Table of Contents



United States

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-Q

(Mark One)

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



For quarterly period ended June 30, 20182019



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



For the transition period from             to ______



Commission file number    001-35021



EVANS BANCORP, INC.

(Exact name of registrant as specified in its charter)



          New York                            16-1332767

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

incorporation or organization)       Identification No.)



One Grimsby Drive, Hamburg, NY        14075

(Address of principal executive offices)  (Zip Code)



(716) 926-2000

(Registrant's telephone number, including area code)



Not Applicable

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

 since last report)

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.50 par value

EVBN

NYSE American



Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  No



Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes No



Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):





 

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer (Do not check if smaller reporting company)

 

Smaller reporting company

Emerging growth company

 

 



If an emerging growth company, indicate by checkmark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 



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

Yes   No 



Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: Common Stock, $.50 par value, 4,821,3814,919,682 shares as of August 1, 2018.July 31, 2019.

 


 

Table of Contents



INDEX





EVANS BANCORP, INC. AND SUBSIDIARIES







 

 



 

 

PART 1.  FINANCIAL INFORMATION

PAGE



 

 

Item 1.

Financial Statements

 



 

 



Unaudited Consolidated Balance Sheets – June 30, 20182019 and December 31, 20172018



 

 



Unaudited Consolidated Statements of Income – Three months ended June 30, 20182019 and 20172018



 

 



Unaudited Consolidated Statements of Income – Six months ended June 30, 20182019 and 20172018



 

 



Unaudited Consolidated Statements of Comprehensive Income – Three months ended June 30, 20182019 and 20172018



 

 



Unaudited Consolidated Statements of Comprehensive Income – Six months ended June 30, 20182019 and 20172018



 

 



Unaudited Consolidated Statements of Changes in Stockholders’ Equity – Six months ended June 30, 20182019 and 20172018



 

 



Unaudited Consolidated Statements of Cash Flows - Six months ended June 30, 20182019 and 20172018



 

 



Notes to Unaudited Consolidated Financial Statements



 

 

Item 2.

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

3937 



 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

4846 



 

 

Item 4.

Controls and Procedures

4947 



 

 

PART II.  OTHER INFORMATION

 



 

 

Item 1.

Legal Proceedings

4948 

Item 1A.

Risk Factors

48 



 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

4948 

Item 3.

Defaults Upon Senior Securities

48 

Item 4.

Mine Safety Disclosure

48 

Item 5.

Other Information

48 



 

 

Item 6.

Exhibits

5049 



 

 



Signatures

51 50 



 

 







 

 


 

Table of Contents





 

 

 

 

 

 

PART I - FINANCIAL INFORMATION

 

 

 

 

 

 

ITEM 1 - FINANCIAL STATEMENTS

 

 

 

 

 

 

EVANS BANCORP, INC. AND SUBSIDIARIES

 

 

 

 

 

 

UNAUDITED CONSOLIDATED BALANCE SHEETS

 

 

 

 

 

 

JUNE 30, 2019 AND DECEMBER 31, 2018

 

 

 

 

 

 

(in thousands, except share and per share amounts)

 

 

 

 

 

 



 

June 30,

 

December 31,



 

2019

 

2018

ASSETS

 

 

 

 

 

 

Cash and due from banks

 

$

13,961 

 

$

13,997 

Interest-bearing deposits at banks

 

 

45,678 

 

 

25,918 

Securities:

 

 

 

 

 

 

Available for sale, at fair value (amortized cost: $135,001 at June, 2019;

 

 

135,576 

 

 

132,104 

$135,274 at December 31, 2018)

 

 

 

 

 

 

Held to maturity, at amortized cost (fair value: $1,885 at June 30, 2019;

 

 

1,862 

 

 

1,685 

$1,674 at December 31, 2018)

 

 

 

 

 

 

Federal Home Loan Bank common stock, at cost

 

 

1,588 

 

 

1,474 

Federal Reserve Bank common stock, at cost

 

 

1,944 

 

 

1,929 

Loans, net of allowance for loan losses of $15,248 at June 30, 2019

 

 

 

 

 

 

and $14,784 at December 31, 2018

 

 

1,197,451 

 

 

1,141,146 

Properties and equipment, net of accumulated depreciation of $20,040 at June 30, 2019

 

 

 

 

 

 

and $19,416 at December 31, 2018

 

 

10,446 

 

 

10,485 

Goodwill and intangible assets

 

 

12,768 

 

 

12,992 

Bank-owned life insurance

 

 

29,094 

 

 

28,403 

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

 

 

4,003 

 

 

-    

Other assets

 

 

16,749 

 

 

18,074 



 

 

 

 

 

 

TOTAL ASSETS

 

$

1,471,120 

 

$

1,388,207 



 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

Demand

 

$

243,860 

 

$

231,902 

NOW

 

 

145,620 

 

 

110,450 

Savings

 

 

603,180 

 

 

571,479 

Time

 

 

290,251 

 

 

301,227 

Total deposits

 

 

1,282,911 

 

 

1,215,058 



 

 

 

 

 

 

Securities sold under agreement to repurchase

 

 

3,968 

 

 

3,142 

Other borrowings

 

 

10,000 

 

 

10,000 

Operating lease liability (see Note 1)

 

 

4,449 

 

 

-    

Other liabilities

 

 

17,175 

 

 

17,031 

Junior subordinated debentures

 

 

11,330 

 

 

11,330 

Total liabilities

 

 

1,329,833 

 

 

1,256,561 



 

 

 

 

 

 

STOCKHOLDERS' EQUITY:

 

 

 

 

 

 

Common stock, $.50 par value, 10,000,000 shares authorized; 4,915,678

 

 

 

 

 

 

and 4,852,868 shares issued at June 30, 2019 and December 31, 2018,

 

 

 

 

 

 

respectively, and 4,914,595 and 4,852,868 outstanding at June 30, 2019

 

 

 

 

 

 

and December 31, 2018, respectively

 

 

2,460 

 

 

2,429 

Capital surplus

 

 

62,353 

 

 

61,225 

Treasury stock, at cost, 1,083 and 0 shares at June 30, 2019 and

 

 

 

 

 

 

December 31, 2018, respectively

 

 

-    

 

 

-    

Retained earnings

 

 

78,919 

 

 

73,345 

Accumulated other comprehensive loss, net of tax

 

 

(2,445)

 

 

(5,353)

Total stockholders' equity

 

 

141,287 

 

 

131,646 



 

 

 

 

 

 

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

 

$

1,471,120 

 

$

1,388,207 



 

 

 

 

 

 

See Notes to Unaudited Consolidated Financial Statements

 

 

 

 

 

 













 

 

 

 

 

 

PART I - FINANCIAL INFORMATION

 

 

 

 

 

 

ITEM 1 - FINANCIAL STATEMENTS

 

 

 

 

 

 

EVANS BANCORP, INC. AND SUBSIDIARIES

 

 

 

 

 

 

UNAUDITED CONSOLIDATED BALANCE SHEETS

 

 

 

 

 

 

JUNE 30, 2018 AND DECEMBER 31, 2017

 

 

 

 

 

 

(in thousands, except share and per share amounts)

 

 

 

 

 

 



 

June 30,

 

December 31,



 

2018

 

2017

ASSETS

 

 

 

 

 

 

Cash and due from banks

 

$

13,324 

 

$

13,751 

Interest-bearing deposits at banks

 

 

3,441 

 

 

7,579 

Securities:

 

 

 

 

 

 

Available for sale, at fair value (amortized cost: $146,106 at June 30, 2018;

 

 

141,933 

 

 

143,818 

$145,232 at December 31, 2017)

 

 

 

 

 

 

Held to maturity, at amortized cost (fair value: $4,609 at June 30, 2018;

 

 

4,637 

 

 

5,334 

$5,261 at December 31, 2017)

 

 

 

 

 

 

Equity securities, at fair value at June 30, 2018; at cost at December 31, 2017

 

 

2,058 

 

 

580 

Federal Home Loan Bank common stock, at cost

 

 

1,475 

 

 

4,863 

Federal Reserve Bank common stock, at cost

 

 

1,924 

 

 

1,916 

Loans, net of allowance for loan losses of $15,235 at June 30, 2018

 

 

 

 

 

 

and $14,019 at December 31, 2017

 

 

1,110,660 

 

 

1,051,296 

Properties and equipment, net of accumulated depreciation of $18,800 at June 30, 2018

 

 

 

 

 

 

and $18,255 at December 31, 2017

 

 

10,331 

 

 

10,564 

Goodwill and intangible assets

 

 

8,496 

 

 

8,553 

Bank-owned life insurance

 

 

28,072 

 

 

27,729 

Other assets

 

 

19,740 

 

 

19,650 



 

 

 

 

 

 

TOTAL ASSETS

 

$

1,346,091 

 

$

1,295,633 



 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

Demand

 

$

224,373 

 

$

219,664 

NOW

 

 

121,170 

 

 

109,378 

Savings

 

 

595,500 

 

 

535,730 

Time

 

 

241,425 

 

 

186,457 

Total deposits

 

 

1,182,468 

 

 

1,051,229 



 

 

 

 

 

 

Securities sold under agreement to repurchase

 

 

4,018 

 

 

9,289 

Other borrowings

 

 

10,000 

 

 

88,250 

Other liabilities

 

 

14,700 

 

 

17,193 

Junior subordinated debentures

 

 

11,330 

 

 

11,330 

Total liabilities

 

 

1,222,516 

 

 

1,177,291 



 

 

 

 

 

 

CONTINGENT LIABILITIES AND COMMITMENTS

 

 

 

 

 

 



 

 

 

 

 

 

STOCKHOLDERS' EQUITY:

 

 

 

 

 

 

Common stock, $.50 par value, 10,000,000 shares authorized; 4,821,381

 

 

 

 

 

 

and 4,783,562 shares issued at June 30, 2018 and December 31, 2017,

 

 

 

 

 

 

respectively, and 4,821,381 and 4,782,505 outstanding at June 30, 2018

 

 

 

 

 

 

and December 31, 2017, respectively

 

 

2,413 

 

 

2,394 

Capital surplus

 

 

60,220 

 

 

59,444 

Treasury stock, at cost, 0 and 1,057 shares at June 30, 2018 and

 

 

 

 

 

 

December 31, 2017, respectively

 

 

-    

 

 

-    

Retained earnings

 

 

66,325 

 

 

59,921 

Accumulated other comprehensive loss, net of tax

 

 

(5,383)

 

 

(3,417)

Total stockholders' equity

 

 

123,575 

 

 

118,342 



 

 

 

 

 

 

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

 

$

1,346,091 

 

$

1,295,633 



 

 

 

 

 

 

See Notes to Unaudited Consolidated Financial Statements

 

 

 

 

 

 

1

 


 

Table of Contents





 

 

 

 

 

 

 

 

 

 

PART I - FINANCIAL INFORMATION

 

 

 

 

 

ITEM 1 - FINANCIAL STATEMENTS

 

 

 

 

 

EVANS BANCORP, INC. AND SUBSIDIARIES

 

 

 

 

 

 

 

 

 

 

UNAUDITED CONSOLIDATED STATEMENTS OF INCOME

 

 

 

 

 

 

 

 

 

 

THREE MONTHS ENDED JUNE 30, 2018 AND 2017

 

 

 

 

 

THREE MONTHS ENDED JUNE 30, 2019 AND 2018

 

 

 

 

 

(in thousands, except share and per share amounts)

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30,

 

Three Months Ended June 30,

 

2018

 

2017

 

2019

 

2018

INTEREST INCOME

 

 

 

 

 

 

 

 

 

 

 

 

Loans

 

$

13,199 

 

$

10,646 

 

$

15,142 

 

$

13,199 

Interest-bearing deposits at banks

 

15 

 

 

43 

 

156 

 

 

15 

Securities:

 

 

 

 

 

 

 

 

 

 

Taxable

 

863 

 

 

563 

 

942 

 

 

863 

Non-taxable

 

 

170 

 

 

210 

 

 

85 

 

 

170 

Total interest income

 

 

14,247 

 

 

11,462 

 

 

16,325 

 

 

14,247 

INTEREST EXPENSE

 

 

 

 

 

 

 

 

 

 

Deposits

 

1,759 

 

 

1,190 

 

3,002 

 

 

1,759 

Other borrowings

 

160 

 

 

50 

 

45 

 

 

160 

Junior subordinated debentures

 

 

132 

 

 

104 

 

 

144 

 

 

132 

Total interest expense

 

 

2,051 

 

 

1,344 

 

 

3,191 

 

 

2,051 

NET INTEREST INCOME

 

12,196 

 

 

10,118 

 

13,134 

 

 

12,196 

PROVISION FOR LOAN LOSSES

 

 

659 

 

 

410 

 

 

90 

 

 

659 

NET INTEREST INCOME AFTER

 

 

 

 

 

 

 

 

 

 

 

 

PROVISION FOR LOAN LOSSES

 

11,537 

 

 

9,708 

 

13,044 

 

 

11,537 

NON-INTEREST INCOME

 

 

 

 

 

 

 

 

 

 

Deposit service charges

 

525 

 

 

428 

 

602 

 

 

525 

Insurance service and fees

 

1,952 

 

 

1,912 

 

2,901 

 

 

1,952 

Gain on loans sold

 

-    

 

 

52 

 

36 

 

 

-    

Bank-owned life insurance

 

178 

 

 

142 

 

173 

 

 

178 

Loss on tax credit investment

 

-    

 

 

(919)

Refundable state historic tax credit

 

-    

 

 

647 

Interchange fee income

 

420 

 

 

379 

 

440 

 

 

420 

Other

 

 

564 

 

 

448 

 

 

578 

 

 

564 

Total non-interest income

 

 

3,639 

 

 

3,089 

 

 

4,730 

 

 

3,639 

NON-INTEREST EXPENSE

 

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

6,475 

 

 

5,959 

 

7,469 

 

 

6,475 

Occupancy

 

727 

 

 

775 

 

872 

 

 

727 

Advertising and public relations

 

326 

 

 

216 

 

214 

 

 

326 

Professional services

 

626 

 

 

550 

 

929 

 

 

626 

Technology and communications

 

847 

 

 

804 

 

1,099 

 

 

847 

Amortization of intangibles

 

28 

 

 

28 

 

112 

 

 

28 

FDIC insurance

 

246 

 

 

129 

 

150 

 

 

246 

Other

 

 

958 

 

 

856 

 

 

1,304 

 

 

958 

Total non-interest expense

 

 

10,233 

 

 

9,317 

 

 

12,149 

 

 

10,233 

INCOME BEFORE INCOME TAXES

 

 

4,943 

 

 

3,480 

 

 

5,625 

 

 

4,943 

INCOME TAX PROVISION

 

 

1,152 

 

 

862 

 

 

1,243 

 

 

1,152 

NET INCOME

 

$

3,791 

 

$

2,618 

 

$

4,382 

 

$

3,791 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per common share-basic

 

$

0.79 

 

$

0.55 

 

$

0.90 

 

$

0.79 

Net income per common share-diluted

 

$

0.77 

 

$

0.54 

 

$

0.88 

 

$

0.77 

Cash dividends per common share

 

$

 -

 

$

 -

 

$

 -

 

$

 -

Weighted average number of common shares outstanding

 

 

4,810,487 

 

 

4,764,080 

 

 

4,891,841 

 

 

4,810,487 

Weighted average number of diluted shares outstanding

 

 

4,933,522 

 

 

4,880,454 

 

 

4,953,072 

 

 

4,933,522 

 

 

 

 

 

 

 

 

 

 

 

 

See Notes to Unaudited Consolidated Financial Statements

 

 

 

 

 

 

 

 

 

 



2

 


 

Table of Contents



 

 

 

 

 

 

 

 

 

 

PART I - FINANCIAL INFORMATION

 

 

 

 

 

ITEM 1 - FINANCIAL STATEMENTS

 

 

 

 

 

EVANS BANCORP, INC. AND SUBSIDIARIES

 

 

 

 

 

 

 

 

 

 

UNAUDITED CONSOLIDATED STATEMENTS OF INCOME

 

 

 

 

 

 

 

 

 

 

SIX MONTHS ENDED JUNE 30, 2018 AND 2017

 

 

 

 

 

SIX MONTHS ENDED JUNE 30, 2019 AND 2018

 

 

 

 

 

(in thousands, except share and per share amounts)

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30,

Six Months Ended June 30,

2018

 

2017

2019

 

2018

INTEREST INCOME

 

 

 

 

 

 

 

 

 

 

Loans

$

25,562 

 

$

20,892 

$

29,504 

 

$

25,562 

Interest-bearing deposits at banks

 

25 

 

 

55 

 

405 

 

 

25 

Securities:

 

 

 

 

 

 

 

 

 

 

Taxable

 

1,660 

 

 

999 

 

1,743 

 

 

1,660 

Non-taxable

 

366 

 

 

434 

 

215 

 

 

366 

Total interest income

 

27,613 

 

 

22,380 

 

31,867 

 

 

27,613 

INTEREST EXPENSE

 

 

 

 

 

 

 

 

 

 

Deposits

 

3,257 

 

 

2,306 

 

5,845 

 

 

3,257 

Other borrowings

 

458 

 

 

108 

 

90 

 

 

458 

Junior subordinated debentures

 

250 

 

 

204 

 

290 

 

 

250 

Total interest expense

 

3,965 

 

 

2,618 

 

6,225 

 

 

3,965 

NET INTEREST INCOME

 

23,648 

 

 

19,762 

 

25,642 

 

 

23,648 

PROVISION (CREDIT) FOR LOAN LOSSES

 

1,426 

 

 

(25)

PROVISION FOR LOAN LOSSES

 

628 

 

 

1,426 

NET INTEREST INCOME AFTER

 

 

 

 

 

 

 

 

 

 

PROVISION FOR LOAN LOSSES

 

22,222 

 

 

19,787 

 

25,014 

 

 

22,222 

NON-INTEREST INCOME

 

 

 

 

 

 

 

 

 

 

Deposit service charges

 

1,034 

 

 

818 

 

1,135 

 

 

1,034 

Insurance service and fees

 

3,917 

 

 

4,080 

 

5,343 

 

 

3,917 

Gain on loans sold

 

-    

 

 

70 

 

62 

 

 

-    

Bank-owned life insurance

 

349 

 

 

272 

 

332 

 

 

349 

Loss on tax credit investment

 

-    

 

 

(919)

Refundable state historic tax credit

 

-    

 

 

647 

Interchange fee income

 

912 

 

 

723 

 

861 

 

 

912 

Other

 

1,213 

 

 

920 

 

1,192 

 

 

1,213 

Total non-interest income

 

7,425 

 

 

6,611 

 

8,925 

 

 

7,425 

NON-INTEREST EXPENSE

 

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

13,102 

 

 

11,605 

 

14,629 

 

 

13,102 

Occupancy

 

1,485 

 

 

1,550 

 

1,708 

 

 

1,485 

Advertising and public relations

 

450 

 

 

406 

 

381 

 

 

450 

Professional services

 

1,279 

 

 

1,152 

 

1,674 

 

 

1,279 

Technology and communications

 

1,611 

 

 

1,411 

 

1,992 

 

 

1,611 

Amortization of intangibles

 

56 

 

 

56 

 

224 

 

 

56 

FDIC insurance

 

478 

 

 

356 

 

357 

 

 

478 

Other

 

1,943 

 

 

1,836 

 

2,408 

 

 

1,943 

Total non-interest expense

 

20,404 

 

 

18,372 

 

23,373 

 

 

20,404 

INCOME BEFORE INCOME TAXES

 

9,243 

 

 

8,026 

 

10,566 

 

 

9,243 

INCOME TAX PROVISION

 

2,133 

 

 

2,262 

 

2,464 

 

 

2,133 

NET INCOME

$

7,110 

 

$

5,764 

$

8,102 

 

$

7,110 

 

 

 

 

 

 

 

 

 

 

Net income per common share-basic

$

1.48 

 

$

1.23 

$

1.66 

 

$

1.48 

Net income per common share-diluted

$

1.44 

 

$

1.20 

$

1.64 

 

$

1.44 

Cash dividends per common share

$

0.46 

 

$

0.40 

$

0.52 

 

$

0.46 

Weighted average number of common shares outstanding

 

4,799,229 

 

 

4,699,447 

 

4,873,928 

 

 

4,799,229 

Weighted average number of diluted shares outstanding

 

4,926,385 

 

 

4,819,375 

 

4,943,249 

 

 

4,926,385 

 

 

 

 

 

 

 

 

 

 

See Notes to Unaudited Consolidated Financial Statements

 

 

 

 

 

 

 

 

 

 





3

 


 

Table of Contents





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PART I - FINANCIAL INFORMATION

 

 

 

 

 

 

 

 

 

 

ITEM 1 - FINANCIAL STATEMENTS

 

 

 

 

 

 

 

 

 

 

EVANS BANCORP, INC. AND SUBSIDIARIES

EVANS BANCORP, INC. AND SUBSIDIARIES

EVANS BANCORP, INC. AND SUBSIDIARIES

UNAUDITED STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME

UNAUDITED STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME

UNAUDITED STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME

THREE MONTHS ENDED JUNE 30, 2018 AND 2017

THREE MONTHS ENDED JUNE 30, 2019 AND 2018

THREE MONTHS ENDED JUNE 30, 2019 AND 2018

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30,

 

 

Three Months Ended June 30,

 

2018

 

 

2017

 

 

 

2019

 

 

 

 

2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET INCOME

 

 

 

$

3,791 

 

 

 

 

$

2,618 

 

 

 

$

4,382 

 

 

 

 

$

3,791 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OTHER COMPREHENSIVE (LOSS) INCOME, NET OF TAX:

 

 

 

 

 

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

 

 

 

 

(684)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:

OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:

 

 

 

 

 

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

 

 

 

 

1,471 

 

 

 

 

 

(684)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Defined benefit pension plans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of prior service cost

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of actuarial loss

 

31 

 

 

 

 

 

26 

 

 

 

 

 

 

 

62 

 

 

 

 

 

31 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

 

36 

 

 

 

 

 

31 

 

 

 

 

67 

 

 

 

 

 

36 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OTHER COMPREHENSIVE (LOSS) INCOME, NET OF TAX

 

 

(648)

 

 

 

 

 

34 

OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX

OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX

 

 

1,538 

 

 

 

 

 

(648)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

COMPREHENSIVE INCOME

 

 

 

$

3,143 

 

 

 

 

$

2,652 

 

 

 

$

5,920 

 

 

 

 

$

3,143 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See Notes to Unaudited Consolidated Financial Statements

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 







 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

EVANS BANCORP, INC. AND SUBSIDIARIES

UNAUDITED STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME

SIX MONTHS ENDED JUNE 30, 2019 AND 2018

(in thousands)

 

 

 

 

 

 

 

 

 

 

 



 

 

 

Six Month Ended June 30,



 

 

 

2019

 

 

 

 

2018



 

 

 

 

 

 

 

 

 

 

 

NET INCOME

 

 

 

$

8,102 

 

 

 

 

$

7,110 



 

 

 

 

 

 

 

 

 

 

 

OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:

 

 

 

 

 

 

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

 

 

 

 

2,774 

 

 

 

 

 

(2,044)

Defined benefit pension plans:

 

 

 

 

 

 

 

 

 

 

 

Amortization of prior service cost

 

 

 

 

11 

 

 

 

 

 

11 

Amortization of actuarial loss

 

 

 

 

123 

 

 

 

 

 

67 

Total

 

 

 

 

134 

 

 

 

 

 

78 



 

 

 

 

 

 

 

 

 

 

 

OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX

 

 

2,908 

 

 

 

 

 

(1,966)



 

 

 

 

 

 

 

 

 

 

 

COMPREHENSIVE INCOME

 

 

 

$

11,010 

 

 

 

 

$

5,144 



 

 

 

 

 

 

 

 

 

 

 

See Notes to Unaudited Consolidated Financial Statements

 

 

 

 

 

 

 

 

 

 

 





 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

PART I - FINANCIAL INFORMATION

 

 

 

 

 

 

 

 

 

 

 

ITEM 1 - FINANCIAL STATEMENTS

 

 

 

 

 

 

 

 

 

 

 

EVANS BANCORP, INC. AND SUBSIDIARIES

UNAUDITED STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME

SIX MONTHS ENDED JUNE 30, 2018 AND 2017

(in thousands)

 

 

 

 

 

 

 

 

 

 

 



 

Six Months Ended June 30,



 

2018

 

 

2017



 

 

 

 

 

 

 

 

 

 

 

NET INCOME

 

 

 

$

7,110 

 

 

 

 

$

5,764 



 

 

 

 

 

 

 

 

 

 

 

OTHER COMPREHENSIVE (LOSS) INCOME, NET OF TAX:

 

 

 

 

 

 

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

 

 

 

 

(2,044)

 

 

 

 

 

190 



 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

Defined benefit pension plans:

 

 

 

 

 

 

 

 

 

 

 

Amortization of prior service cost

 

11 

 

 

 

 

 

15 

 

 

 

Amortization of actuarial loss

 

67 

 

 

 

 

 

79 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

 

78 

 

 

 

 

 

94 



 

 

 

 

 

 

 

 

 

 

 

OTHER COMPREHENSIVE (LOSS) INCOME, NET OF TAX

 

 

(1,966)

 

 

 

 

 

284 



 

 

 

 

 

 

 

 

 

 

 

COMPREHENSIVE INCOME

 

 

 

$

5,144 

 

 

 

 

$

6,048 



 

 

 

 

 

 

 

 

 

 

 

See Notes to Unaudited Consolidated Financial Statements

 

 

 

 

 

 

 

 

 

 

 









4

 


 

Table of Contents





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PART I - FINANCIAL INFORMATION

 

 

 

 

 

 

 

 

 

 

 

 

ITEM 1 - FINANCIAL STATEMENTS

 

 

 

 

 

 

 

 

 

 

 

 

EVANS BANCORP, INC. AND SUBSIDIARIES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

 

 

 

 

UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

 

 

SIX MONTHS ENDED JUNE 30, 2018 AND 2017

 

 

 

 

 

 

SIX MONTHS ENDED JUNE 30, 2019 AND 2018

SIX MONTHS ENDED JUNE 30, 2019 AND 2018

 

 

 

 

(in thousands, except share and per share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

Common

 

Capital

 

Retained

 

Comprehensive

 

Treasury

 

 

 

Common

 

Capital

 

Retained

 

Comprehensive

 

 

 

