NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1.
Basis of Presentation and Accounting Policies
The consolidated financial statements include
the accounts of Juniata Valley Financial Corp. (the “Company”) and its wholly owned subsidiary, The Juniata Valley
Bank (the “Bank” or “JVB”). All significant intercompany accounts and transactions have been eliminated.
The accompanying unaudited consolidated financial
statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information.
Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles
(“U.S. GAAP”) for complete consolidated financial statements. In the opinion of management, all adjustments considered
necessary for fair presentation have been included. Operating results for the three and nine months period ended September 30,
2017 are not necessarily indicative of the results for the year ending December 31, 2017. For further information, refer to the
consolidated financial statements and notes thereto included in Juniata Valley Financial Corp.’s Annual Report on Form 10-K
for the year ended December 31, 2016.
The Company has evaluated events and transactions
occurring subsequent to the consolidated statement of financial condition date of September 30, 2017 for items that should potentially
be recognized or disclosed in these consolidated financial statements. The evaluation was conducted through the date these consolidated
financial statements were issued.
2.
Recent Accounting Standards Updates (ASU)
Accounting Standards Update 2017-12, Targeted
Improvements to Accounting for Hedging Activities
Issued:
August 2017
Summary:
ASU 2017-12 improves Topic
815 by simplifying and expanding the eligible hedging strategies for financial and nonfinancial risks by more closely aligning
hedge accounting with a company’s risk management activities, and also simplifies its application through targeted improvements
in key practice areas. This includes expanding the list of items eligible to be hedged and amending the methods used to measure
the effectiveness of hedging relationships. In addition, the ASU prescribes how hedging results should be presented and requires
incremental disclosures. These changes are intended to allow preparers more flexibility and to enhance the transparency of how
hedging results are presented and disclosed. Further, the new standard provides partial relief on the timing of certain aspects
of hedge documentation and eliminates the requirement to recognize hedge ineffectiveness separately in earnings in the current
period.
Effective Date:
The amendments are effective
for public business entities, for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years.
Early application is permitted in any interim period after issuance of the amendments for existing hedging relationships on the
date of adoption. This Update will have no impact on the Company’s consolidated financial position and results of operations.
Accounting Standards Update 2017-09, Scope
of Modification Accounting
Issued:
May
2017
Summary:
ASU 2017-09 clarifies Topic
718 such that an entity must apply modification accounting to changes in the terms or conditions of a share-based payment award
unless all of the following criteria are met:
|
1.
|
The fair value of the modified award is the same as the fair value of the original award immediately
before the modification. The standard indicates that if the modification does not affect any of the inputs to the valuation technique
used to value the award, the entity is not required to estimate the value immediately before and after the modification.
|
|
2.
|
The vesting conditions of the modified award are the same as the vesting conditions of the original
award immediately before the modification.
|
|
3.
|
The classification of the
modified award as an equity instrument or a liability instrument is the same as the classification of the original award immediately
before the modification.
|
Effective Date:
The amendments are effective
for all entities for fiscal years beginning after December 15, 2017, including interim periods within those years. This Update
will have no impact on the Company’s consolidated financial position and results of operations.
Accounting Standards Update 2017-08, Premium
Amortization on Purchased Callable Debt Securities
Issued:
March
2017
Summary:
ASU 2017-08 shortens the amortization
period for premiums on purchased callable debt securities to the earliest call date, rather than amortizing over the full contractual
term. The ASU does not change the accounting for securities held at a discount.
Effective Date:
The amendments are effective
for public business entities for fiscal years beginning after December 15, 2019. This Update will have no impact on the Company’s
consolidated financial position and results of operations.
Accounting Standards Update 2017-07, Improving
the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost
Issued:
March
2017
Summary:
ASU 2017-07 requires that an
employer disaggregate the service cost component from the other components of net benefit cost.
Effective Date:
The amendments are effective
for public business entities for fiscal years beginning after December 15, 2017. This Update will have no impact on the Company’s
consolidated financial position and results of operations.
Accounting Standards Update 2017-04, Simplifying
the Test for Goodwill Impairment
Issued:
January
2017
Summary:
ASU 2017-04 eliminates Step
2 of the goodwill impairment test.
Effective Date:
The amendments are effective
for public business entities for fiscal years beginning after December 15, 2019. This Update will have no impact on the Company’s
consolidated financial position and results of operations.
Accounting Standards Update 2016-15, Classification
of Certain Cash Receipts and Cash Payments
Issued:
August
2016
Summary:
ASU 2016-15 clarifies how certain
cash receipts and cash payments are presented and classified in the statement of cash flows. The amendments are intended to reduce
diversity in practice.
Effective Date:
The amendments are effective
for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017.
This Update will have no impact on the Company’s consolidated financial position and results of operations.
Accounting Standards Update 2016-13
,
Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
Issued:
June 2016
Summary:
ASU 2016-13 requires credit
losses on most financial assets to be measured at amortized cost and certain other instruments to be measured using an expected
credit loss model (referred to as the current expected credit loss (“CECL”) model). Under this model, entities will
estimate credit losses over the entire contractual term of the instrument (considering estimated prepayments, but not expected
extensions or modifications unless reasonable expectation of a troubled debt restructuring exists) from the date of initial recognition
of that instrument.
The ASU also replaces the current accounting
model for purchased credit impaired loans and debt securities. The allowance for credit losses for purchased financial assets with
a more-than insignificant amount of credit deterioration since origination (“PCD assets”), should be determined in
a similar manner to other financial assets measured on an amortized cost basis. However, upon initial recognition, the allowance
for credit losses is added to the purchase price (“gross up approach”) to determine the initial amortized cost basis.
The subsequent accounting for PCD financial assets is the same expected loss model described above.
Further, the ASU made certain targeted amendments
to the existing impairment model for available-for-sale (AFS) debt securities. For an AFS debt security for which there is neither
the intent nor a more-likely-than-not requirement to sell, an entity will record credit losses as an allowance rather than a write-down
of the amortized cost basis.
Effective Date:
The new standard is
effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. While the
Company’s senior management is currently in the process of evaluating the impact of the amended guidance on its consolidated
financial statements, it currently expects the ALLL to increase upon adoption given that the allowance will be required to cover
the full remaining expected life of the portfolio, rather than the incurred loss model under current U.S. GAAP. The extent of this
increase is still being evaluated and will depend on economic conditions and the composition of the Company’s loan portfolio
at the time of adoption. In preparation, the Company has partnered with a software provider specializing in ALLL analysis and is
assessing the sufficiency of data currently available through its core database.
Accounting Standards Update 2016-02
,
Leases
Issued:
February 2016
Summary:
The new standard establishes
a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet
for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification
affecting the pattern of expense recognition in the income statement.
Effective Date:
The new standard is
effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective
transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning
of the earliest comparative period presented in the financial statements, with certain practical expedients available. The
Company has determined that the provisions of ASU 2016-02 will result in an increase in assets to recognize the present value of
the lease obligations with a corresponding increase in liabilities; however, the Company does not expect this new standard to have
a material impact on the Company’s financial position, results of operations or cash flows.
Accounting Standards Update 2016-01,
Measurement
of Financial Instruments
Issued:
January 2016
Summary:
The amendments in this Update
require all equity investments to be measured at fair value with changes in the fair value recognized through net income (other
than those accounted for under equity method of accounting or those that result in consolidation of the investee). The amendments
in this Update also require an entity to present separately in other comprehensive income the portion of the total change in the
fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure
the liability at fair value in accordance with the fair value option for financial instruments. In addition, the amendments in
this Update eliminate the requirement to disclose the fair value of financial instruments measured at amortized cost for entities
that are not public business entities and the requirement to disclose the method(s) and significant assumptions used to estimate
the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet for public
business entities.
Effective Date:
For public entities,
the amendments in the Update are effective for fiscal years beginning after December 15, 2017, including interim periods within
those fiscal years. The Company currently holds a small portfolio of equity investments for which the fair value fluctuates
with market activity. Had ASU 2016-01 become effective on September 30, 2017, the cumulative effect adjustment to income before
tax would have been $287,000 (see Note 6). The cumulative adjustment that will be recognized upon adoption of the amendments in
this update in the first quarter of 2018 will be dependent upon the size of the equity portfolio and the market values at that
time.
Accounting Standards Update 2014-09, Revenue
from Contracts with Customers (Topic 606)
Issued:
May
2014
Summary:
The amendments in this Update
establish a comprehensive revenue recognition standard for virtually all industries under U.S. GAAP, including those that previously
followed industry-specific guidance such as the real estate, construction and software industries. The revenue standard’s
core principle is built on the contract between a vendor and a customer for the provision of goods and ser
vices.
It attempts to depict the exchange of rights and obligations between the parties in the pattern of revenue recognition based on
the consideration to which the vendor is entitled. To accomplish this objective, the standard requires five basic steps: (i) identify
the contract with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price,
(iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when (or as) the
entity satisfies a performance obligation.
In
August 2015, the FASB issued
Accounting Standards
Update 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date
.
ASU 2015-14 defers the effective date of the new
revenue recognition standard by one year. As such, it now takes effect for public entities in fiscal years beginning after December
15, 2017. All other entities have an additional year. However, early adoption is permitted for any entity that chooses to adopt
the new standard as of the original effective date. Early adoption is permitted only as of annual reporting periods beginning
after December 15, 2016, including interim periods within that year.
Three basic transition
methods are available – full retrospective, retrospective with certain practical expedients, and a cumulative effect approach.
Under the third alternative, an entity would apply the new revenue standard only to contracts that are incomplete under legacy
U.S. GAAP at the date of initial application (e.g. January 1, 2018) and recognize the cumulative effect of the new standard as
an adjustment to the opening balance of retained earnings. That is, prior years would not be restated and additional disclosures
would be required to enable users of the financial statements to understand the impact of adopting the new standard in the current
year compared to prior years that are presented under legacy U.S. GAAP. Early adoption is prohibited under U.S. GAAP.
Because
the amended guidance does not apply to revenue associated with financial instruments, including loans and securities that are
accounted for under other U.S. GAAP, the Company’s preliminary analysis suggests that the adoption of this amended guidance
is not expected to have a material impact on its consolidated financial statements, although the Company will be subject to expanded
disclosure requirements upon adoption for which it is still evaluating, along with the preferred adoption method. The Company
is assessing the affect the guidance will have on the recognition processes for wealth and asset management revenue, banking revenue
and card and processing revenue. However, there are certain areas of the amended guidance, such as credit card interchange fees
programs that are subject to interpretation. The Company is still in the process of analyzing these contracts and has not made
a final conclusion regarding the applicability and related impact, if any, on the consolidated financial statements. Accordingly,
the results of the Company’s materiality analysis, as well as its selected adoption method, may change as these conclusions
are reached.
3.
Merger
On November 30,
2015, Juniata consummated the merger with FNBPA Bancorp, Inc. (“FNBPA”), a Pennsylvania corporation. FNBPA merged
with and into Juniata, with Juniata continuing as the surviving entity. Simultaneously with the consummation of the foregoing
merger, First National Bank of Port Allegany (“FNB”), a national banking association and a wholly-owned subsidiary
of FNBPA, merged with and into the Bank.
As part of this transaction, FNBPA shareholders
received either 2.7813 shares of Juniata’s common stock or $50.34 in cash in exchange for each share of FNBPA common stock.
As a result, Juniata issued 607,815 shares of common stock with an acquisition date fair value of approximately $10,637,000, based
on Juniata’s closing stock price of $17.50 on November 30, 2015, and cash of $2,208,000, including cash in lieu of fractional
shares. The fair value of total consideration paid was $12,845,000.
The assets and liabilities of FNB and FNBPA
were recorded on the consolidated balances sheet at their estimated fair value as of November 30, 2015, and their results of operations
have been included in the consolidated income statement since such date.
Included in the purchase price was goodwill and
a core deposit intangible of $3,335,000 and $343,000, respectively. The core deposit intangible will be amortized over a ten-year
period using a sum of the year’s digits basis. The goodwill will not be amortized, but will be measured annually for impairment
or more frequently if circumstances require.
The allocation of the purchase price is as
follows:
(Dollars in thousands)
|
|
|
|
|
|
|
|
Purchase price assigned to FNBPA common shares exchanged for 607,815 Juniata common shares
|
|
$
|
10,637
|
|
Purchase price assigned to FNBPA common shares exchanged for cash
|
|
|
2,208
|
|
Total purchase price
|
|
|
12,845
|
|
FNBPA net assets acquired:
|
|
|
|
|
Tangible common equity
|
|
|
9,854
|
|
Adjustments to reflect assets acquired and liabilities assumed at fair value:
|
|
|
|
|
Total fair value adjustments
|
|
|
(523
|
)
|
Associated deferred income taxes
|
|
|
179
|
|
Fair value adjustment to net assets acquired, net of tax
|
|
|
(344
|
)
|
Total FNBPA net assets acquired
|
|
|
9,510
|
|
Goodwill resulting from the merger
|
|
$
|
3,335
|
|
The following table summarizes the fair value
of the assets acquired and liabilities assumed.
(Dollars in thousands)
|
|
|
|
|
|
|
|
Total purchase price
|
|
$
|
12,845
|
|
|
|
|
|
|
Net assets acquired
|
|
|
|
|
Cash and cash equivalents
|
|
|
3,452
|
|
Interest-bearing time deposits
|
|
|
350
|
|
Investment securities
|
|
|
35,458
|
|
Loans
|
|
|
47,055
|
|
Premises and equipment
|
|
|
419
|
|
Accrued interest receivable
|
|
|
550
|
|
Core deposit and other intangibles
|
|
|
343
|
|
Other real estate owned
|
|
|
114
|
|
Other assets
|
|
|
763
|
|
Deposits
|
|
|
(77,665
|
)
|
Accrued interest payable
|
|
|
(13
|
)
|
Other liabilities
|
|
|
(1,316
|
)
|
|
|
|
9,510
|
|
Goodwill
|
|
$
|
3,335
|
|
As of November 30, 2015, the merger date, goodwill
was recorded at $3,335,000. Accounting Standard Codification (“ASC”) 805 allows for adjustments to goodwill for a period
of up to one year after the merger date for information that becomes available that reflects circumstances at the merger date.
