assuming a decrease in interest rates as further reductions in the prime rate are extremely unlikely. We feel that using gradual interest rate movements within the model is more representative of future rate changes than instantaneous interest rate shocks. Growth in amounts are not projected for any balance sheet category when constructing the model because of the belief that projected growth can mask current interest rate risk imbalances over the projected horizon. We believe that the changes made to the models interest rate risk measurement process have improved the accuracy of results of the process, consequently giving better information on which to base asset and liability allocation decisions going forward.
Assumptions based on the historical behavior of our deposit rates and balances in relation to changes in interest rates are incorporated into the model. These assumptions are inherently uncertain and, as a result, the model cannot precisely measure future net interest income or precisely predict the impact of fluctuations in market interest rates on net interest income. We continually monitor and update the assumptions as new information becomes available. Actual results will differ from the models simulated results due to timing, magnitude and frequency of interest rate changes, and actual variations from the managerial assumptions utilized under the model, as well as changes in market conditions and the application and timing of various management strategies.
The base scenario represents projected net interest income over a one year forecast horizon exclusive of interest rate changes to the simulation model. Given a gradual 200 basis point increase in the projected yield curve used in the simulation model (Up 200 Scenario), we estimated that as of March 31, 2016 our net interest income would decrease by an estimated 1.2%, or $625,000, over the one year forecast horizon. As of December 31, 2015, in the Up 200 Scenario we estimated that net interest income would decrease $467,000, over a one year forecast horizon ending December 31, 2016.
51
Table of Contents
The projected results are within our asset/liability management policy limits which states that the negative impact to net interest income should not exceed 7% in a 100 or 200 basis point increase or decrease in the projected yield curve over a one year forecast horizon. The forecast results are heavily dependent on the assumptions regarding changes in deposit rates; we can minimize the reduction in net interest income in a period of rising interest rates to the extent that we can curtail raising deposit rates during this period. We continue to explore transactions and strategies to both increase our net interest income and minimize our interest rate risk.
Our interest sensitivity profile at any point in time will be affected by a number of factors. These factors include the mix of interest sensitive assets and liabilities as well as their relative repricing schedules. It is also influenced by market interest rates, deposit growth, loan growth, and other factors. The tables below illustrate our estimated annualized earnings sensitivity profile based on the above referenced asset/liability model as of March 31, 2016 and December 31, 2015, respectively. The tables below are representative only and are not precise measurements of the effect of changing interest rates on our net interest income in the future.
The following table illustrates our estimated one year net interest income sensitivity profile based on the asset/liability model as of March 31, 2016 and ending on March 31, 2017:
|
|
Interest Rate Sensitivity as of March 31, 2016
|
|
|
|
Base
|
|
Gradual Increase in
Rates of 200
Basis Points
|
|
|
|
|
|
|
|
Projected interest income:
|
|
|
|
|
|
Loans
|
|
$
|
49,308
|
|
$
|
51,682
|
|
Investments
|
|
8,461
|
|
8,661
|
|
FHLB and FRB stock
|
|
165
|
|
165
|
|
Interest-bearing deposits in other financial institutions
|
|
95
|
|
287
|
|
Total interest Income
|
|
58,029
|
|
60,795
|
|
|
|
|
|
|
|
Projected interest expense:
|
|
|
|
|
|
Deposits
|
|
2,213
|
|
4,539
|
|
Short-term borrowings
|
|
379
|
|
1,169
|
|
Other borrowings
|
|
4,152
|
|
4,427
|
|
Total interest expense
|
|
6,744
|
|
10,135
|
|
Net interest income
|
|
$
|
51,285
|
|
$
|
50,660
|
|
|
|
|
|
|
|
Change from base
|
|
|
|
(625
|
)
|
Percent change from base
|
|
|
|
(1.2
|
)%
|
52
Table of Contents
The following table illustrates our estimated one year net interest income sensitivity profile based on the asset/liability model as of December 31, 2015 and ending December 31, 2016:
|
|
Interest Rate Sensitivity as of
December 31, 2015
|
|
|
|
Base
|
|
Gradual Increase in
Rates of 200
Basis Points
|
|
Projected interest income:
|
|
|
|
|
|
Loans
|
|
$
|
48,447
|
|
$
|
50,733
|
|
Investments
|
|
9,328
|
|
9,490
|
|
FHLB and FRB stock
|
|
165
|
|
165
|
|
Interest-bearing deposits in other financial Institutions
|
|
37
|
|
119
|
|
Total interest income
|
|
57,977
|
|
60,507
|
|
|
|
|
|
|
|
Projected interest expense:
|
|
|
|
|
|
Deposits
|
|
2,298
|
|
4,561
|
|
Short-term borrowings
|
|
104
|
|
639
|
|
Other borrowings
|
|
3,987
|
|
4,186
|
|
Total interest expense
|
|
6,389
|
|
9,386
|
|
Net interest income
|
|
$
|
51,588
|
|
$
|
51,121
|
|
|
|
|
|
|
|
Change from base
|
|
|
|
$
|
(467
|
)
|
% Change from base
|
|
|
|
(0.9
|
)%
|
53
Table of Contents
PART I ITEM 4
CONTROLS AND PROCEDURES
With the participation of the Chief Executive Officer (the principal executive officer) and the Chief Financial Officer (the principal financial officer) of Your Community Bankshares, Inc. (YCBI), YCBIs management has evaluated the effectiveness of YCBIs disclosure controls and procedures (as defined in Rule 13a-15(c) under the Securities Exchange Act of 1934, as amended (the Exchange Act)) as of the end of the quarterly period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, YCBIs Chief Executive Officer and Chief Financial Officer have concluded that YCBIs disclosure controls and procedures are effective as of the end of the quarterly period covered by this Quarterly Report on Form 10-Q to ensure that information required to be disclosed by YCBI in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SECs rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by YCBI in the reports that it files or submits under the Exchange Act is accumulated and communicated to YCBIs management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There was no change in YCBIs internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the fiscal quarter ended March 31, 2016 that has materially affected, or is reasonably likely to materially affect, YCBIs internal control over financial reporting.
54
Table of Contents
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
There are various claims and lawsuits in which the Company or its subsidiaries are periodically involved, such as claims to enforce liens, foreclosure or condemnation proceedings on properties in which the Banks hold mortgages or security interests, claims involving the making and servicing of real property loans and other issues incidental to the Banks business. In the opinion of management, no material loss is expected from any such pending claims or lawsuits.
Item 1A. Risk Factors
In addition to the information set forth in this report, you should carefully consider the risk factors disclosed in Item 1A of the Companys Annual Report on Form 10-K for the fiscal year ended December 31, 2015.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The Company did not purchase its common shares during the three months ended March 31, 2016.
Item 5. Other Information
Amendments to Employment Agreements
In connection with the execution of the Agreement and Plan of Merger between the Company and WesBanco, Inc. on May 3, 2016, the Company, WesBanco and their respective subsidiary banks entered into amendments to the employment agreements of President and Chief Executive Officer James D. Rickard, Executive Vice President and Chief Financial Officer Paul A. Chrisco, and Executive Vice President and Chief Credit Officer Michael K. Bauer. The amendments are subject to, and will take effect upon, the consummation of the Companys merger with and into WesBanco.
Title, Term and Salary after the Merger
. These provisions of the amendments are summarized in the chart below:
Name
|
|
Title
|
|
Term
|
|
Base Salary
|
|
|
|
|
|
|
|
|
|
James D. Rickard
|
|
Market President of the Business Line
|
|
Two years from the merger date
|
|
$
|
230,000
|
|
|
|
|
|
|
|
|
|
Paul A. Chrisco
|
|
Senior Vice President and Business Line Chief Financial Officer
|
|
Two years from the merger date
|
|
$
|
209,000
|
|
|
|
|
|
|
|
|
|
Michael K. Bauer
|
|
Senior Vice President & Senior Credit Officer of the Business Line
|
|
Three years from the merger date
|
|
$
|
170,000
|
|
55
Table of Contents
Payments upon Consummation of the Merger
. Mr. Rickard, Mr. Chrisco and Mr. Bauer would be entitled to receive the following compensation payments upon consummation of the Merger:
Mr. Rickard
·
WesBanco would pay Mr. Rickard $1,395,000 in a single cash payment on the merger date.