Stock

 

Surplus

 

Earnings

 

Loss

 

Stock

 

Total

 

Stock

 

Surplus

 

Earnings

 

Loss

 

Total

Balance, December 31, 2016

 

$

2,153 

 

$

44,389 

 

$

52,630 

 

$

(2,424)

 

$

-    

 

$

96,748 

Net Income

 

 

 

 

 

5,764 

 

 

 

 

 

5,764 

Other comprehensive income

 

 

 

 

 

 

 

284 

 

 

 

284 

Cash dividends ($0.40 per common share)

 

 

 

 

 

(1,902)

 

 

 

 

 

(1,902)

Stock compensation expense

 

 

 

295 

 

 

 

 

 

 

 

295 

Issued 440,000 shares in stock offering

 

220 

 

13,922 

 

 

 

 

 

 

 

14,142 

Issued 16,283 restricted shares

 

 

(8)

 

 

 

 

 

 

 

-    

Issued 3,253 shares under Dividend Reinvestment Plan

 

 

124 

 

 

 

 

 

 

 

126 

Issued 3,713 shares in Employee Stock Purchase Plan

 

 

124 

 

 

 

 

 

 

 

126 

Issued 7,743 shares in stock option exercises

 

 

111 

 

 

 

 

 

 

 

115 

Repurchased 9,218 shares in treasury stock

 

 

 

 

 

 

 

 

 

(342)

 

(342)

Reissued 10,597 shares in stock option exercises, net of forfeitures

 

 

 

(135)

 

 

 

 

 

342 

 

207 

Balance, June 30, 2017

 

$

2,389 

 

$

58,822 

 

$

56,492 

 

$

(2,140)

 

$

-    

 

$

115,563 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2017

 

$

2,394 

 

$

59,444 

 

$

59,921 

 

$

(3,417)

 

$

-    

 

$

118,342 

 

$

2,394 

 

$

59,444 

 

$

59,921 

 

$

(3,417)

 

$

118,342 

Cumulative-effect adjustment due to change in accounting principle (See Note 1)

 

 

 

 

 

1,496 

 

 

 

 

 

1,496 

Cumulative-effect adjustment due to change in accounting principle

 

 

 

 

 

1,496 

 

 

 

1,496 

Net Income

 

 

 

 

 

7,110 

 

 

 

 

 

7,110 

 

 

 

 

 

7,110 

 

 

 

7,110 

Other comprehensive income

 

 

 

 

 

 

 

(1,966)

 

 

 

(1,966)

 

 

 

 

 

 

 

(1,966)

 

(1,966)

Cash dividends ($0.46 per common share)

 

 

 

 

 

(2,202)

 

 

 

 

 

(2,202)

 

 

 

 

 

(2,202)

 

 

 

(2,202)

Stock compensation expense

 

 

 

399 

 

 

 

 

 

 

 

399 

 

 

 

399 

 

 

 

 

 

399 

Reissued 1,057 restricted shares

 

 

 

 

 

 

 

 

 

 

 

-    

 

 

 

-    

 

 

 

 

 

-    

Issued 16,816 restricted shares

 

 

(8)

 

 

 

 

 

 

 

-    

 

 

(8)

 

 

 

 

 

-    

Issued 3,205 shares under Dividend Reinvestment Plan

 

 

142 

 

 

 

 

 

 

 

144 

 

 

142 

 

 

 

 

 

144 

Issued 3,898 shares in Employee Stock Purchase Plan

 

 

151 

 

 

 

 

 

 

 

153 

 

 

151 

 

 

 

 

 

153 

Issued 13,900 shares in stock option exercises

 

 

92 

 

 

 

 

 

 

 

99 

 

 

 

 

92 

 

 

 

 

 

 

 

 

99 

Balance, June 30, 2018

 

$

2,413 

 

$

60,220 

 

$

66,325 

 

$

(5,383)

 

$

-    

 

$

123,575 

 

$

2,413 

 

$

60,220 

 

$

66,325 

 

$

(5,383)

 

$

123,575 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2018

 

$

2,429 

 

$

61,225 

 

$

73,345 

 

$

(5,353)

 

$

131,646 

Net Income

 

 

 

 

 

8,102 

 

 

 

8,102 

Other comprehensive income

 

 

 

 

 

 

 

2,908 

 

2,908 

Cash dividends ($0.52 per common share)

 

 

 

 

 

(2,528)

 

 

 

(2,528)

Stock compensation expense

 

 

 

449 

 

 

 

 

 

449 

Reissued 500 restricted shares

 

 

 

 

 

 

 

 

 

-    

Issued 22,120 restricted shares, net of forfeitures

 

12 

 

(12)

 

 

 

 

 

-    

Issued 3,866 shares under Dividend Reinvestment Plan

 

 

137 

 

 

 

 

 

139 

Issued 6,183 shares in Employee Stock Purchase Plan

 

 

195 

 

 

 

 

 

198 

Issued 29,058 shares in stock option exercises

 

14 

 

359 

 

 

 

 

 

373 

Balance, June 30, 2019

 

$

2,460 

 

$

62,353 

 

$

78,919 

 

$

(2,445)

 

$

141,287 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See Notes to Unaudited Consolidated Financial Statements

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 













5

 


 

Table of Contents



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PART I - FINANCIAL INFORMATION

ITEM 1 - FINANCIAL STATEMENTS

EVANS BANCORP, INC. AND SUBSIDIARIES

EVANS BANCORP, INC. AND SUBSIDIARIES

EVANS BANCORP, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

SIX MONTHS ENDED JUNE 30, 2018 AND 2017

SIX MONTHS ENDED JUNE 30, 2019 AND 2018

SIX MONTHS ENDED JUNE 30, 2019 AND 2018

(in thousands)

(in thousands)

(in thousands)

 

Six Months Ended June 30,

 

Six Months Ended June 30,

 

 

2018

 

 

2017

 

 

2019

 

 

2018

OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

 

 

Interest received

 

$

27,645 

 

$

22,329 

 

$

31,860 

 

$

27,645 

Fees received

 

6,931 

 

6,538 

 

8,032 

 

6,931 

Interest paid

 

(3,828)

 

(2,587)

 

(6,000)

 

(3,828)

Cash paid to employees and vendors

 

(21,009)

 

(18,748)

 

(23,836)

 

(21,009)

Cash contributed to pension plan

 

-    

 

(1,000)

Income taxes paid

 

(576)

 

(1,635)

 

(385)

 

(576)

Proceeds from sale of loans held for resale

 

-    

 

5,376 

 

4,693 

 

-    

Originations of loans held for resale

 

 

-    

 

 

(5,532)

 

 

(4,279)

 

 

-    

 

 

 

 

 

 

 

 

 

 

 

 

Net cash provided by operating activities

 

 

9,163 

 

 

4,741 

 

 

10,085 

 

 

9,163 

 

 

 

 

 

 

 

 

 

 

 

 

INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Available for sales securities:

 

 

 

 

 

 

 

 

Purchases

 

(47,863)

 

(52,697)

 

(32,631)

 

(47,863)

Proceeds from maturities, calls, and payments

 

50,169 

 

6,905 

Proceeds from sales, maturities, calls, and payments

 

32,694 

 

50,169 

Held to maturity securities:

 

 

 

 

 

 

 

 

Purchases

 

-    

 

(35)

 

(224)

 

-    

Proceeds from maturities, calls, and payments

 

697 

 

646 

 

48 

 

697 

Proceeds from bank owned life insurance claims

 

675 

 

-    

Cash paid for bank-owned life insurance

 

(360)

 

-    

Proceeds from bank-owned life insurance claims

 

-    

 

675 

Additions to properties and equipment

 

(367)

 

(264)

 

(615)

 

(367)

Purchase of tax credit investment

 

(676)

 

(811)

 

-    

 

(676)

Insurance agency acquisitions

 

-    

 

(275)

Net increase in loans

 

 

(62,275)

 

 

(32,925)

 

 

(56,134)

 

 

(62,275)

 

 

 

 

 

 

 

 

 

 

 

 

Net cash used in investing activities

 

 

(59,640)

 

 

(79,456)

 

 

(57,222)

 

 

(59,640)

 

 

 

 

 

 

 

 

 

 

 

 

FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Repayments of short-term borrowings, net

 

(83,521)

 

(14,278)

Proceeds (repayments) from short-term borrowings, net

 

826 

 

(83,521)

Net increase in deposits

 

131,239 

 

79,082 

 

67,853 

 

131,239 

Dividends paid

 

(2,202)

 

(1,902)

 

(2,528)

 

(2,202)

Repurchase of treasury stock

 

-    

 

(342)

Issuance of common stock

 

396 

 

14,509 

 

 

710 

 

 

396 

Reissuance of treasury stock

 

 

-    

 

 

207 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash provided by financing activities

 

 

45,912 

 

 

77,276 

 

 

66,861 

 

 

45,912 

 

 

 

 

 

 

 

 

 

 

 

 

Net (decrease) increase in cash and cash equivalents

 

(4,565)

 

2,561 

Net increase (decrease) in cash and cash equivalents

 

19,724 

 

(4,565)

 

 

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS:

 

 

 

 

 

 

 

 

Beginning of period

 

 

21,330 

 

 

13,084 

 

 

39,915 

 

 

21,330 

 

 

 

 

 

 

 

 

 

 

 

 

End of period

 

$

16,765 

 

$

15,645 

 

$

59,639 

 

$

16,765 

 

 

 

 

 

 

 

 

 

 

 

 

See Notes to Unaudited Consolidated Financial Statements

 

 

 

 

 

 

 

 



(continued)

6

 


 

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PART I - FINANCIAL INFORMATION

ITEM 1 - FINANCIAL STATEMENTS

EVANS BANCORP, INC. AND SUBSIDIARIES

 

 

 

 

 

 

 

 

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

 

 

 

 

 

 

SIX MONTHS ENDED JUNE 30, 2018 AND 2017

 

 

 

 

SIX MONTHS ENDED JUNE 30, 2019 AND 2018

 

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

Six Months Ended June 30,

 

Six Months Ended June 30,

 

 

2018

 

 

2017

 

 

2019

 

 

2018

 

 

 

 

 

 

 

 

 

 

 

 

RECONCILIATION OF NET INCOME TO NET CASH

 

 

 

 

 

 

 

 

PROVIDED BY OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

7,110 

 

$

5,764 

 

$

8,102 

 

$

7,110 

 

 

 

 

 

 

 

 

Adjustments to reconcile net income to net cash

 

 

 

 

 

 

 

 

provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

857 

 

875 

 

999 

 

857 

Deferred tax expense

 

280 

 

589 

Provision (credit) for loan losses

 

1,426 

 

(25)

Loss on tax credit investment

 

-    

 

919 

Refundable state historic tax credit

 

-    

 

(647)

Deferred tax (benefit) expense

 

(45)

 

280 

Provision for loan losses

 

628 

 

1,426 

Gain on sales of securities

 

(42)

 

-    

Gain on loans sold

 

-    

 

(70)

 

(62)

 

-    

Change in fair value of equity securities

 

(245)

 

-    

 

-    

 

(245)

Stock compensation expense

 

399 

 

295 

 

449 

 

399 

Proceeds from sale of loans held for resale

 

-    

 

5,376 

 

4,693 

 

-    

Originations of loans held for resale

 

-    

 

(5,532)

 

(4,279)

 

-    

Changes in assets and liabilities affecting cash flow:

 

 

 

 

 

 

 

 

Other assets

 

(1,442)

 

(1,145)

 

(5,186)

 

(1,442)

Other liabilities

 

 

778 

 

 

(1,658)

 

 

4,828 

 

 

778 

 

 

 

 

 

 

 

 

 

 

 

 

NET CASH PROVIDED BY OPERATING ACTIVITIES

 

$

9,163 

 

$

4,741 

 

$

10,085 

 

$

9,163 

 

 

 

 

 

 

 

 

 

 

 

 

See Notes to Unaudited Consolidated Financial Statements

 

 

 

 

 

 

 

 











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PART 1 – FINANCIAL INFORMATION

ITEM 1 – FINANCIAL STATEMENTS

EVANS BANCORP, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND SIX MONTH PERIODS ENDED JUNE 30, 20182019 AND 20172018



1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES



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



The results of operations for the three and six month periods ended June 30, 20182019 are not necessarily indicative of the results to be expected for the full year.  The accompanying unaudited consolidated financial statements should be read in conjunction with the Audited Consolidated Financial Statements and the Notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2017.2018 (“10-K”).  The Company’s significant accounting policies are disclosed in Note 1 to the Form 10-K.



The Company adopted multipleFinancial Accounting Standards Board (“FASB”) establishes changes to U.S. GAAP in the form of accounting standards asupdates (“ASUs”) to the FASB Accounting Standards Codification.  The Company considers the applicability and impact of January 1, 2018 that impactedall ASUs when they are issued by FASB.  ASUs listed below were adopted by the Company during its consolidated financial statements. Thecurrent fiscal year.  ASUs not listed below did not have a material impact on the Company’s equity as depicted in the Statementconsolidated financial position, results of Changes in Stockholders’ Equity is as follows:operations, cash flows or disclosures.

As of January 1, 2018

Impact of adoption of ASU 2014-09:

  Increase in accounts receivable

551 

  Tax effect

(142)

Total

409 

Impact of adoption of ASU 2016-01

 Increase in fair value of equity securities

1,234 

  Tax effect

(147)

Total

1,087 

Total cumulative-effect adjustment due to change in accounting principles

1,496 



On January 1, 2018,2019, the Company adopted Accounting Standards Update (“ASU”) 2014-09ASU 2016-02 Revenue from Contracts with CustomersLeases and all subsequent amendments (collectively, “ASU 2016-02”). The objective of this ASU is to the ASU (collectively, “ASC 606”), which creates a single framework forincrease transparency and comparability among organizations by recognizing revenue from contracts with customers that fall within its scope.  The Company used the modified retrospective method with a cumulative-effect adjustment to retained earnings.  The Company’s implementation efforts included the identification of revenue within the scope of the guidance, as well as the evaluation of revenue contracts.   The majority of the Company’s revenues come from interest income on loanslease assets and securities that are outside the scope of ASC 606.  The Company’s services that fall within the scope of ASC 606 are presented within Non-Interest Income and are recognized as revenue as the Company satisfies its obligation to the customer.  Services within the scope of ASC 606 include insurance services fees, deposit service charges, and interchange income.  Further detaillease liabilities on the Company’s performance obligationsbalance sheet and revenuedisclosing key information about leasing arrangements to meet that objective.  The main difference between previous GAAP and this ASU is the recognition of lease assets and lease liabilities by lessees for these revenue streams is providedthose leases classified as operating leases under previous GAAP.  Under this new guidance, a lessee should recognize in Note 11the statement of financial position a liability to these Unaudited Consolidated Financial Statements.make lease payments and a right-of-use (“ROU”) asset representing its right to use the underlying asset for the lease term.  The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee have not significantly changed from previous GAAP. 



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

Under ASU 2016-02, leases are classified as finance or operating, with the classification affecting the pattern and classification of expense recognition in the income statement. The Company’s leases, consisting of property leases for differently in 2018certain of our bank branches and beyond.  Profit-sharing revenue is variable consideration that TEA earnsinsurance agency offices, are classified as operating leases. Operating lease ROU assets and liabilities are recognized at commencement date based on the loss ratiopresent value of its customers at insurance companies.  TEA typically receives paymentlease payments over the lease term. As these leases do not provide an implicit rate, we use our incremental borrowing rate in determining the year followingpresent value of lease payments. Our lease terms include options to extend or terminate the year in whichlease when it is reasonably certain that we will exercise that option. Leases with an initial term of 12 months or less are not recorded on the profit-sharing revenuebalance sheet. Lease expense for lease payments is earned, with most payments received inrecognized on a straight-line basis over the first quarter.  Prior to January 1, 2018, the Company recognized profit-sharing revenue when the payment was received.  Beginning with the results reported for periods in 2018 included in these financial statements, the Company will estimate this variable consideration based on past performance and loss experience known during the year and make subsequent adjustments to revenue when the uncertainty associated with the variable revenue is resolved.  As of January 1, 2018, the Company recorded accountslease term.

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receivable of $551 thousand and the tax effect of $142 thousand through a cumulative-effect adjustment to beginning retained earnings, representing the profit sharing revenue earned in 2017 and expected to be received in 2018.



ASU 2016-02 had an impact on the Company’s consolidated balance sheets, but did not have an impact on the consolidated statements of income or the consolidated statements of cash flows. The Company adopted ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities and ASU 2018-03 Technical Corrections and Improvements to Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilitiesmost significant impacts upon adoption on January 1, 2018 with a cumulative-effect adjustment to retained earnings.  This ASU requires equity securities to be measured at fair value with changes2019 were the recognition of $4.3 million of ROU assets and $4.7 million of lease liabilities, including $0.4 million of liabilities that were reported in other liabilities in the fair value recognized through net income.  As ofCompany’s December 31, 2017, the Company had an investment in the equity securities of another financial institution valued at the historical cost of $0.6 million.  The Company used the cost method of accounting because its ownership of the financial institution was less than 5% of the outstanding shares.  With the adoption of ASU 2016-01, the cost method is no longer an acceptable accounting principle.  On January 1, 2018 the Company recorded an increase in the value of the investment of $1.2 million based on observable prices obtained from orderly transactions between market participants through opening retained earnings.  While the financial institution is not publicly traded on a major stock exchangeconsolidated balance sheet. ROU assets and is fairly illiquid, there is transaction activity that can be used by the Company to determine the fair value.  The Company recognized an increase in fair value of $0.1lease liability were $4.0 million and $0.2$4.4 million, forrespectively, at June 30, 2019.  Operating lease expenses during the three and six month periods ended June 30, 2018,2019 were $179 thousand and $357 thousand, respectively, fromand are included in other non-interest expense on the value at January 1, 2018 based on observable prices obtained from the latest orderly transactionsconsolidated statement of income. Cash paid for amounts included in the respective periods, with the increase being recorded in earnings.  Given the naturemeasurement of equity investments and the requirement to record changes in the fair value of the investment through earnings, the adoption of this standard could lead to increased volatility to earnings. 

ASU 2016-01 also contained other provisions impacting the Company’s disclosures, including using the exit price notion when measuring the fair value of financial instruments for disclosure purposes and eliminating the requirement for public business entities to disclose the methods and significant assumptions to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet.  Further details regarding the Company’s fair value measurements and corresponding disclosures are provided in Note 3 to these Unaudited Consolidated Financial Statements.

As of December 31, 2017, the Company had a $171 thousand valuation allowance on the deferred tax asset for the Company’s investments in historic tax credits.  The valuation allowance was due to the nature of the loss to be recognized when the investment is ultimately sold (which for tax purposes will give rise to a capital loss) as the Company did not have any known capital gains in the future to be able to utilize the capital losses from these investments.  With the increase in the value of the equity securities discussed in the preceding paragraph and the corresponding projected capital gains the increased value represents, the Company was able to release the valuation allowance on the deferred tax assets related to the historic tax credits in conjunction with the adoption of ASU 2016-01.

The Company adopted ASU 2017-07 Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost effective January 1, 2018.  The update requires that an employer report the service cost component of net periodic pension cost in the same line item as other compensation costs arising from services rendered by the pertinent employeeslease liabilities during the period. The other components of net periodic pension cost such as interest cost, expected return on plan assets, gain or loss, and amortization of prior service cost are required to be presented in the income statement separately from the service cost component. If a separate line item is used to present the other components of net benefit cost, that line item must be appropriately described.  Prior to adoption of this update, the Company presented all components of net periodic pension cost in its “salaries and benefits expense” on its income statement.  The Company is presenting its income statement for the three and six month periods ended June 30, 20182019 were $184 thousand and 2017 with service cost as part of the “salaries$368 thousand, respectively, and benefits expense” and the other componentsare included in “other expense.”  Further details regarding the Company’s net periodic pension cost are provided in Note 9 to these Unaudited Consolidated Financial Statements.

ASU 2016-15 Classification of Certain Cash Receipts and Cash Payments: This update addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows under Topic 230, Statement of Cash Flows.  The update had no impactfrom operating activities on how the Company was already reporting or presenting its statement of cash flows.

ASU 2016-18 Restricted Cash: This update requires that a statement of cash flows explains the change during the period in the total cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents.  Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning of period and end of period total amounts shown on theconsolidated statement of cash flows. PreviousThe weighted average discount rate related to the update, there had been some diversity in practice.  Given thatCompany’s leases was 3.5% as of June 30, 2019.  The weighted average remaining lease term related to the Company had already classified restricted cash suchCompany’s leases was 8.8 years as cash reserves at the Federal Reserveof June 30, 2019.  Future minimum lease payments under non-cancellable leases as part of cash and cash equivalents on the cash flow statement, the update had no impact on how the Company was already reporting and presenting its statement of cash flows.June 30, 2019 were as follows:



ASU 2017-01 Clarifying the Definition of a Business: This update clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation.



 



 



Year Ending December 31,

2019 (excluding the six months ended June 30, 2019)

368 
2020 749 
2021 682 
2022 694 
2023 589 

Thereafter

2,092 

Total future minimum lease payments

5,174 

Less imputed interest

725 

Total

4,449 



 

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2. SECURITIES



The amortized cost of securities and their approximate fair value at June 30, 20182019 and December 31, 20172018 were as follows:



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2018

 

June 30, 2019

 

(in thousands)

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortized

 

Unrealized

 

Fair

 

Amortized

 

Unrealized

 

Fair

 

Cost

 

Gains

 

Losses

 

Value

 

Cost

 

Gains

 

Losses

 

Value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available for Sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government agencies

 

$

36,906 

 

$

-    

 

$

(1,007)

 

$

35,899 

 

$

35,144 

 

$

363 

 

$

(23)

 

$

35,484 

States and political subdivisions

 

 

23,780 

 

 

95 

 

 

(66)

 

 

23,809 

 

 

3,726 

 

 

67 

 

 

(8)

 

 

3,785 

Total debt securities

 

$

60,686 

 

$

95 

 

$

(1,073)

 

$

59,708 

 

$

38,870 

 

$

430 

 

$

(31)

 

$

39,269 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FNMA

 

$

31,268 

 

$

26 

 

$

(1,049)

 

$

30,245 

 

$

34,788 

 

$

244 

 

$

(142)

 

$

34,890 

FHLMC

 

15,718 

 

14 

 

(546)

 

15,186 

 

17,533 

 

76 

 

(62)

 

17,547 

GNMA

 

1,866 

 

 

(43)

 

1,832 

 

1,538 

 

15 

 

(14)

 

1,539 

SBA

 

9,903 

 

-    

 

(365)

 

9,538 

 

13,063 

 

149 

 

(15)

 

13,197 

CMO

 

 

26,665 

 

 

-    

 

 

(1,241)

 

 

25,424 

 

 

29,209 

 

 

198 

 

 

(273)

 

 

29,134 

Total mortgage-backed securities

 

$

85,420 

 

$

49 

 

$

(3,244)

 

$

82,225 

 

$

96,131 

 

$

682 

 

$

(506)

 

$

96,307 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total securities designated as available for sale

 

$

146,106 

 

$

144 

 

$

(4,317)

 

$

141,933 

 

$

135,001 

 

$

1,112 

 

$

(537)

 

$

135,576 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Held to Maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

States and political subdivisions

 

$

4,637 

 

$

 

$

(36)

 

$

4,609 

 

$

1,862 

 

$

25 

 

$

(2)

 

$

1,885 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total securities designated as held to maturity

 

$

4,637 

 

$

 

$

(36)

 

$

4,609 

 

$

1,862 

 

$

25 

 

$

(2)

 

$

1,885 





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2017

 

December 31, 2018

 

(in thousands)

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortized

 

Unrealized

 

Fair

 

Amortized

 

Unrealized

 

Fair

 

Cost

 

Gains

 

Losses

 

Value

 

Cost

 

Gains

 

Losses

 

Value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available for Sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government agencies

 

$

28,407 

 

$

22 

 

$

(376)

 

$

28,053 

 

$

34,597 

 

$

 

$

(671)

 

$

33,928 

States and political subdivisions

 

 

29,169 

 

 

246 

 

 

(42)

 

 

29,373 

 

 

22,168 

 

 

69 

 

 

(64)

 

 

22,173 

Total debt securities

 

$

57,576 

 

$

268 

 

$

(418)

 

$

57,426 

 

$

56,765 

 

$

71 

 

$

(735)

 

$

56,101 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FNMA

 

$

31,835 

 

$

69 

 

$

(350)

 

$

31,554 

 

$

27,747 

 

$

21 

 

$

(729)

 

$

27,039 

FHLMC

 

14,708 

 

22 

 

(190)

 

14,540 

 

14,645 

 

11 

 

(431)

 

14,225 

GNMA

 

2,105 

 

18 

 

(21)

 

2,102 

 

1,660 

 

 

(36)

 

1,630 

SBA

 

10,309 

 

 

(103)

 

10,215 

 

9,432 

 

-    

 

(299)

 

9,133 

CMO

 

 

28,699 

 

 

26 

 

 

(744)

 

 

27,981 

 

 

25,025 

 

 

 

 

(1,055)

 

 

23,976 

Total mortgage-backed securities

 

$

87,656 

 

$

144 

 

$

(1,408)

 

$

86,392 

 

$

78,509 

 

$

44 

 

$

(2,550)

 

$

76,003 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total securities designated as available for sale

 

$

145,232 

 

$

412 

 

$

(1,826)

 

$

143,818 

 

$

135,274 

 

$

115 

 

$

(3,285)

 

$

132,104 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Held to Maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

States and political subdivisions

 

$

5,334 

 

$

 

$

(74)

 

$

5,261 

 

$

1,685 

 

$

11 

 

$

(22)

 

$

1,674 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total securities designated as held to maturity

 

$

5,334 

 

$

 

$

(74)

 

$

5,261 

 

$

1,685 

 

$

11 

 

$

(22)

 

$

1,674 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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Available for sale securities with a total fair value of $142$109 million and $138$94 million at June 30, 20182019 and December 31, 2017,2018, respectively, were pledged as collateral to secure public deposits and for other purposes required or permitted by law.

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The scheduled maturities of debt and mortgage-backed securities at June 30, 20182019 and December 31, 20172018 are summarized below.  All maturity amounts are contractual maturities.  Actual maturities may differ from contractual maturities because certain issuers have the right to call or prepay obligations with or without call premiums.