During 2016, such information became available and goodwill was adjusted by $67,000, to $3,402,000, to reflect adjustments to fair
value of two assets.
The fair value of the financial assets acquired
included loans receivable with a gross amortized cost basis of $47,797,000. The table below illustrates the fair value adjustments
made to the amortized cost basis in order to present a fair value of the loans acquired.
(Dollars in thousands)
|
|
|
|
|
|
|
|
Gross amortized cost basis at November 30, 2015
|
|
$
|
47,797
|
|
Market rate adjustment
|
|
|
(110
|
)
|
Credit fair value adjustment on pools of homogeneous loans
|
|
|
(73
|
)
|
Credit fair value adjustment on impaired loans
|
|
|
(559
|
)
|
Fair value of purchased loans at November 30, 2015
|
|
$
|
47,055
|
|
The market rate adjustment represents the movement
in market interest rates, irrespective of credit adjustments, compared to the stated rates of the acquired loans. The credit adjustment
made on pools of homogeneous loans represents the changes in credit quality of the underlying borrowers from the loan inception
to the acquisition date. The credit adjustment on impaired loans is derived in accordance with ASC 310-30 and represents the portion
of the loan balances that has been deemed uncollectible based on the Company’s expectations of future cash flows for each
respective loan.
The information about the acquired FNBPA impaired
loan portfolio as of November 30, 2015 is as follows:
(Dollars in thousands)
|
|
|
|
|
|
|
|
Contractually required principal and interest at acquisition
|
|
$
|
2,488
|
|
Contractual cash flows not expected to be collected (nonaccretable discount)
|
|
|
(1,427
|
)
|
Expected cash flows at acquisition
|
|
|
1,061
|
|
Interest component of expected cash flows (accretable discount)
|
|
|
(157
|
)
|
Fair value of acquired loans
|
|
$
|
904
|
|
The following table presents unaudited pro
forma information, in thousands, as if the merger between Juniata and FNBPA had been completed on January 1, 2014. The pro forma
information does not necessarily reflect the results of operations that would have occurred had Juniata merged with FNBPA at the
beginning of 2014. Supplemental pro forma earnings for 2015 were adjusted to exclude $1,637,000 of merger related costs (exclusive
of the corresponding tax impact) incurred in 2015; the results for 2014 were adjusted to include these charges. The pro forma financial
information does not include the impact of possible business model changes, nor does it consider any potential impacts of current
market conditions or revenues, expense efficiencies or other factors.
(Dollars in thousands, except per share
data)
|
|
Years Ended December 31,
|
|
|
|
2015
|
|
|
2014
|
|
Consolidated net interest income after loan loss provision
|
|
$
|
17,731
|
|
|
$
|
17,089
|
|
Consolidated non-interest income
|
|
|
4,841
|
|
|
|
4,745
|
|
Consolidated non-interest expense
|
|
|
17,124
|
|
|
|
18,358
|
|
Consolidated net income
|
|
|
4,862
|
|
|
|
3,353
|
|
Consolidated net income per common share
|
|
$
|
1.01
|
|
|
$
|
0.70
|
|
4.
Accumulated other Comprehensive loss
Components of accumulated other comprehensive
loss, net of tax, consisted of the following:
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
|
December 31, 2016
|
|
Unrealized losses on available for sale securities
|
|
$
|
(609
|
)
|
|
$
|
(866
|
)
|
Unrecognized expense for defined benefit pension
|
|
|
(2,230
|
)
|
|
|
(2,343
|
)
|
Accumulated other comprehensive loss
|
|
$
|
(2,839
|
)
|
|
$
|
(3,209
|
)
|
5. Earnings
Per Share
Basic earnings per share (“EPS”) is
computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted EPS reflects
the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into
common stock or resulted in the issuance of common stock that then shared in the earnings of the Company. Potential common shares
that may be issued by the Company relate solely to outstanding stock options and are determined using the treasury stock method.
The following tables set forth the computation
of basic and diluted earnings per share:
(Dollars in thousands, except earnings
per share data)
|
|
Three Months Ended September 30,
|
|
|
|
2017
|
|
|
2016
|
|
Net income
|
|
$
|
1,206
|
|
|
$
|
1,447
|
|
Weighted-average common shares outstanding
|
|
|
4,768
|
|
|
|
4,804
|
|
Basic earnings per share
|
|
$
|
0.25
|
|
|
$
|
0.30
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding
|
|
|
4,768
|
|
|
|
4,804
|
|
Common stock equivalents due to effect of stock options
|
|
|
11
|
|
|
|
1
|
|
Total weighted-average common shares and equivalents
|
|
|
4,779
|
|
|
|
4,805
|
|
Diluted earnings per share
|
|
$
|
0.25
|
|
|
$
|
0.30
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
2017
|
|
|
2016
|
|
Net income
|
|
$
|
3,959
|
|
|
$
|
3,854
|
|
Weighted-average common shares outstanding
|
|
|
4,764
|
|
|
|
4,801
|
|
Basic earnings per share
|
|
$
|
0.83
|
|
|
$
|
0.80
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding
|
|
|
4,764
|
|
|
|
4,801
|
|
Common stock equivalents due to effect of stock options
|
|
|
9
|
|
|
|
1
|
|
Total weighted-average common shares and equivalents
|
|
|
4,773
|
|
|
|
4,802
|
|
Diluted earnings per share
|
|
$
|
0.83
|
|
|
$
|
0.80
|
|
6.
Securities
The Company’s investment portfolio includes
primarily bonds issued by U.S. Government sponsored agencies (approximately 22% of the investment portfolio), mortgage-backed securities
issued by Government-sponsored agencies and backed by residential mortgages (approximately 61%) and municipal bonds (approximately
16%) as of September 30, 2017. Most of the municipal bonds are general obligation bonds with maturities or pre-refunding dates
within 5 years. The remaining 1% of the portfolio includes a group of equity investments in other financial institutions.
The amortized cost and fair value of securities
as of September 30, 2017 and December 31, 2016, by contractual maturity, are shown below. Expected maturities may differ from contractual
maturities because the securities may be called or prepaid with or without prepayment penalties.
|
|
September 30, 2017
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
Amortized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
|
Cost
|
|
|
Value
|
|
|
Gains
|
|
|
Losses
|
|
Securities Available for Sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type and Maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of U.S. Government agencies and corporations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After one year but within five years
|
|
$
|
15,998
|
|
|
$
|
15,878
|
|
|
$
|
-
|
|
|
$
|
(120
|
)
|
After five years but within ten years
|
|
|
19,002
|
|
|
|
18,585
|
|
|
|
-
|
|
|
|
(417
|
)
|
|
|
|
35,000
|
|
|
|
34,463
|
|
|
|
-
|
|
|
|
(537
|
)
|
Obligations of state and political subdivisions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within one year
|
|
|
2,418
|
|
|
|
2,418
|
|
|
|
1
|
|
|
|
(1
|
)
|
After one year but within five years
|
|
|
12,659
|
|
|
|
12,781
|
|
|
|
123
|
|
|
|
(1
|
)
|
After five years but within ten years
|
|
|
10,783
|
|
|
|
10,746
|
|
|
|
46
|
|
|
|
(83
|
)
|
|
|
|
25,860
|
|
|
|
25,945
|
|
|
|
170
|
|
|
|
(85
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
|
|
98,251
|
|
|
|
97,485
|
|
|
|
96
|
|
|
|
(862
|
)
|
Equity securities
|
|
|
1,000
|
|
|
|
1,287
|
|
|
|
288
|
|
|
|
(1
|
)
|
Total
|
|
$
|
160,111
|
|
|
$
|
159,180
|
|
|
$
|
554
|
|
|
$
|
(1,485
|
)
|
|
|
December 31, 2016
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
Amortized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
|
Cost
|
|
|
Value
|
|
|
Gains
|
|
|
Losses
|
|
Securities Available for Sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type and Maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of U.S. Government agencies and corporations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After one year but within five years
|
|
$
|
19,495
|
|
|
$
|
19,331
|
|
|
$
|
13
|
|
|
$
|
(177
|
)
|
After five years but within ten years
|
|
|
17,000
|
|
|
|
16,468
|
|
|
|
-
|
|
|
|
(532
|
)
|
|
|
|
36,495
|
|
|
|
35,799
|
|
|
|
13
|
|
|
|
(709
|
)
|
Obligations of state and political subdivisions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within one year
|
|
|
2,819
|
|
|
|
2,820
|
|
|
|
2
|
|
|
|
(1
|
)
|
After one year but within five years
|
|
|
13,268
|
|
|
|
13,240
|
|
|
|
39
|
|
|
|
(67
|
)
|
After five years but within ten years
|
|
|
10,923
|
|
|
|
10,599
|
|
|
|
16
|
|
|
|
(340
|
)
|
|
|
|
27,010
|
|
|
|
26,659
|
|
|
|
57
|
|
|
|
(408
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
|
|
86,670
|
|
|
|
85,702
|
|
|
|
114
|
|
|
|
(1,082
|
)
|
Equity securities
|
|
|
1,615
|
|
|
|
2,328
|
|
|
|
713
|
|
|
|
-
|
|
Total
|
|
$
|
151,790
|
|
|
$
|
150,488
|
|
|
$
|
897
|
|
|
$
|
(2,199
|
)
|
Certain obligations of the U.S. Government
and state and political subdivisions are pledged to secure public deposits, securities sold under agreements to repurchase and
for other purposes as required or permitted by law. The carrying value of the pledged assets was $49,050,000 and $36,638,000 at
September 30, 2017 and December 31, 2016, respectively.
In addition to cash received from the scheduled
maturities of securities, some investment securities available for sale are sold or called at current market values during the
course of normal operations.
The following chart summarizes proceeds received
from sales or calls of investment securities transactions and the resulting realized gains and losses.
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
(Dollars in thousands)
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Gross proceeds from sales of securities
|
|
$
|
10,166
|
|
|
$
|
-
|
|
|
$
|
21,800
|
|
|
$
|
4,273
|
|
Securities available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross realized gains from sold and called securities
|
|
$
|
30
|
|
|
$
|
6
|
|
|
$
|
539
|
|
|
$
|
49
|
|
Gross realized losses from sold and called securities
|
|
|
(28
|
)
|
|
|
-
|
|
|
|
(32
|
)
|
|
|
(15
|
)
|
Gross gains from business combinations
|
|
|
-
|
|
|
|
-
|
|
|
|
3
|
|
|
|
100
|
|
ASC Topic 320,
Investments – Debt
and Equity Securities
, clarifies the interaction of the factors that should be considered when determining whether a debt security
is other-than-temporarily impaired. For debt securities, management must assess whether (a) it has the intent to sell the
security and (b) it is more likely than not that it will be required to sell the security prior to its anticipated recovery.
These steps are taken before an assessment is made as to whether the entity will recover the cost basis of the investment. For
equity securities, consideration is given to management’s intention and ability to hold the securities until recovery of
unrealized losses in assessing potential other-than-temporary impairment. More specifically, factors considered to determine other-than-temporary
impairment status for individual equity holdings include the length of time the stock has remained in an unrealized loss position,
the percentage of unrealized loss compared to the carrying cost of the stock, dividend reduction or suspension, market analyst
reviews and expectations, and other pertinent factors that would affect expectations for recovery or further decline.
In instances when a determination is made that
an other-than-temporary impairment exists and the entity does not intend to sell the debt security and it is not more likely than
not that it will be required to sell the debt security prior to its anticipated recovery, the other-than-temporary impairment is
separated into the amount of the total other-than-temporary impairment related to a decrease in cash flows expected to be collected
from the debt security (the credit loss) and the amount of the total other-than-temporary impairment related to all other factors.
The amount of the total other-than-temporary impairment related to the credit loss is recognized in earnings. The amount of the
total other-than-temporary impairment related to all other factors is recognized in other comprehensive income (loss).