·
Except for his RSUs scheduled to vest on December 15, 2016, all of Mr. Rickards Restricted Stock Units would vest and be converted into the shares and cash consideration to be paid in the Merger; and
·
Mr. Rickards deferred compensation agreement would be amended to provide that no contributions would be made by his employer from and after the merger date.
Mr. Chrisco
·
Wesbanco would pay Mr. Chrisco $137,402 in a single cash payment on the merger date.
·
Wesbanco would pay Mr. Chrisco $250,000 in a single cash payment as consideration for the restrictive covenants provided in the amendment to his employment agreement subject to clawback for violating those covenants.
·
Except for his RSUs scheduled to vest on December 16, 2016 and January 14, 2017, all of his non-vested RSUs would vest and be converted into the shares and cash consideration to be paid in the Merger.
·
Wesbanco would pay Mr. Chrisco $9,370 per month for 24 months as a retention payment to encourage him to remain an employee for the amended term of the employment agreement as amended. No payment would be made after termination of employment during the term of the employment agreement, and the aggregate amount of retention payments is subject to repayment if termination is for cause.
Mr. Bauer
·
Wesbanco will pay Mr. Bauer $653,570 in a single cash payment on the merger date.
·
All of his non-vested RSUs would vest and be converted into the shares and cash consideration to be paid in the Merger.
Effective on the merger date, the amendments would modify change the severance arrangements with each of Mr. Rickard, Mr. Chrisco and Mr. Bauer. Mr. Rickard and Mr. Chrisco would be entitled to receive a cash severance amount equal to the base salary which he would have earned over the shorter of one year or the then remaining term of the amended agreement, payable in equal monthly installments beginning with the first business day of the month following the date of termination. Mr. Bauer would be entitled to receive a cash severance amount equal in aggregate to the base salary which he would have earned over the shortest of one year, twenty-four months, or the then remaining period of time between the merger date and the second anniversary of the merger date.
The amendments for each of Mr. Rickard, Mr. Chrisco and Mr. Bauer provide for the elimination of change in control provisions, such that no change of control payments will be provided for after the merger date. In addition, the amendment for each executive provides for him (or his spouse in the event of his death) to receive health and welfare benefits for a certain period following termination of employment.
56
Table of Contents
Other Terms
.
The amendments also provide for the renewal and restatement of the restrictive covenants contained in the Executives previous employment agreements.
In addition to the salary provided in the table above, Mr. Bauer will be compensated through participation in Wesbancos annual incentive plan at a guaranteed annual bonus of no less than 15% of Mr. Bauers base salary for each bonus year during the term of the Agreement, and through a grant of 3,500 shares of restricted stock under and in accordance with the terms and conditions of the Wesbanco Incentive Bonus Stock Restricted Stock Plan.
Amendments to Restricted Stock Unit Award Agreements.
On November 30, 2015, the Company entered into amendments to the Restricted Stock Unit Award Agreements with James D. Rickard and Paul A. Chrisco to provide that any unvested restricted stock units awarded to them would become fully vested in the event of the named executive officers death, disability or a Change in Control of the Company.
In connection with the execution of the Merger Agreement, the Company entered into amendments to certain of the Award Agreements with Mr. Rickard and Mr. Chrisco to revoke the November 30, 2015 amendment and the acceleration of the original vesting dates with respect to the following RSU awards:
Executive
|
|
Number of RSUs
|
|
Vesting Date
|
|
|
|
|
|
James D. Rickard
|
|
2,000
|
|
December 15, 2016
|
|
|
|
|
|
Paul A. Chrisco
|
|
2,000
|
|
December 15, 2016
|
|
|
408
|
|
January 14, 2017
|
The foregoing summary of the amendments to the employment agreements and the restricted stock unit award agreements in this Item 5 is not complete and is qualified in its entirety by reference to the complete text of the amendments, which are filed as exhibits to this report.