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2018

 

December 31, 2017

 

June  30, 2019

 

December 31, 2018

 

Amortized

 

Estimated

 

Amortized

 

Estimated

 

Amortized

 

Estimated

 

Amortized

 

Estimated

 

cost

 

fair value

 

cost

 

fair value

 

cost

 

fair value

 

cost

 

fair value

 

 

(in thousands)

 

 

(in thousands)

 

 

(in thousands)

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt securities available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Due in one year or less

 

$

7,736 

 

$

7,746 

 

$

5,974 

 

$

5,990 

 

$

2,000 

 

$

1,989 

 

$

5,074 

 

$

5,075 

Due after one year through five years

 

 

22,959 

 

 

22,732 

 

 

24,063 

 

 

24,068 

 

 

8,460 

 

 

8,480 

 

 

22,637 

 

 

22,448 

Due after five years through ten years

 

 

29,667 

 

 

28,899 

 

 

25,584 

 

 

25,385 

 

 

28,261 

 

 

28,650 

 

 

28,870 

 

 

28,391 

Due after ten years

 

 

324 

 

 

331 

 

 

1,955 

 

 

1,983 

 

 

149 

 

 

150 

 

 

184 

 

 

187 

 

 

60,686 

 

 

59,708 

 

 

57,576 

 

 

57,426 

 

 

38,870 

 

 

39,269 

 

 

56,765 

 

 

56,101 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

available for sale

 

 

85,420 

 

 

82,225 

 

 

87,656 

 

 

86,392 

 

 

96,131 

 

 

96,307 

 

 

78,509 

 

 

76,003 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total available for sale securities

 

$

146,106 

 

$

141,933 

 

$

145,232 

 

$

143,818 

Total

 

$

135,001 

 

$

135,576 

 

$

135,274 

 

$

132,104 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt securities held to maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Due in one year or less

 

$

3,432 

 

$

3,430 

 

$

4,077 

 

$

4,053 

 

$

733 

 

$

735 

 

$

693 

 

$

693 

Due after one year through five years

 

 

883 

 

 

870 

 

 

690 

 

 

661 

 

 

978 

 

 

999 

 

 

811 

 

 

811 

Due after five years through ten years

 

 

228 

 

 

223 

 

 

473 

 

 

464 

 

 

63 

 

 

62 

 

 

93 

 

 

89 

Due after ten years

 

 

94 

 

 

86 

 

 

94 

 

 

83 

 

 

88 

 

 

89 

 

 

88 

 

 

81 

Total

 

$

1,862 

 

$

1,885 

 

$

1,685 

 

$

1,674 

 

 

4,637 

 

 

4,609 

 

 

5,334 

 

 

5,261 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total held to maturity securities

 

$

4,637 

 

$

4,609 

 

$

5,334 

 

$

5,261 



Contractual maturities of the Company’s mortgage-backed securities generally exceed ten years; however, the effective lives may be significantly shorter due to prepayments of the underlying loans and due to the nature of these securities.



Information regarding unrealized losses within the Company’s available for sale and held to maturity securities at June 30, 20182019 and December 31, 20172018 is summarized below.  The securities are primarily U.S. government-guaranteed agency securities or municipal securities. All unrealized losses are considered temporary and are related to market interest rate fluctuations.



11

 


 

Table of Contents



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2018

 

June 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less than 12 months

 

 

12 months or longer

 

 

Total

 

 

Less than 12 months

 

 

12 months or longer

 

 

Total

 

 

Fair

 

 

Unrealized

 

 

Fair

 

 

Unrealized

 

 

Fair

 

 

Unrealized

 

 

Fair

 

 

Unrealized

 

 

Fair

 

 

Unrealized

 

 

Fair

 

 

Unrealized

 

 

Value

 

 

Losses

 

 

Value

 

 

Losses

 

 

Value

 

 

Losses

 

 

Value

 

 

Losses

 

 

Value

 

 

Losses

 

 

Value

 

 

Losses

 

 

(in thousands)

 

 

(in thousands)

Available for Sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government agencies

 

$

19,509 

 

$

(488)

 

$

12,390 

 

$

(519)

 

$

31,899 

 

$

(1,007)

 

$

-    

 

$

-    

 

$

5,971 

 

$

(23)

 

$

5,971 

 

$

(23)

States and political subdivisions

 

 

10,390 

 

 

(50)

 

 

891 

 

 

(16)

 

 

11,281 

 

 

(66)

 

 

-    

 

 

-    

 

 

181 

 

 

(8)

 

 

181 

 

 

(8)

Total debt securities

 

$

29,899 

 

$

(538)

 

$

13,281 

 

$

(535)

 

$

43,180 

 

$

(1,073)

 

$

-    

 

$

-    

 

$

6,152 

 

$

(31)

 

$

6,152 

 

$

(31)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FNMA

 

$

18,978 

 

$

(588)

 

$

10,456 

 

$

(461)

 

$

29,434 

 

$

(1,049)

 

$

2,001 

 

$

(4)

 

$

14,080 

 

$

(138)

 

$

16,081 

 

$

(142)

FHLMC

 

12,056 

 

(417)

 

2,627 

 

 

(129)

 

 

14,683 

 

(546)

 

-    

 

-    

 

7,273 

 

 

(62)

 

 

7,273 

 

(62)

GNMA

 

-    

 

-    

 

1,046 

 

 

(43)

 

 

1,046 

 

(43)

 

-    

 

-    

 

772 

 

 

(14)

 

 

772 

 

(14)

SBA

 

5,467 

 

(197)

 

4,070 

 

 

(168)

 

 

9,537 

 

(365)

 

-    

 

-    

 

1,592 

 

 

(15)

 

 

1,592 

 

(15)

CMO

 

 

10,217 

 

 

(376)

 

 

15,208 

 

 

(865)

 

 

25,425 

 

 

(1,241)

 

 

-    

 

 

-    

 

 

16,008 

 

 

(273)

 

 

16,008 

 

 

(273)

Total mortgage-backed securities

 

$

46,718 

 

$

(1,578)

 

$

33,407 

 

$

(1,666)

 

$

80,125 

 

$

(3,244)

 

$

2,001 

 

$

(4)

 

$

39,725 

 

$

(502)

 

$

41,726 

 

$

(506)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Held to Maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

States and political subdivisions

 

$

3,734 

 

$

(6)

 

$

583 

 

$

(30)

 

$

4,317 

 

$

(36)

 

$

-    

 

$

-    

 

$

507 

 

$

(2)

 

$

507 

 

$

(2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total temporarily impaired

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

securities

 

$

80,351 

 

$

(2,122)

 

$

47,271 

 

$

(2,231)

 

$

127,622 

 

$

(4,353)

 

$

2,001 

 

$

(4)

 

$

46,384 

 

$

(535)

 

$

48,385 

 

$

(539)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less than 12 months

 

 

12 months or longer

 

 

Total

 

 

Fair

 

 

Unrealized

 

 

Fair

 

 

Unrealized

 

 

Fair

 

 

Unrealized

 

 

Value

 

 

Losses

 

 

Value

 

 

Losses

 

 

Value

 

 

Losses

 

 

(in thousands)

Available for Sale:

 

 

 

 

 

 

 

 

 

 

 

 

Debt securities:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government agencies

 

$

9,931 

 

$

(49)

 

$

21,144 

 

$

(622)

 

$

31,075 

 

$

(671)

States and political subdivisions

 

 

5,218 

 

 

(15)

 

 

6,893 

 

 

(49)

 

 

12,111 

 

 

(64)

Total debt securities

 

$

15,149 

 

$

(64)

 

$

28,037 

 

$

(671)

 

$

43,186 

 

$

(735)

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities:

 

 

 

 

 

 

 

 

 

 

 

 

FNMA

 

$

2,637 

 

$

(21)

 

$

23,667 

 

$

(708)

 

$

26,304 

 

$

(729)

FHLMC

 

1,895 

 

(25)

 

11,899 

 

 

(406)

 

 

13,794 

 

(431)

GNMA

 

-    

 

-    

 

926 

 

 

(36)

 

 

926 

 

(36)

SBA

 

-    

 

-    

 

9,133 

 

 

(299)

 

 

9,133 

 

(299)

CMO

 

 

-    

 

 

-    

 

 

23,127 

 

 

(1,055)

 

 

23,127 

 

 

(1,055)

Total mortgage-backed securities

 

$

4,532 

 

$

(46)

 

$

68,752 

 

$

(2,504)

 

$

73,284 

 

$

(2,550)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Held to Maturity:

 

 

 

 

 

 

 

 

 

 

 

 

Debt securities:

 

 

 

 

 

 

 

 

 

 

 

 

States and political subdivisions

 

$

156 

 

$

-    

 

$

722 

 

$

(22)

 

$

878 

 

$

(22)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total temporarily impaired

 

 

 

 

 

 

 

 

 

 

 

 

securities

 

$

19,837 

 

$

(110)

 

$

97,511 

 

$

(3,197)

 

$

117,348 

 

$

(3,307)











 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

December 31, 2017



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

Less than 12 months

 

 

12 months or longer

 

 

Total



 

 

Fair

 

 

Unrealized

 

 

Fair

 

 

Unrealized

 

 

Fair

 

 

Unrealized



 

 

Value

 

 

Losses

 

 

Value

 

 

Losses

 

 

Value

 

 

Losses



 

 

(in thousands)

Available for Sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government agencies

 

$

15,151 

 

$

(239)

 

$

6,863 

 

$

(137)

 

$

22,014 

 

$

(376)

States and political subdivisions

 

 

7,288 

 

 

(28)

 

 

894 

 

 

(14)

 

 

8,182 

 

 

(42)

Total debt securities

 

$

22,439 

 

$

(267)

 

$

7,757 

 

$

(151)

 

$

30,196 

 

$

(418)



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FNMA

 

$

20,087 

 

$

(207)

 

$

6,517 

 

$

(143)

 

$

26,604 

 

$

(350)

FHLMC

 

 

12,984 

 

 

(147)

 

 

960 

 

 

(43)

 

 

13,944 

 

 

(190)

GNMA

 

 

-    

 

 

-    

 

 

1,212 

 

 

(21)

 

 

1,212 

 

 

(21)

SBA

 

 

4,516 

 

 

(43)

 

 

1,769 

 

 

(60)

 

 

6,285 

 

 

(103)

CMO

 

 

11,023 

 

 

(216)

 

 

14,753 

 

 

(528)

 

 

25,776 

 

 

(744)

Total mortgage-backed securities

 

$

48,610 

 

$

(613)

 

$

25,211 

 

$

(795)

 

$

73,821 

 

$

(1,408)



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Held to Maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

States and political subdivisions

 

$

4,548 

 

$

(37)

 

$

626 

 

$

(37)

 

$

5,174 

 

$

(74)



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total temporarily impaired

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

securities

 

$

75,597 

 

$

(917)

 

$

33,594 

 

$

(983)

 

$

109,191 

 

$

(1,900)





12

 


 

Table of Contents



Management has assessed the securities available for sale in an unrealized loss position at June 30, 20182019 and December 31, 20172018 and determined the decline in fair value below amortized cost to be temporary.  In making this determination, management considered the period of time the securities were in a loss position, the percentage decline in comparison to the securities’ amortized cost, and the financial condition of the issuer (primarily government or government-sponsored enterprises).  In addition, management does not intend to sell these securities and it is not more likely than not that the Company will be required to sell these securities before recovery of their amortized cost.  Management believes the decline in fair value is primarily related to market interest rate fluctuations and not to the credit deterioration of the individual issuers.



The Company has not recorded any other-than-temporary impairment (“OTTI”) charges as of June 30, 20182019 and did not record any OTTI charges during 2017.2018.  The credit worthiness of the Company’s securities portfolio is largely reliant on the ability of U.S. government sponsored agencies such as FHLB,Federal Home Loan Bank (“FHLB”), Federal National Mortgage Association (“FNMA”), Government National Mortgage Association (“GNMA”), and Federal Home Loan Mortgage Corporation (“FHLMC”), and municipalities throughout New York State to meet their obligations.  In addition, dysfunctional markets could materially alter the liquidity, interest rate, and pricing risk of the portfolio.  The stable past performance is not a guarantee for similar performance of the Company’s securities portfolio in future periods.





3.  FAIR VALUE MEASUREMENTSMEASUREMENT



Fair value is defined in ASC Topic 820 “Fair Value Measurements”Measurement” as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.



There are three levels of inputs to fair value measurements:measurement:



 

 

 



 

 

Level 1 inputs are quoted prices for identical instruments in active markets;



 

 

Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly; and





 

Level 3 inputs are unobservable inputs.



Observable market data should be used when available.



FINANCIAL INSTRUMENTS MEASURED AT FAIR VALUE ON A RECURRING BASIS



The following table presents, for each of the fair-value hierarchy levels as defined in this footnote, those financial instruments which are measured at fair value on a recurring basis as of June 30, 20182019 and December 31, 2017,2018, respectively:







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Fair Value

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Fair Value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2018

 

 

 

 

 

 

 

 

Securities available-for-sale:

 

 

 

 

 

 

 

 

US government agencies

 

$

-    

 

$

35,899 

 

$

-    

 

$

35,899 

States and political subdivisions

 

-    

 

 

23,809 

 

-    

 

 

23,809 

Mortgage-backed securities

 

-    

 

 

82,225 

 

-    

 

 

82,225 

Equity securities

 

-    

 

 

-    

 

 

2,058 

 

2,058 

Mortgage servicing rights

 

-    

 

 

-    

 

 

635 

 

635 

 

 

 

 

 

 

 

 

December 31, 2017

 

 

 

 

 

 

 

 

June 30, 2019

 

 

 

 

 

 

 

 

Securities available-for-sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

US government agencies

 

$

-    

 

$

28,053 

 

$

-    

 

$

28,053 

 

$

-    

 

$

35,484 

 

$

-    

 

$

35,484 

States and political subdivisions

 

-    

 

 

29,373 

 

-    

 

 

29,373 

 

-    

 

 

3,785 

 

-    

 

 

3,785 

Mortgage-backed securities

 

-    

 

 

86,392 

 

-    

 

 

86,392 

 

-    

 

 

96,307 

 

-    

 

 

96,307 

Mortgage servicing rights

 

-    

 

 

-    

 

 

586 

 

586 

 

-    

 

 

-    

 

 

570 

 

570 

 

 

 

 

 

 

 

 

December 31, 2018

 

 

 

 

 

 

 

 

Securities available-for-sale:

 

 

 

 

 

 

 

 

US government agencies

 

$

-    

 

$

33,928 

 

$

-    

 

$

33,928 

States and political subdivisions

 

-    

 

 

22,173 

 

-    

 

 

22,173 

Mortgage-backed securities

 

-    

 

 

76,003 

 

-    

 

 

76,003 

Mortgage servicing rights

 

-    

 

 

-    

 

 

609 

 

609 



13

 


 

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Securities available for sale



Fair values for securities are determined using independent pricing services and market-participating brokers.  The Company’s independent pricing service utilizes evaluated pricing models that vary by asset class and incorporate available trade, bid and other market information for structured securities, cash flow and, when available, loan performance data.  Because many fixed income securities do not trade on a daily basis, the evaluated pricing applications apply information as applicable through processes, such as benchmarking of like securities, sector groupings, and matrix pricing, to prepare evaluations.  In addition, model processes, such as the Option Adjusted Spread model, are used to assess interest rate impact and develop prepayment scenarios.  The models and the process take into account market convention.  For each asset class, a team of evaluators gathers information from market sources and integrates relevant credit information, perceived market movements and sector news into the evaluated pricing applications and models.  The company’sCompany’s service provider may occasionally determine that it does not have sufficient verifiable information to value a particular security.  In these cases the Company will utilize valuations from another pricing service.



Management believes that it has a sufficient understanding of the third party service’s valuation models, assumptions and inputs used in determining the fair value of securities to enable management to maintain an appropriate system of internal control.  On a quarterly basis, the Company reviews changes in the market value of its security portfolio.  Individual changes in valuations are reviewed for consistency with general interest rate movements and any known credit concerns for specific securities.  Additionally, on an annual basis, the Company has its entire security portfolio priced by a second pricing service to determine consistency with another market evaluator.  If, during the Company’s review or when comparing with another servicer, a material difference between pricing evaluations were to exist, the Company would submit an inquiry to the service provider regarding the data used to value a particular security.  If the Company determines it has market information that would support a different valuation than the initial evaluation it can submit a challenge for a change to that security’s valuation.



Securities available for sale are classified as Level 2 in the fair value hierarchy as the valuation provided by the third-party provider uses observable market data.

Equity securities

The Company holds equity securities in another financial institution.  Since the ownership level is less than 5% of the outstanding shares of the bank, the investment was recorded on the Company’s balance sheet at historical cost, under the cost method of accounting, as of December 31, 2017.  As noted in Note 1 to the Unaudited Consolidated Financial Statements, on January 1, 2018, the Company adopted ASU 2016-01, which resulted in the Company adopting an accounting policy to mark the investment to its fair value with a cumulative-effect adjustment to retained earnings.  As of the end of each reporting period presented after January 1,  2018, equity securities will be presented at fair value, with changes in fair value during the period being recorded in the income statement.

The equity securities are classified as Level 3 in the fair value hierarchy because the primary inputs in measuring the fair value are unobservable to the public.  The shares of the institution are not publicly traded on a major stock exchange, but rather through private sales between shareholders.  Trading in the securities is fairly limited as the institution’s total trading volume for 2017 was approximately 1% of the outstanding common shares.  Trading activity in the first six months of 2018 was at a similar low volume.  The institution tracks the sales and the Company obtains the sales information from the institution to calculate the fair value of the equity securities as of the end of the reporting period.  The fair value recorded in the financial statements is based on observable prices obtained from the latest orderly transactions in the quarter.

Due to the adoption of ASU 2016-01 and the designation of the equity securities as Level 3 on the fair value hierarchy, there was a transfer into Level 3 for the equity securities during the first quarter of 2018.  



 

 

 

 

 

 



 

 

 

 

 

 



 

Three months ended June 30,

(in thousands)

 

2018

 

2017

Equity securities - April 1

 

$

1,961 

 

$

580 

Fair value change included in earnings

 

 

97 

 

 

 -

Equity securities - June 30

 

$

2,058 

 

$

580 

14

 


 

Table of Contents



 

Six months ended June 30,

(in thousands)

 

2018

 

2017

Equity securities - December 31

 

$

580 

 

$

580 

Increase in recorded value due to adoption of ASU 2016-01 through beginning retained earnings

 

 

1,234 

 

 

 -

Fair value change included in earnings

 

 

244 

 

 

 -

Equity securities - June 30

 

$

2,058 

 

$

580 



Mortgage servicing rights



Mortgage servicing rights (“MSRs”) do not trade in an active, open market with readily observable prices.  Accordingly, the Company obtains the fair value of the MSRs using a third-party pricing provider.  The provider determines the fair value by discounting projected net servicing cash flows of the remaining servicing portfolio.  The valuation model used by the provider considers market loan prepayment predictions and other economic factors which management considers to be significant unobservable inputs.  The fair value of MSRs is mostly affected by changes in mortgage interest rates since rate changes cause the loan prepayment acceleration factors to increase or decrease.  Management has a sufficient understanding of the third party service’s valuation models, assumptions and inputs used in determining the fair value of MSRs to enable management to maintain an appropriate system of internal control.  Mortgage servicing rightsMSRs are classified within Level 3 of the fair value hierarchy as the valuation is model driven and primarily based on unobservable inputs.



The following table summarizes the changes in fair value for mortgage servicing rights during the three and six month periods ended June 30, 2018 and 2017, respectively:MSRs:



 

 

 

 

 

 



 

 

 

 

 

 



 

Three months ended June 30,

(in thousands)

 

2018

 

2017

Mortgage servicing rights - April 1

 

$

644 

 

$

564 

Losses included in earnings

 

 

(9)

 

 

(32)

Additions from loan sales

 

 

 -

 

 

23 

Mortgage servicing rights - June 30

 

$

635 

 

$

555 







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six months ended June 30,

 

Three months ended June 30,

(in thousands)

 

2018

 

2017

 

2019

 

2018

Mortgage servicing rights - January 1

 

$

586 

 

$

527 

Mortgage servicing rights - April 1

 

$

587 

 

$

644 

Gains/(Losses) included in earnings

 

 

49 

 

 

(21)

 

 

(43)

 

 

(9)

Additions from loan sales

 

 

 -

 

 

49 

 

 

26 

 

 

 -

Mortgage servicing rights - June 30

 

$

635 

 

$

555 

 

$

570 

 

$

635��



15



 

 

 

 

 

 



 

Six months ended June 30,

(in thousands)

 

2019

 

2018

Mortgage servicing rights - January 1

 

$

609 

 

$

586 

Gains/(Losses) included in earnings

 

 

(84)

 

 

49 

Additions from loan sales

 

 

45 

 

 

 -

Mortgage servicing rights - June 30

 

$

570 

 

$

635 




Table of Contents



Quantitative information about the significant unobservable inputs used in the fair value measurement of MSRs at the respective dates is as follows:







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2018

 

December 31, 2017

 

June 30, 2019

 

December 31, 2018

Servicing fees

 

0.25 

%

 

0.25 

%

 

0.25 

%

 

0.25 

%

Discount rate

 

9.50 

%

 

9.50 

%

 

9.00 

%

 

9.00 

%

Prepayment rate (CPR)

 

8.07 

%

 

10.56 

%

 

8.00 

%

 

6.52 

%



15


Table of Contents



FINANCIAL INSTRUMENTS MEASURED AT FAIR VALUE ON A NONRECURRING BASIS



The Company is required, on a nonrecurring basis, to adjust the carrying value of certain assets or provide valuation allowances related to certain assets using fair value measurements.  The following table presents for each of the fair-value hierarchy levels as defined in this footnote, those financial instruments which are measured at fair value on a nonrecurring basis at June 30, 20182019 and December 31, 2017:2018:







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Fair Value

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Fair Value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2018

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

Collateral dependent impaired loans

 

$

-    

 

$

-    

 

$

24,125 

 

$

24,125 

 

$

-    

 

$

-    

 

$

12,890 

 

$

12,890 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2017

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

Collateral dependent impaired loans

 

$

-    

 

$

-    

 

$

14,464 

 

$

14,464 

 

$

-    

 

$

-    

 

$

20,590 

 

$

20,590 



Collateral dependent impaired loans



The Company evaluates and values impaired loans at the time the loan is identified as impaired, and the fair values of such loans are estimated using Level 3 inputs in the fair value hierarchy.  Each loan’s collateral has a unique appraisal and management’s discount of the value is based on factors unique to each impaired loan.  The significant unobservable input in determining the fair value is management’s subjective discount on appraisals of the collateral securing the loan.  Collateral may consist of real estate and/or business assets including equipment, inventory and/or accounts receivable and the value of these assets is determined based on appraisals by qualified licensed appraisers hired by the Company.  Appraised and reported values may be discounted based on management’s historical knowledge, changes in market conditions from the time of valuation, estimated costs to sell, and/or management’s expertise and knowledge of the client and the client’s business.

16


Table of Contents



The Company has an appraisal policy in which appraisals are obtained upon a commercial loan being downgraded on the Company’s internal loan rating scale to a special mention or a substandard depending on the amount of the loan, the type of loan and the type of collateral.  All impaired commercial loans are either graded as substandard or doubtfulworse on the internal loan rating scale.  For consumer loans, the Company obtains appraisals when a loan becomes 90 days past due or is determined to be impaired, whichever occurs first.  Subsequent to the downgrade or reaching 90 days past due, if the loan remains outstanding and impaired for at least one year more, management may require another follow-up appraisal.  Between receipts of updated appraisals, if necessary, management may perform an internal valuation based on any known changing conditions in the marketplace such as sales of similar properties, a change in the condition of the collateral, or feedback from local appraisers.  ImpairedCollateral dependent impaired loans had a gross value of $25.5$13.3 million, with an allowance for loan loss of $1.4 million,$361 thousand, at June 30, 20182019 compared with $15.5$21.7 million and $1.1 million, respectively, at December 31, 2017.

162018.




Table of Contents

FAIR VALUE OF FINANCIAL INSTRUMENTS

With the adoption of ASU 2016-01, the Company is no longer required to disclose the methods and significant assumptions used in estimating the fair value of financial instruments measured at amortized cost on the balance sheet.  The amendments in the ASU also require the Company to measure the fair value of financial instruments using the exit price notion consistent with ASC Topic 820, Fair Value Measurement.  Prior to adoption on January 1, 2018, loans were calculated using an entry price notion.



The table below depicts the estimated fair values of the Company’s financial instruments, including those that are not measured and reported at fair value on a recurring basis or nonrecurring basis.