The following table shows gross unrealized
losses and fair value, aggregated by category and length of time that individual securities have been in a continuous unrealized
loss position, at September 30, 2017 and December 31, 2016:
|
|
Unrealized Losses at September 30, 2017
|
|
|
|
Less Than 12 Months
|
|
|
12 Months or More
|
|
|
Total
|
|
(Dollars in thousands)
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
Obligations of U.S. Government agencies and corporations
|
|
$
|
27,680
|
|
|
$
|
(320
|
)
|
|
$
|
6,782
|
|
|
$
|
(217
|
)
|
|
$
|
34,462
|
|
|
$
|
(537
|
)
|
Obligations of state and political subdivisions
|
|
|
6,070
|
|
|
|
(67
|
)
|
|
|
1,695
|
|
|
|
(18
|
)
|
|
|
7,765
|
|
|
|
(85
|
)
|
Mortgage-backed securities
|
|
|
78,495
|
|
|
|
(862
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
78,495
|
|
|
|
(862
|
)
|
Total debt securities
|
|
|
112,245
|
|
|
|
(1,249
|
)
|
|
|
8,477
|
|
|
|
(235
|
)
|
|
|
120,722
|
|
|
|
(1,484
|
)
|
Equity securities
|
|
|
-
|
|
|
|
-
|
|
|
|
4
|
|
|
|
(1
|
)
|
|
|
4
|
|
|
|
(1
|
)
|
Total temporarily impaired securities
|
|
$
|
112,245
|
|
|
$
|
(1,249
|
)
|
|
$
|
8,481
|
|
|
$
|
(236
|
)
|
|
$
|
120,726
|
|
|
$
|
(1,485
|
)
|
|
|
Unrealized Losses at December 31, 2016
|
|
|
|
Less Than 12 Months
|
|
|
12 Months or More
|
|
|
Total
|
|
(Dollars in thousands)
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
Obligations of U.S. Government agencies and corporations
|
|
$
|
32,783
|
|
|
$
|
(709
|
)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
32,783
|
|
|
$
|
(709
|
)
|
Obligations of state and political subdivisions
|
|
|
17,437
|
|
|
|
(406
|
)
|
|
|
300
|
|
|
|
(2
|
)
|
|
|
17,737
|
|
|
|
(408
|
)
|
Mortgage-backed securities
|
|
|
68,989
|
|
|
|
(1,082
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
68,989
|
|
|
|
(1,082
|
)
|
Total temporarily impaired securities
|
|
$
|
119,209
|
|
|
$
|
(2,197
|
)
|
|
$
|
300
|
|
|
$
|
(2
|
)
|
|
$
|
119,509
|
|
|
$
|
(2,199
|
)
|
At September 30, 2017, 20 U.S. Government agency
and corporation securities had unrealized losses that, in the aggregate, did not exceed 2.0% of amortized cost. Four of these securities
have been in a continuous loss position for 12 months or more.
At September 30, 2017, 12 obligations of state
and political subdivisions had unrealized losses that, in the aggregate, did not exceed 1.0% of amortized cost. Four of these securities
has been in a continuous loss position for 12 months or more.
At September 30, 2017, 37 mortgage-backed securities
had an unrealized loss that did not exceed 1.0% of amortized cost. None of these securities has been in a continuous loss position
for 12 months or more.
The mortgage-backed securities in the Company’s
portfolio are government sponsored enterprise (GSE) pass-through instruments issued by the Federal National Mortgage Association
(FNMA) or Federal Home Loan Mortgage Corporation (FHLMC), which guarantees the timely payment of principal on these investments.
The unrealized losses noted above are considered
to be temporary impairments. The decline in the values of the debt securities is due only to interest rate fluctuations, rather
than erosion of issuer credit quality. As a result, the payment of contractual cash flows, including principal repayment, is not
at risk. Because the Company does not intend to sell the securities, does not believe the Company will be required to sell the
securities before recovery and expects to recover the entire amortized cost basis, none of the debt securities are deemed to be
other-than-temporarily impaired.
Equity securities owned by the Company consist
of common stock of various financial services providers and are evaluated quarterly for evidence of other-than-temporary impairment.
There was one equity security that was in an unrealized loss position for 12 months or more as of September 30, 2017. Management
has identified no other-than-temporary impairment as of, or for the periods ended, September 30, 2017, September 30, 2016 and December
31, 2016, respectively, in the equity portfolio. Management continues to track the performance of each stock owned to determine
if it is prudent to recognize any other-than-temporary impairment charges. The Company has the ability and intent to hold its equity
securities until recovery of unrealized losses.
7.
Loans
and Related Allowance for Credit Losses
Loans that the Company has the intent and ability
to hold for the foreseeable future or until maturity or payoff are stated at the outstanding unpaid principal balances, net of
any deferred fees or costs and the allowance for loan losses. Interest income on all loans, other than nonaccrual loans, is accrued
over the term of the loans based on the amount of principal outstanding. Unearned income is amortized to income over the life of
the loans, using the interest method.
The loan portfolio is segmented into commercial
and consumer loans. Commercial loans are comprised of the following classes of loans: (1) commercial, financial and agricultural,
(2) commercial real estate, (3) real estate construction, a portion of (4) mortgage loans and (5) obligations of states and political
subdivisions. Consumer loans are comprised of a portion of (4) mortgage loans and (6) personal loans.
Loans on which the accrual of interest has
been discontinued are designated as non-accrual loans. Accrual of interest on loans is generally discontinued when the contractual
payment of principal or interest has become 90 days past due or reasonable doubt exists as to the full, timely collection of principal
or interest. However, it is the Company’s policy to continue to accrue interest on loans over 90 days past due as long as
(1) they are guaranteed or well secured and (2) there is an effective means of timely collection in process. When a loan is placed
on non-accrual status, all unpaid interest credited to income in the current year is reversed against current period income, and
unpaid interest accrued in prior years is charged against the allowance for loan losses. Interest received on nonaccrual loans
generally is either applied against principal or reported as interest income, according to management’s judgment as to the
collectability of principal. Generally, accruals are resumed on loans only when the obligation is brought fully current with respect
to interest and principal, has performed in accordance with the contractual terms for a reasonable period of time and the ultimate
collectability of the total contractual principal and interest is no longer in doubt.
The Company originates loans in the portfolio
with the intent to hold them until maturity. At the time the Company no longer intends to hold loans to maturity based on asset/liability
management practices, the Company transfers loans from its portfolio to held for sale at fair value. Any write-down recorded upon
transfer is charged against the allowance for loan losses. Any write-downs recorded after the initial transfers are recorded as
a charge to other non-interest expense. Gains or losses recognized upon sale are included in gains on sales of loans which is a
component of non-interest income.
Loans Held for Sale
The Company also originates residential mortgage
loans with the intent to sell. These individual loans are normally funded by the buyer immediately. The Company maintains servicing
rights on these loans. Mortgage servicing rights are recognized as an asset upon the sale of a mortgage loan. A portion of the
cost of the loan is allocated to the servicing right based upon relative fair value. Servicing rights are intangible assets and
are carried at estimated fair value. Adjustments to fair value are recorded as non-interest income and included in gain on sales
of loans in the consolidated statements of income.
In a business combination, the Company may
acquire loans which it intends to sell. These loans are assigned a fair value by obtaining actual bids on the loans and adjusting
for contingencies in the bids. These loans are carried at lower of cost or market value until sold, adjusted periodically if conditions
change before the subsequent sale. Adjustments to fair value and gains or losses recognized upon sale are included in gains on
sales of loans which is a component of non-interest income.
Commercial, Financial and Agricultural Lending
The Company originates commercial, financial
and agricultural loans primarily to businesses located in its primary market area and surrounding areas. These loans are used for
various business purposes, which include short-term loans and lines of credit to finance machinery and equipment purchases, inventory
and accounts receivable. Generally, the maximum term for loans extended on machinery and equipment is shorter and does not exceed
the projected useful life of such machinery and equipment. Most business lines of credit are written with a five year maturity,
subject to an annual credit review.
Commercial loans are generally secured with
short-term assets; however, in many cases, additional collateral, such as real estate, is provided as additional security for the
loan. Loan-to-value maximum values have been established by the Company and are specific to the type of collateral. Collateral
values may be determined using invoices, inventory reports, accounts receivable aging reports, collateral appraisals, etc.
In underwriting commercial loans, an analysis
of the borrower’s character, capacity to repay the loan, the adequacy of the borrower’s capital and collateral, as
well as an evaluation of conditions affecting the borrower, is performed. Analysis of the borrower’s past, present and future
cash flows is also an important aspect of the Company’s analysis.
Concentration analysis assists in identifying
industry specific risk inherent in commercial, financial and agricultural lending. Mitigants include the identification of secondary
and tertiary sources of repayment and appropriate increases in oversight.
Commercial, financial and agricultural loans
generally present a higher level of risk than certain other types of loans, particularly during slow economic conditions.
Commercial Real Estate Lending
The Company engages in commercial real estate
lending in its primary market area and surrounding areas. The Company’s commercial real estate portfolio is secured primarily
by residential housing, commercial buildings, raw land and hotels. Generally, commercial real estate loans have terms that do not
exceed 20 years, have loan-to-value ratios of up to 80% of the appraised value of the property and are typically secured by personal
guarantees of the borrowers.
As economic conditions deteriorate, the Company
reduces its exposure in real estate loans with higher risk characteristics. In underwriting these loans, the Company performs a
thorough analysis of the financial condition of the borrower, the borrower’s credit history, and the reliability and predictability
of the cash flow generated by the property securing the loan. Appraisals on properties securing commercial real estate loans originated
by the Company are performed by independent appraisers.
Commercial real estate loans generally present
a higher level of risk than certain other types of loans, particularly during slow economic conditions.
Real Estate Construction Lending
The Company engages in real estate construction
lending in its primary market area and surrounding areas. The Company’s real estate construction lending consists of commercial
and residential site development loans, as well as commercial building construction and residential housing construction loans.
The Company’s commercial real estate
construction loans are generally secured with the subject property, and advances are made in conformity with a pre-determined draw
schedule supported by independent inspections. Terms of construction loans depend on the specifics of the project, such as estimated
absorption rates, estimated time to complete, etc.
In underwriting commercial real estate construction
loans, the Company performs a thorough analysis of the financial condition of the borrower, the borrower’s credit history,
the reliability and predictability of the cash flow generated by the project using feasibility studies, market data, etc. Appraisals
on properties securing commercial real estate loans originated by the Company are performed by independent appraisers.
Real estate construction loans generally present
a higher level of risk than certain other types of loans, particularly during slow economic conditions. The difficulty of estimating
total construction costs adds to the risk as well.
Mortgage Lending
The Company’s real estate mortgage portfolio
is comprised of consumer residential mortgages and business loans secured by one-to-four family properties. One-to-four family
residential mortgage loan originations, including home equity installment and home equity lines of credit loans, are generated
by the Company’s marketing efforts, its present customers, walk-in customers and referrals. These loans originate primarily
within the Company’s market area or with customers primarily from the market area.
The Company offers fixed-rate and adjustable
rate mortgage loans with terms up to a maximum of 25-years for both permanent structures and those under construction. The Company’s
one-to-four family residential mortgage originations are secured primarily by properties located in its primary market area and
surrounding areas. The majority of the Company’s residential mortgage loans originate with a loan-to-value of 80% or less.
Home equity installment loans are secured by the borrower’s primary residence with a maximum loan-to-value of 80% and a maximum
term of 15 years. Home equity lines of credit are secured by the borrower’s primary residence with a maximum loan-to-value
of 90% and a maximum term of 20 years.
In underwriting one-to-four family residential
real estate loans, the Company evaluates the borrower’s ability to make monthly payments, the borrower’s repayment
history and the value of the property securing the loan. The ability to repay is determined by the borrower’s employment
history, current financial conditions, and credit background. The analysis is based primarily on the customer’s ability to
repay and secondarily on the collateral or security. Most properties securing real estate loans made by the Company are appraised
by independent fee appraisers. The Company generally requires mortgage loan borrowers to obtain an attorney’s title opinion
or title insurance, and fire and property insurance (including flood insurance, if necessary) in an amount not less than the amount
of the loan. The Company does not engage in sub-prime residential mortgage originations.
Residential mortgage loans and home equity
loans generally present a lower level of risk than certain other types of consumer loans because they are secured by the borrower’s
primary residence. Risk is increased when the Company is in a subordinate position for the loan collateral.
Obligations of States and Political Subdivisions
The Company lends to local municipalities and
other tax-exempt organizations. These loans are primarily tax-anticipation notes and, as such, carry little risk. Historically,
the Company has never had a loss on any loan of this type.
Personal Lending
The Company offers a variety of secured and
unsecured personal loans, including vehicle loans, mobile home loans and loans secured by savings deposits as well as other types
of personal loans.
Personal loan terms vary according to the type
and value of collateral and creditworthiness of the borrower. In underwriting personal loans, a thorough analysis of the borrower’s
willingness and financial ability to repay the loan as agreed is performed. The ability to repay is determined by the borrower’s
employment history, current financial conditions and credit background.
Personal loans may entail greater credit risk
than do residential mortgage loans, particularly in the case of personal loans which are unsecured or are secured by rapidly depreciable
assets, such as automobiles or recreational equipment. In such cases, any repossessed collateral for a defaulted personal loan
may not provide an adequate source of repayment of the outstanding loan balance as a result of the greater likelihood of damage,
loss or depreciation. In addition, personal loan collections are dependent on the borrower’s continuing financial stability,
and thus are more likely to be affected by adverse personal circumstances. Furthermore, the application of various federal and
state laws, including bankruptcy and insolvency laws, may limit the amount which can be recovered on such loans.
Allowance for Credit Losses
The allowance for credit losses consists of
the allowance for loan losses and the reserve for unfunded lending commitments. The allowance for loan losses (“allowance”)
represents management’s estimate of losses inherent in the loan portfolio as of the consolidated statement of financial condition
date and is recorded as a reduction to loans. The reserve for unfunded lending commitments represents management’s estimate
of losses inherent in its unfunded lending commitments and is recorded in other liabilities on the consolidated statement of financial
condition, when necessary. The amount of the reserve for unfunded lending commitments is not material to the consolidated financial
statements. The allowance for loan losses is increased by the provision for loan losses, and decreased by charge-offs, net of recoveries.
Loans deemed to be uncollectible are charged against the allowance for loan losses, and subsequent recoveries, if any, are credited
to the allowance.
For financial reporting purposes, the provision
for loan losses charged to current operating income is based on management's estimates, and actual losses may vary from estimates.
These estimates are reviewed and adjusted at least quarterly and are reported in earnings in the periods in which they become known.