Item 6. Exhibits
Exhibits
The exhibits required by Item 601 of Regulation S-K are listed in the Exhibit Index of this Form 10-Q and are filed as a part of this report.
57
Table of Contents
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed by the undersigned thereunto duly authorized.
|
|
YOUR COMMUNITY BANKSHARES, INC.
|
|
|
(Registrant)
|
|
|
|
|
Dated:
|
May 10, 2016
|
|
BY
:
|
/s/ James D. Rickard
|
|
|
|
James D. Rickard
|
|
|
|
President and
|
|
|
|
Chief Executive Officer
|
|
|
|
(Principal Executive Officer)
|
|
|
|
|
Dated:
|
May 10, 2016
|
|
BY
:
|
/s/ Paul. A. Chrisco
|
|
|
|
Paul A. Chrisco
|
|
|
|
Executive Vice-President and
|
|
|
|
Chief Financial Officer
|
|
|
|
(Principal Financial Officer)
|
58
Table of Contents
EXHIBIT INDEX
YOUR COMMUNITY BANKSHARES, INC.
EXHIBIT INDEX
Exhibit No.
|
|
Description
|
|
|
|
2.1
|
|
Agreement and Plan of Merger dated May 3, 2016 by and between Wesbanco, Inc., Wesbanco Bank, Inc., Your Community Bankshares, Inc. and Your Community Bank (incorporated by reference to Form 8-K of Wesbanco, Inc. dated May 3, 2016).
|
|
|
|
10.1
|
|
Amendment to Employment Agreement by and between James D. Rickard, Your Community Bankshares, Inc., Your Community Bank, Wesbanco, Inc., and Wesbanco Bank, Inc. dated May 3, 2016
|
|
|
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10.2
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Amendment to Employment Agreement by and between Paul A. Chrisco, Your Community Bankshares, Inc., Your Community Bank, Wesbanco, Inc., and Wesbanco Bank, Inc. dated May 3, 2016
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10.3
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Amendment to Employment Agreement by and between Michael K. Bauer, Your Community Bankshares, Inc., Your Community Bank, Wesbanco, Inc., and Wesbanco Bank, Inc. dated May 3, 2016
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10.4
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Your Community Bankshares, Inc. Restricted Stock Units Agreement Modification by and between James Rickard and Your Community Bankshares, Inc. dated May 2, 2016
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10.5
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Your Community Bankshares, Inc. Restricted Stock Units Agreement Modification by and between Paul Chrisco and Your Community Bankshares, Inc. dated May 2, 2016
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31.1
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Certification of Principal Executive Officer Pursuant to Section 302 of Sarbanes-Oxley Act
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31.2
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Certification of Principal Financial Officer Pursuant to Section 302 of Sarbanes-Oxley Act
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32.1
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Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
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32.2
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Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
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101*
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The following financial information from Your Community Bankshares, Inc. Quarterly Report on Form 10-Q for the period ended March 31, 2016, filed with the SEC on May 10, 2016, formatted in Extensible Business Reporting Language (XBRL): (i) Consolidated Balance Sheets at March 31, 2016 and December 31, 2015, (ii) Consolidated Statements of Operations for the three months ended March 31, 2016 and March 31, 2015, (iii) Consolidated Statements of Comprehensive Income for the three months ended March 31, 2016 and March 31, 2015 (iv) Consolidated Statement of Stockholders Equity for the three months ended March 31, 2016, (v) Consolidated Statements of Cash Flows for the three months ended March 31, 2016 and March 31, 2015 and (vi) Notes to Consolidated Financial Statements Pursuant to Rule 406T of Regulation S-T, the XBRL related information in Exhibit 101 to this Quarterly Report on Form 10-Q shall not be deemed to be filed for purposes of Sections 11 and 12 of the Securities
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*Pursuant to Rule 406T of Regulation S-T, the XBRL related information in Exhibit 101 to this Quarterly Report on Form 10-Q shall not be deemed to be filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Exchange Act of 1934, or otherwise subject to the liability of those sections, and shall not be deemed part of a registration statement, prospectus or other document filed under the Securities Act of 1933 or the Exchange Act of 1934, except as shall be expressly set forth by specific reference in such filings.
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