 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

June 30, 2018

 

December 31, 2017



 

Carrying

 

Fair

 

Carrying

 

Fair



 

Amount

 

Value

 

Amount

 

Value



 

 

(in thousands)

 

 

(in thousands)

Financial assets:

 

 

 

 

 

 

 

 

 

 

 

 

Level 1:

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

16,765 

 

$

16,765 

 

$

21,330 

 

$

21,330 

Equity securities

 

 

2,058 

 

 

2,058 

 

 

580 

 

 

1,814 

Level 2:

 

 

 

 

 

 

 

 

 

 

 

 

Available for sale securities

 

 

141,933 

 

 

141,933 

 

 

143,818 

 

 

143,818 

FHLB and FRB stock

 

 

3,399 

 

 

3,399 

 

 

6,779 

 

 

6,779 

Level 3:

 

 

 

 

 

 

 

 

 

 

 

 

Held to maturity securities

 

 

4,637 

 

 

4,609 

 

 

5,334 

 

 

5,261 

Loans, net

 

 

1,110,660 

 

 

1,098,879 

 

 

1,051,296 

 

 

1,047,967 

Mortgage servicing rights

 

 

635 

 

 

635 

 

 

586 

 

 

586 



 

 

 

 

 

 

 

 

 

 

 

 

Financial liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Level 1:

 

 

 

 

 

 

 

 

 

 

 

 

Demand deposits

 

$

224,373 

 

$

224,373 

 

$

219,664 

 

$

219,664 

NOW deposits

 

 

121,170 

 

 

121,170 

 

 

109,378 

 

 

109,378 

Savings deposits

 

 

595,500 

 

 

595,500 

 

 

535,730 

 

 

535,730 

Level 2:

 

 

 

 

 

 

 

 

 

 

 

 

Securities sold under agreement to

 

 

 

 

 

 

 

 

 

 

 

 

repurchase

 

 

4,018 

 

 

4,018 

 

 

9,289 

 

 

9,289 

Other borrowed funds

 

 

10,000 

 

 

9,806 

 

 

88,250 

 

 

88,132 

Junior subordinated debentures

 

 

11,330 

 

 

11,330 

 

 

11,330 

 

 

11,330 

Level 3:

 

 

 

 

 

 

 

 

 

 

 

 

Time deposits

 

 

241,425 

 

 

239,448 

 

 

186,457 

 

 

187,782 





 

 

 

 

 

 

 

 

 

 

 

 



 

June 30, 2019

 

December 31, 2018



 

Carrying

 

Fair

 

Carrying

 

Fair



 

Amount

 

Value

 

Amount

 

Value



 

 

(in thousands)

 

 

(in thousands)

Financial assets:

 

 

 

 

 

 

 

 

 

 

 

 

Level 1:

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

59,639 

 

$

59,639 

 

$

39,915 

 

$

39,915 

Level 2:

 

 

 

 

 

 

 

 

 

 

 

 

Available for sale securities

 

 

135,576 

 

 

135,576 

 

 

132,104 

 

 

132,104 

FHLB and FRB stock

 

 

3,532 

 

 

3,532 

 

 

3,403 

 

 

3,403 

Level 3:

 

 

 

 

 

 

 

 

 

 

 

 

Held to maturity securities

 

 

1,862 

 

 

1,885 

 

 

1,685 

 

 

1,674 

Loans, net

 

 

1,197,451 

 

 

1,204,513 

 

 

1,141,146 

 

 

1,131,891 

Mortgage servicing rights

 

 

570 

 

 

570 

 

 

609 

 

 

609 



 

 

 

 

 

 

 

 

 

 

 

 

Financial liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Level 1:

 

 

 

 

 

 

 

 

 

 

 

 

Demand deposits

 

$

243,860 

 

$

243,860 

 

$

231,902 

 

$

231,902 

NOW deposits

 

 

145,620 

 

 

145,620 

 

 

110,450 

 

 

110,450 

Savings deposits

 

 

603,180 

 

 

603,180 

 

 

571,479 

 

 

571,479 

Level 2:

 

 

 

 

 

 

 

 

 

 

 

 

Securities sold under agreement to

 

 

 

 

 

 

 

 

 

 

 

 

repurchase

 

 

3,968 

 

 

3,968 

 

 

3,142 

 

 

3,142 

Other borrowed funds

 

 

10,000 

 

 

9,961 

 

 

10,000 

 

 

9,854 

Junior subordinated debentures

 

 

11,330 

 

 

11,330 

 

 

11,330 

 

 

11,330 

Level 3:

 

 

 

 

 

 

 

 

 

 

 

 

Time deposits

 

 

290,251 

 

 

290,405 

 

 

301,227 

 

 

298,999 



17

 


 

Table of Contents



4. LOANS AND THE ALLOWANCE FOR LOAN LOSSES



Loan Portfolio Composition

The following table presents selected information on the composition of the Company’s loan portfolio as of the dates indicated:







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2018

 

December 31, 2017

 

June 30, 2019

 

December 31, 2018

Mortgage loans on real estate:

 

(in thousands)

 

(in thousands)

Residential mortgages

 

$

146,076 

 

$

131,208 

 

$

159,450 

 

$

158,404 

Commercial and multi-family

 

552,023 

 

 

519,902 

 

623,049 

 

 

592,507 

Construction-Residential

 

587 

 

 

2,134 

 

479 

 

 

113 

Construction-Commercial

 

115,519 

 

 

107,274 

 

88,300 

 

 

105,196 

Home equities

 

 

69,319 

 

 

69,745 

 

 

70,751 

 

 

70,546 

Total real estate loans

 

 

883,524 

 

 

830,263 

 

 

942,029 

 

 

926,766 

 

 

 

 

 

 

��

 

 

 

Commercial and industrial loans

 

239,485 

 

 

232,211 

 

267,505 

 

 

226,057 

Consumer and other loans

 

1,447 

 

 

1,654 

 

1,527 

 

 

1,520 

Net deferred loan origination costs

 

 

1,439 

 

 

1,187 

 

 

1,638 

 

 

1,587 

Total gross loans

 

 

1,125,895 

 

 

1,065,315 

 

 

1,212,699 

 

 

1,155,930 

 

 

 

 

 

 

 

 

 

 

Allowance for loan losses

 

(15,235)

 

 

(14,019)

 

(15,248)

 

 

(14,784)

 

 

 

 

 

 

 

 

 

 

 

 

Loans, net

 

$

1,110,660 

 

$

1,051,296 

 

$

1,197,451 

 

$

1,141,146 





The Bank sells certain fixed rate residential mortgages to FNMA while maintaining the servicing rights for those mortgages.  In the three month periodand six month periods ended June 30, 2018,2019, the Bank did not sell anysold mortgages to FNMA compared with $2.5totaling $2.6 million in the three month period ended June 30, 2017.and $4.6 million, respectively.  The Bank did not sell any mortgages to FNMA duringin the three month and six month periodperiods ended June 30, 2018, compared with $5.3 million during the six month period ended2018.  At June 30, 2017.  At June 30,2019 and December 31, 2018, the Bank had a loan servicing portfolio principal balance of $74 million and $73 million, respectively, upon which it earned servicing fees, compared with $78 million at December 31, 2017.fees.  The value of the mortgage servicing rights for that portfolio was $0.6 million at each of the periods June 30, 20182019 and December 31, 2017.2018.  No loans were held for sale at June 30, 2018 or2019.  At December 31, 2017.2018 there were $0.4 million in residential mortgages held for sale.  The Company has never been contacted by FNMA to repurchase any loans due to improper documentation or fraud.

The Company did not hold any foreclosed residential real estate property at June 30, 2018 or December 31, 2017.  There were $0.7 million and $0.3 million at June 30, 2018 and December 31, 2017, respectively, in loans secured by residential real estate that were in the process of foreclosure.



As noted in Note 1, these financial statements should be read in conjunction with the Audited Consolidated Financial Statements and the Notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2017.2018.  Disclosures related to the basis for accounting for loans, the method for recognizing interest income on loans, the policy for placing loans on nonaccrual status and the subsequent recording of payments and resuming accrual of interest, the policy for determining past due status, a description of the Company’s accounting policies and methodology used to estimate the allowance for loan losses, the policy for charging-off loans, the accounting policies for impaired loans, and more descriptive information on the Company’s credit risk ratings are all contained in the Notes to the Audited Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.2018.  Unless otherwise noted in this Form 10-Q, the policies and methodology described in the Annual Report for the year ended December 31, 20172018 are consistent with those utilized by the Company in the three and six month periods ended June 30, 2018.2019.



18

 


 

Table of Contents



Credit Quality Indicators



The Bank monitors the credit risk in its loan portfolio by reviewing certain credit quality indicators (“CQI”).  The primary CQI for its commercial mortgage and commercial and industrial (“C&I”) portfolios is the individual loan’s credit risk rating.  The following list provides a description of the credit risk ratings that are used internally by the Bank when assessing the adequacy of its allowance for loan losses:



·

Acceptable or better

·

Watch

·

Special Mention

·

Substandard

·

Doubtful

·

Loss



The Company’s consumer loans, including residential mortgages and home equities, are not individually risk rated or reviewed in the Company’s loan review process.  Unlike commercial customers, consumer loan customers are not required to provide the Company with updated financial information.  Consumer loans also carry smaller balances.  Given the lack of updated information after the initial underwriting of the loan and small size of individual loans, the Company uses delinquency status as the primary credit quality indicator for consumer loans.  However, once a consumer loan is identified as impaired, it is individually evaluated for impairment.



The following tables provide data, at the class level, of credit quality indicators of certain loans for the dates specified:







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2018

June 30, 2019

June 30, 2019

(in thousands)

(in thousands)

(in thousands)

Corporate Credit Exposure – By Credit Rating

 

Commercial Real Estate Construction

 

Commercial and Multi-Family Mortgages

 

Total Commercial Real Estate

 

Commercial and Industrial

 

Commercial Real Estate Construction

 

Commercial and Multi-Family Mortgages

 

Total Commercial Real Estate

 

Commercial and Industrial

Acceptable or better

 

$

65,378 

 

$

439,190 

 

$

504,568 

 

$

174,153 

 

$

57,310 

 

$

467,643 

 

$

524,953 

 

$

173,858 

Watch

 

 

41,166 

 

 

92,419 

 

 

133,585 

 

 

54,457 

 

 

26,382 

 

 

132,110 

 

 

158,492 

 

 

78,857 

Special Mention

 

 

-    

 

 

11,395 

 

 

11,395 

 

 

6,845 

 

 

4,329 

 

 

16,522 

 

 

20,851 

 

 

8,389 

Substandard

 

 

8,975 

 

 

9,019 

 

 

17,994 

 

 

3,324 

 

 

279 

 

 

6,774 

 

 

7,053 

 

 

6,401 

Doubtful/Loss

 

 

-    

 

 

-    

 

 

-    

 

 

706 

 

 

-    

 

 

-    

 

 

-    

 

 

-    

Total

 

$

115,519 

 

$

552,023 

 

$

667,542 

 

$

239,485 

 

$

88,300 

 

$

623,049 

 

$

711,349 

 

$

267,505 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2018

December 31, 2018

(in thousands)

(in thousands)

Corporate Credit Exposure – By Credit Rating

 

Commercial Real Estate Construction

 

Commercial and Multi-Family Mortgages

 

Total Commercial Real Estate

 

Commercial and Industrial

Acceptable or better

 

$

65,932 

 

$

466,294 

 

$

532,226 

 

$

155,687 

Watch

 

 

30,628 

 

 

109,409 

 

 

140,037 

 

 

57,366 

Special Mention

 

 

-    

 

 

10,583 

 

 

10,583 

 

 

4,105 

Substandard

 

 

8,636 

 

 

6,221 

 

 

14,857 

 

 

8,870 

Doubtful/Loss

 

 

-    

 

 

-    

 

 

-    

 

 

29 

Total

 

$

105,196 

 

$

592,507 

 

$

697,703 

 

$

226,057 

 

 

 

 

 

 

 

 

 

 

 

 





 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2017

(in thousands)

Corporate Credit Exposure – By Credit Rating

 

Commercial Real Estate Construction

 

Commercial and Multi-Family Mortgages

 

Total Commercial Real Estate

 

Commercial and Industrial

Acceptable or better

 

$

83,203 

 

$

418,819 

 

$

502,022 

 

$

158,181 

Watch

 

 

24,071 

 

 

87,746 

 

 

111,817 

 

 

57,827 

Special Mention

 

 

-    

 

 

4,106 

 

 

4,106 

 

 

13,247 

Substandard

 

 

-    

 

 

9,231 

 

 

9,231 

 

 

2,134 

Doubtful/Loss

 

 

-    

 

 

-    

 

 

-    

 

 

822 

Total

 

$

107,274 

 

$

519,902 

 

$

627,176 

 

$

232,211 



19

 


 

Table of Contents



Past Due Loans

The following tables provide an analysis of the age of the recorded investment in loans that are past due as of the dates indicated:



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2018

June 30, 2019

June 30, 2019

(in thousands)

(in thousands)

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current 

 

 

 

 

 

 

 

 

 

Non-accruing

 

Total

 

Current 

 

 

 

 

 

 

 

 

 

Non-accruing

 

Total

 

Balance

30-59 days

 

60-89 days

 

90+ days

 

Loans

 

Balance

 

Balance

30-59 days

 

60-89 days

 

90+ days

 

Loans

 

Balance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial and industrial

$

235,827 

 

$

882 

 

$

300 

 

$

-    

 

$

2,476 

 

$

239,485 

$

264,346 

 

$

853 

 

$

-    

 

$

-    

 

$

2,306 

 

$

267,505 

Residential real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

144,599 

 

 

320 

 

 

-    

 

 

-    

 

 

1,157 

 

 

146,076 

 

157,580 

 

 

170 

 

 

-    

 

 

-    

 

 

1,700 

 

 

159,450 

Construction

 

587 

 

 

-    

 

 

-    

 

 

-    

 

 

-    

 

 

587 

 

479 

 

 

-    

 

 

-    

 

 

-    

 

 

-    

 

 

479 

Commercial real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

535,511 

 

 

6,425 

 

 

967 

 

 

385 

 

 

8,735 

 

 

552,023 

 

616,241 

 

 

1,129 

 

 

-    

 

 

-    

 

 

5,679 

 

 

623,049 

Construction

 

106,157 

 

 

154 

 

 

-    

 

 

233 

 

 

8,975 

 

 

115,519 

 

88,021 

 

 

-    

 

 

-    

 

 

-    

 

 

279 

 

 

88,300 

Home equities

 

67,786 

 

 

227 

 

 

57 

 

 

-    

 

 

1,249 

 

 

69,319 

 

69,415 

 

 

248 

 

 

32 

 

 

-    

 

 

1,056 

 

 

70,751 

Consumer and other

 

1,447 

 

 

-    

 

 

-    

 

 

-    

 

 

-    

 

 

1,447 

 

1,506 

 

 

21 

 

 

-    

 

 

-    

 

 

-    

 

 

1,527 

Total Loans

$

1,091,914 

 

$

8,008 

 

$

1,324 

 

$

618 

 

$

22,592 

 

$

1,124,456 

$

1,197,588 

 

$

2,421 

 

$

32 

 

$

-    

 

$

11,020 

 

$

1,211,061 



Note: Loan balances do not include $1.41.6 million in net deferred loan origination costs as of  June 30 2018., 2019.





20


Table of Contents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2017

December 31, 2018

December 31, 2018

(in thousands)

(in thousands)

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current 

 

 

 

 

 

 

 

 

 

Non-accruing

 

Total

 

Current 

 

 

 

 

 

 

 

 

 

Non-accruing

 

Total

 

Balance

30-59 days

 

60-89 days

 

90+ days

 

Loans

 

Balance

 

Balance

30-59 days

 

60-89 days

 

90+ days

 

Loans

 

Balance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial and industrial

$

225,915 

 

$

4,019 

 

$

163 

 

$

365 

 

$

1,749 

 

$

232,211 

$

217,625 

 

$

6,173 

 

$

565 

 

$

-    

 

$

1,694 

 

$

226,057 

Residential real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

129,251 

 

 

731 

 

 

-    

 

 

-    

 

 

1,226 

 

 

131,208 

 

154,063 

 

 

2,546 

 

 

332 

 

 

-    

 

 

1,463 

 

 

158,404 

Construction

 

2,134 

 

 

-    

 

 

-    

 

 

-    

 

 

-    

 

 

2,134 

 

113 

 

 

-    

 

 

-    

 

 

-    

 

 

-    

 

 

113 

Commercial real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

508,044 

 

 

2,611 

 

 

-    

 

 

309 

 

 

8,938 

 

 

519,902 

 

582,016 

 

 

4,546 

 

 

-    

 

 

-    

 

 

5,945 

 

 

592,507 

Construction

 

102,109 

 

 

3,239 

 

 

1,926 

 

 

-    

 

 

-    

 

 

107,274 

 

95,204 

 

 

1,027 

 

 

329 

 

 

-    

 

 

8,636 

 

 

105,196 

Home equities

 

68,415 

 

 

171 

 

 

40 

 

 

-    

 

 

1,119 

 

 

69,745 

 

69,094 

 

 

123 

 

 

76 

 

 

-    

 

 

1,253 

 

 

70,546 

Consumer and other

 

1,628 

 

 

11 

 

 

 

 

-    

 

 

 

 

1,654 

 

1,514 

 

 

 

 

 

 

-    

 

 

-    

 

 

1,520 

Total Loans

$

1,037,496 

 

$

10,782 

 

$

2,135 

 

$

674 

 

$

13,041 

 

$

1,064,128 

$

1,119,629 

 

$

14,420 

 

$

1,303 

 

$

-    

 

$

18,991 

 

$

1,154,343 



Note: Loan balances do not include $1.2 million$1.6 million in net deferred loan origination costs as of December 31, 2017.2018.





2120

 


 

Table of Contents



Allowance for loan losses



The following tables present the activity in the allowance for loan losses according to portfolio segment for the six month periods ended June 30, 20182019 and 2017:2018:









 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2018

June 30, 2019

June 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

 

Commercial and Industrial

 

Commercial Real Estate Mortgages*

 

Consumer and Other

 

Residential Mortgages*

 

Home Equities

 

Total

 

Commercial and Industrial

 

Commercial Real Estate Mortgages*

 

Consumer and Other

 

Residential Mortgages*

 

Home Equities

 

Total

Allowance for loan

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

5,204 

 

$

7,409 

 

$

109 

 

$

950 

 

$

347 

 

$

14,019 

 

$

4,368 

 

$

8,844 

 

$

106 

 

$

1,121 

 

$

345 

 

$

14,784 

Charge-offs

 

 

(67)

 

 

-    

 

 

(64)

 

 

(86)

 

 

(11)

 

 

(228)

 

 

(158)

 

 

-    

 

 

(54)

 

 

-    

 

 

-    

 

 

(212)

Recoveries

 

 

13 

 

 

-    

 

 

 

 

-    

 

 

 

 

18 

 

 

39 

 

 

-    

 

 

 

 

-    

 

 

-    

 

 

48 

Provision (Credit)

 

 

(809)

 

 

2,036 

 

 

41 

 

 

161 

 

 

(3)

 

 

1,426 

 

 

1,023 

 

 

(207)

 

 

69 

 

 

(238)

 

 

(19)

 

 

628 

Ending balance

 

$

4,341 

 

$

9,445 

 

$

90 

 

$

1,025 

 

$

334 

 

$

15,235 

 

$

5,272 

 

$

8,637 

 

$

130 

 

$

883 

 

$

326 

 

$

15,248 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for loan

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

for impairment

 

$

94 

 

$

1,245 

 

$

24 

 

$

38 

 

$

-    

 

$

1,401 

 

$

374 

 

$

66 

 

$

22 

 

$

35 

 

$

-    

 

$

497 

Collectively evaluated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

for impairment

 

 

4,247 

 

 

8,200 

 

 

66 

 

 

987 

 

 

334 

 

 

13,834 

 

 

4,898 

 

 

8,571 

 

 

108 

 

 

848 

 

 

326 

 

 

14,751 

Total

 

$

4,341 

 

$

9,445 

 

$

90 

 

$

1,025 

 

$

334 

 

$

15,235 

 

$

5,272 

 

$

8,637 

 

$

130 

 

$

883 

 

$

326 

 

$

15,248 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

for impairment

 

$

2,936 

 

$

18,475 

 

$

24 

 

$

2,522 

 

$

1,904 

 

$

25,861 

 

$

4,206 

 

$

6,557 

 

$

22 

 

$

2,993 

 

$

1,635 

 

$

15,413 

Collectively evaluated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

for impairment

 

 

236,549 

 

 

649,067 

 

 

1,423 

 

 

144,141 

 

 

67,415 

 

 

1,098,595 

 

 

263,299 

 

 

704,792 

 

 

1,505 

 

 

156,936 

 

 

69,116 

 

 

1,195,648 

Total

 

$

239,485 

 

$

667,542 

 

$

1,447 

 

$

146,663 

 

$

69,319 

 

$

1,124,456 

 

$

267,505 

 

$

711,349 

 

$

1,527 

 

$

159,929 

 

$

70,751 

 

$

1,211,061 







* Includes construction loans



Note: Loan balances do not include $1.1.6 million4 in net deferred loan origination costs as of  June 30, 2019.

21


Table of Contents



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2018



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

 

Commercial and Industrial

 

Commercial Real Estate Mortgages*

 

Consumer and Other

 

Residential Mortgages*

 

Home Equities

 

Total

Allowance for loan

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

5,204 

 

$

7,409 

 

$

109 

 

$

950 

 

$

347 

 

$

14,019 

Charge-offs

 

 

(67)

 

 

-    

 

 

(64)

 

 

(86)

 

 

(11)

 

 

(228)

Recoveries

 

 

13 

 

 

-    

 

 

 

 

-    

 

 

 

 

18 

Provision (Credit)

 

 

(809)

 

 

2,036 

 

 

41 

 

 

161 

 

 

(3)

 

 

1,426 

Ending balance

 

$

4,341 

 

$

9,445 

 

$

90 

 

$

1,025 

 

$

334 

 

$

15,235 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for loan

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

for impairment

 

$

94 

 

$

1,245 

 

$

24 

 

$

38 

 

$

-    

 

$

1,401 

Collectively evaluated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

for impairment

 

 

4,247 

 

 

8,200 

 

 

66 

 

 

987 

 

 

334 

 

 

13,834 

Total

 

$

4,341 

 

$

9,445 

 

$

90 

 

$

1,025 

 

$

334 

 

$

15,235 

Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

for impairment

 

$

2,936 

 

$

18,475 

 

$

24 

 

$

2,522 

 

$

1,904 

 

$

25,861 

Collectively evaluated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

for impairment

 

 

236,549 

 

 

649,067 

 

 

1,423 

 

 

144,141 

 

 

67,415 

 

 

1,098,595 

Total

 

$

239,485 

 

$

667,542 

 

$

1,447 

 

$

146,663 

 

$

69,319 

 

$

1,124,456 

* Includes construction loans

Note: Loan balances do not include $1.4 million in net deferred loan origination costs as of June 30, 2018.



22


Table of Contents



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2017



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

 

Commercial and Industrial

 

Commercial Real Estate Mortgages*

 

Consumer and Other

 

Residential Mortgages*

 

Home Equities

 

Total

Allowance for loan

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

4,813 

 

$

7,890 

 

$

96 

 

$

769 

 

$

348 

 

$

13,916 

Charge-offs

 

 

(33)

 

 

-    

 

 

(33)

 

 

-    

 

 

-    

 

 

(66)

Recoveries

 

 

331 

 

 

-    

 

 

21 

 

 

-    

 

 

 

 

353 

Provision (Credit)

 

 

(141)

 

 

 

 

20 

 

 

63 

 

 

24 

 

 

(25)

Ending balance

 

$

4,970 

 

$

7,899 

 

$

104 

 

$

832 

 

$

373 

 

$

14,178 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for loan

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

for impairment

 

$

681 

 

$

1,189 

 

$

42 

 

$

 

$

 

$

1,915 

Collectively evaluated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

for impairment

 

 

4,289 

 

 

6,710 

 

 

62 

 

 

831 

 

 

371 

 

 

12,263 

Total

 

$

4,970 

 

$

7,899 

 

$

104 

 

$

832 

 

$

373 

 

$

14,178 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

for impairment

 

$

2,665 

 

$

12,298 

 

$

42 

 

$

2,834 

 

$

1,651 

 

$

19,490 

Collectively evaluated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

for impairment

 

 

205,104 

 

 

561,558 

 

 

1,460 

 

 

123,333 

 

 

64,493 

 

 

955,948 

Total

 

$

207,769 

 

$

573,856 

 

$

1,502 

 

$

126,167 

 

$

66,144 

 

$

975,438 

* Includes construction loans

Note: Loan balances do not include $1.1 million in net deferred loan origination costs as of June 30, 2017.