Loans included in any class are considered
for charge-off when:
|
·
|
principal
or interest has been in default for 120 days or more and for which no payment has been received during the previous four months;
|
|
·
|
all collateral securing the loan has been
liquidated and a deficiency balance remains;
|
|
·
|
a bankruptcy notice is received for an
unsecured loan;
|
|
·
|
a confirming loss event has occurred;
or
|
|
·
|
the
loan is deemed to be uncollectible for any other reason.
|
The allowance for loan losses is maintained
at a level considered adequate to offset probable losses on the Company’s existing loans. The analysis of the allowance for
loan losses relies heavily on changes in observable trends that may indicate potential credit weaknesses. Management’s periodic
evaluation of the adequacy of the allowance is based on the Company’s past loan loss experience, known and inherent risks
in the portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying
collateral, composition of the loan portfolio, current economic conditions and other relevant factors. This evaluation is inherently
subjective as it requires material estimates that may be susceptible to significant revision as more information becomes available.
In addition, regulatory agencies, as an integral
part of their examination process, periodically review the Company’s allowance for loan losses and may require the Company
to recognize additions to the allowance for loan losses based on their judgments about information available to them at the time
of their examination, which may not be currently available to management. Based on management’s comprehensive analysis of
the loan portfolio, management believes the level of the allowance for loan losses as of September 30, 2017 was adequate.
There are two components of the allowance:
a specific component for loans that are deemed to be impaired; and a general component for contingencies.
A loan is considered to be impaired when, based
on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal
or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining
impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments
when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management
determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of
the circumstances surrounding the loans and the borrower, including the length of the delay, the reasons for the delay, the borrower’s
prior payment record and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on
a loan by loan basis by the present value of expected future cash flows discounted at the loan’s effective interest rate,
the loan’s observable market price or the fair value of the collateral if the loan is collateral dependent.
The estimated fair values of substantially
all of the Company’s impaired loans are measured based on the estimated fair value of the loan’s collateral. For commercial
loans secured with real estate, estimated fair values are determined primarily through third-party appraisals. When a real estate
secured loan becomes impaired, a decision is made regarding whether an updated certified appraisal of the real estate is necessary.
This decision is based on various considerations, including the age of the most recent appraisal, the loan-to-value ratio based
on the current appraisal and the condition of the property. Appraised values may be discounted to arrive at the estimated selling
price of the collateral, which is considered to be the estimated fair value. The discounts also include the estimated costs to
sell the property. For commercial loans secured by non-real estate collateral, estimated fair values are determined based on the
borrower’s financial statements, inventory reports, aging accounts receivable, equipment appraisals or invoices. Indications
of value from these sources are generally discounted based on the age of the financial information or the quality of the assets.
For such loans that are classified as impaired, an allowance is established when the discounted cash flows (or collateral value
or observable market price) of the impaired loan is lower than the carrying value of that loan. The Company generally does not
separately identify individual consumer segment loans for impairment disclosures, unless such loans are subject to a restructuring
agreement.
Loans whose terms are modified are classified
as troubled debt restructurings if the Company grants borrowers’ concessions and it is deemed that those borrowers are experiencing
financial difficulty. Concessions granted under a troubled debt restructuring generally involve a below-market interest rate based
on the loan’s risk characteristics or an extension of a loan’s stated maturity date. Nonaccrual troubled debt restructurings
are restored to accrual status if principal and interest payments, under the modified terms, are current for a sustained period
of time after modification. Loans classified as troubled debt restructurings are designated as impaired.
The component of the allowance for contingencies
relates to other loans that have been segmented into risk rated categories. The borrower’s overall financial condition, repayment
sources, guarantors and value of collateral, if appropriate, are evaluated quarterly or when credit deficiencies arise, such as
delinquent loan payments. Credit quality risk ratings include regulatory classifications of special mention, substandard, doubtful
and loss. Loans classified as special mention have potential weaknesses that deserve management’s close attention. If uncorrected,
the potential weaknesses may result in deterioration of the repayment prospects. Loans classified as substandard have one or more
well-defined weaknesses that jeopardize the liquidation of the debt. Substandard loans include loans that are inadequately protected
by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans classified doubtful have
all the weaknesses inherent in loans classified substandard with the added characteristic that collection or liquidation in full,
on the basis of current conditions and facts, is highly improbable. Loans classified as a loss are considered uncollectible and
are charged to the allowance for loan losses. Loans not classified are rated pass. Specific reserves may be established for larger,
individual classified loans as a result of this evaluation, as discussed above. Remaining loans are categorized into large groups
of smaller balance homogeneous loans and are collectively evaluated for impairment. This computation is generally based on historical
loss experience adjusted for qualitative factors. The historical loss experience is averaged over a ten-year period for each of
the portfolio segments. The ten-year timeframe was selected in order to capture activity over a wide range of economic conditions
and has been consistently used by the Company for the past seven years. Qualitative risk factors are reviewed for relevancy each
quarter and include:
|
·
|
National, regional and local economic
and business conditions, as well as the condition of various market segments, including the underlying collateral for collateral
dependent loans;
|
|
·
|
Nature and volume of the portfolio and
terms of loans;
|
|
·
|
Experience, ability and depth of lending
and credit management staff;
|
|
·
|
Volume and severity of past due, classified
and nonaccrual loans, as well as other loan modifications;
|
|
·
|
Existence and effect of any concentrations
of credit and changes in the level of such concentrations; and
|
|
·
|
Effect of external factors, including
competition.
|
Each factor is assigned a value to reflect
improving, stable or declining conditions based on management’s best judgment using relevant information available at the
time of the evaluation. Adjustments to the factors are supported through documentation of changes in conditions in a narrative
accompanying the allowance for loan loss calculation.
Acquired Loans
Loans that Juniata acquires through business combinations
are recorded at fair value with no carryover of the related allowance for loan losses. Fair value of the loans involves estimating
the amount and timing of principal and interest cash flows expected to be collected on the loans and discounting those cash flows
at a market rate of interest.
The excess of cash flows expected at acquisition
over the estimated fair value is referred to as the accretable discount and is recognized into interest income over the remaining
life of the loan. The difference between contractually required payments at acquisition and the cash flows expected to be collected
at acquisition is referred to as the nonaccretable discount. The nonaccretable discount includes estimated future credit losses
expected to be incurred over the life of the loan. Subsequent decreases to the expected cash flows will require Juniata to evaluate
the need for an additional allowance for credit losses. Subsequent improvement in expected cash flows will result in the reversal
of a corresponding amount of the nonaccretable discount which Juniata will then reclassify as accretable discount that will be
recognized into interest income over the remaining life of the loan.
Acquired loans that met the criteria for impaired
or nonaccrual of interest prior to the acquisition may be considered performing upon acquisition, regardless of whether the customer
is contractually delinquent, if Juniata expects to fully collect the new carrying value (i.e. fair value) of the loans. As such,
Juniata may no longer consider the loan to be nonaccrual or nonperforming and may accrue interest on these loans, including the
impact of any accretable discount. In addition, charge-offs on such loans would be first applied to the nonaccretable difference
portion of the fair value adjustment.
Loans acquired through business combinations that
do not meet the specific criteria of ASC 310-30, but for which a discount is attributable at least in part to credit quality, are
also accounted for in accordance with this guidance. As a result, related discounts are recognized subsequently through accretion
based on the contractual cash flows of the acquired loans.
Loan Portfolio Classification
The following tables present the classes of
the loan portfolio summarized by the aggregate pass rating and the classified ratings of special mention, substandard and doubtful
within the Company’s internal risk rating system as of September 30, 2017 and December 31, 2016.
(Dollars in thousands)
|
|
|
|
|
Special
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
|
Mention
|
|
|
Substandard
|
|
|
Doubtful
|
|
|
Total
|
|
As of September 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, financial and agricultural
|
|
$
|
38,540
|
|
|
$
|
8,387
|
|
|
$
|
1,617
|
|
|
$
|
7
|
|
|
$
|
48,551
|
|
Real estate - commercial
|
|
|
102,322
|
|
|
|
24,585
|
|
|
|
6,014
|
|
|
|
1,419
|
|
|
|
134,340
|
|
Real estate - construction
|
|
|
22,033
|
|
|
|
2,674
|
|
|
|
3,438
|
|
|
|
-
|
|
|
|
28,145
|
|
Real estate - mortgage
|
|
|
140,281
|
|
|
|
3,617
|
|
|
|
3,072
|
|
|
|
813
|
|
|
|
147,783
|
|
Obligations of states and political subdivisions
|
|
|
12,863
|
|
|
|
999
|
|
|
|
-
|
|
|
|
-
|
|
|
|
13,862
|
|
Personal
|
|
|
9,892
|
|
|
|
36
|
|
|
|
7
|
|
|
|
-
|
|
|
|
9,935
|
|
Total
|
|
$
|
325,931
|
|
|
$
|
40,298
|
|
|
$
|
14,148
|
|
|
$
|
2,239
|
|
|
$
|
382,616
|
|
(Dollars in thousands)
|
|
|
|
|
Special
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
|
Mention
|
|
|
Substandard
|
|
|
Doubtful
|
|
|
Total
|
|
As of December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, financial and agricultural
|
|
$
|
34,510
|
|
|
$
|
5,104
|
|
|
$
|
1,213
|
|
|
$
|
-
|
|
|
$
|
40,827
|
|
Real estate - commercial
|
|
|
100,153
|
|
|
|
15,843
|
|
|
|
6,726
|
|
|
|
989
|
|
|
|
123,711
|
|
Real estate - construction
|
|
|
24,702
|
|
|
|
4,044
|
|
|
|
6,460
|
|
|
|
-
|
|
|
|
35,206
|
|
Real estate - mortgage
|
|
|
144,353
|
|
|
|
4,426
|
|
|
|
4,496
|
|
|
|
1,630
|
|
|
|
154,905
|
|
Obligations of states and political subdivisions
|
|
|
12,431
|
|
|
|
1,185
|
|
|
|
-
|
|
|
|
-
|
|
|
|
13,616
|
|
Personal
|
|
|
9,970
|
|
|
|
52
|
|
|
|
10
|
|
|
|
-
|
|
|
|
10,032
|
|
Total
|
|
$
|
326,119
|
|
|
$
|
30,654
|
|
|
$
|
18,905
|
|
|
$
|
2,619
|
|
|
$
|
378,297
|
|
The Company has certain loans in its portfolio
that are considered to be impaired. It is the policy of the Company to recognize income on impaired loans that have been transferred
to nonaccrual status on a cash basis, only to the extent that it exceeds principal balance recovery. Until an impaired loan is
placed on nonaccrual status, income is recognized on the accrual basis. Collateral analysis is performed on each impaired loan
at least quarterly, and results are used to determine if a specific reserve is necessary to adjust the carrying value of each individual
loan down to the estimated fair value. Generally, specific reserves are carried against impaired loans based upon estimated collateral
value until a confirming loss event occurs or until termination of the credit is scheduled through liquidation of the collateral
or foreclosure. Charge off will occur when a confirmed loss is identified. Professional appraisals of collateral, discounted for
expected selling costs, appraisal age, economic conditions and other known factors are used to determine the charge-off amount.
The following tables summarize information
regarding impaired loans by portfolio class as of September 30, 2017 and December 31, 2016.
|
|
As of September 30, 2017
|
|
|
As of December 31, 2016
|
|
|
|
|
|
|
Unpaid
|
|
|
|
|
|
|
|
|
Unpaid
|
|
|
|
|
(Dollars in thousands)
|
|
Recorded
|
|
|
Principal
|
|
|
Related
|
|
|
Recorded
|
|
|
Principal
|
|
|
Related
|
|
|
|
Investment
|
|
|
Balance
|
|
|
Allowance
|
|
|
Investment
|
|
|
Balance
|
|
|
Allowance
|
|
Impaired loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With no related allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, financial and agricultural
|
|
$
|
356
|
|
|
$
|
364
|
|
|
$
|
-
|
|
|
$
|
436
|
|
|
$
|
439
|
|
|
$
|
-
|
|
Real estate - commercial
|
|
|
5,842
|
|
|
|
6,830
|
|
|
|
-
|
|
|
|
5,499
|
|
|
|
6,475
|
|
|
|
-
|
|
Acquired with credit deterioration
|
|
|
199
|
|
|
|
253
|
|
|
|
-
|
|
|
|
641
|
|
|
|
730
|
|
|
|
-
|
|
Real estate - construction
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,455
|
|
|
|
2,455
|
|
|
|
-
|
|
Real estate - mortgage
|
|
|
2,521
|
|
|
|
4,047
|
|
|
|
-
|
|
|
|
3,345
|
|
|
|
5,020
|
|
|
|
-
|
|
Acquired with credit deterioration
|
|
|
343
|
|
|
|
387
|
|
|
|
-
|
|
|
|
415
|
|
|
|
440
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate - mortgage
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
712
|
|
|
|
712
|
|
|
|
56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, financial and agricultural
|
|
$
|
356
|
|
|
$
|
364
|
|
|
$
|
-
|
|
|
$
|
436
|
|
|
$
|
439
|
|
|
$
|
-
|
|
Real estate - commercial
|
|
|
5,842
|
|
|
|
6,830
|
|
|
|
-
|
|
|
|
5,499
|
|
|
|
6,475
|
|
|
|
-
|
|
Acquired with credit deterioration
|
|
|
199
|
|
|
|
253
|
|
|
|
-
|
|
|
|
641
|
|
|
|
730
|
|
|
|
-
|
|
Real estate - construction
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,455
|
|
|
|
2,455
|
|
|
|
-
|
|
Real estate - mortgage
|
|
|
2,521
|
|
|
|
4,047
|
|
|
|
-
|
|
|
|
4,057
|
|
|
|
5,732
|
|
|
|
56
|
|
Acquired with credit deterioration
|
|
|
343
|
|
|
|
387
|
|
|
|
-
|
|
|
|
415
|
|
|
|
440
|
|
|
|
-
|
|
|
|
$
|
9,261
|
|
|
$
|
11,881
|
|
|
$
|
-
|
|
|
$
|
13,503
|
|
|
$
|
16,271
|
|
|
$
|
56
|
|
Average recorded investment of impaired loans
and related interest income recognized for the three and nine months ended September 30, 2017 and 2016 are summarized in the tables
below.