23

 


 

Table of Contents



The following tables present the activity in the allowance for loan losses according to portfolio segment for the three month periods ended June 30, 20182019 and 2017:2018:



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2019

($ in thousands)

 

Commercial and Industrial

 

Commercial Real Estate Mortgages*

 

Consumer and Other

 

Residential Mortgages*

 

Home Equities

 

Total

Allowance for loan

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

4,754 

 

$

9,049 

 

$

111 

 

$

953 

 

$

340 

 

$

15,207 

Charge-offs

 

 

(37)

 

 

-    

 

 

(31)

 

 

-    

 

 

-    

 

 

(68)

Recoveries

 

 

17 

 

 

-    

 

 

 

 

-    

 

 

-    

 

 

19 

Provision (Credit)

 

 

538 

 

 

(412)

 

 

48 

 

 

(70)

 

 

(14)

 

 

90 

Ending balance

 

$

5,272 

 

$

8,637 

 

$

130 

 

$

883 

 

$

326 

 

$

15,248 





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2018

($ in thousands)

 

Commercial and Industrial

 

Commercial Real Estate Mortgages*

 

Consumer and Other

 

Residential Mortgages*

 

Home Equities

 

Total

Allowance for loan

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

5,115 

 

$

8,145 

 

$

96 

 

$

1,007 

 

$

330 

 

$

14,693 

Charge-offs

 

 

-    

 

 

-    

 

 

(30)

 

 

(86)

 

 

(11)

 

 

(127)

Recoveries

 

 

 

 

-    

 

 

 

 

-    

 

 

-    

 

 

10 

Provision (Credit)

 

 

(781)

 

 

1,300 

 

 

21 

 

 

104 

 

 

15 

 

 

659 

Ending balance

 

$

4,341 

 

$

9,445 

 

$

90 

 

$

1,025 

 

$

334 

 

$

15,235 











 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2017

($ in thousands)

 

Commercial and Industrial

 

Commercial Real Estate Mortgages*

 

Consumer and Other

 

Residential Mortgages*

 

Home Equities

 

Total

Allowance for loan

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

3,963 

 

$

8,198 

 

$

135 

 

$

919 

 

$

364 

 

$

13,579 

Charge-offs

 

 

-    

 

 

-    

 

 

(5)

 

 

-    

 

 

-    

 

 

(5)

Recoveries

 

 

184 

 

 

-    

 

 

 

 

-    

 

 

 

 

194 

Provision (Credit)

 

 

823 

 

 

(299)

 

 

(35)

 

 

(87)

 

 

 

 

410 

Ending balance

 

$

4,970 

 

$

7,899 

 

$

104 

 

$

832 

 

$

373 

 

$

14,178 



*Includes construction loans

2423

 


 

Table of Contents



Impaired Loans

The following tables provide data, at the class level, for impaired loans as of the dates indicated:





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At June 30, 2018

 

 

At June 30, 2019

 

 

Recorded Investment

 

Unpaid Principal Balance

 

Related Allowance

 

Average Recorded Investment

 

Interest Income Foregone

 

Interest Income Recognized

 

 

Recorded Investment

 

Unpaid Principal Balance

 

Related Allowance

 

Average Recorded Investment

 

Interest Income Foregone

 

Interest Income Recognized

With no related allowance recorded:

With no related allowance recorded:

(in thousands)

With no related allowance recorded:

(in thousands)

Commercial and industrial

 

$

2,625 

 

$

3,772 

 

$

-    

 

$

2,716 

 

$

72 

 

$

50 

 

$

3,345 

 

$

3,535 

 

$

-    

 

$

3,467 

 

$

44 

 

$

60 

Residential real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

2,062 

 

2,321 

 

-    

 

2,136 

 

21 

 

32 

 

2,531 

 

2,769 

 

-    

 

2,599 

 

32 

 

29 

Construction

 

-    

 

-    

 

-    

 

-    

 

-    

 

-    

 

-    

 

-    

 

-    

 

-    

 

-    

 

-    

Commercial real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

2,778 

 

2,903 

 

-    

 

2,818 

 

46 

 

58 

 

6,212 

 

6,696 

 

-    

 

6,507 

 

125 

 

24 

Construction

 

154 

 

154 

 

-    

 

169 

 

-    

 

 

279 

 

279 

 

-    

 

304 

 

14 

 

-    

Home equities

 

1,904 

 

2,045 

 

-    

 

1,946 

 

39 

 

16 

 

1,635 

 

1,814 

 

-    

 

1,704 

 

35 

 

17 

Consumer and other

 

 

-    

 

 

-    

 

 

-    

 

 

-    

 

 

-    

 

 

-    

 

 

-    

 

 

-    

 

 

-    

 

 

-    

 

 

-    

 

 

-    

Total impaired loans

 

$

9,523 

 

$

11,195 

 

$

-    

 

$

9,785 

 

$

178 

 

$

163 

 

$

14,002 

 

$

15,093 

 

$

-    

 

$

14,581 

 

$

250 

 

$

130 







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At June 30, 2018

 

 

At June 30, 2019

 

 

Recorded Investment

 

Unpaid Principal Balance

 

Related Allowance

 

Average Recorded Investment

 

Interest Income Foregone

 

Interest Income Recognized

 

 

Recorded Investment

 

Unpaid Principal Balance

 

Related Allowance

 

Average Recorded Investment

 

Interest Income Foregone

 

Interest Income Recognized

With a related allowance recorded:

With a related allowance recorded:

(in thousands)

With a related allowance recorded:

(in thousands)

Commercial and industrial

 

$

311 

 

$

339 

 

$

94 

 

$

326 

 

$

11 

 

$

 

$

861 

 

$

958 

 

$

374 

 

$

954 

 

$

23 

 

$

10 

Residential real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

460 

 

484 

 

38 

 

463 

 

12 

 

-    

 

462 

 

467 

 

35 

 

465 

 

11 

 

Construction

 

-    

 

-    

 

-    

 

-    

 

-    

 

-    

 

-    

 

-    

 

-    

 

-    

 

-    

 

-    

Commercial real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

6,568 

 

6,769 

 

511 

 

6,624 

 

148 

 

-    

 

66 

 

68 

 

66 

 

68 

 

 

-    

Construction

 

8,975 

 

8,975 

 

734 

 

8,975 

 

120 

 

113 

 

-    

 

-    

 

-    

 

-    

 

-    

 

-    

Home equities

 

-    

��

 

-    

 

-    

 

-    

 

-    

 

-    

 

-    

 

-    

 

-    

 

-    

 

-    

 

-    

Consumer and other

 

 

24 

 

 

28 

 

 

24 

 

 

24 

 

 

-    

 

 

 

 

22 

 

 

25 

 

 

22 

 

 

23 

 

 

-    

 

 

Total impaired loans

 

$

16,338 

 

$

16,595 

 

$

1,401 

 

$

16,412 

 

$

291 

 

$

115 

 

$

1,411 

 

$

1,518 

 

$

497 

 

$

1,510 

 

$

36 

 

$

13 

24


Table of Contents



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

At June 30, 2019



 

 

Recorded Investment

 

 

Unpaid Principal Balance

 

 

Related Allowance

 

 

Average Recorded Investment

 

 

Interest Income Foregone

 

 

Interest Income Recognized

Total:

 

 

(in thousands)

Commercial and industrial

 

$

4,206 

 

$

4,493 

 

$

374 

 

$

4,421 

 

$

67 

 

$

70 

Residential real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

 

2,993 

 

 

3,236 

 

 

35 

 

 

3,064 

 

 

43 

 

 

31 

Construction

 

 

-    

 

 

-    

 

 

-    

 

 

-    

 

 

-    

 

 

-    

Commercial real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

6,278 

 

 

6,764 

 

 

66 

 

 

6,575 

 

 

127 

 

 

24 

Construction

 

 

279 

 

 

279 

 

 

-    

 

 

304 

 

 

14 

 

 

-    

Home equities

 

 

1,635 

 

 

1,814 

 

 

-    

 

 

1,704 

 

 

35 

 

 

17 

Consumer and other

 

 

22 

 

 

25 

 

 

22 

 

 

23 

 

 

-    

 

 

Total impaired loans

 

$

15,413 

 

$

16,611 

 

$

497 

 

$

16,091 

 

$

286 

 

$

143 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

At December 31, 2018



 

 

Recorded Investment

 

 

Unpaid Principal Balance

 

 

Related Allowance

 

 

Average Recorded Investment

 

 

Interest Income Foregone

 

 

Interest Income Recognized

With no related allowance recorded:

(in thousands)

Commercial and industrial

 

$

1,633 

 

$

2,611 

 

$

-    

 

$

1,785 

 

$

116 

 

$

65 

Residential real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

 

2,289 

 

 

2,483 

 

 

-    

 

 

2,337 

 

 

45 

 

 

69 

Construction

 

 

-    

 

 

-    

 

 

-    

 

 

-    

 

 

-    

 

 

-    

Commercial real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

6,538 

 

 

6,914 

 

 

-    

 

 

6,733 

 

 

220 

 

 

115 

Construction

 

 

116 

 

 

116 

 

 

-    

 

 

143 

 

 

-    

 

 

12 

Home equities

 

 

1,887 

 

 

2,058 

 

 

-    

 

 

1,952 

 

 

71 

 

 

43 

Consumer and other

 

 

-    

 

 

-    

 

 

-    

 

 

-    

 

 

-    

 

 

-    

Total impaired loans

 

$

12,463 

 

$

14,182 

 

$

-    

 

$

12,950 

 

$

452 

 

$

304 



25

 


 

Table of Contents



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At June 30, 2018

 

 

At December 31, 2018

 

 

Recorded Investment

 

Unpaid Principal Balance

 

Related Allowance

 

Average Recorded Investment

 

Interest Income Foregone

 

Interest Income Recognized

 

 

Recorded Investment

 

Unpaid Principal Balance

 

Related Allowance

 

Average Recorded Investment

 

Interest Income Foregone

 

Interest Income Recognized

Total:

 

 

(in thousands)

With a related allowance recorded:

With a related allowance recorded:

(in thousands)

Commercial and industrial

 

$

2,936 

 

$

4,111 

 

$

94 

 

$

3,042 

 

$

83 

 

$

51 

 

$

2,068 

 

$

2,095 

 

$

249 

 

$

2,098 

 

$

17 

 

$

125 

Residential real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

2,522 

 

2,805 

 

38 

 

2,599 

 

33 

 

32 

 

525 

 

556 

 

85 

 

520 

 

22 

 

Construction

 

-    

 

-    

 

-    

 

-    

 

-    

 

-    

 

-    

 

-    

 

-    

 

-    

 

-    

 

-    

Commercial real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

9,346 

 

9,672 

 

511 

 

9,442 

 

194 

 

58 

 

-    

 

-    

 

-    

 

-    

 

-    

 

-    

Construction

 

9,129 

 

9,129 

 

734 

 

9,144 

 

120 

 

120 

 

8,636 

 

8,975 

 

716 

 

8,793 

 

379 

 

113 

Home equities

 

1,904 

 

2,045 

 

-    

 

1,946 

 

39 

 

16 

 

-    

 

-    

 

-    

 

-    

 

-    

 

-    

Consumer and other

 

 

24 

 

 

28 

 

 

24 

 

 

24 

 

 

-    

 

 

 

 

23 

 

 

27 

 

 

23 

 

 

23 

 

 

-    

 

 

Total impaired loans

 

$

25,861 

 

$

27,790 

 

$

1,401 

 

$

26,197 

 

$

469 

 

$

278 

 

$

11,252 

 

$

11,653 

 

$

1,073 

 

$

11,434 

 

$

418 

 

$

243 







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At December 31, 2018

 

 

At December 31, 2017

 

 

Recorded Investment

 

Unpaid Principal Balance

 

Related Allowance

 

Average Recorded Investment

 

Interest Income Foregone

 

Interest Income Recognized

 

 

Recorded Investment

 

Unpaid Principal Balance

 

Related Allowance

 

Average Recorded Investment

 

Interest Income Foregone

 

Interest Income Recognized

With no related allowance recorded:

(in thousands)

Total:

 

 

(in thousands)

Commercial and industrial

 

$

1,023 

 

$

1,917 

 

$

-    

 

$

1,704 

 

$

92 

 

$

28 

 

$

3,701 

 

$

4,706 

 

$

249 

 

$

3,883 

 

$

133 

 

$

190 

Residential real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

2,415 

 

2,594 

 

-    

 

2,456 

 

46 

 

83 

 

2,814 

 

3,039 

 

85 

 

2,857 

 

67 

 

72 

Construction

 

-    

 

-    

 

-    

 

-    

 

-    

 

-    

 

-    

 

-    

 

-    

 

-    

 

-    

 

-    

Commercial real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

2,336 

 

2,469 

 

-    

 

2,449 

 

134 

 

32 

 

6,538 

 

6,914 

 

-    

 

6,733 

 

220 

 

115 

Construction

 

187 

 

187 

 

-    

 

218 

 

-    

 

13 

 

8,752 

 

9,091 

 

716 

 

8,936 

 

379 

 

125 

Home equities

 

1,785 

 

1,892 

 

-    

 

1,828 

 

62 

 

33 

 

1,887 

 

2,058 

 

-    

 

1,952 

 

71 

 

43 

Consumer and other

 

 

-    

 

 

-    

 

 

-    

 

 

-    

 

 

-    

 

 

-    

 

 

23 

 

 

27 

 

 

23 

 

 

23 

 

 

-    

 

 

Total impaired loans

 

$

7,746 

 

$

9,059 

 

$

-    

 

$

8,655 

 

$

334 

 

$

189 

 

$

23,715 

 

$

25,835 

 

$

1,073 

 

$

24,384 

 

$

870 

 

$

547 





26


Table of Contents



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

At December 31, 2017



 

 

Recorded Investment

 

 

Unpaid Principal Balance

 

 

Related Allowance

 

 

Average Recorded Investment

 

 

Interest Income Foregone

 

 

Interest Income Recognized

With a related allowance recorded:

(in thousands)

Commercial and industrial

 

$

1,240 

 

$

1,431 

 

$

372 

 

$

1,279 

 

$

79 

 

$

12 

Residential real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

 

196 

 

 

196 

 

 

28 

 

 

196 

 

 

 

 

Construction

 

 

-    

 

 

-    

 

 

-    

 

 

-    

 

 

-    

 

 

-    

Commercial real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

6,689 

 

 

6,819 

 

 

643 

 

 

6,755 

 

 

156 

 

 

129 

Construction

 

 

-    

 

 

-    

 

 

-    

 

 

-    

 

 

-    

 

 

-    

Home equities

 

 

-    

 

 

-    

 

 

-    

 

 

-    

 

 

-    

 

 

-    

Consumer and other

 

 

34 

 

 

59 

 

 

34 

 

 

37 

 

 

 

 

Total impaired loans

 

$

8,159 

 

$

8,505 

 

$

1,077 

 

$

8,267 

 

$

244 

 

$

146 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

At December 31, 2017



 

 

Recorded Investment

 

 

Unpaid Principal Balance

 

 

Related Allowance

 

 

Average Recorded Investment

 

 

Interest Income Foregone

 

 

Interest Income Recognized

Total:

 

 

(in thousands)

Commercial and industrial

 

$

2,263 

 

$

3,348 

 

$

372 

 

$

2,983 

 

$

171 

 

$

40 

Residential real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

 

2,611 

 

 

2,790 

 

 

28 

 

 

2,652 

 

 

52 

 

 

86 

Construction

 

 

-    

 

 

-    

 

 

-    

 

 

-    

 

 

-    

 

 

-    

Commercial real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

9,025 

 

 

9,288 

 

 

643 

 

 

9,204 

 

 

290 

 

 

161 

Construction

 

 

187 

 

 

187 

 

 

-    

 

 

218 

 

 

-    

 

 

13 

Home equities

 

 

1,785 

 

 

1,892 

 

 

-    

 

 

1,828 

 

 

62 

 

 

33 

Consumer and other

 

 

34 

 

 

59 

 

 

34 

 

 

37 

 

 

 

 

Total impaired loans

 

$

15,905 

 

$

17,564 

 

$

1,077 

 

$

16,922 

 

$

578 

 

$

335 

27

 


 

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Troubled debt restructurings



The following tables summarize the loans that were classified as troubled debt restructurings as of the dates indicated:



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2018

 

 

June 30, 2019

 

 

(in thousands)

 

 

(in thousands)

 

 

Total

 

 

Nonaccruing

 

 

Accruing

 

 

Related Allowance

 

 

Total

 

 

Nonaccruing

 

 

Accruing

 

 

Related Allowance

Commercial and industrial

 

$

749 

 

$

289 

 

$

460 

 

$

56 

 

$

2,116 

 

$

216 

 

$

1,900 

 

$

69 

Residential real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

1,627 

 

 

262 

 

 

1,365 

 

 

 

1,565 

 

 

272 

 

 

1,293 

 

 

-    

Construction

 

-    

 

 

-    

 

 

-    

 

 

-    

 

-    

 

 

-    

 

 

-    

 

 

-    

Commercial real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial and multi-family

 

4,330 

 

 

3,719 

 

 

611 

 

 

146 

 

4,055 

 

 

3,456 

 

 

599 

 

 

-    

Construction

 

154 

 

 

-    

 

 

154 

 

 

-    

 

-    

 

 

-    

 

 

-    

 

 

-    

Home equities

 

782 

 

 

127 

 

 

655 

 

 

-    

 

803 

 

 

224 

 

 

579 

 

 

-    

Consumer and other

 

 

24 

 

 

-    

 

 

24 

 

 

24 

 

 

22 

 

 

-    

 

 

22 

 

 

22 

Total TDR loans

 

$

7,666 

 

$

4,397 

 

$

3,269 

 

$

229 

 

$

8,561 

 

$

4,168 

 

$

4,393 

 

$

91 





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2017

 

 

December 31, 2018

 

 

(in thousands)

 

 

(in thousands)

 

 

Total

 

 

Nonaccruing

 

 

Accruing

 

 

Related Allowance

 

 

Total

 

 

Nonaccruing

 

 

Accruing

 

 

Related Allowance

Commercial and industrial

 

$

734 

 

$

220 

 

$

514 

 

$

 

$

2,282 

 

$

275 

 

$

2,007 

 

$

154 

Residential real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

1,656 

 

 

271 

 

 

1,385 

 

 

-    

 

1,617 

 

 

266 

 

 

1,351 

 

 

14 

Construction

 

-    

 

 

-    

 

 

-    

 

 

-    

 

-    

 

 

-    

 

 

-    

 

 

-    

Commercial real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial and multi-family

 

3,854 

 

 

3,767 

 

 

87 

 

 

236 

 

4,164 

 

 

3,571 

 

 

593 

 

 

-    

Construction

 

187 

 

 

-    

 

 

187 

 

 

-    

 

8,753 

 

 

8,637 

 

 

116 

 

 

716 

Home equities

 

794 

 

 

128 

 

 

666 

 

 

-    

 

756 

 

 

122 

 

 

634 

 

 

-    

Consumer and other

 

 

25 

 

 

-    

 

 

25 

 

 

24 

 

 

23 

 

 

-    

 

 

23 

 

 

23 

Total TDR loans

 

$

7,250 

 

$

4,386 

 

$

2,864 

 

$

268 

 

$

17,595 

 

$

12,871 

 

$

4,724 

 

$

907 





Any TDR that is placed on non-accrual is not reverted back to accruing status until the borrower makes timely payments as contracted for at least six months and future collection under the revised terms is probable.  All of the Company’s restructurings were allowed in an effort to maximize its ability to collect on loans where borrowers were experiencing financial difficulty.



The reserve for a TDR is based upon the present value of the future expected cash flows discounted at the loan’s original effective interest rate or upon the fair value of the collateral less costs to sell, if the loan is deemed collateral dependent.  This reserve methodology is used because all TDR loans are considered impaired.  As of June 30, 2018,2019, there were no commitments to lend additional funds to debtors owing on loans whose terms have been modified in TDRs.



The Company’s TDRs have various agreements that involve deferral of principal payments, or interest-only payments, for a period (usually 12 months or less) to allow the customerborrower time to improve cash flow or sell the property.  Other common concessions leading to the designation of a TDR are lines of credit that are termed-out and/or extensions of maturities at rates that are less than the prevailing market rates given the risk profile of the borrower.



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The following tables show the data for TDR activity by the type of concession granted to the borrower for the three month and six month periods ended June 30 2018, 2019 and 2017:2018:



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Three months ended June 30, 2019

 

Three months ended June 30, 2018



 

(Recorded Investment in thousands)

 

(Recorded Investment in thousands)

Troubled Debt Restructurings by Type of Concession

 

Number of Contracts

 

 

Pre-Modification Outstanding Recorded Investment

 

 

Post-Modification Outstanding Recorded Investment

 

Number of Contracts

 

 

Pre-Modification Outstanding Recorded Investment

 

 

Post-Modification Outstanding Recorded Investment



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial and Industrial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

-    

Term-out line of credit

 

 -

 

$

 -

 

$

 -

 

 

$

29 

 

$

29 

Combination of concessions

 

 -

 

 

 -

 

 

 -

 

 

 

63 

 

 

63 

Residential Real Estate & Construction

 

 -

 

 

-    

 

 

-    

 

-    

 

 

-    

 

 

-    

Commercial Real Estate & Construction:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Combination of concessions

 

-    

 

 

-    

 

 

-    

 

 

 

154 

 

 

154 

Home Equities:

 

 

 

 

-    

 

 

-    

 

-    

 

 

-    

 

 

-    

Deferral of principal

 

-    

 

 

-    

 

 

-    

 

 

 

100 

 

 

100 

Extension of maturity and

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

interest rate reduction

 

 

 

171 

 

 

171 

 

-    

 

 

-    

 

 

-    

Consumer and other loans

 

-    

 

 

-    

 

 

-    

 

-    

 

 

-    

 

 

-    





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended June 30, 2018

 

Three months ended June 30, 2017

 

Six months ended June 30, 2019

 

Six months ended June 30, 2018

 

(Recorded Investment in thousands)

 

(Recorded Investment in thousands)

 

(Recorded Investment in thousands)

 

(Recorded Investment in thousands)

Troubled Debt Restructurings by Type of Concession

 

Number of Contracts

 

 

Pre-Modification Outstanding Recorded Investment

 

 

Post-Modification Outstanding Recorded Investment

 

Number of Contracts

 

 

Pre-Modification Outstanding Recorded Investment

 

 

Post-Modification Outstanding Recorded Investment

 

Number of Contracts

 

 

Pre-Modification Outstanding Recorded Investment

 

 

Post-Modification Outstanding Recorded Investment

 

Number of Contracts

 

 

Pre-Modification Outstanding Recorded Investment

 

 

Post-Modification Outstanding Recorded Investment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial and Industrial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Term-out line of credit

 

 

$

29 

 

$

29 

 

-    

 

$

-    

 

$

-    

 

-    

 

$

-    

 

$

-    

 

 

$

29 

 

$

29 

Combination of concessions

 

 

 

63 

 

 

63 

 

-    

 

 

-    

 

 

-    

 

-    

 

 

-    

 

 

-    

 

 

 

63 

 

 

63 

Residential Real Estate & Construction

 

-    

 

 

-    

 

 

-    

 

-    

 

 

-    

 

 

-    

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial Real Estate & Construction:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Extension of maturity

 

-    

 

 

-    

 

 

-    

 

 

 

20 

 

 

20 

 

-    

 

 

-    

 

 

-    

 

 

 

181 

 

 

181 

Combination of concessions

 

 

 

154 

 

 

154 

 

-    

 

 

-    

 

 

-    

 

-    

 

 

-    

 

 

-    

 

 

 

154 

 

 

154 

Home Equities

 

-    

 

 

-    

 

 

-    

 

-    

 

 

-    

 

 

-    

Home Equities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deferral of principal

 

 

 

100 

 

 

100 

 

-    

 

 

-    

 

 

-    

 

-    

 

 

-    

 

 

-    

 

 

 

100 

 

 

100 

Extension of maturity and

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

interest rate reduction

 

 

 

280 

 

 

280 

 

-    

 

 

-    

 

 

-    

Consumer and other loans

 

-    

 

 

-    

 

 

-    

 

-    

 

 

-    

 

 

-    

 

-    

 

 

-    

 

 

-    

 

-    

 

 

-    

 

 

-    





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Six months ended June 30, 2018

 

Six months ended June 30, 2017



 

(Recorded Investment in thousands)

 

(Recorded Investment in thousands)

Troubled Debt Restructurings by Type of Concession

 

Number of Contracts

 

 

Pre-Modification Outstanding Recorded Investment

 

 

Post-Modification Outstanding Recorded Investment

 

Number of Contracts

 

 

Pre-Modification Outstanding Recorded Investment

 

 

Post-Modification Outstanding Recorded Investment



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial and Industrial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Term-out line of credit

 

 

$

29 

 

$

29 

 

 

$

180 

 

$

180 

Combination of concessions

 

 

 

63 

 

 

63 

 

-    

 

 

-    

 

 

-    

Residential Real Estate & Construction:

 

-    

 

 

-    

 

 

-    

 

-    

 

 

-    

 

 

-    

Commercial Real Estate & Construction:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Extension of maturity

 

 

 

181 

 

 

181 

 

 

 

5,073 

 

 

5,073 

Combination of concessions

 

 

 

154 

 

 

154 

 

-    

 

 

-    

 

 

-    

Home Equities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deferral of principal

 

 

 

100 

 

 

100 

 

-    

 

 

-    

 

 

-    

Extension of maturity and

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

interest rate reduction

 

-    

 

 

-    

 

 

-    

 

 

 

20 

 

 

20 

Consumer and other loans

 

-    

 

 

-    

 

 

-    

 

-    

 

 

-    

 

 

-    

29


Table of Contents



The general practice of the Bank is to work with borrowers so that they are able to repay their loan in full.  If a borrower continues to be delinquent or cannot meet the terms of a TDR and the loan is determined to be uncollectible, the loan will be charged-off.charged-off to its collateral value.  A loan is considered in default when the loan is 90 days past due.  There were no loansLoans which were classified as TDRs during the previous 12 months which defaulted during the three or six month periods ended June 30, 2019 and 2018 and 2017.were not material.

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5. COMMON EQUITY AND EARNINGS PER SHARE DATA



The common stock per share information is based upon the weighted average number of shares outstanding during each period.  For the three and six month periods ended June 30, 2018,2019, the Company had an average of 61,231 and 69,321  dilutive shares outstanding, respectively.  The Company had an average of 123,035 and 127,156 dilutive shares outstanding respectively.  The Company had an average of 116,374 and 119,928 dilutive shares outstanding for the three and six monthsmonth periods ended June 30, 2017, respectively.2018.



Potential common shares that would have the effect of increasing diluted earnings per share are considered to be anti-dilutive and not included in calculating diluted earnings per share. For the three and six month periods ended June 30, 2019, there was an average of 86,376 and 87,463 potentially anti-dilutive shares outstanding, respectively, that were not included in calculating diluted earnings per share because their effect was anti-dilutive.  There were no anti-dilutive shares for the three month period ended June 30, 2018.  For the six month period ended June 30, 2018, there was an average of 28,660 potentially anti-dilutive shares outstanding, that were not included in calculating diluted earnings per share because their effect was anti-dilutive.  For the three and six month periods ended June 30, 2017, there was an average of 23,020 and 24,005 potentially anti-dilutive shares outstanding.