|
|
Three Months Ended September 30, 2017
|
|
|
Three Months Ended September 30, 2016
|
|
|
|
Average
|
|
|
Interest
|
|
|
Cash Basis
|
|
|
Average
|
|
|
Interest
|
|
|
Cash Basis
|
|
(Dollars in thousands)
|
|
Recorded
|
|
|
Income
|
|
|
Interest
|
|
|
Recorded
|
|
|
Income
|
|
|
Interest
|
|
|
|
Investment
|
|
|
Recognized
|
|
|
Income
|
|
|
Investment
|
|
|
Recognized
|
|
|
Income
|
|
Impaired loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With no related allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, financial and agricultural
|
|
$
|
351
|
|
|
$
|
5
|
|
|
$
|
-
|
|
|
$
|
479
|
|
|
$
|
7
|
|
|
$
|
-
|
|
Real estate - commercial
|
|
|
5,336
|
|
|
|
81
|
|
|
|
-
|
|
|
|
5,972
|
|
|
|
84
|
|
|
|
-
|
|
Acquired with credit deterioration
|
|
|
204
|
|
|
|
-
|
|
|
|
-
|
|
|
|
679
|
|
|
|
-
|
|
|
|
-
|
|
Real estate - construction
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,561
|
|
|
|
34
|
|
|
|
-
|
|
Real estate - mortgage
|
|
|
2,795
|
|
|
|
5
|
|
|
|
6
|
|
|
|
3,136
|
|
|
|
4
|
|
|
|
14
|
|
Acquired with credit deterioration
|
|
|
347
|
|
|
|
-
|
|
|
|
-
|
|
|
|
482
|
|
|
|
-
|
|
|
|
-
|
|
Personal
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, financial and agricultural
|
|
$
|
8
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Real estate - commercial
|
|
|
460
|
|
|
|
-
|
|
|
|
-
|
|
|
|
50
|
|
|
|
-
|
|
|
|
-
|
|
Real estate - mortgage
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
826
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, financial and agricultural
|
|
$
|
359
|
|
|
$
|
5
|
|
|
$
|
-
|
|
|
$
|
479
|
|
|
$
|
7
|
|
|
$
|
-
|
|
Real estate - commercial
|
|
|
5,796
|
|
|
|
81
|
|
|
|
-
|
|
|
|
6,022
|
|
|
|
84
|
|
|
|
-
|
|
Acquired with credit deterioration
|
|
|
204
|
|
|
|
-
|
|
|
|
-
|
|
|
|
679
|
|
|
|
-
|
|
|
|
-
|
|
Real estate - construction
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,561
|
|
|
|
34
|
|
|
|
-
|
|
Real estate - mortgage
|
|
|
2,795
|
|
|
|
5
|
|
|
|
6
|
|
|
|
3,962
|
|
|
|
4
|
|
|
|
14
|
|
Acquired with credit deterioration
|
|
|
347
|
|
|
|
-
|
|
|
|
-
|
|
|
|
482
|
|
|
|
-
|
|
|
|
-
|
|
Personal
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
|
|
|
-
|
|
|
|
-
|
|
|
|
$
|
9,501
|
|
|
$
|
91
|
|
|
$
|
6
|
|
|
$
|
14,186
|
|
|
$
|
129
|
|
|
$
|
14
|
|
|
|
Nine Months Ended September 30, 2017
|
|
|
Nine Months Ended September 30, 2016
|
|
|
|
Average
|
|
|
Interest
|
|
|
Cash Basis
|
|
|
Average
|
|
|
Interest
|
|
|
Cash Basis
|
|
(Dollars in thousands)
|
|
Recorded
|
|
|
Income
|
|
|
Interest
|
|
|
Recorded
|
|
|
Income
|
|
|
Interest
|
|
|
|
Investment
|
|
|
Recognized
|
|
|
Income
|
|
|
Investment
|
|
|
Recognized
|
|
|
Income
|
|
Impaired loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With no related allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, financial and agricultural
|
|
$
|
396
|
|
|
$
|
18
|
|
|
$
|
-
|
|
|
$
|
414
|
|
|
$
|
23
|
|
|
$
|
-
|
|
Real estate - commercial
|
|
|
5,671
|
|
|
|
238
|
|
|
|
-
|
|
|
|
3,909
|
|
|
|
252
|
|
|
|
-
|
|
Acquired with credit deterioration
|
|
|
420
|
|
|
|
-
|
|
|
|
-
|
|
|
|
742
|
|
|
|
-
|
|
|
|
-
|
|
Real estate - construction
|
|
|
1,228
|
|
|
|
34
|
|
|
|
-
|
|
|
|
1,281
|
|
|
|
102
|
|
|
|
-
|
|
Real estate - mortgage
|
|
|
2,933
|
|
|
|
16
|
|
|
|
19
|
|
|
|
2,949
|
|
|
|
22
|
|
|
|
26
|
|
Acquired with credit deterioration
|
|
|
379
|
|
|
|
-
|
|
|
|
-
|
|
|
|
526
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate - commercial
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
50
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Real estate - mortgage
|
|
|
356
|
|
|
|
-
|
|
|
|
-
|
|
|
|
397
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, financial and agricultural
|
|
$
|
396
|
|
|
$
|
18
|
|
|
$
|
-
|
|
|
$
|
414
|
|
|
$
|
23
|
|
|
$
|
-
|
|
Real estate - commercial
|
|
|
5,671
|
|
|
|
238
|
|
|
|
-
|
|
|
|
3,959
|
|
|
|
252
|
|
|
|
-
|
|
Acquired with credit deterioration
|
|
|
420
|
|
|
|
-
|
|
|
|
-
|
|
|
|
742
|
|
|
|
-
|
|
|
|
-
|
|
Real estate - construction
|
|
|
1,228
|
|
|
|
34
|
|
|
|
-
|
|
|
|
1,281
|
|
|
|
102
|
|
|
|
-
|
|
Real estate - mortgage
|
|
|
3,289
|
|
|
|
16
|
|
|
|
19
|
|
|
|
3,346
|
|
|
|
22
|
|
|
|
26
|
|
Acquired with credit deterioration
|
|
|
379
|
|
|
|
-
|
|
|
|
-
|
|
|
|
526
|
|
|
|
-
|
|
|
|
-
|
|
|
|
$
|
11,383
|
|
|
$
|
306
|
|
|
$
|
19
|
|
|
$
|
10,268
|
|
|
$
|
399
|
|
|
$
|
26
|
|
The following table presents nonaccrual loans
by classes of the loan portfolio as of September 30, 2017 and December 31, 2016.
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
|
December 31, 2016
|
|
Nonaccrual loans:
|
|
|
|
|
|
|
|
|
Commercial, financial and agricultural
|
|
$
|
7
|
|
|
$
|
-
|
|
Real estate - commercial
|
|
|
1,419
|
|
|
|
1,016
|
|
Real estate - mortgage
|
|
|
2,203
|
|
|
|
3,717
|
|
Total
|
|
$
|
3,629
|
|
|
$
|
4,733
|
|
The performance and credit quality of the loan
portfolio is also monitored by analyzing the age of the loans receivable as determined by the length of time a recorded payment
is past due. The following table presents the classes of the loan portfolio summarized by the past due status as of September 30,
2017 and December 31, 2016.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans Past
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due Greater
|
|
|
|
30-59
|
|
|
60-89
|
|
|
Greater
|
|
|
|
|
|
|
|
|
|
|
|
than 90
|
|
(Dollars in thousands)
|
|
Days Past
|
|
|
Days Past
|
|
|
than 90
|
|
|
Total Past
|
|
|
|
|
|
Total
|
|
|
Days and
|
|
|
|
Due
|
|
|
Due
|
|
|
Days
|
|
|
Due
|
|
|
Current
|
|
|
Loans
|
|
|
Accruing
|
|
As of September 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, financial and agricultural
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
48,551
|
|
|
$
|
48,551
|
|
|
$
|
-
|
|
Real estate - commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate - commercial
|
|
|
22
|
|
|
|
-
|
|
|
|
-
|
|
|
|
22
|
|
|
|
134,119
|
|
|
|
134,141
|
|
|
|
-
|
|
Acquired with credit deterioration
|
|
|
170
|
|
|
|
-
|
|
|
|
29
|
|
|
|
199
|
|
|
|
-
|
|
|
|
199
|
|
|
|
29
|
|
Real estate - construction
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
28,145
|
|
|
|
28,145
|
|
|
|
-
|
|
Real estate - mortgage:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate - mortgage
|
|
|
653
|
|
|
|
31
|
|
|
|
221
|
|
|
|
905
|
|
|
|
146,535
|
|
|
|
147,440
|
|
|
|
221
|
|
Acquired with credit deterioration
|
|
|
112
|
|
|
|
-
|
|
|
|
13
|
|
|
|
125
|
|
|
|
218
|
|
|
|
343
|
|
|
|
13
|
|
Obligations of states and political
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
subdivisions
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
13,862
|
|
|
|
13,862
|
|
|
|
-
|
|
Personal
|
|
|
71
|
|
|
|
-
|
|
|
|
-
|
|
|
|
71
|
|
|
|
9,864
|
|
|
|
9,935
|
|
|
|
-
|
|
Total
|
|
$
|
1,028
|
|
|
$
|
31
|
|
|
$
|
263
|
|
|
$
|
1,322
|
|
|
$
|
381,294
|
|
|
$
|
382,616
|
|
|
$
|
263
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans Past
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due Greater
|
|
|
|
30-59
|
|
|
60-89
|
|
|
Greater
|
|
|
|
|
|
|
|
|
|
|
|
than 90
|
|
(Dollars in thousands)
|
|
Days Past
|
|
|
Days Past
|
|
|
than 90
|
|
|
Total Past
|
|
|
|
|
|
Total
|
|
|
Days and
|
|
|
|
Due
|
|
|
Due
|
|
|
Days
|
|
|
Due
|
|
|
Current
|
|
|
Loans
|
|
|
Accruing
|
|
As of December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, financial and agricultural
|
|
$
|
15
|
|
|
$
|
-
|
|
|
$
|
6
|
|
|
$
|
21
|
|
|
$
|
40,806
|
|
|
$
|
40,827
|
|
|
$
|
6
|
|
Real estate - commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate - commercial
|
|
|
55
|
|
|
|
-
|
|
|
|
-
|
|
|
|
55
|
|
|
|
123,015
|
|
|
|
123,070
|
|
|
|
-
|
|
Acquired with credit deterioration
|
|
|
-
|
|
|
|
-
|
|
|
|
452
|
|
|
|
452
|
|
|
|
189
|
|
|
|
641
|
|
|
|
452
|
|
Real estate - construction
|
|
|
6
|
|
|
|
-
|
|
|
|
508
|
|
|
|
514
|
|
|
|
34,692
|
|
|
|
35,206
|
|
|
|
508
|
|
Real estate - mortgage:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate - mortgage
|
|
|
1,097
|
|
|
|
57
|
|
|
|
40
|
|
|
|
1,194
|
|
|
|
153,296
|
|
|
|
154,490
|
|
|
|
40
|
|
Acquired with credit deterioration
|
|
|
-
|
|
|
|
-
|
|
|
|
138
|
|
|
|
138
|
|
|
|
277
|
|
|
|
415
|
|
|
|
138
|
|
Obligations of states and political
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
subdivisions
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
13,616
|
|
|
|
13,616
|
|
|
|
-
|
|
Personal
|
|
|
25
|
|
|
|
3
|
|
|
|
-
|
|
|
|
28
|
|
|
|
10,004
|
|
|
|
10,032
|
|
|
|
-
|
|
Total
|
|
$
|
1,198
|
|
|
$
|
60
|
|
|
$
|
1,144
|
|
|
$
|
2,402
|
|
|
$
|
375,895
|
|
|
$
|
378,297
|
|
|
$
|
1,144
|
|
The following table summarizes information regarding
troubled debt restructurings by loan portfolio class at September 30, 2017 and December 31, 2016.
|
|
|
|
|
Pre-Modification
|
|
|
Post-Modification
|
|
|
|
|
(Dollars in thousands)
|
|
Number of
|
|
|
Outstanding Recorded
|
|
|
Outstanding Recorded
|
|
|
|
|
|
|
Contracts
|
|
|
Investment
|
|
|
Investment
|
|
|
Recorded Investment
|
|
As of September 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accruing troubled debt restructurings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate - mortgage
|
|
|
7
|
|
|
$
|
369
|
|
|
$
|
397
|
|
|
$
|
321
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-accruing troubled debt restructurings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate - mortgage
|
|
|
1
|
|
|
|
25
|
|
|
|
25
|
|
|
|
21
|
|
Commercial, financial, agricultural
|
|
|
1
|
|
|
|
19
|
|
|
|
20
|
|
|
|
7
|
|
|
|
|
9
|
|
|
$
|
413
|
|
|
$
|
442
|
|
|
$
|
349
|
|
|
|
|
|
|
Pre-Modification
|
|
|
Post-Modification
|
|
|
|
|
(Dollars in thousands)
|
|
Number of
|
|
|
Outstanding Recorded
|
|
|
Outstanding Recorded
|
|
|
|
|
|
|
Contracts
|
|
|
Investment
|
|
|
Investment
|
|
|
Recorded Investment
|
|
As of December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accruing troubled debt restructurings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate - mortgage
|
|
|
7
|
|
|
$
|
369
|
|
|
$
|
397
|
|
|
$
|
340
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-accruing troubled debt restructurings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate - mortgage
|
|
|
1
|
|
|
|
25
|
|
|
|
25
|
|
|
|
23
|
|
|
|
|
8
|
|
|
$
|
394
|
|
|
$
|
422
|
|
|
$
|
363
|
|
The Company’s troubled debt restructurings
are also impaired loans, which may result in a specific allocation and subsequent charge-off if appropriate. As of September 30,
2017, there were no specific reserves carried for troubled debt restructured loans. There were also no defaults of troubled debt
restructurings that took place during the three or nine months ended September 30, 2017 or 2016 within 12 months of restructure.
On December 31, 2016, there were no specific reserves carried for troubled debt restructured loans and no charge-offs relating
to the troubled debt restructurings. The amended terms of the restructured loans vary, whereby interest rates have been reduced,
principal payments have been reduced or deferred for a period of time and/or maturity dates have been extended.
There were no loan terms modified resulting
in troubled debt restructuring during the three months ended September 30, 2017 or 2016. The following tables summarize the loans
whose terms have been modified resulting in troubled debt restructurings during the nine month periods ending September 30, 2017
and 2016.
|
|
|
|
|
Pre-Modification
|
|
|
Post-Modification
|
|
|
|
|
(Dollars in thousands)
|
|
Number of
|
|
|
Outstanding Recorded
|
|
|
Outstanding Recorded
|
|
|
|
|
|
|
Contracts
|
|
|
Investment
|
|
|
Investment
|
|
|
Recorded Investment
|
|
Nine Months Ended September 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accruing troubled debt restructurings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, financial, agricultural
|
|
|
1
|
|
|
$
|
19
|
|
|
$
|
20
|
|
|
$
|
7
|
|
|
|
|
1
|
|
|
$
|
19
|
|
|
$
|
20
|
|
|
$
|
7
|
|
|
|
|
|
|
Pre-Modification
|
|
|
Post-Modification
|
|
|
|
|
(Dollars in thousands)
|
|
Number of
|
|
|
Outstanding Recorded
|
|
|
Outstanding Recorded
|
|
|
|
|
|
|
Contracts
|
|
|
Investment
|
|
|
Investment
|
|
|
Recorded Investment
|
|
Nine Months Ended September 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-accruing troubled debt restructurings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate - mortgage
|
|
|
1
|
|
|
$
|
25
|
|
|
$
|
25
|
|
|
$
|
24
|
|
|
|
|
1
|
|
|
$
|
25
|
|
|
$
|
25
|
|
|
$
|
24
|
|
Consumer mortgage loans secured by residential
real estate properties for which formal foreclosure proceedings were in process at September 30, 2017 and December 31, 2016 totaled
$1,167,000 and $1,778,000, respectively.
The following tables summarize the activity
in the allowance for loan losses and related investments in loans receivable.
As of, and for the periods ended, September
30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of
|
|
|
|
|
|
|
|
|
|
Commercial,
|
|
|
|
|
|
|
|
|
|
|
|
states and
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
financial and
|
|
|
Real estate -
|
|
|
Real estate -
|
|
|
Real estate -
|
|
|
political
|
|
|
|
|
|
|
|
|
|
agricultural
|
|
|
commercial
|
|
|
construction
|
|
|
mortgage
|
|
|
subdivisions
|
|
|
Personal
|
|
|
Total
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance, July 1, 2017
|
|
$
|
402
|
|
|
$
|
1,125
|
|
|
$
|
172
|
|
|
$
|
1,093
|
|
|
$
|
-
|
|
|
$
|
84
|
|
|
$
|
2,876
|
|
Charge-offs
|
|
|
(9
|
)
|
|
|
(70
|
)
|
|
|
-
|
|
|
|
(37
|
)
|
|
|
-
|
|
|
|
(7
|
)
|
|
|
(123
|
)
|
Recoveries
|
|
|
2
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
|
|
|
-
|
|
|
|
2
|
|
|
|
5
|
|
Provisions
|
|
|
(33
|
)
|
|
|
100
|
|
|
|
30
|
|
|
|
50
|
|
|
|
-
|
|
|
|
2
|
|
|
|
149
|
|
Ending balance, September 30, 2017
|
|
$
|
362
|
|
|
$
|
1,155
|
|
|
$
|
202
|
|
|
$
|
1,107
|
|
|
$
|
-
|
|
|
$
|
81
|
|
|
$
|
2,907
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of
|
|
|
|
|
|
|
|
|
|
Commercial,
|
|
|
|
|
|
|
|
|
|
|
|
states and
|
|
|
|
|
|
|
|
|
|
financial and
|
|
|
Real estate -
|
|
|
Real estate -
|
|
|
Real estate -
|
|
|
political
|
|
|
|
|
|
|
|
|
|
agricultural
|
|
|
commercial
|
|
|
construction
|
|
|
mortgage
|
|
|
subdivisions
|
|
|
Personal
|
|
|
Total
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance, January 1, 2017
|
|
$
|
318
|
|
|
$
|
948
|
|
|
$
|
231
|
|
|
$
|
1,143
|
|
|
$
|
-
|
|
|
$
|
83
|
|
|
$
|
2,723
|
|
Charge-offs
|
|
|
(46
|
)
|
|
|
(70
|
)
|
|
|
-
|
|
|
|
(120
|
)
|
|
|
-
|
|
|
|
(24
|
)
|
|
|
(260
|
)
|
Recoveries
|
|
|
2
|
|
|
|
-
|
|
|
|
-
|
|
|
|
45
|
|
|
|
-
|
|
|
|
8
|
|
|
|
55
|
|
Provisions
|
|
|
88
|
|
|
|
277
|
|
|
|
(29
|
)
|
|
|
39
|
|
|
|
-
|
|
|
|
14
|
|
|
|
389
|
|
Ending balance, September 30, 2017
|
|
$
|
362
|
|
|
$
|
1,155
|
|
|
$
|
202
|
|
|
$
|
1,107
|
|
|
$
|
-
|
|
|
$
|
81
|
|
|
$
|
2,907
|
|
individually evaluated for impairment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
collectively evaluated for impairment
|
|
$
|
362
|
|
|
$
|
1,155
|
|
|
$
|
202
|
|
|
$
|
1,107
|
|
|
$
|
-
|
|
|
$
|
81
|
|
|
$
|
2,907
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
48,551
|
|
|
$
|
134,340
|
|
|
$
|
28,145
|
|
|
$
|
147,783
|
|
|
$
|
13,862
|
|
|
$
|
9,935
|
|
|
$
|
382,616
|
|
individually evaluated for impairment
|
|
|
356
|
|
|
|
5,842
|
|
|
|
-
|
|
|
|
2,521
|
|
|
|
-
|
|
|
|
-
|
|
|
|
8,719
|
|
acquired with credit deterioration
|
|
|
-
|
|
|
|
199
|
|
|
|
-
|
|
|
|
343
|
|
|
|
-
|
|
|
|
-
|
|
|
|
542
|
|
collectively evaluated for impairment
|
|
$
|
48,195
|
|
|
$
|
128,299
|
|
|
$
|
28,145
|
|
|
$
|
144,919
|
|
|
$
|
13,862
|
|
|
$
|
9,935
|
|
|
$
|
373,355
|
|
As of, and for the periods ended, September
30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of
|
|
|
|
|
|
|
|
|
|
Commercial,
|
|
|
|
|
|
|
|
|
|
|
|
states and
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
financial and
|
|
|
Real estate -
|
|
|
Real estate -
|
|
|
Real estate -
|
|
|
political
|
|
|
|
|
|
|
|
|
|
agricultural
|
|
|
commercial
|
|
|
construction
|
|
|
mortgage
|
|
|
subdivisions
|
|
|
Personal
|
|
|
Total
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance, July 1, 2016
|
|
$
|
308
|
|
|
$
|
802
|
|
|
$
|
191
|
|
|
$
|
1,200
|
|
|
$
|
-
|
|
|
$
|
72
|
|
|
$
|
2,573
|
|
Charge-offs
|
|
|
-
|
|
|
|
(4
|
)
|
|
|
-
|
|
|
|
(10
|
)
|
|
|
-
|
|
|
|
(7
|
)
|
|
|
(21
|
)
|
Recoveries
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4
|
|
|
|
4
|
|
Provisions
|
|
|
2
|
|
|
|
59
|
|
|
|
12
|
|
|
|
45
|
|
|
|
-
|
|
|
|
14
|
|
|
|
132
|
|
Ending balance, September 30, 2016
|
|
$
|
310
|
|
|
$
|
857
|
|
|
$
|
203
|
|
|
$
|
1,235
|
|
|
$
|
-
|
|
|
$
|
83
|
|
|
$
|
2,688
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of
|
|
|
|
|
|
|
|
|
|
Commercial,
|
|
|
|
|
|
|
|
|
|
|
|
states and
|
|
|
|
|
|
|
|
|
|
financial and
|
|
|
Real estate -
|
|
|
Real estate -
|
|
|
Real estate -
|
|
|
political
|
|
|
|
|
|
|
|
|
|
agricultural
|
|
|
commercial
|
|
|
construction
|
|
|
mortgage
|
|
|
subdivisions
|
|
|
Personal
|
|
|
Total
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance, January 1, 2016
|
|
$
|
264
|
|
|
$
|
836
|
|
|
$
|
191
|
|
|
$
|
1,140
|
|
|
$
|
-
|
|
|
$
|
47
|
|
|
$
|
2,478
|
|
Charge-offs
|
|
|
(4
|
)
|
|
|
(146
|
)
|
|
|
-
|
|
|
|
(28
|
)
|
|
|
-
|
|
|
|
(20
|
)
|
|
|
(198
|
)
|
Recoveries
|
|
|
-
|
|
|
|
24
|
|
|
|
-
|
|
|
|
1
|
|
|
|
-
|
|
|
|
17
|
|
|
|
42
|
|
Provisions
|
|
|
50
|
|
|
|
143
|
|
|
|
12
|
|
|
|
122
|
|
|
|
-
|
|
|
|
39
|
|
|
|
366
|
|
Ending balance, September 30, 2016
|
|
$
|
310
|
|
|
$
|
857
|
|
|
$
|
203
|
|
|
$
|
1,235
|
|
|
$
|
-
|
|
|
$
|
83
|
|
|
$
|
2,688
|
|
individually evaluated for impairment
|
|
|
-
|
|
|
|
50
|
|
|
|
-
|
|
|
|
94
|
|
|
|
-
|
|
|
|
-
|
|
|
|
144
|
|
collectively evaluated for impairment
|
|
$
|
310
|
|
|
$
|
807
|
|
|
$
|
203
|
|
|
$
|
1,141
|
|
|
$
|
-
|
|
|
$
|
83
|
|
|
$
|
2,544
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
38,653
|
|
|
$
|
124,586
|
|
|
$
|
30,752
|
|
|
$
|
159,522
|
|
|
$
|
13,857
|
|
|
$
|
9,909
|
|
|
$
|
377,279
|
|
individually evaluated for impairment
|
|
|
353
|
|
|
|
6,067
|
|
|
|
2,561
|
|
|
|
4,056
|
|
|
|
-
|
|
|
|
-
|
|
|
|
13,037
|
|
acquired with credit deterioration
|
|
|
-
|
|
|
|
650
|
|
|
|
-
|
|
|
|
422
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,072
|
|
collectively evaluated for impairment
|
|
$
|
38,300
|
|
|
$
|
117,869
|
|
|
$
|
28,191
|
|
|
$
|
155,044
|
|
|
$
|
13,857
|
|
|
$
|
9,909
|
|
|
$
|
363,170
|
|
As of December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of
|
|
|
|
|
|
|
|
|
|
Commercial,
|
|
|
|
|
|
|
|
|
|
|
|
states and
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
financial and
|
|
|
Real estate -
|
|
|
Real estate -
|
|
|
Real estate -
|
|
|
political
|
|
|
|
|
|
|
|
|
|
agricultural
|
|
|
commercial
|
|
|
construction
|
|
|
mortgage
|
|
|
subdivisions
|
|
|
Personal
|
|
|
Total
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance, January 1, 2016
|
|
$
|
264
|
|
|
$
|
836
|
|
|
$
|
191
|
|
|
$
|
1,140
|
|
|
$
|
-
|
|
|
$
|
47
|
|
|
$
|
2,478
|
|
Charge-offs
|
|
|
(4
|
)
|
|
|
(146
|
)
|
|
|
-
|
|
|
|
(103
|
)
|
|
|
-
|
|
|
|
(26
|
)
|
|
|
(279
|
)
|
Recoveries
|
|
|
-
|
|
|
|
24
|
|
|
|
-
|
|
|
|
15
|
|
|
|
-
|
|
|
|
19
|
|
|
|
58
|
|
Provisions
|
|
|
58
|
|
|
|
234
|
|
|
|
40
|
|
|
|
91
|
|
|
|
-
|
|
|
|
43
|
|
|
|
466
|
|
Ending balance, December 31, 2016
|
|
$
|
318
|
|
|
$
|
948
|
|
|
$
|
231
|
|
|
$
|
1,143
|
|
|
$
|
-
|
|
|
$
|
83
|
|
|
$
|
2,723
|
|
individually evaluated for impairment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
56
|
|
|
|
-
|
|
|
|
-
|
|
|
|
56
|
|
collectively evaluated for impairment
|
|
$
|
318
|
|
|
$
|
948
|
|
|
$
|
231
|
|
|
$
|
1,087
|
|
|
$
|
-
|
|
|
$
|
83
|
|
|
$
|
2,667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
40,827
|
|
|
$
|
123,711
|
|
|
$
|
35,206
|
|
|
$
|
154,905
|
|
|
$
|
13,616
|
|
|
$
|
10,032
|
|
|
$
|
378,297
|
|
individually evaluated for impairment
|
|
|
436
|
|
|
|
5,499
|
|
|
|
2,455
|
|
|
|
4,057
|
|
|
|
-
|
|
|
|
-
|
|
|
|
12,447
|
|
acquired with credit deterioration
|
|
|
-
|
|
|
|
641
|
|
|
|
-
|
|
|
|
415
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,056
|
|
collectively evaluated for impairment
|
|
$
|
40,391
|
|
|
$
|
117,571
|
|
|
$
|
32,751
|
|
|
$
|
150,433
|
|
|
$
|
13,616
|
|
|
$
|
10,032
|
|
|
$
|
364,794
|
|
8.