30


Table of Contents



6. OTHER COMPREHENSIVE INCOME

The following tables summarize the changes in the components of accumulated other comprehensive income (loss) during the three and six month periods ended June 30, 20182019 and 2017:2018:





 

 

 

 

 

 

 

 

 

 

Balance at March 31, 2019

 

Net Change

 

Balance at June 30, 2019

 

(in thousands)

Net unrealized (loss) gain on investment securities

 

$

(1,045)

 

$

1,471 

 

$

426 

Net defined benefit pension plan adjustments

 

 

(2,938)

 

 

67 

 

 

(2,871)

Total

 

$

(3,983)

 

$

1,538 

 

$

(2,445)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at March 31, 2018

 

Net Change

 

Balance at June 30, 2018

 

Balance at March 31, 2018

 

Net Change

 

Balance at June 30, 2018

 

(in thousands)

 

(in thousands)

Net unrealized loss on investment securities

 

$

(2,409)

 

$

(684)

 

$

(3,093)

 

$

(2,409)

 

$

(684)

 

$

(3,093)

Net defined benefit pension plan adjustments

 

 

(2,326)

 

 

36 

 

 

(2,290)

 

 

(2,326)

 

 

36 

 

 

(2,290)

Total

 

$

(4,735)

 

$

(648)

 

$

(5,383)

 

$

(4,735)

 

$

(648)

 

$

(5,383)

 

 

 

 

 

 

 

 

 

 

Balance at March 31, 2017

 

Net Change

 

Balance at June 30, 2017

 

(in thousands)

Net unrealized (loss) gain on investment securities

 

$

(178)

 

$

 

$

(175)

Net defined benefit pension plan adjustments

 

 

(1,996)

 

 

31 

 

 

(1,965)

Total

 

$

(2,174)

 

$

34 

 

$

(2,140)



 

 

 

 

 

 

 

 

 



 

Balance at December 31, 2018

 

Net Change

 

Balance at June 30, 2019



 

(in thousands)

Net unrealized  (loss) gain on investment securities

 

$

(2,348)

 

$

2,774 

 

$

426 

Net defined benefit pension plan adjustments

 

 

(3,005)

 

 

134 

 

 

(2,871)

Total

 

$

(5,353)

 

$

2,908 

 

$

(2,445)





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2017

 

Net Change

 

Balance at June 30, 2018

 

Balance at December 31, 2017

 

Net Change

 

Balance at June 30, 2018

 

(in thousands)

 

(in thousands)

Net unrealized loss on investment securities

 

$

(1,049)

 

$

(2,044)

 

$

(3,093)

 

$

(1,049)

 

$

(2,044)

 

$

(3,093)

Net defined benefit pension plan adjustments

 

 

(2,368)

 

 

78 

 

 

(2,290)

 

 

(2,368)

 

 

78 

 

 

(2,290)

Total

 

$

(3,417)

 

$

(1,966)

 

$

(5,383)

 

$

(3,417)

 

$

(1,966)

 

$

(5,383)

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2016

 

Net Change

 

Balance at June 30, 2017

 

(in thousands)

Net unrealized (loss) gain on investment securities

 

$

(365)

 

$

190 

 

$

(175)

Net defined benefit pension plan adjustments

 

 

(2,059)

 

 

94 

 

 

(1,965)

Total

 

$

(2,424)

 

$

284 

 

$

(2,140)

3129

 


 

Table of Contents





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended June 30, 2018

 

Three months ended June 30, 2017

 

Three months ended June 30, 2019

 

Three months ended June 30, 2018

 

(in thousands)

 

(in thousands)

 

(in thousands)

 

(in thousands)

 

Before-Tax Amount

 

Income Tax (Provision) Benefit

 

Net-of-Tax Amount

 

Before-Tax Amount

 

Income Tax (Provision) Benefit

 

Net-of-Tax Amount

 

Before-Tax Amount

 

Income Tax (Provision) Benefit

 

Net-of-Tax Amount

 

Before-Tax Amount

 

Income Tax (Provision) Benefit

 

Net-of-Tax Amount

Unrealized (loss) gain on investment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain (loss) on investment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized (loss) gain on investment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain (loss) on investment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

securities

 

$

(921)

 

$

237 

 

$

(684)

 

$

 

$

(4)

 

$

 

$

1,984 

 

$

(513)

 

$

1,471 

 

$

(921)

 

$

237 

 

$

(684)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Defined benefit pension plan

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

adjustments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reclassifications from accumulated other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

comprehensive income for gains

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of prior service cost (a)

 

$

 

$

(3)

 

$

 

$

 

$

(3)

 

$

 

$

 

$

(3)

 

$

 

$

 

$

(3)

 

$

Amortization of actuarial loss (a)

 

 

42 

 

 

(11)

 

 

31 

 

43 

 

(17)

 

26 

 

 

83 

 

 

(21)

 

 

62 

 

42 

 

(11)

 

31 

Net change

 

 

50 

 

 

(14)

 

 

36 

 

 

51 

 

 

(20)

 

 

31 

 

 

91 

 

 

(24)

 

 

67 

 

 

50 

 

 

(14)

 

 

36 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Comprehensive (Loss) Income

 

$

(871)

 

$

223 

 

$

(648)

 

$

58 

 

$

(24)

 

$

34 

Other comprehensive income (loss)

 

$

2,075 

 

$

(537)

 

$

1,538 

 

$

(871)

 

$

223 

 

$

(648)



(a)

Included in net periodic pension cost, as described in Note 9 – “Net Periodic Benefit Costs”





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six months ended June 30, 2018

 

Six months ended June 30, 2017

 

Six months ended June 30, 2019

 

Six months ended June 30, 2018

 

(in thousands)

 

(in thousands)

 

(in thousands)

 

(in thousands)

 

Before-Tax Amount

 

Income Tax (Provision) Benefit

 

Net-of-Tax Amount

 

Before-Tax Amount

 

Income Tax (Provision) Benefit (b)

 

Net-of-Tax Amount

 

Before-Tax Amount

 

Income Tax (Provision) Benefit

 

Net-of-Tax Amount

 

Before-Tax Amount

 

Income Tax (Provision) Benefit

 

Net-of-Tax Amount

Unrealized (loss) gain on investment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized (loss) gain on investment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain (loss) on investment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

securities

 

$

(2,759)

 

$

715 

 

$

(2,044)

 

$

303 

 

$

(113)

 

$

190 

 

$

3,746 

 

$

(972)

 

$

2,774 

 

$

(2,759)

 

$

715 

 

$

(2,044)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Defined benefit pension plan

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

adjustments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reclassifications from accumulated other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

comprehensive income for gains

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of prior service cost (a)

 

$

16 

 

$

(5)

 

$

11 

 

$

16 

 

$

(1)

 

$

15 

 

$

16 

 

$

(5)

 

$

11 

 

$

16 

 

$

(5)

 

$

11 

Amortization of actuarial loss (a)

 

 

84 

 

 

(17)

 

 

67 

 

86 

 

(7)

 

79 

 

 

166 

 

 

(43)

 

 

123 

 

84 

 

(17)

 

67 

Net change

 

 

100 

 

 

(22)

 

 

78 

 

 

102 

 

 

(8)

 

 

94 

 

 

182 

 

 

(48)

 

 

134 

 

 

100 

 

 

(22)

 

 

78 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Comprehensive (Loss) Income

 

$

(2,659)

 

$

693 

 

$

(1,966)

 

$

405 

 

$

(121)

 

$

284 

Other comprehensive income (loss)

 

$

3,928 

 

$

(1,020)

 

$

2,908 

 

$

(2,659)

 

$

693 

 

$

(1,966)



(a)

Included in net periodic pension cost, as described in Note 9 – “Net Periodic Benefit Costs”

(b)

Tax benefit includes impact of re-valuation of deferred tax asset due to increase in marginal federal income tax rate

from 34% to 35%.

3230

 


 

Table of Contents



7. SEGMENT INFORMATION



The Company is comprised ofcomprises two primary business segments, banking and insurance agency activities.  The following tables set forth information regarding these segments for the three and six month periods ended June  30 2018, 2019 and 2017.2018.





 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

Three months ended June 30, 2019



 

 

Banking

 

 

Insurance Agency

 

 

 



 

 

Activities

 

 

Activities

 

 

Total



 

 

(in thousands)



 

 

 

 

 

 

 

 

 

Net interest income (expense)

 

$

13,167 

 

$

(33)

 

$

13,134 

Provision for loan losses

 

 

90 

 

 

-    

 

 

90 

Net interest income (expense) after

 

 

 

 

 

 

 

 

 

provision for loan losses

 

 

13,077 

 

 

(33)

 

 

13,044 

Non-interest income

 

 

1,829 

 

 

-    

 

 

1,829 

Insurance service and fees

 

 

128 

 

 

2,773 

 

 

2,901 

Amortization expense

 

 

-    

 

 

112 

 

 

112 

Non-interest expense

 

 

9,911 

 

 

2,126 

 

 

12,037 

Income before income taxes

 

 

5,123 

 

 

502 

 

 

5,625 

Income tax provision

 

 

1,112 

 

 

131 

 

 

1,243 

Net income

 

$

4,011 

 

$

371 

 

$

4,382 







 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

Three months ended June 30, 2018



 

 

Banking

 

 

Insurance Agency

 

 

 



 

 

Activities

 

 

Activities

 

 

Total



 

 

(in thousands)



 

 

 

 

 

 

 

 

 

Net interest income (expense)

 

$

12,225 

 

$

(29)

 

$

12,196 

Provision for loan losses

 

 

659 

 

 

-    

 

 

659 

Net interest income (expense) after

 

 

 

 

 

 

 

 

 

provision for loan losses

 

 

11,566 

 

 

(29)

 

 

11,537 

Non-interest income

 

 

1,687 

 

 

-    

 

 

1,687 

Insurance service and fees

 

 

164 

 

 

1,788 

 

 

1,952 

Amortization expense

 

 

-    

 

 

28 

 

 

28 

Non-interest expense

 

 

8,624 

 

 

1,581 

 

 

10,205 

Income before income taxes

 

 

4,793 

 

 

150 

 

 

4,943 

Income tax provision

 

 

1,105 

 

 

47 

 

 

1,152 

Net income

 

$

3,688 

 

$

103 

 

$

3,791 





 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

Three months ended June 30, 2017



 

 

Banking

 

 

Insurance Agency

 

 

 



 

 

Activities

 

 

Activities

 

 

Total



 

 

(in thousands)



 

 

 

 

 

 

 

 

 

Net interest income (expense)

 

$

10,144 

 

$

(26)

 

$

10,118 

Provision for loan losses

 

 

410 

 

 

-    

 

 

410 

Net interest income (expense) after

 

 

 

 

 

 

 

 

 

provision for loan losses

 

 

9,734 

 

 

(26)

 

 

9,708 

Non-interest income

 

 

1,177 

 

 

-    

 

 

1,177 

Insurance service and fees

 

 

96 

 

 

1,816 

 

 

1,912 

Amortization expense

 

 

-    

 

 

28 

 

 

28 

Non-interest expense

 

 

7,874 

 

 

1,415 

 

 

9,289 

Income before income taxes

 

 

3,133 

 

 

347 

 

 

3,480 

Income tax provision

 

 

729 

 

 

133 

 

 

862 

Net income

 

$

2,404 

 

$

214 

 

$

2,618 

3331

 


 

Table of Contents







 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

Six months ended June 30, 2019



 

 

Banking 

 

 

Insurance Agency

 

 

 



 

 

Activities

 

 

Activities

 

 

Total



 

 

(in thousands)



 

 

 

 

 

 

 

 

 

Net interest income (expense)

 

$

25,708 

 

$

(66)

 

$

25,642 

Provision for loan losses

 

 

628 

 

 

-    

 

 

628 

Net interest income (expense) after

 

 

 

 

 

-    

 

 

 

provision for loan losses

 

 

25,080 

 

 

(66)

 

 

25,014 

Non-interest income

 

 

3,582 

 

 

-    

 

 

3,582 

Insurance service and fees

 

 

247 

 

 

5,096 

 

 

5,343 

Amortization expense

 

 

-    

 

 

224 

 

 

224 

Non-interest expense

 

 

18,997 

 

 

4,152 

 

 

23,149 

Income before income taxes

 

 

9,912 

 

 

654 

 

 

10,566 

Income tax provision

 

 

2,293 

 

 

171 

 

 

2,464 

Net income

 

$

7,619 

 

$

483 

 

$

8,102 



 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

Six months ended June 30, 2018



 

 

Banking 

 

 

Insurance Agency

 

 

 



 

 

Activities

 

 

Activities

 

 

Total



 

 

(in thousands)



 

 

 

 

 

 

 

 

 

Net interest income (expense)

 

$

23,704 

 

$

(56)

 

$

23,648 

Provision for loan losses

 

 

1,426 

 

 

-    

 

 

1,426 

Net interest income (expense) after

 

 

 

 

 

 

 

 

 

provision for loan losses

 

 

22,278 

 

 

(56)

 

 

22,222 

Non-interest income

 

 

3,508 

 

 

-    

 

 

3,508 

Insurance service and fees

 

 

301 

 

 

3,616 

 

 

3,917 

Amortization expense

 

 

-    

 

 

56 

 

 

56 

Non-interest expense

 

 

17,189 

 

 

3,159 

 

 

20,348 

Income before income taxes

 

 

8,898 

 

 

345 

 

 

9,243 

Income tax provision

 

 

2,043 

 

 

90 

 

 

2,133 

Net income

 

$

6,855 

 

$

255 

 

$

7,110 









 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

Six months ended June 30, 2017



 

 

Banking 

 

 

Insurance Agency

 

 

 



 

 

Activities

 

 

Activities

 

 

Total



 

 

(in thousands)



 

 

 

 

 

 

 

 

 

Net interest income (expense)

 

$

19,814 

 

$

(52)

 

$

19,762 

Provision for loan losses

 

 

(25)

 

 

-    

 

 

(25)

Net interest income (expense) after

 

 

 

 

 

 

 

 

 

provision for loan losses

 

 

19,839 

 

 

(52)

 

 

19,787 

Non-interest income

 

 

2,531 

 

 

-    

 

 

2,531 

Insurance service and fees

 

 

205 

 

 

3,875 

 

 

4,080 

Amortization expense

 

 

-    

 

 

56 

 

 

56 

Non-interest expense

 

 

15,521 

 

 

2,795 

 

 

18,316 

Income before income taxes

 

 

7,054 

 

 

972 

 

 

8,026 

Income tax provision

 

 

1,888 

 

 

374 

 

 

2,262 

Net income

 

$

5,166 

 

$

598 

 

$

5,764 







32


Table of Contents



8. CONTINGENT LIABILITIES AND COMMITMENTS



The unaudited consolidated financial statements do not reflect various commitments and contingent liabilities, which arise in the normal course of business, and which involve elements of credit risk, interest rate risk and liquidity risk.  These commitments and contingent liabilities consist of commitments to extend credit and standby letters of credit.  A summary of the Bank’s commitments and contingent liabilities is as follows:





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30,

 

December 31,

 

June  30,

 

December 31,

 

2018

 

2017

 

2019

 

2018

 

(in thousands)

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

Commitments to extend credit

 

$

264,802 

 

$

247,540 

 

$

295,753 

 

$

290,785 

Standby letters of credit

 

 

3,549 

 

 

3,115 

 

 

4,293 

 

 

3,379 

Total

 

$

268,351 

 

$

250,655 

 

$

300,046 

 

$

294,164 



34


Table of Contents



Commitments to extend credit and standby letters of credit include some exposure to credit loss in the event of nonperformance by the customer.  The Bank’s credit policies and procedures for credit commitments and financial guarantees are the same as those for extensions of credit that are recorded on the Company’s unaudited consolidated balance sheets.  Because these instruments have fixed maturity dates, and because they may expire without being drawn upon, they do not necessarily represent cash requirements of the Bank.  The Bank did not incur any losses on its commitments and did not record a reserve for its commitments during the first six months of 20182019 or during 2017.2018.



Certain lending commitments for construction residential mortgage loans are considered derivative instruments under the guidelines of GAAP.  The changes in the fair value of these commitments, due to interest rate risk, are not recorded on the consolidated balance sheets as the fair value of these derivatives is not considered to be material.





9. NET PERIODIC BENEFIT COSTS



On January 31, 2008, the Bank froze its defined benefit pension plan.  The plan covered substantially all Bank employees.  The plan provides benefits that are based on the employees’ compensation and years of service.  Under the freeze, eligible employees will receive, at retirement, the benefits already earned through January 31, 2008, but have not accrued any additional benefits since then.  As a result, service cost is no longer incurred.



The Bank uses an actuarial method of amortizing prior service cost and unrecognized net gains or losses which result from actual expense and assumptions being different than those that are projected.  The amortization method the Bank used recognized the prior service cost and net gains or losses over the average remaining service period of active employees.



The Bank also maintains a nonqualified supplemental executive retirement plan covering certain members of the Company’s senior management.  The Bank uses an actuarial method of amortizing unrecognized net gains or losses which result from actual expense and assumptions being different than those that are projected.  The amortization method the Bank uses recognizes the net gains or losses over the average remaining service period of active employees.



The Bank did not make a contribution to the defined benefit pension plan during the first six months of 2018.

The following table presents the net periodic cost for the Bank’s defined benefit pension plan and supplemental executive retirement plan for the three and six month periods ended June 30, 20182019 and 2017:



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

 

Three months ended June 30,



 

 

(in thousands)



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

Supplemental Executive



 

Pension Benefits

 

Retirement Plan



 

 

 

 

 

 

 

 

 

 

 

 



 

2018

 

2017

 

2018

 

2017



 

 

 

 

 

 

 

 

 

 

 

 

Service cost

 

$

-    

 

$

-    

 

$

47 

 

$

42 

Interest cost

 

 

51 

 

 

54 

 

 

34 

 

 

34 

Expected return on plan assets

 

 

(78)

 

 

(68)

 

 

-    

 

 

-    

Amortization of prior service cost

 

 

-    

 

 

-    

 

 

 

 

Amortization of the net loss

 

 

21 

 

 

23 

 

 

21 

 

 

20 

Net periodic cost (benefit)

 

$

(6)

 

$

 

$

110 

 

$

104 

2018:

3533

 


 

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Six months ended June 30,

 

 

Three months ended June 30,

 

 

(in thousands)

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Supplemental Executive

 

 

 

 

 

 

 

Supplemental Executive

 

Pension Benefits

 

Retirement Plan

 

Pension Benefits

 

Retirement Plan

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2018

 

2017

 

2018

 

2017

 

2019

 

2018

 

2019

 

2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Service cost

 

$

-    

 

$

-    

 

$

94 

 

$

84 

 

$

-    

 

$

-    

 

$

36 

 

$

47 

Interest cost

 

 

102 

 

 

108 

 

 

68 

 

 

68 

 

 

55 

 

 

51 

 

 

50 

 

 

34 

Expected return on plan assets

 

 

(156)

 

 

(137)

 

 

-    

 

 

-    

 

 

(69)

 

 

(78)

 

 

-    

 

 

-    

Amortization of prior service cost

 

 

-    

 

 

-    

 

 

16 

 

 

16 

 

 

-    

 

 

-    

 

 

 

 

Amortization of the net loss

 

 

42 

 

 

46 

 

 

42 

 

 

40 

 

 

24 

 

 

21 

 

 

59 

 

 

21 

Net periodic cost (benefit)

 

$

(12)

 

$

17 

 

$

220 

 

$

208 

 

$

10 

 

$

(6)

 

$

153 

 

$

110 



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

 

Six months ended June 30,



 

 

(in thousands)



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

Supplemental Executive



 

Pension Benefits

 

Retirement Plan



 

 

 

 

 

 

 

 

 

 

 

 



 

2019

 

2018

 

2019

 

2018



 

 

 

 

 

 

 

 

 

 

 

 

Service cost

 

$

-    

 

$

-    

 

$

72 

 

$

94 

Interest cost

 

 

110 

 

 

102 

 

 

100 

 

 

68 

Expected return on plan assets

 

 

(138)

 

 

(156)

 

 

-    

 

 

-    

Amortization of prior service cost

 

 

-    

 

 

-    

 

 

16 

 

 

16 

Amortization of the net loss

 

 

48 

 

 

42 

 

 

118 

 

 

42 

Net periodic cost (benefit)

 

$

20 

 

$

(12)

 

$

306 

 

$

220 



The components of net periodic benefit cost other than the service cost component are included in the line item “other expense” in the income statement.







10.INCOME TAXES

In the second quarter of 2017, the Company recognized the impact of its investment in a partnership that incurred expenses related to the rehabilitation of a certified historic structure located in New York State after a historic structure was placed in service.  At the time a historic structure is placed in service, the Bank is eligible for a federal and New York State tax credit.  The Company’s accounting policies related to these investments and the resulting tax credits is detailed in Note 1 to the audited Consolidated Financial Statements on Form 10-K for the year ended December 31, 2017.  There were no historic structures placed in service related to any of the Company’s investments in 2018 and thus there was no impact to the financial statements for the three and six month periods ended June 30, 2018.  The impact for the three and six month periods ended June 30, 2017 was a loss on the investment of $0.9 million, the recording of the New York State tax credit of $0.6 million in non-interest income, and a benefit in income tax expense line of $0.2 million.

11.  REVENUE RECOGNITION OF NON-INTEREST INCOME



A description of the Company’s material revenue streams in non-interest income accounted for under ASC 606 follows:

   

Insurance Service and Fees:Fees: Insurance services revenue relates to various revenue streams from services provided by TEA and the Bank:

 

·

TEA earns commission revenue from selling commercial and personal property and casualty (“P&C”) insurance as well as employee benefits (“EB”) solutions to commercial customers.

 

TEA has agreements with various insurance companies to sell policies to customers on behalf of the carriers. The performance obligation for TEA is to sell annual P&C policies to commercial customers and consumers. This performance obligation is met when a new policy is sold or when an existing policy renews. The policies are generally one year terms. In the agreements with the respective insurance companies, a commission rate is agreed upon.  The commission is recognized at the time of the sale of the policy or when a policy renews.

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TEA has signed contracts with insurance carriers that enable TEA to sell benefit plans to commercial customers on behalf of the insurance carriers. The performance obligation for TEA is to sell the plans to commercial customers. After the initial sale when the customer signs an agreement to purchase the offered benefit plan, the performance obligation is met each month when a customer continues utilizing benefit plans from the carrier. The customer does not commit to a specific length of time with the carrier. In the agreements with the respective insurance companies, a commission rate is agreed upon. Revenue is recognized each month when the customer continues with the benefit plan sold by TEA.



36


Table of Contents

·

TEA also earns contingent profit sharing revenue. The insurance companies measure the loss ratio for TEA’s customers and will pay TEA according to how profitable TEA customers are.



TEA has signed written agreements with insurance carriers that document payouts to TEA based on the loss ratios of its customers. The performance obligation for TEA is to maintain a customer base with loss ratios below the agreed upon thresholds. In the contracts with the insurance companies, payout rates based on loss ratios are documented. The consideration is variable as loss ratios vary based on customer experience.  TEA’s performance obligation is over the course of the year as its customers’ performance with insurance carriers is measured throughout the year as losses occur. Due to the variable nature of contingent profit sharing revenue, TEA will accrue contingent profit sharing revenue throughout the year based on recent historical results. As loss events occur and overall performance becomes known to TEA, accrual adjustments will be made until the cash is ultimately received.



·

Financial services commission revenue from the Bank related to wealth management such as life insurance, annuities, and mutual funds sales is also included in the “insurance service and fees” line of the income statement.



The Company earns wealth management fees from its contracts with customers for certain financial services.  Fees that are transaction-based are recognized at the point in time that the transaction is executed.  Other related services provided include financial planning services and the fees the Bank earns are recognized when the services are rendered.

   

·

Insurance claims services revenue is recorded at FCS.



FCS has signed agreements with insurance companies to perform claims services including investigative and adjustment services related to residential and commercial lines. The performance obligation is for FCS to investigate the insurance claims and inspecting the damage to determine the extent of the insurance company’s liability. FCS is paid based on time and materials expended to investigate the claim. The rates paid are determined in the agreement between FCS and the respective insurance companies. Upon completion of its claims inspection work, FCS bills the insurance company for services rendered and recognizes the revenue earned.

 

A disaggregation of the total insurance service and other fees for the three and six month periods ended June 30, 20182019 and 20172018 is provided in the tables below:



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended June 30,

Three months ended June 30,

 

2019

 

 

2018

2018

 

2017

 

(in thousands)

Commercial property and casualty insurance commissions

613 

 

572 

$

1,043 

 

$

613 

Personal property and casualty insurance commissions

735 

 

771 

 

1,005 

 

735 

Employee benefits sales commissions

177 

 

146 

 

289 

 

177 

Profit sharing and contingent revenue

145 

 

176 

 

252 

 

145 

Wealth management and other financial services

168 

 

97 

 

139 

 

168 

Insurance claims services revenue

96 

 

129 

 

155 

 

96 

Other insurance-related revenue

18 

 

21 

 

18 

 

 

18 

Total insurance service and other fees

1,952 

 

1,912 

$

2,901 

 

$

1,952 

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Six months ended June 30,



 

2019

 

 

2018



(in thousands)

Commercial property and casualty insurance commissions

$

1,885 

 

$

1,335 

Personal property and casualty insurance commissions

 

1,755 

 

 

1,332 

Employee benefits sales commissions

 

582 

 

 

423 

Profit sharing and contingent revenue

 

509 

 

 

304 

Wealth management and other financial services

 

263 

 

 

311 

Insurance claims services revenue

 

301 

 

 

169 

Other insurance-related revenue

 

48 

 

 

43 

Total insurance service and other fees

$

5,343 

 

$

3,917 

















 

 

 



 

 

 



Six months ended June 30,



2018

 

2017

Commercial property and casualty insurance commissions

1,335 

 

1,244 

Personal property and casualty insurance commissions

1,332 

 

1,385 

Employee benefits sales commissions

423 

 

198 

Profit sharing and contingent revenue

304 

 

749 

Wealth management and other financial services

311 

 

211 

Insurance claims services revenue

169 

 

249 

Other insurance-related revenue

43 

 

44 

Total insurance service and other fees

3,917 

 

4,080 

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12.11.  RECENT ACCOUNTING PRONOUNCEMENTS



Note 1 contains details on the impact of accounting pronouncements adopted induring the six-month periodsix months ended June 30, 2018.2019.  The following proposed standards will be adopted in future periods:

ASU 2016-02, LeasesThe objective of this ASU isperiods.  ASUs not listed below are not expected to increase transparency and comparability among organizations by recognizing lease assets and lease liabilitieshave a material impact on the balance sheet and disclosing key information about leasing arrangements to meet that objective.  The main difference between previous GAAP and this ASU is the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous GAAP.  Under this new guidance, a lessee should recognize in the statement ofCompany’s consolidated financial position, a liability to make lease payments and a right-of-use asset representing its right to use the underlying asset for the lease term.  The recognition, measurement, and presentationresults of expenses andoperations, cash flows arising from a lease by a lessee have not significantly changed from previous GAAP.  Information about the Company’s operating lease obligations is disclosed in Note 16 to the Company’s Consolidated Financial Statements included in Item 8 of the Annual Report on Form 10-K for the year ended December 31, 2017.  The amendments in this ASU are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years.  The Company is currently evaluating the impact of the standard on its financial reporting.or disclosures.

  

ASU 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments.  Current GAAP requires an “incurred loss” methodology for recognizing credit losses that delays recognition until it is probable a loss has been incurred. Both financial institutions and users of their financial statements expressed concern that current GAAP restricts the ability to record credit losses that are expected, but do not yet meet the “probable” threshold.  The main objective of this ASU (commonly known as the Current Expected Credit Loss Impairment Model, or CECL, in the industry) is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date.  To achieve this objective, the amendments in CECL replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.  The amendments in CECL are effective for the Company for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The FASB expects that an entity will be able to leverage its current systems and methods for recording the allowance for credit losses.  However, many financial institutions, particularly community banks similar in size to the Company and industry groups like the American Bankers Association, have expressed concern about the impact of CECL.  The life of loan loss concept presents complexities that can decrease capital, and add both volatility to the allowance for loan losses (“ALLL”) estimates and additional costs.  CECL may increase the ALLL, though many factors will determine the impact for each bank.  Changes in expectations of future economic conditions will play a large role in CECL and can significantly affect the credit loss estimate.  A challengeThe Company is developing its approach for determining expected credit losses under the Company could benew guidance, including the operational impact.  Significant procedural challenges may be faced both in implementationlicensing of new software and on an ongoing basis.the development of processes to track loan performance.  The total impact of CECL to the Company’s financial statements is unknown but may be material.  Implementation of CECL will be a significant project for the Company through the projected implementation date of January 1, 2020.



ASU 2017-04,2018-13, SimplifyingDisclosure Framework – Changes to the TestDisclosure Requirements for Goodwill Impairment.Fair Value Measurement The objective of this ASU is to simplify how an entity is required to test goodwill impairment by eliminating Step 2 from the goodwill impairment test.  Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill.  Under the amendments in this ASU, an entity will perform its annual goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount.  An entity would recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. The amendments in this ASU are effective for annual reporting periods beginning after December 15, 2019, including interim periods within those fiscal years.  The Company does not expectmodify the standard to have a material impactdisclosure requirements on the Company’s financial reporting.

ASU 2017-08, Premium Amortization on Purchased Callable Debt Securities.  The objective of this ASU is to amend the amortization period for certain purchased callable debt securities held at a premium.  The FASB is shortening the amortization period for the premium to the earliest call date.  Under current GAAP, entities generally amortize the premium as an adjustment of yield over the contractual life of the investment.  Current GAAP excludes certain callable debt securities from consideration of early repayment of principal even if the holder is certain that the call will be exercised.  As a result, upon the exercise of a call on a callable debt security held at a premium, the unamortized premium is recorded as a loss in earnings.fair value measurements.  The amendments do no not require an accounting changeon changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for securities held at a discount;only the discount continuesmost recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to be amortized to maturity.all periods presented upon their effective date. The amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018.  The Company does hold callable debt securities that were purchased at a premium and is currently evaluating2019. Adoption of this ASU will impact the Company’s disclosures but will not impact the Company’s financial condition, results of the standard on its financial reporting.operations or cash flows.



ASU 2018-14, Disclosure Framework – Changes to the Disclosure Requirements for Defined Benefit Plans – The amendments in this ASU remove disclosures that no longer are considered cost beneficial, clarify the specific requirements of disclosures, and add disclosure requirements identified as relevant.  The amendments in this ASU are effective for fiscal years ending after December 15, 2020. Adoption of this ASU will impact the Company’s disclosures but will not impact the Company’s financial condition, results of operations or cash flows.

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13. SUBSEQUENT EVENTS

TEA purchased the business of Richardson and Stout Insurance (“R&S”) on July 1, 2018 in what will be accounted for as a business combination for $5 million.  R&S was an insurance agency in Wellsville, NY that offered personal and commercial property and casualty insurance agency services.  The purchase agreement included an additional $1.5 million in cash and stock compensation to be paid by TEA should the former R&S owners remain employees of TEA through July 1, 2021.  The $0.6 million in stock compensation will be made through an issuance of the Company’s stock based on the share price as of the close of business on June 29, 2018 of $46.10.  The impact of the purchase on the Company’s financial statements will be included on the Consolidated Balance Sheet as of September 30, 2018 and in the results reported in the Consolidated Statement of Income for the three-month period ended September 30, 2018 in next quarter’s Form 10-Q.



ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



This Quarterly Report on Form 10-Q may contain certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that involve substantial risks and uncertainties.  When used in this report, or in the documents incorporated by reference herein, the words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” “seek,” and similar expressions identify such forward-looking statements.  These forward-looking statements include statements regarding the Company’s business plans, prospects, growth and operating strategies, statements regarding the asset quality of the Company’s loan and investment portfolios, and estimates of the Company’s risks and future costs and benefits.



These forward-looking statements are based largely on the expectations of the Company’s management and are subject to a number of risks and uncertainties, including but not limited to: general economic conditions, either nationally or in the Company’s market areas, that are worse than expected; increased competition among depository or other financial institutions; inflation and changes in the interest rate environment that reduce the Company’s margins or reduce the fair value of financial instruments; changes in laws or government regulations affecting financial institutions, including changes in regulatory fees, monetary policy, and capital requirements; the Company’s ability to enter new markets successfully and capitalize on growth opportunities; the Company’s ability to successfully integrate acquired entities; loan losses in excess of the Company’s allowance for loan losses; changes in accounting pronouncements and practices, as adopted by financial institution regulatory agencies, the Financial Accounting Standards Board and the Public Company Accounting Oversight Board; the impact of such changes in accounting pronouncements and practices being greater than anticipated; the ability to realize the benefit of deferred tax assets; changes in tax policies, rates and regulations of federal, state and local tax authorities; changes in consumer spending, borrowing and saving habits; changes in the Company’s organization, compensation and benefit plans; and other factors discussed elsewhere in this Quarterly Report on Form 10-Q, as well as in the Company’s periodic reports filed with the SEC, in particular the “Risk Factors” discussed in Item 1A of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017.2018.  Many of these factors are beyond the Company’s control and are difficult to predict.



Because of these and other uncertainties, the Company’s actual results, performance or achievements could differ materially from those contemplated, expressed or implied by the forward-looking statements contained herein.  Forward-looking statements speak only as of the date they are made.  The Company undertakes no obligation to publicly update or revise forward-looking information, whether as a result of new, updated information, future events or otherwise, except to the extent required by law.



APPLICATION OF CRITICAL ACCOUNTING ESTIMATES



The Company’s Unaudited Consolidated Financial Statements included in this Quarterly Report on Form 10-Q are prepared in accordance with U.S. GAAP and follow general practices within the industries in which it operates.  Application of these principles requires management to make estimates, assumptions, and judgments that affect the amounts reported in the Company’s Unaudited Consolidated Financial Statements and Notes.  These estimates, assumptions, and judgments are based on information available as of the date of the Unaudited Consolidated Financial Statements.  Accordingly, as this information changes, the Unaudited Consolidated Financial Statements could reflect different estimates, assumptions, and judgments.  Certain policies inherently have a greater reliance on the use of estimates, assumptions, and judgments, and as such, have a greater possibility of producing results that could be materially different than originally reported.  Estimates, assumptions, and judgments are necessary when assets and liabilities are required to be recorded at fair value, when a decline in the value of an asset not carried on the financial statements at fair value warrants an impairment write-down or valuation reserve to be established, or when an asset or liability needs to be recorded contingent upon a future event.  Carrying assets and liabilities at fair value inherently results in more financial statement volatility.  The fair values and the information used to record valuation adjustments for certain assets and liabilities are based either on quoted market prices or are provided by other third-party sources, when available.  When third-party information is not available, valuation adjustments are estimated in good faith by management primarily through the use of internal cash flow modeling techniques.  Refer to Note 3 – “Fair Value Measurements” to the

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Table of Contents

Company’s Unaudited Consolidated Financial Statements included in Item 1 of this Quarterly Report on Form 10-Q for further detail on fair value measurement.



Significant accounting policies followed by the Company are presented in Note 1 – “Organization and Summary of Significant Accounting Policies” to the Audited Consolidated Financial Statements included in Item 8 in its Annual Report on Form 10-K for the year ended December 31, 2017.2018.  These policies, along with the disclosures presented in the other Notes to the Company's Audited Consolidated Financial Statements contained in its Annual Report on Form 10-K and in this financial review, provide information on how significant assets and liabilities are presented in the Company’s Unaudited Consolidated Financial Statements and how those values are determined.

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Based on the valuation techniques used and the sensitivity of financial statement amounts to the methods, assumptions, and estimates underlying those amounts, management has identified the determination of the allowance for loan losses and valuation of goodwill to be the accounting areas that require the most subjective or complex judgments, and, as such, could be most subject to revision as new information becomes available.



Allowance for Loan Losses



The allowance for loan losses represents management’s estimate of probable losses in the Company’s loan portfolio.  Determining the amount of the allowance for loan losses is considered a critical accounting estimate because it requires significant judgment on the part of management and the use of estimates related to the amount and timing of expected future cash flows on impaired loans, estimated losses on pools of homogeneous loans based on historical loss experience, and consideration of current economic trends and conditions, all of which may be susceptible to significant change.  The loan portfolio also represents the largest asset type on the Company’s Unaudited Consolidated Balance Sheets.  Note 1 to the Audited Consolidated Financial Statements included in Item 8 in the Company’s Annual Report on Form 10-K for the year ended December 31, 20172018 describes the methodology used to determine the allowance for loan losses.



Goodwill



The amount of goodwill reflected in the Company’s Unaudited Consolidated Financial Statements is required to be tested by management for impairment on at least an annual basis.  The test for impairment of goodwill on the identified reporting unit is considered a critical accounting estimate because it requires judgment on the part of management and the use of estimates related to the growth assumptions and market multiples used in the valuation model.  The goodwill impairment testing is performed annually as of December 31st.31.  No impairment charges were incurred in the most recent test and the fair value of the tested reporting unit substantially exceeded its carrying value.  There were no triggering events in the six month period ended June 30, 20182019 that resulted in an interim impairment test.

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ANALYSIS OF FINANCIAL CONDITION



Loan Activity

Total gross loans grew to $1.13were $1.2 billion at June 30, 2018,2019, a $16$57 million or 1%5% increase from total loans of $1.11 billion at MarchDecember 31, 2018 and a $61$87 million or 6%8% increase from $1.07 billion at December 31, 2017.June 30, 2018.  Loan activity during the second quarter of 2019 included the payoff of an $8 million commercial construction loan that was in nonaccrual status.



Loans secured by real estate were $884$942 million at June 30, 2018,2019, reflecting a $22$1 million or 3%less than 1% increase from $862$941 million at March 31, 20182019 and a $54$15 million or 6%2% increase from $830$927 million at December 31, 2017.2018.  Commercial real estate loans, including construction loans, were $668$711 million at June 30, 2018, $162019, $1 million or less than 1% higher than the $652$710 million balance at the end of the first quarter of 20182019 and $41$13 million or 2% higher than the $698 million balance of $627 million at the end of 2017.the fourth quarter of 2018.  Commercial real estate is the largest part of the Company’s loan portfolio and has historically been the highest growth segment of the portfolio.  The market for commercial real estate in the Company’s footprint in Western New York has been strong over the past two years.  The demand, along with the Company’s proven track record indedicated resources to commercial real estate lending, led to strong growth at an annualized rate of 10%6%, excluding the nonaccrual commercial construction loan payoff previously mentioned, in the second quarterfirst six months of 2018.2019.



In the second quarter of 2018,2019, residential mortgage originations were $9$6 million compared with the previous quarter’s originations of $12$7 million and $6$9 million in the 2017first quarter of 2019 and second quarter.quarter of 2018.  The Company originated $21$13 million in residential mortgages in the first six months of 2018,2019, compared with $17to $21 million in the first six months of 2017.2018.  Residential mortgages sold in the second quarter of 2019 equated to approximately 43% of the residential mortgages originated by the Company during the quarter, as compared with 31% in the first quarter of 2019.  Residential mortgages sold in the first six months of 2019 were 37% of residential mortgages originated during the period.  There were no loans sold in the first two quarters of 2018, compared with 39% of originated residential mortgage loans sold in the second quarter of 2017 and 31% of originated residential mortgage loans sold in the first six months of 2017.2018.  Management decides to keep or sell residential mortgage loans at the time of origination based on interest rate risk management and the risk-adjusted return of alternative investment sources such as mortgage-backed securities.



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The Company has also focused on growth opportunities in commercial and industrial (“C&I”) lending as a way to diversify its overall loan portfolio.  The C&I portfolio was $239$268 million at June 30, 2018,2019, representing a $6$26 million or 2% decrease11% increase from $245 million$242 at March 31, 2018, but  $72019 and $42 million or 3%  higher than the $232 million balance at December 31, 2017.  C&I loan growth was impacted by the Company’s concerted effort to exit leveraged syndicated national credits (“SNC”).  As these loans come up for renewal the Company has chosen not to participate. Leveraged SNC balances were $2 million at June 30, 2018, compared with $9 million at March 31, 2018 and $1218% increase from $226 million at December 31, 2017.2018.  The Company does not planincrease in C&I balances during the first six months of 2019 equates to originate any new loans ina 37% annualized growth rate.  C&I lending is a critical component of the leveraged SNC portfolio in the foreseeable future.Company’s strategy as C&I relationships can often include core deposits.



Credit Quality of Loan Portfolio

Total non-performing loans, defined as accruing loans greater than 90 days past due and nonaccrual loans, totaled $23$11 million, or 2.06%0.91% of total loans outstanding at June  30, 2018,2019, compared with $15$20  million, or 1.33%1.69% of total loans outstanding, as of March 31, 20182019 and $14$19 million, or 1.29%1.64% of total loans outstanding, as of December 31, 2017.2018.  The $8 million increasedecrease in non-performing loans induring the second quarter of 2018 is due to2019 included a payoff of a single commercial construction loan of $9$8 million that was downgraded toin nonaccrual status after it exceeded its original maturity date and the Bank did not agree to an extension.  Based on management’s analysis and a current valuation of the loan’s collateral, management considers the loan to be adequately reserved.status. 



Commercial credits graded as “special mention” and “substandard,” or the criticized loan portfolio, were $40$43 million at June 30, 2018,2019, a $2$5 million decrease from $48 million at March 31, 2019, but a $5 million increase from $38 million at March 31, 2018 and $10 million higher than the $30 million in criticized loans at December 31, 2017.2018.  The increasedecrease in criticized loans in the second quarter of 20182019 primarily reflected the aforementioned downgradepaydown of a $9 millionsingle commercial construction loan to substandard, partiallyof $8 million, offset by a $5 million decrease in criticized C&Icommercial loans and a  $1 million decrease in criticized commercial real estate loans.  Therethat were several upgrades indowngraded to special mention status during the C&I portfolio in the second quarter of 2018 after the Company received updated financial information from several borrowers that demonstrated improved operating performance that justified upgrades to watch or pass status.quarter.  The level of criticized loans can fluctuate as new information is constantly received on the Company’s borrowers and their financial circumstances change over time.  As noted in Note 4 to the Company’s Unaudited Financial Statements included in Part I of this Quarterly Report on Form 10-Q, internal risk ratings are the credit quality indicators used by the Company’s management to determine the appropriate allowance for loan losses for commercial credits.  “Special mention” and “substandard” loans are weaker credits with a higher risk of loss categorized as “criticized” credits rather than “pass” or “watch” credits.



The Company maintains an allowance for loan losses that in management’s judgment appropriately reflects losses inherent in the loan portfolio.  The allowance for loan losses totaled $15.2 million or 1.35%at June 30, 2019 and March 31, 2019, and $14.8 million at December 31, 2018.  At June 30, 2019 the allowance for loan losses was 1.26% of total loans outstanding, at June 30, 2018, compared with $14.7 million or 1.32%1.28% of total loans outstanding as of March 31, 20182019 and $14.0 million or 1.32% of total loans outstanding at December  31, 2017.2018.  The Company recorded $0.7$0.1 million in provision for loan losses in the second quarter of 2018, reflecting2019, compared with $0.5 million during the specific reservefirst quarter of 2019 and $0.7 million provision for the $9 million non-performing loan downgradedlosses in last year’s second quarter.  The provision for loan losses reflects strong loan growth in the quarter.  Net charge-offs were $0.1 million incurrent and comparative quarters.  The lower provision during the second quarter of 2018, or 0.04%2019 was the result of average neta decrease in non-performing loans compared withduring the quarter, primarily due to the payoff of a net charge-off ratiosingle commercial construction loan of 0.03% and (0.08)% in the first quarter of 2018 and second quarter of 2017, respectively.$8 million.  

39

 


Table of Contents

Investing Activities

Total investment securities decreased to $149were $137 million at June 30, 2018 from $1642019, compared with $141 million at March 31, 20182019 and $150$134 million at December 31, 2017.2018.  Interest-bearing deposits at other banks, which consist of overnight funds kept at correspondent banks and the Federal Reserve, were $3decreased to $46 million at June 30, 2018, compared with  $92019 from $56 million at March 31, 2018 and $82019, but increased from $26 million at December 31, 2017.  Seasonal municipal deposit inflows in the first quarter of 2018 required collateralization, resulting in the increased investment securities and interest-bearing deposits at other banks at the end2018.  The primary objectives of the first quarter.Company’s investment portfolio are to provide liquidity, provide collateral to secure municipal deposits, and maximize income while preserving safety of principal.  With the yield curve continuing to flatten,  there is a reduced advantage to purchasing longer-term investment securities.  Average investment securities and interest-bearing cash were 13% of average interest-earning assets in the second quarter of 2019 and 2018, unchanged fromcompared with 14% in the first three monthsquarter of 2018.2019.    



The Company’s highest concentration in its debt securities portfolio was in available for saleavailable-for-sale U.S. government sponsored mortgage-backed securities at 56%70% of total debtinvestment securities at June 30, 2018,2019 compared with 53%56% at March 31, 20182019 and 58%57% at December  31, 2017.2018.  The concentration in tax-advantaged debt securities issued by state and political subdivisions and U.S. government-sponsored agency bonds was 19%4% and 25%26%, respectively, of the total debt securities portfolio at June 30, 2018,2019, compared with 19%16% and 22%28% at March 31, 20182019 and 23%18% and 19%25% at December  31, 2017.  The Company also held a short-term U.S. Treasury bond for $10 million, or 6% of total outstanding debt securities, as of March 31, 2018 for purposes of collateralizing seasonal municipal deposits.2018.



The total net unrealized lossgain position of the available-for-sale investment portfolio was $4.2$0.6 million at June 30, 2018,2019, compared with $3.3a net unrealized loss position of $1.4 million at March 31, 20182019 and $1.4$3.2 million at December  31, 2017.2018.  The changes in unrealized gains and losses during the second quarter of 2019 resulted primarily from a rebalancing of the investment portfolio.    The securities in an unrealized loss position at the end of the second quarter of 20182019 reflect an increasedifferences in market interest rates rather than anya reduction in credit concerns.  Management believes that the credit quality of the securities portfolio as a whole is strong. 



The Company monitors extension and prepayment risk in the securities portfolio to limit potential exposures.  The Company has no direct exposure to subprime mortgages, nor does the Company hold private mortgage-backed securities, credit default swaps, or FNMA or FHLMC preferred stock investments in its investment portfolio.

41


Table of Contents



Funding Activities

Total deposits were $1.28 billion at June 30, 2018 were $1.18 billion, a $482019 and March 31, 2019.   Total deposits increased $68 million or 4% increase6% from $1.13 billion at March 31, 2018 and a $131 million or 12% increase from $1.05$1.22 billion at December 31, 2017.2018.  The growth inincrease during the first six months of 2018 reflected2019 reflects growth in savings deposits of $60 million, time deposits of $55 million, NOW deposits (interest-bearing checking accounts) of $12$35 million, savings deposits of $32 million and demand deposits (non-interest-bearing checking accounts) of $5 million.  Due to the transactional nature$12 million, partially offset by an $11 million decrease in time deposits.  Further discussion of demand deposits, average balancesdeposit growth and changes in deposit mix are a useful metric to meaningfully measure sustained growth rates.  Average demand deposits were $240 million in the second quarter“Analysis of 2018, a 7% increase from $223 million in the first quarterResults of 2018 and 17% higher than the $205 million average balance in the second quarter of 2017.  Most of the Company’s demand deposit growth over the past twelve months has been with commercial customers.

The Company’s core deposit strategy centers on targeting business customers.  Commercial savings deposits increased $42 million during the first six months of 2018 while commercial demand deposits increased $2 million over the same time period.  The Company’s government banking initiative that began in 2017 in an effort to support the Bank’s funding needs continued to be successful in the first half of 2018.  Municipal deposits grew $64 million, including $51 million in savings deposits, $11 million in NOW deposits, and $2 million in demand deposits. 

Consumer savings deposit growth has been challenging as consumer preferences move toward term products with higher rates and local market competition has stiffened.  Consumer savings deposits declined $34 million in the first six months of 2018, including $14 million during the second quarter of 2018.  The growth product for consumer deposits continues to be time deposits, which grew $36 million during the first half of 2018.  The Company supplemented its core deposit portfolio with $19 million of brokered time deposits growth in the second quarter of 2018.  The Company previously did not have any brokered time deposits and has now expanded its funding strategy to include brokered time deposits as the Bank seeks to manage core funding pricing along with interest rate risk.Operations.” 



The Company had $10 million in other borrowings at June 30, 2019 and December 31, 2018.  This represents a single $10 million long-term advance with the Federal Home Loan Bank of New York (“FHLBNY”)FHLBNY scheduled to mature in 2020.  Other borrowings were $62 million at March 31, 2018 and $88 million at December 31, 2017.  The Company’s use of its overnight line of credit with FHLBNY varies depending on its ability to fund investment and loan growth with core deposits along with the line usage’s impact on interest rate risk.  There were no overnight borrowings at June 30, 2019.



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Table of Contents



ANALYSIS OF RESULTS OF OPERATIONS



Average Balance Sheet

The following tables present the significant categories of the assets and liabilities of the Company, interest income and interest expense, and the corresponding yields earned and rates paid for the periods indicated.  The assets and liabilities are presented as daily averages.  The average loan balances include both performing and non-performing loans.  Investments are included at book value.  Yields are presented on a non-tax-equivalent basis.





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended June 30, 2018

 

Three months ended June 30, 2017

 

Three months ended June 30, 2019

 

Three months ended June 30, 2018

 

Average

 

Interest

 

 

 

 

Average

 

Interest

 

 

 

 

Average

 

Interest

 

 

 

 

Average

 

Interest

 

 

 

 

Outstanding

 

Earned/

 

Yield/

 

Outstanding

 

Earned/

 

Yield/

 

Outstanding

 

Earned/

 

Yield/

 

Outstanding

 

Earned/

 

Yield/

 

Balance

 

Paid

 

Rate

 

Balance

 

Paid

 

Rate

 

Balance

 

Paid

 

Rate

 

Balance

 

Paid

 

Rate

 

(dollars in thousands)

 

(dollars in thousands)

 

(dollars in thousands)

 

(dollars in thousands)

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-earning assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans, net

 

$

1,098,391 

 

$

13,199 

 

4.82 

%

 

$

941,446 

 

$

10,646 

 

4.54 

%

 

$

1,183,379 

 

$

15,142 

 

5.13 

%

 

$

1,098,391 

 

$

13,199 

 

4.82 

%

Taxable securities

 

 

124,947 

 

 

863 

 

2.77 

%

 

 

92,606 

 

 

563 

 

2.44 

%

 

 

136,468 

 

 

942 

 

2.77 

%

 

 

124,947 

 

 

863 

 

2.77 

%

Tax-exempt securities

 

 

30,142 

 

 

170 

 

2.26 

%

 

 

35,086 

 

 

210 

 

2.40 

%

 

 

11,997 

 

 

85 

 

2.84 

%

 

 

30,142 

 

 

170 

 

2.26 

%

Interest bearing deposits at banks

 

 

4,013 

 

 

15 

 

1.50 

%

 

 

16,840 

 

 

43 

 

1.02 

%

 

 

28,132 

 

 

156 

 

2.22 

%

 

 

4,013 

 

 

15 

 

1.50 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total interest-earning assets

 

 

1,257,493 

 

$

14,247 

 

4.54 

%

 

 

1,085,978 

 

$

11,462 

 

4.23 

%

 

 

1,359,976 

 

$

16,325 

 

4.81 

%

 

 

1,257,493 

 

$

14,247 

 

4.54 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non interest-earning assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and due from banks

 

 

13,643 

 

 

 

 

 

 

 

 

13,545 

 

 

 

 

 

 

 

 

13,486 

 

 

 

 

 

 

 

 

13,643 

 

 

 

 

 

 

Premises and equipment, net

 

 

10,420 

 

 

 

 

 

 

 

 

11,021 

 

 

 

 

 

 

 

 

10,578 

 

 

 

 

 

 

 

 

10,420 

 

 

 

 

 

 

Other assets

 

 

57,050 

 

 

 

 

 

 

 

 

46,744 

 

 

 

 

 

 

 

 

61,656 

 

 

 

 

 

 

 

 

57,050 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Assets

 

$

1,338,606 

 

 

 

 

 

 

 

$

1,157,288 

 

 

 

 

 

 

 

$

1,445,696 

 

 

 

 

 

 

 

$

1,338,606 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES & STOCKHOLDERS' EQUITY

LIABILITIES & STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES & STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NOW

 

$

120,510 

 

$

78 

 

0.26 

%

 

$

97,422 

 

$

54 

 

0.22 

%

 

$

123,515 

 

$

114 

 

0.37 

%

 

$

120,510 

 

$

78 

 

0.26 

%

Savings

 

 

576,197 

 

 

850 

 

0.59 

%

 

 

540,995 

 

 

650 

 

0.48 

%

 

 

605,524 

 

 

1,314 

 

0.87 

%

 

 

576,197 

 

 

850 

 

0.59 

%

Time deposits

 

 

214,410 

 

 

831 

 

1.55 

%

 

 

152,112 

 

 

486 

 

1.28 

%

 

 

289,794 

 

 

1,574 

 

2.18 

%

 

 

214,410 

 

 

831 

 

1.55 

%

Other borrowed funds

 

 

32,546 

 

 

157 

 

1.93 

%

 

 

10,329 

 

 

44 

 

1.71 

%

 

 

10,043 

 

 

44 

 

1.76 

%

 

 

32,546 

 

 

157 

 

1.93 

%

Junior subordinated debentures

 

 

11,330 

 

 

132 

 

4.67 

%

 

 

11,330 

 

 

104 

 

3.68 

%

 

 

11,330 

 

 

144 

 

5.10 

%

 

 

11,330 

 

 

132 

 

4.67 

%

Securities sold U/A to repurchase

 

 

7,041 

 

 

 

0.17 

%

 

 

11,154 

 

 

 

0.22 

%

 

 

2,858 

 

 

 

0.14 

%

 

 

7,041 

 

 

 

0.17 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total interest-bearing liabilities

 

 

962,034 

 

$

2,051 

 

0.86 

%

 

 

823,342 

 

$

1,344 

 

0.65 

%

 

 

1,043,064 

 

$

3,191 

 

1.23 

%

 

 

962,034 

 

$

2,051 

 

0.86 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest-bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Demand deposits

 

 

239,546 

 

 

 

 

 

 

 

 

205,361 

 

 

 

 

 

 

 

 

244,142 

 

 

 

 

 

 

 

 

239,546 

 

 

 

 

 

 

Other

 

 

14,614 

 

 

 

 

 

 

 

 

13,860 

 

 

 

 

 

 

 

 

20,609 

 

 

 

 

 

 

 

 

14,614 

 

 

 

 

 

 

Total liabilities

 