Goodwill and other intangible assets
Branch Acquisition
On September 8, 2006, the Company acquired
a branch office in Richfield, PA. Goodwill at September 30, 2017 and December 31, 2016 was $2,046,000. Core deposit intangible
of $431,000 was fully amortized as of September 30, 2016. The core deposit intangible was amortized over a ten-year period on a
straight-line basis. Goodwill is not amortized, but is measured annually for impairment or more frequently if certain events occur
which might indicate goodwill has been impaired. Core deposit amortization expense was $7,000 and $29,000 in the three and nine
months ending September 30, 2016. There was no impairment of goodwill during the three or nine month periods ended September 30,
2017 or 2016.
FNBPA Acquisition
On November 30, 2015, the Company acquired
FNBPA Bancorp, Inc. (“FNBPA”) and as a result, carries goodwill of $3,402,000 relating to the acquisition. Core deposit
intangible in the amount of $303,000 was recorded and is being amortized over a ten-year period using a sum of the year’s
digits basis. Other intangible assets were identified and recorded as of November 30, 2015, in the amount of $40,000 and are being
amortized on a straight-line basis over two years, through November 30, 2017.
Amortization expense recognized for intangibles
related to the FNBPA acquisition in the three and nine months ended September 30, 2017 was $17,000 and $52,000, respectively. The
amortization expense recognized during the three and nine months ended September 30, 2016 was $19,000 and $57,000, respectively,
for intangibles related to the FNBPA acquisition.
|
|
FNBPA
|
|
|
FNBPA
|
|
|
Branch
|
|
|
|
Acquisition
|
|
|
Acquisition
|
|
|
Acquisition
|
|
|
|
Core
|
|
|
Other
|
|
|
Core
|
|
(Dollars in thousands)
|
|
Deposit
|
|
|
Intangible
|
|
|
Deposit
|
|
|
|
Intangible
|
|
|
Assets
|
|
|
Intangible
|
|
Beginning Balance at Acquisition Date
|
|
$
|
303
|
|
|
$
|
40
|
|
|
$
|
431
|
|
Amortization expense recorded prior to January 1, 2016
|
|
|
4
|
|
|
|
2
|
|
|
|
402
|
|
Amortization expense recorded in the twelve months ended December 31, 2016
|
|
|
55
|
|
|
|
20
|
|
|
|
29
|
|
Unamortized balance as of December 31, 2016
|
|
|
244
|
|
|
|
18
|
|
|
$
|
-
|
|
Amortization expense recorded in the Nine Months Ended September 30, 2017
|
|
|
37
|
|
|
|
15
|
|
|
|
|
|
Unamortized balance as of September 30, 2017
|
|
$
|
207
|
|
|
$
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Scheduled remaining amortization expense for years ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
$
|
12
|
|
|
$
|
3
|
|
|
|
|
|
December 31, 2018
|
|
|
44
|
|
|
|
-
|
|
|
|
|
|
December 31, 2019
|
|
|
38
|
|
|
|
-
|
|
|
|
|
|
December 31, 2020
|
|
|
33
|
|
|
|
-
|
|
|
|
|
|
December 31, 2021
|
|
|
27
|
|
|
|
-
|
|
|
|
|
|
After December 31, 2021
|
|
|
53
|
|
|
|
-
|
|
|
|
|
|
9.
Investment in Unconsolidated Subsidiary
The Company owns 39.16% of the outstanding
common stock of Liverpool Community Bank (LCB), Liverpool, PA. This investment is accounted for under the equity method of accounting
and is being carried at $4,820,000 as of September 30, 2017. The Company increases its investment in LCB for its share of earnings
and decreases its investment by any dividends received from LCB. The investment is evaluated quarterly for impairment. A loss in
value of the investment which is determined to be other than a temporary decline would be recognized as a loss in the period in
which such determination is made. Evidence of a loss in value might include, but would not necessarily be limited to, absence of
an ability to recover the carrying amount of the investment or inability of LCB to sustain an earnings capacity that would justify
the current carrying value of the investment. There was no impairment of goodwill relating to LCB during the three or nine month
periods ended September 30, 2017 or 2016.
10.
Fair Value Measurement
Fair value measurement and disclosure guidance
defines fair value as the price that would be received to sell an asset or transfer a liability in an orderly transaction (that
is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions.
Additional guidance is provided on determining when the volume and level of activity for the asset or liability has significantly
decreased. The guidance also includes guidance on identifying circumstances when a transaction may not be considered orderly.
Fair value measurement and disclosure guidance
provides a list of factors that a reporting entity should evaluate to determine whether there has been a significant decrease in
the volume and level of activity for the asset or liability in relation to normal market activity for the asset or liability. When
the reporting entity concludes there has been a significant decrease in the volume and level of activity for the asset or liability,
further analysis of the information from that market is needed, and significant adjustments to the related prices may be necessary
to estimate fair value in accordance with fair value measurement and disclosure guidance.
This guidance clarifies that, when there has
been a significant decrease in the volume and level of activity for the asset or liability, some transactions may not be orderly.
In those situations, the entity must evaluate the weight of the evidence to determine whether the transaction is orderly. The guidance
provides a list of circumstances that may indicate that a transaction is not orderly. A transaction price that is not associated
with an orderly transaction is given little, if any, weight when estimating fair value.
Fair value measurement and disclosure guidance
defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants. A fair value measurement assumes that the transaction to sell the asset or transfer the liability
occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market
for the asset or liability. The price in the principal (or most advantageous) market used to measure the fair value of the asset
or liability is not adjusted for transaction costs. An orderly transaction is a transaction that assumes exposure to the market
for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving
such assets and liabilities; it is not a forced transaction. Market participants are buyers and sellers in the principal market
that are (i) independent, (ii) knowledgeable, (iii) able to transact and (iv) willing to transact.
Fair value measurement and disclosure guidance
requires the use of valuation techniques that are consistent with the market approach, the income approach and/or the cost approach.
The market approach uses prices and other relevant information generated by market transactions involving identical or comparable
assets and liabilities. The income approach uses valuation techniques to convert future amounts, such as cash flows or earnings,
to a single present amount on a discounted basis. The cost approach is based on the amount that currently would be required to
replace the service capacity of an asset (replacement cost). Valuation techniques should be consistently applied. Inputs to valuation
techniques refer to the assumptions that market participants would use in pricing the asset or liability. Inputs may be observable,
meaning those that reflect the assumptions market participants would use in pricing the asset or liability developed based on market
data obtained from independent sources, or unobservable, meaning those that reflect the reporting entity’s own assumptions
about the assumptions market participants would use in pricing the asset or liability developed based on the best information available
in the circumstances. In that regard, the guidance establishes a fair value hierarchy for valuation inputs that gives the highest
priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs.
The fair value hierarchy is as follows:
Level 1 Inputs
– Unadjusted quoted
prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement
date.
Level 2 Inputs
– Inputs other
than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might
include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities
in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (such as interest
rates, volatilities, prepayment speeds, credit risks, etc.) or inputs that are derived principally from or corroborated by market
data by correlation or other means.
Level 3 Inputs
– Unobservable
inputs for determining the fair values of assets or liabilities that reflect an entity’s own assumptions about the assumptions
that market participants would use in pricing the assets or liabilities.
An asset’s or liability’s placement
in the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.
A description of the valuation methodologies
used for assets and liabilities measured at fair value, as well as the general classification of such assets and liabilities pursuant
to the valuation hierarchy, is set forth below.
In general, fair value is based upon quoted
market prices, where available. If such quoted market prices are not available, fair value is based upon internally developed models
that primarily use, as inputs, observable market-based parameters. Valuation adjustments may be made to ensure that financial instruments
are recorded at fair value. These adjustments may include amounts to reflect counterparty credit quality and the Company’s
creditworthiness, among other things, as well as unobservable parameters. Any such valuation adjustments are applied consistently
over time. The Company’s valuation methodologies may produce a fair value calculation that may not be indicative of net realizable
value or reflective of future fair values. While management believes the Company’s valuation methodologies are appropriate
and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of
certain financial instruments could result in a different estimate of fair value at the reporting date.
Securities Available for Sale
–
Debt securities classified as available for sale are reported at fair value utilizing Level 2 inputs. For these securities, the
Company obtains fair value measurement from an independent pricing service. The fair value measurements consider observable data
that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution
data, market consensus prepayment speeds, credit information and the bond’s terms and conditions, among other things. Equity
securities classified as available for sale are reported at fair value using Level 1 and Level 2 inputs.
Impaired Loans
– Certain impaired
loans are reported on a non-recurring basis at the fair value of the underlying collateral since repayment is expected solely from
the collateral. Fair value is generally determined based upon independent third-party appraisals of the properties, or discounted
cash flows based upon the expected proceeds. These assets are included as Level 3 fair values, based upon the lowest level of input
that is significant to the fair value measurements.
Other Real Estate Owned
– Certain
assets included in other real estate owned are carried at fair value as a result of impairment and accordingly are presented as
measured on a non-recurring basis. Values are estimated using Level 3 inputs, based on appraisals that consider the sales prices
of property in the proximate vicinity.
Mortgage Servicing Rights
– The
fair value of servicing assets is based on the present value of estimated future cash flows on pools of mortgages stratified by
rate and maturity date and are considered Level 3 inputs.
The following table summarizes financial assets
and financial liabilities measured at fair value as of September 30, 2017 and December 31, 2016, segregated by the level of the
valuation inputs within the fair value hierarchy utilized to measure fair value. There were no transfers of assets between fair
value Level 1 and Level 2 during the nine months ended September 30, 2017 or 2016.
|
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
Significant
|
|
|
Significant
|
|
|
|
|
|
|
Active Markets
|
|
|
Other
|
|
|
Other
|
|
(Dollars in thousands)
|
|
September 30,
|
|
|
for Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
2017
|
|
|
Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
Measured at fair value on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of U.S. Government agencies and corporations
|
|
$
|
34,463
|
|
|
$
|
-
|
|
|
$
|
34,463
|
|
|
$
|
-
|
|
Obligations of state and political subdivisions
|
|
|
25,945
|
|
|
|
-
|
|
|
|
25,945
|
|
|
|
-
|
|
Mortgage-backed securities
|
|
|
97,485
|
|
|
|
-
|
|
|
|
97,485
|
|
|
|
-
|
|
Equity securities available-for-sale
|
|
|
1,287
|
|
|
|
1,107
|
|
|
|
180
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Measured at fair value on a non-recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans
|
|
$
|
2,239
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
2,239
|
|
Other real estate owned
|
|
|
165
|
|
|
|
-
|
|
|
|
-
|
|
|
|
165
|
|
Mortgage servicing rights
|
|
|
223
|
|
|
|
-
|
|
|
|
-
|
|
|
|
223
|
|
|
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
Significant
|
|
|
Significant
|
|
|
|
|
|
|
Active Markets
|
|
|
Other
|
|
|
Other
|
|
(Dollars in thousands)
|
|
December 31,
|
|
|
for Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
2016
|
|
|
Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
Measured at fair value on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of U.S. Government agencies and corporations
|
|
$
|
35,799
|
|
|
$
|
-
|
|
|
$
|
35,799
|
|
|
$
|
-
|
|
Obligations of state and political subdivisions
|
|
|
26,659
|
|
|
|
-
|
|
|
|
26,659
|
|
|
|
-
|
|
Mortgage-backed securities
|
|
|
85,702
|
|
|
|
-
|
|
|
|
85,702
|
|
|
|
-
|
|
Equity securities available-for-sale
|
|
|
2,328
|
|
|
|
2,148
|
|
|
|
180
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Measured at fair value on a non-recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans
|
|
$
|
2,563
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
2,563
|
|
Other real estate owned
|
|
|
358
|
|
|
|
-
|
|
|
|
-
|
|
|
|
358
|
|
Mortgage servicing rights
|
|
|
205
|
|
|
|
-
|
|
|
|
-
|
|
|
|
205
|
|
The following table presents additional quantitative
information about assets measured at fair value on a nonrecurring basis and for which Level 3 inputs have been used to determine
fair value:
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
Fair Value
Estimate
|
|
|
Valuation Technique
|
|
Unobservable Input
|
|
Range
|
|
Weighted
Average
|
|
Impaired loans
|
|
$
|
2,239
|
|
|
Appraisal of collateral (1)
|
|
Appraisal and liquidation adjustments (2)
|
|
0% - 12%
|
|
|
7
|
%
|
Other real estate owned
|
|
|
165
|
|
|
Appraisal of collateral (1)
|
|
Appraisal and liquidation adjustments (2)
|
|
13% - 72%
|
|
|
30
|
%
|
Mortgage servicing rights
|
|
|
223
|
|
|
Multiple of annual servicing fee
|
|
Estimated pre-payment speed, based on rate and term
|
|
300% - 400%
|
|
|
369
|
%
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
Fair Value
Estimate
|
|
|
Valuation Technique
|
|
Unobservable Input
|
|
Range
|
|
Weighted
Average
|
|
Impaired loans
|
|
$
|
2,563
|
|
|
Appraisal of collateral (1)
|
|
Appraisal and liquidation adjustments (2)
|
|
7% - 58%
|
|
|
8.9
|
%
|
Other real estate owned
|
|
|
358
|
|
|
Appraisal of collateral (1)
|
|
Appraisal and liquidation adjustments (2)
|
|
30 - 72%
|
|
|
46
|
%
|
Mortgage servicing rights
|
|
|
205
|
|
|
Multiple of annual servicing fee
|
|
Estimated pre-payment speed, based on rate and term
|
|
300% - 400%
|
|
|
368
|
%
|
|
(1)
|
Fair value is generally determined through independent appraisals of the underlying collateral
that generally include various Level 3 inputs which are not identifiable.
|
|
(2)
|
Appraisals may be adjusted downward by management for qualitative factors such as economic conditions
and estimated liquidation expenses. The range of liquidation expenses and other appraisal adjustments are presented as a percent
of the appraisal.
|
Fair Value of Financial Instruments
Management uses its best judgment in estimating
the fair value of the Company’s financial instruments; however, there are inherent weaknesses in any estimation technique.
Therefore, the fair value estimates reported herein are not necessarily indicative of the amounts the Company could have realized
in sales transactions on the dates indicated. The estimated fair value amounts have been measured as of their respective year ends
and have not been re-evaluated or updated for purposes of these consolidated financial statements subsequent to those respective
dates. As such, the estimated fair values of these financial instruments subsequent to the respective reporting dates may be different
from the amounts reported at each quarter end.
The information presented below should not
be interpreted as an estimate of the fair value of the entire Company since a fair value calculation is provided only for a limited
portion of the Company’s assets and liabilities. Due to a wide range of valuation techniques and the degree of subjectivity
used in making the estimates, comparisons between the Company’s disclosures and those of other companies may not be meaningful.
The following describes the estimated fair
value of the Company’s financial instruments as well as the significant methods and assumptions not previously disclosed
used to determine these estimated fair values.
Carrying values approximate fair value for
cash and due from banks, interest-bearing demand deposits with banks, restricted stock in the Federal Home Loan Bank, loans held
for sale, interest receivable, mortgage servicing rights, non-interest bearing deposits, securities sold under agreements to repurchase,
short-term borrowings and interest payable. Other than cash and due from banks, which are considered Level 1 inputs, and mortgage
servicing rights, which are Level 3 inputs, these instruments are Level 2 inputs.
Interest bearing time deposits with banks
– The estimated fair value is determined by discounting the contractual future cash flows, using the rates currently offered
for deposits of similar remaining maturities.
Loans
– For variable-rate loans
that reprice frequently and which entail no significant changes in credit risk, carrying values approximated fair value. Substantially
all commercial loans and real estate mortgages are variable rate loans. The fair value of other loans (i.e. consumer loans and
fixed-rate real estate mortgages) is estimated by calculating the present value of the cash flow difference between the current
rate and the market rate, for the average maturity, discounted quarterly at the market rate.
Fixed rate time deposits
– The
estimated fair value is determined by discounting the contractual future cash flows, using the rates currently offered for deposits
of similar remaining maturities.
Long-term debt and other interest-bearing
liabilities
– The fair value is estimated using discounted cash flow analysis, based on incremental borrowing rates for
similar types of arrangements.
Commitments to extend credit and letters
of credit
– The fair value of commitments to extend credit is estimated using the fees currently charged to enter into
similar agreements, taking into account market interest rates, the remaining terms and present credit-worthiness of the counterparties.
The fair value of guarantees and letters of credit is based on fees currently charged for similar agreements.
The estimated fair values of the Company’s
financial instruments are as follows:
|
|
Financial Instruments
|
|
|
|
September 30, 2017
|
|
|
December 31, 2016
|
|
(Dollars in thousands)
|
|
Carrying
|
|
|
Fair
|
|
|
Carrying
|
|
|
Fair
|
|
|
|
Value
|
|
|
Value
|
|
|
Value
|
|
|
Value
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
13,219
|
|
|
$
|
13,219
|
|
|
$
|
9,464
|
|
|
$
|
9,464
|
|
Interest bearing deposits with banks
|
|
|
133
|
|
|
|
133
|
|
|
|
95
|
|
|
|
95
|
|
Interest bearing time deposits with banks
|
|
|
350
|
|
|
|
350
|
|
|
|
350
|
|
|
|
350
|
|
Securities
|
|
|
159,180
|
|
|
|
159,180
|
|
|
|
150,488
|
|
|
|
150,488
|
|
Restricted investment in FHLB stock
|
|
|
3,616
|
|
|
|
3,616
|
|
|
|
3,610
|
|
|
|
3,610
|
|
Loans held for sale
|
|
|
117
|
|
|
|
117
|
|
|
|
-
|
|
|
|
-
|
|
Loans, net of allowance for loan losses
|
|
|
379,709
|
|
|
|
374,642
|
|
|
|
375,574
|
|
|
|
366,660
|
|
Mortgage servicing rights
|
|
|
223
|
|
|
|
223
|
|
|
|
205
|
|
|
|
205
|
|
Accrued interest receivable
|
|
|
1,620
|
|
|
|
1,620
|
|
|
|
1,582
|
|
|
|
1,582
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest bearing deposits
|
|
$
|
109,880
|
|
|
$
|
109,880
|
|
|
$
|
104,006
|
|
|
$
|
104,006
|
|
Interest bearing deposits
|
|
|
363,703
|
|
|
|
363,854
|
|
|
|
351,816
|
|
|
|
354,628
|
|
Securities sold under agreements to repurchase
|
|
|
5,207
|
|
|
|
5,207
|
|
|
|
4,496
|
|
|
|
4,496
|
|
Short-term borrowings
|
|
|
27,500
|
|
|
|
27,500
|
|
|
|
27,700
|
|
|
|
27,700
|
|
Long-term debt
|
|
|
25,000
|
|
|
|
24,965
|
|
|
|
25,000
|
|
|
|
24,963
|
|
Other interest bearing liabilities
|
|
|
1,566
|
|
|
|
1,568
|
|
|
|
1,545
|
|
|
|
1,549
|
|
Accrued interest payable
|
|
|
298
|
|
|
|
298
|
|
|
|
268
|
|
|
|
268
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Off-balance sheet financial instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments to extend credit
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Letters of credit
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
The following tables present the carrying amount,
fair value and placement in the fair value hierarchy of the Company’s financial instruments not previously disclosed as of
September 30, 2017 and December 31, 2016. This table excludes financial instruments for which the carrying amount approximates
fair value.
|
|
|
|
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
Significant
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
Active Markets
|
|
|
Other
|
|
|
Other
|
|
(Dollars in thousands)
|
|
Carrying
|
|
|
|
|
|
for Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
Amount
|
|
|
Fair Value
|
|
|
Assets or Liabilities
|
|
|
Inputs
|
|
|
Inputs
|
|
September 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial instruments - Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing time deposits with banks
|
|
$
|
350
|
|
|
$
|
350
|
|
|
$
|
-
|
|
|
$
|
350
|
|
|
$
|
-
|
|
Loans held for sale
|
|
|
117
|
|
|
|
117
|
|
|
|
-
|
|
|
|
117
|
|
|
|
-
|
|
Loans, net of allowance for loan losses
|
|
|
379,709
|
|
|
|
374,642
|
|
|
|
-
|
|
|
|
-
|
|
|
|
374,642
|
|
Financial instruments - Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing deposits
|
|
$
|
363,703
|
|
|
$
|
363,854
|
|
|
$
|
-
|
|
|
$
|
363,854
|
|
|
$
|
-
|
|
Long-term debt
|
|
|
25,000
|
|
|
|
24,965
|
|
|
|
-
|
|
|
|
24,965
|
|
|
|
-
|
|
Other interest bearing liabilities
|
|
|
1,566
|
|
|
|
1,568
|
|
|
|
-
|
|
|
|
1,568
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
Significant
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
Active Markets
|
|
|
Other
|
|
|
Other
|
|
(Dollars in thousands)
|
|
Carrying
|
|
|
|
|
|
for Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
Amount
|
|
|
Fair Value
|
|
|
Assets or Liabilities
|
|
|
Inputs
|
|
|
Inputs
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial instruments - Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing time deposits with banks
|
|
$
|
350
|
|
|
$
|
350
|
|
|
$
|
-
|
|
|
$
|
350
|
|
|
$
|
-
|
|
Loans, net of allowance for loan losses
|
|
|
375,574
|
|
|
|
366,660
|
|
|
|
-
|
|
|
|
-
|
|
|
|
366,660
|
|
Financial instruments - Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing deposits
|
|
$
|
351,816
|
|
|
$
|
354,628
|
|
|
$
|
-
|
|
|
$
|
354,628
|
|
|
$
|
-
|
|
Long-term debt
|
|
|
25,000
|
|
|
|
24,963
|
|
|
|
-
|
|
|
|
24,963
|
|
|
|
-
|
|
Other interest bearing liabilities
|
|
|
1,545
|
|
|
|
1,549
|
|
|
|
-
|
|
|
|
1,549
|
|
|
|
-
|
|
11.
Defined Benefit Retirement Plan
The Company sponsors a defined benefit retirement
plan [The Juniata Valley Bank Retirement Plan (“JVB Plan”)], which covers substantially all of its employees employed
prior to December 31, 2007. As of January 1, 2008, the JVB Plan was amended to close the plan to new entrants. All active participants
as of December 31, 2007 became 100% vested in their accrued benefit and, as long as they remained eligible, continued to accrue
benefits until December 31, 2012. The benefits are based on years of service and the employee’s compensation. Effective December
31, 2012, the JVB Plan was amended to cease future service accruals after that date (i.e., it was frozen).
As a result of the FNBPA acquisition, as of
November 30, 2015, the Company assumed sponsorship of a second defined benefit retirement plan, the [Retirement Plan for the First
National Bank of Port Allegany (“FNB Plan”)], which covers substantially all former FNBPA employees that were employed
prior to September 30, 2008. The FNBPA Plan was amended as of December 31, 2015 to cease future service accruals to previously
unfrozen participants and is now considered to be “frozen”. Effective December 31, 2016, the FNB Plan was merged into
the JVB Plan, which was amended to provide the same benefits to the class of participants previously included in the FNB Plan.
The Company’s funding policy with respect
to the JVB Plan is to contribute annually no more than the maximum amount that can be deducted for federal income tax purposes.
Contributions are intended to provide for benefits attributed to service through December 31, 2012. The Company made no contributions
during the nine months ended September 30, 2017 and is not required to make a contribution in the remainder of 2017; however, it
is considering doing so.
Pension expense included the following components
for the three and nine month periods ended September 30, 2017 and 2016, with the 2016 year reclassified to include combined results
for the JVB Plan and the former FNB Plan:
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
(Dollars in thousands)
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Components of net periodic pension cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest cost
|
|
$
|
161
|
|
|
$
|
167
|
|
|
$
|
483
|
|
|
$
|
501
|
|
Expected return on plan assets
|
|
|
(202
|
)
|
|
|
(199
|
)
|
|
|
(605
|
)
|
|
|
(597
|
)
|
Recognized net actuarial loss
|
|
|
57
|
|
|
|
62
|
|
|
|
170
|
|
|
|
186
|
|
Net periodic pension cost
|
|
$
|
16
|
|
|
$
|
30
|
|
|
$
|
48
|
|
|
$
|
90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of net actuarial loss recognized in other comprehensive
income
|
|
$
|
(57
|
)
|
|
$
|
(62
|
)
|
|
$
|
(170
|
)
|
|
$
|
(186
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recognized in net periodic pension cost and other comprehensive
income
|
|
$
|
(41
|
)
|
|
$
|
(32
|
)
|
|
$
|
(122
|
)
|
|
$
|
(96
|
)
|
12.
Commitments, Contingent Liabilities and Guarantees
In the ordinary course of business, the Company
makes commitments to extend credit to its customers through letters of credit, loan commitments and lines of credit. At September
30, 2017, the Company had $90,150,000 outstanding in loan commitments and other unused lines of credit extended to its customers
as compared to $59,984,000 at December 31, 2016.
The Company does not issue any guarantees that
would require liability recognition or disclosure, other than its letters of credit. Letters of credit are conditional commitments
issued by the Company to guarantee the performance of a customer to a third-party. Generally, financial and performance letters
of credit have expiration dates within one year of issuance, while commercial letters of credit have longer term commitments. The
credit risk involved in issuing letters of credit is essentially the same as the risks that are involved in extending loan facilities
to customers. The Company generally holds collateral and/or personal guarantees supporting these commitments. The Company had outstanding
$2,097,000 and $2,300,000 of financial and performance letters of credit commitments as of September 30, 2017 and December 31,
2016, respectively. Commercial letters of credit as of both September 30, 2017 and December 31, 2016 totaled $12,650,000. Management
believes that the proceeds obtained through a liquidation of collateral and the enforcement of guarantees would be sufficient to
cover the potential amount of future payments required under the corresponding guarantees. The amount of the liability as of September
30, 2017 for payments under letters of credit issued was not material. Because these instruments have fixed maturity dates, and
because many of them will expire without being drawn upon, they do not generally present any significant liquidity risk.
Additionally, the Company has committed to
fund and sell qualifying residential mortgage loans to the Federal Home Loan Bank of Pittsburgh in the total amount of $10,000,000.
As of September 30, 2017, $5,788,000 remained to be delivered on that commitment, $140,000 of which has been committed to borrowers.
13
.
Subsequent Events
On October 17, 2017, the Board of Directors
declared a cash dividend of $0.22 per share to shareholders of record on November 15, 2017, payable on December 1, 2017.
On October 5, 2017, the Company purchased a
group annuity to satisfy defined benefit obligations to a group of its retirees. The transaction resulted in settlement charges
of $377,000.