$

1,216,194 

 

 

 

 

 

 

 

$

1,042,563 

 

 

 

 

 

 

 

$

1,307,815 

 

 

 

 

 

 

 

$

1,216,194 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' equity

 

 

122,412 

 

 

 

 

 

 

 

 

114,725 

 

 

 

 

 

 

 

 

137,881 

 

 

 

 

 

 

 

 

122,412 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Liabilities and Equity

 

$

1,338,606 

 

 

 

 

 

 

 

$

1,157,288 

 

 

 

 

 

 

 

$

1,445,696 

 

 

 

 

 

 

 

$

1,338,606 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest earnings

 

 

 

 

$  

12,196 

 

 

 

 

 

 

 

$  

10,118 

 

 

 

Net interest income

 

 

 

 

$  

13,134 

 

 

 

 

 

 

 

$  

12,196 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest margin

 

 

 

 

 

 

 

3.89 

%

 

 

 

 

 

 

 

3.74 

%

 

 

 

 

 

 

 

3.87 

%

 

 

 

 

 

 

 

3.89 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate spread

 

 

 

 

 

 

 

3.68 

%

 

 

 

 

 

 

 

3.58 

%

 

 

 

 

 

 

 

3.58 

%

 

 

 

 

 

 

 

3.68 

%



4341

 


 

Table of Contents



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six months ended June 30, 2018

 

Six months ended June 30, 2017

 

Six months ended June 30, 2019

 

Six months ended June 30, 2018

 

Average

 

Interest

 

 

 

 

Average

 

Interest

 

 

 

 

Average

 

Interest

 

 

 

 

Average

 

Interest

 

 

 

 

Outstanding

 

Earned/

 

Yield/

 

Outstanding

 

Earned/

 

Yield/

 

Outstanding

 

Earned/

 

Yield/

 

Outstanding

 

Earned/

 

Yield/

 

Balance

 

Paid

 

Rate

 

Balance

 

Paid

 

Rate

 

Balance

 

Paid

 

Rate

 

Balance

 

Paid

 

Rate

 

(dollars in thousands)

 

(dollars in thousands)

 

(dollars in thousands)

 

(dollars in thousands)

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-earning assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans, net

 

$

1,082,922 

 

$

25,562 

 

4.76 

%

 

$

933,067 

 

$

20,892 

 

4.52 

%

 

$

1,168,307 

 

$

29,504 

 

5.09 

%

 

$

1,082,922 

 

$

25,562 

 

4.76 

%

Taxable securities

 

 

126,765 

 

 

1,660 

 

2.64 

%

 

 

81,650 

 

 

999 

 

2.47 

%

 

 

128,329 

 

 

1,743 

 

2.74 

%

 

 

126,765 

 

 

1,660 

 

2.64 

%

Tax-exempt securities

 

 

31,134 

 

 

366 

 

2.37 

%

 

 

35,760 

 

 

434 

 

2.45 

%

 

 

16,548 

 

 

215 

 

2.62 

%

 

 

31,134 

 

 

366 

 

2.37 

%

Interest bearing deposits at banks

 

 

3,366 

 

 

25 

 

1.50 

%

 

 

11,425 

 

 

55 

 

0.97 

%

 

 

36,034 

 

 

405 

 

2.27 

%

 

 

3,366 

 

 

25 

 

1.50 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total interest-earning assets

 

 

1,244,187 

 

$

27,613 

 

4.48 

%

 

 

1,061,902 

 

$

22,380 

 

4.25 

%

 

 

1,349,218 

 

$

31,867 

 

4.76 

%

 

 

1,244,187 

 

$

27,613 

 

4.48 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non interest-earning assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and due from banks

 

 

13,904 

 

 

 

 

 

 

 

 

13,143 

 

 

 

 

 

 

 

 

13,500 

 

 

 

 

 

 

 

 

13,904 

 

 

 

 

 

 

Premises and equipment, net

 

 

10,490 

 

 

 

 

 

 

 

 

11,126 

 

 

 

 

 

 

 

 

10,540 

 

 

 

 

 

 

 

 

10,490 

 

 

 

 

 

 

Other assets

 

 

56,486 

 

 

 

 

 

 

 

 

46,743 

 

 

 

 

 

 

 

 

62,011 

 

 

 

 

 

 

 

 

56,486 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Assets

 

$

1,325,067 

 

 

 

 

 

 

 

$

1,132,914 

 

 

 

 

 

 

 

$

1,435,269 

 

 

 

 

 

 

 

$

1,325,067 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES & STOCKHOLDERS' EQUITY

LIABILITIES & STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES & STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NOW

 

$

117,406 

 

$

154 

 

0.26 

%

 

$

95,761 

 

$

105 

 

0.22 

%

 

$

118,073 

 

$

195 

 

0.33 

%

 

$

117,406 

 

$

154 

 

0.26 

%

Regular savings

 

 

564,437 

 

 

1,594 

 

0.57 

%

 

 

525,874 

 

 

1,260 

 

0.48 

%

 

 

598,621 

 

 

2,488 

 

0.84 

%

 

 

564,437 

 

 

1,594 

 

0.57 

%

Time deposits

 

 

204,372 

 

 

1,509 

 

1.49 

%

 

 

148,512 

 

 

941 

 

1.28 

%

 

 

294,166 

 

 

3,162 

 

2.17 

%

 

 

204,372 

 

 

1,509 

 

1.49 

%

Other borrowed funds

 

 

51,785 

 

 

450 

 

1.75 

%

 

 

12,910 

 

 

97 

 

1.52 

%

 

 

10,022 

 

 

86 

 

1.73 

%

 

 

51,785 

 

 

450 

 

1.75 

%

Junior subordinated debentures

 

 

11,330 

 

 

250 

 

4.45 

%

 

 

11,330 

 

 

204 

 

3.63 

%

 

 

11,330 

 

 

290 

 

5.16 

%

 

 

11,330 

 

 

250 

 

4.45 

%

Securities sold U/A to repurchase

 

 

8,675 

 

 

 

0.19 

%

 

 

11,524 

 

 

11 

 

0.19 

%

 

 

3,633 

 

 

 

0.22 

%

 

 

8,675 

 

 

 

0.19 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total interest-bearing liabilities

 

 

958,005 

 

$

3,965 

 

0.83 

%

 

 

805,911 

 

$

2,618 

 

0.66 

%

 

 

1,035,845 

 

$

6,225 

 

1.21 

%

 

 

958,005 

 

$

3,965 

 

0.83 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest-bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Demand deposits

 

 

231,406 

 

 

 

 

 

 

 

 

200,890 

 

 

 

 

 

 

 

 

243,092 

 

 

 

 

 

 

 

 

231,406 

 

 

 

 

 

 

Other

 

 

14,886 

 

 

 

 

 

 

 

 

14,453 

 

��

 

 

 

 

 

 

20,912 

 

 

 

 

 

 

 

 

14,886 

 

 

 

 

 

 

Total liabilities

 

$

1,204,297 

 

 

 

 

 

 

 

$

1,021,254 

 

 

 

 

 

 

 

$

1,299,849 

 

 

 

 

 

 

 

$

1,204,297 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' equity

 

 

120,770 

 

 

 

 

 

 

 

 

111,660 

 

 

 

 

 

 

 

 

135,420 

 

 

 

 

 

 

 

 

120,770 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Liabilities and Equity

 

$

1,325,067 

 

 

 

 

 

 

 

$

1,132,914 

 

 

 

 

 

 

 

$

1,435,269 

 

 

 

 

 

 

 

$

1,325,067 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest earnings

 

 

 

 

$  

23,648 

 

 

 

 

 

 

 

$  

19,762 

 

 

 

Net interest income

 

 

 

 

$  

25,642 

 

 

 

 

 

 

 

$  

23,648 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest margin

 

 

 

 

 

 

 

3.83 

%

 

 

 

 

 

 

 

3.75 

%

 

 

 

 

 

 

 

3.83 

%

 

 

 

 

 

 

 

3.83 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate spread

 

 

 

 

 

 

 

3.65 

%

 

 

 

 

 

 

 

3.59 

%

 

 

 

 

 

 

 

3.55 

%

 

 

 

 

 

 

 

3.65 

%

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Net Income



Net income was $4.4 million, or $0.88 per diluted share, in the second quarter of 2019, compared with
$3.7 million, or $0.75 per diluted share, in the first quarter of 2019 and $3.8 million, or $0.77 per diluted share, in the second quarter of 2018, compared with $3.3 million, or $0.68 per diluted share, in the first quarter of 2018 and $2.6 million, or $0.54 per diluted share, in the priorlast year’s second quarter.  The increase over both comparative periods primarily reflects higher net interest income due to loan growth and a wider net interest margin,higher insurance service and a lower effective tax rate related to federal income tax reform.fee revenue primarily resulting from the acquisition of R&S, partially offset by an increase in non-interest expense.  Return on average equity was 12.39%12.71% for the second quarter of 20182019 compared with 11.15%11.19% in the first quarter of 20182019 and 9.13%12.39% in the second quarter of 2017.2018.

The Company had net income of $7.1 million, or $1.44 per diluted share, in the first six months of 2018, a 23% increase from $5.8 million, or $1.20 per diluted share, in the comparable period of 2017.  Return on average equity improved from 10.32% in the first half of 2017 to 11.77% in the six month period ended June 30, 2018.

Other Results of Operations – Quarterly Comparison

Net interest income increased $0.7$0.6 million, or 7%5%, from the first quarter of 20182019, and $2.1$0.9 million, or 21%8%, from the prior-year second quarter to $12.2$13.1 million in the second quarter of 2019.   The increases were driven by growth in the commercial loan portfolio as well as the benefit from the re-pricing of variable rate loans tied to the Company’s prime rate, partially offset by an increase in interest expense.  Average commercial loans, including commercial real estate and commercial and industrial loans, were $965 million in the second quarter of 2019, $30 million higher than $935 million in the first quarter of 2019 and $67 million higher than $898 million in the second quarter of 2018.    

Second quarter net interest margin of 3.87% improved 8 basis points from the 2019 first quarter, but decreased 2 basis points from the second quarter of 2018.  The changes from the prior periods reflect increased yields on loans, offset by higher funding costs.  The higher yield on loans when compared with the first quarter of 2019 and the second quarter of 2018 reflects an increase of 8 and 31 basis points, respectively.  The margin has been impacted by rising funding costs due to increases in short-term interest rates, along with competitive deposit market pricing.  The cost of interest-bearing liabilities was 1.23% in the second quarter of 2019, compared with 1.20% in the first quarter of 2019 and 0.86% in the second quarter of 2018.  Consistent with the industry, the Company has experienced the migration of deposits from low-cost legacy savings products to higher-rate time deposits.  The average cost of time deposits was 2.18% in the second quarter of 2019, compared with 2.16% in the first quarter of 2019 and 1.55% in the second quarter of 2018. Average time deposits comprised 23% of average total deposits during the second quarter of 2019, compared with 19% in and the second quarter of 2018.  The Company has also increased its brokered time deposit activity as part of its funding strategy.  Average brokered time deposits were $40 million during the second quarter of 2019, compared with $3 million in the second quarter of 2018.

Provision for loan losses was $0.1 million in the second quarter of 2019, compared with $0.5 million in the first quarter of 2019 and $0.7 million in the second quarter of 2018.  The provision for loan losses reflects strong loan growth of average commercial loansin the current and a higher net interest margin were the primary drivers of the improvement in net interest income incomparative quarters.  The lower provision during the second quarter of 2018 when compared with both comparative periods.    Average commercial loans, including both commercial real estate and C&I loans, were $898 million in2019 was the 2018 second quarter, 3% higher than $872 million in the trailing first quarter, and 18% higher than $763 million in the 2017 second quarter. 

The 2018 second quarter net interest marginresult of 3.89% increased 12 basis points from 3.77%  in the 2018 first quarter, and 15 basis points from 3.74% in the second quarter of 2017.  The margin improvement from the prior year quarter stems from increased yields on interest-earning assets, somewhat offset by higher funding cost.  Loan yields benefited from variable loan re-pricing as the Federal Reserve increased its target rate by 125 basis points from March 2017 through June 2018.  The increase in short-term interest rates, along with a very competitive deposit market resulted in increased funding cost during the quarter.  The cost of interest-bearing liabilities was 0.86% in the second quarter of 2018, compared with 0.81% in the first quarter of 2018 and 0.65% in the second quarter of 2017.  Funding costs have been impacted by a shift in deposit mix as consumers in low-cost legacy savings deposit products have migrated to higher-cost time deposits or to competitor financial institutions with higher rates.

The $0.7 million provision for loan loss for the second quarter of 2018 reflects the increasedecrease in non-performing loans induring the quarter.  The decrease compared with the first quarter, of 2018 provision for loan loss of $0.8 million isprimarily due to lower loan growth, including the $7 million payoffpaydown of a leveraged SNC loan.  The increase over the prior year second quarter provision forsingle commercial construction loan loss of $0.4 million reflects higher net charge-offs.  Net charge-offs were $0.1$8 million.

Non-interest income was $4.7 million in the second quarter of 2018,2019, compared with net recoveries of $0.2 million in last year’s second quarter.

Non-interest income was $3.6 million in the second quarter of 2018, a decrease from $3.8$4.2 million in the first quarter of 2018, but an increase from  $3.12019 and $3.6 million in the prior year second quarter.  The decreaseincrease in non-interest income in the second quarter of 2018 compared withover comparative periods is primarily due to higher insurance revenue.  Insurance revenue increased $0.5 million from the first quarter of 2018 is mostly due to lower fair value adjustments to the Company’s mortgage servicing rights asset2019 and equity securities. The increase in non-interest income in the$0.9 million from last year’s second quarter of 2018 compared with the prior-year period is due to an increase in the fair value of the Company’s equity securities and the impact of a net reduction of noninterest income of $0.3 million during the second quarter of 2017 related to an investment in an historic rehabilitation tax credit.  There were no historic rehabilitation tax credit transactions during 2018.

Insurance revenue increased 2% during the second quarter of 2018 when compared with the prior year period due to higher commercial lines, employee benefits, and financial services revenues, offset by a reduction in personal lines and claims services revenue.

Non-interest expenses in the second quarter of 2018 increased 10% from the prior-year period, but less than 1% when compared with the first quarter of 2018, to $10.2 million.  Salaries and benefits costs were $6.5$2.9 million in the second quarter of 2018, a decrease2019.  The increase in insurance revenue over the first quarter of 2%2019 reflects new commercial and personal lines business and seasonally higher policy renewals, while the year-over-year increase also reflects the impact of the R&S acquisition.   

Non-interest expenses of $12.1 million in the second quarter of 2019 increased 19% from the prior-year period and 8% from the first quarter of 2018 but 9% higher than last year’s second quarter.2019.  The first quarter of 2018 included a one-time bonus paid to non-senior associates in recognition of their superior efforts.  The total costmost significant component of the bonusincrease was $0.3 million.  The increase inhigher salaries and benefitsbenefit costs, when compared withreflecting the prior year period reflectsR&S acquisition and the addition of strategic personnel hires to support the Company’s continued growth.  

Advertising expenses increased to $0.3Salaries and benefits costs were $7.5 million in the second quarter of 2018, compared with $0.12019, an increase of 4% from the prior quarter, and 15% from last year’s second quarter. 

Professional services increased $0.2 million infrom the first quarter of 2018,2019 and $0.2$0.3 million in the prior-year period.from last year’s second quarter.  The increase in advertising expense is due to promotional campaigns forprofessional service fees was largely a result of one-time legal and accounting expenses during the Company’s deposit products.second quarter of 2019. 



FDIC insurance expense increased to $0.2Technology and communications expenses were $1.1 million in the second quarter of 2018, which was relatively flat compared with2019, an increase of $0.2 million from the first quarter of 2018, but represented an increase of $0.12019 and $0.3 million when compared with the prior-year period.from last year��s second quarter.  The increase in FDIC insurance expense is a result oftechnology and communications was due to higher average assets from prior year as the Company continues to grow its loan portfolio.ATM card fees, online banking activity, software costs and equipment repair and maintenance expenses. 

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Table of Contents



The Company’s efficiency ratio in the second quarter of 2018 improved to 64.5%2019 was 67.5%, an increase from 66.6%66.5% in the first quarter of 20182019 and 68.9%64.5%  in the priorlast year’s second quarter.  The improvement in the efficiency ratio reflects the Company’s significant net interest income growth and a strategic focus on expense management.

Income tax expense was $1.2 million, or an effective tax rate of 23.3%22.1%, for the second quarter of 2018,2019 compared with $1.0 million, or 22.8%,24.7% in the first quarter of 20182019 and $0.9 million, or 24.8%, in last year’s second quarter.  The effective tax rate for the second quarter of 2017 reflects the benefit of the previously noted tax credit investment transactions.  Excluding the impact of the historic tax credits, the effective tax rate for the second quarter of 2017 was 29.3%.  The lower effective rate23.3% in the second quarter of 2018 when compared with the prior year period reflects the benefit of federal tax reform, which decreased the Company’s marginal federal income tax rate from 35% to 21%.2018.    

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Table of Contents

Other Results of Operations – Year-to-Date Comparison

Net interest income was $23.6$25.6 million for the first six months of 2018,2019, a $3.9$2.0 million or 20%8% increase from the first six months of 2017.2018.  The increase in net interest income is attributable to a $182$105 million or 17%8% increase in average interest-earning assets and an 8 basis point increase in net interest margin.assets.  The increase in average interest-earning assets reflects average loan growth of $150$85 million or 16%8% to $1.1$1.2 billion during the first half of 2019 compared to the first half of 2018. Most of the growth was in commercial loans, including $85$60 million in average commercial real estate loans and $52$4  million in average C&I loans. Additionally, average interest-bearing deposits at banks increased $33 million during the first six months of 2019 compared to the first six months of 2018.

  

The Company’s net interest margin increased 8 basis points from 3.75%of 3.83% in the first six months of 2017 to 3.83%2019 was consistent with the margin in the first six months of 2018.   The yield on average interest-earning assets increased 2328 basis points from 4.25%4.48% to 4.48%4.76%. Average loan yields increased 2433 basis points from 4.52%4.76% to 4.76%5.09%, reflecting the benefit of variable loan re-pricing as short-term interest rates rise.  The cost of interest-bearing liabilities was 0.83%1.21%, or 1738 basis points higher in the first six months of 20182019 when compared with the first six months of 2017.2018.  In reaction to the competitive deposit market the Company has increased promotional pricing on certain deposit products, primarily time deposits.  The rate paid on average time deposits increased from 1.28%1.49% in the first half of 20172018 to 1.49%2.17% during the first six months of 2018.2019.  The higher overall cost of interest-bearing liabilities also reflects a shift in the Company’s funding mix.  Low-cost consumer savings deposits declined as the average balance of higher cost time deposits and other wholesale borrowings increased.  Average time deposits and other borrowings were 21% and 5%, respectively,28% of total interest-bearing liabilities in the six-month period ended June 30, 2018,2019, compared with 18% and 2%, respectively,21% in the first six months of 2017.2018.    

 

The Company recorded $1.4$0.6 million in provision for loan losses in the six month period ended June 30, 2018,2019, compared with a release of under $0.1$1.4 million in allowance for loan losses in the six-month period ended June 30, 2017.2018.   The increasedecrease in provision for loan losses during the first six months of 20182019 compared with the prior year period reflects strong loan growth, higher qualitative loss factors to account for credit trends such as a higher ratio ofdecrease in non-performing loans during the current year period, primarily due to total loans and an increase in specific reserves for impaired loans.  The release in the first six monthspaydown of 2017 was attributable to a sustained periodsingle commercial construction loan of low charge-offs impacting historical loss rates in the reserve calculation and net recoveries of $0.3$8 million.

  

Non-interest income for the first six months of 20182019 increased $0.8$1.5 million from the prior year period to $7.4$8.9 million. The increase was a result of higher insurance service and fees revenue of $1.4 million, and higher deposit service charges of $0.2 million, a $0.2 million increase in the Company’s investment in the equity securities of another financial institution, an increase in interchange fee income of $0.2 million, and a lower reduction of income related$0.1 million. The R&S acquisition contributed to historic tax credit transactions.  The net impact of historic tax credit investments on non-interest income in the first half of 2017 was a reduction in income of $0.3 million while there was no reduction in 2018.  Those increases in non-interest income were partially offset by a $0.2 million decrease in insurance servicecommercial and fee revenue.  The decrease in insurance servicepersonal lines revenue and feeprofit sharing revenue during the first six months of 2018 when compared with2019.  In addition, during the first six months of 2019 employee benefits and insurance claims services revenue increased $0.2 million and $0.1 million, respectively, from the prior year period was primarily due to a reduction in profit sharing revenue somewhat offset by higher employee benefits revenue.     period.     

  

Total non-interest expense increased to $20.4$23.4 million in the first six months of 2018, 11%2019, 15% higher than the six-month period ended June 30, 2017.2018. The increase was mostly attributable to an increase in salaries and employee benefits costs. Salaries and employee benefits costs were $13.1$14.6 million for the first six months of 2018,2019, a $1.5 million or 13%12% increase from $11.6$13.1 million in the prior year period. The year-over-year increase in salary and benefits expense reflects the R&S acquisition and strategic personnel hires to support the Company’s growth.  Technology and communications expenses increased $0.2$0.4 million to $1.6$2.0 million, reflecting additional expense related to the full year impact of the Company’s newhigher ATM card fees, online banking platform which converted in the second quarter of 2017.activity and software costs.  Professional services expenses increased $0.4 million to $1.7 million, primarily due to one-time legal and accounting expenses during 2019. 

  

The Company’s efficiency ratio for the first six months of 20182019 was 65.5%67.1%, compared with 68.7%65.5% during the prior-year period. The improvementincrease in the ratio reflects the increase in non-interest expenses, partially offset by the increase in net interest income and non-interest income,  partially offset by the increase in non-interest expenses.income. 

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Table of Contents



The Company recorded income tax expense of $2.1$2.5 million for the six-month period ended June 30, 2018,2019, compared with $2.3$2.1 million in the first six months of 2017.2018.   The effective tax rate for the first six months of 20182019 was 23.1%23.3%, compared with 28.1%23.1% in the comparable 20172018 period. The effective tax rate for the first six months of 2017 reflects the benefit of historic tax credit investment transactions.  Excluding the impact of the historic tax credit transactions, the effective tax rate was 30.1% for the six-month period ended June 30, 2017.  The lower effective rate for the first six months of 2018 reflects the benefit of federal tax reform. 



CAPITAL



The Company consistently maintains regulatory capital ratios significantly above the federal “well capitalized” standard, including a Tier 1 leverage ratio of 9.94%9.99% at June 30, 2018,2019, compared with 9.81%9.74% at March 31, 20182019 and 10.11%9.73% at December 31, 2017.2018.  Book value per share increased to $25.63$28.74 at June 30, 2018,2019, compared with $24.96$27.66 at March 31, 2018,2019, and $24.74$27.13 at December 31, 2017.2018.



On February 20, 2018,19, 2019, the Company declared a semi-annual cash dividend of $0.46$0.52 per share on the Company’s outstanding common stock.  The dividend was paid on April 3, 2018.2019 to shareholders of record as of March 13, 2019.  This semi-annual dividend representedrepresents a $0.06, or 15%,13% increase from theits previous semi-annual dividend paid in October 2017.2018.

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LIQUIDITY



The Bank utilizes cash flows from the investment portfolio and federal funds sold balances to manage the liquidity requirements related to loan demand and deposit fluctuations.  The Bank also has many borrowing options.  The Company uses the Federal Home Loan Bank of New York as its primary source of overnight funds and also has one long-term advance with FHLBNY.  The Company had $10 million in borrowed funds at FHLBNY at June 30, 2018, compared with  $62 million and $88 million at March 31, 20182019 and December 31, 2017, respectively.2018.  The Company’s use of its overnight line of credit with FHLBNY varies depending on its ability to fund investment and loan growth with core deposits along with the line usage’s impact on interest rate risk.  The Company’s funding strategy has resulted in significant time deposit growth, resulting in less usage of the FHLBNY overnight line of credit.  The Company has pledged sufficient collateral in the form of residential and commercial real estate loans at FHLBNY that meets FHLB collateral requirements.  As a member of the FHLB, the Bank is able to borrow funds at competitive rates.  Advances of up to $313$294 million can be drawn on the FHLB via an Overnight Line of Credit Agreement between the Bank and the FHLB.  An amount equal to 25% of the Bank’s total assets could be borrowed through the advance programs under certain qualifying circumstances.  The Bank also has the ability to purchase up to $18 million in federal funds from its correspondent banks.  By placing sufficient collateral in safekeeping at the Federal Reserve Bank, the Bank could borrow at the discount window.  The Bank’s liquidity needs also can be met by more aggressively pursuing time deposits, or accessing the brokered time deposit market, including the Certificate of Deposit Account Registry Service (“CDARS”) network.



Cash flows from the Bank’s investment portfolio are laddered, so that securities mature at regular intervals, to provide funds from principal and interest payments at various times as liquidity needs may arise.  Contractual maturities are also laddered, with consideration as to the volatility of market prices.  At June 30, 2018,2019, approximately 8%2% of the Bank’s securities had contractual maturity dates of one year or less and approximately 24%9% had maturity dates of five years or less.  Additionally, mortgage-backed securities, which comprised 56%comprise 70% of the investment portfolio at June 30, 2018,2019, provide consistent cash flows for the Bank.



The Company’s primary source of liquidity is dividends from the Bank.  Additionally, the Company has access to capital markets as a funding source.



Management, on an ongoing basis, closely monitors the Company’s liquidity position for compliance with internal policies and believes that available sources of liquidity are adequate to meet funding needs in the normal course of business.  As part of that monitoring process, management calculates the 90-day liquidity each month by analyzing the cash needs of the Bank.  Included in the calculation are liquid assets and potential liabilities.  Management stresses the potential liabilities calculation to ensure a strong liquidity position.  Included in the calculation are assumptions of some significant deposit run-off as well as funds needed for loan closings and investment purchases.  In the Company’s internal stress test at June 30, 2018,2019, the Company had net short-term liquidity of $257$274 million as compared with $237$249 million at December 31, 2017.2018.  Available assets of $149$186 million, divided by public and purchased funds of $261$297 million, resulted in a long-term liquidity ratio of 57%63% at June 30, 2018,2019, compared with 49%63% at December 31, 2017.2018.



Management does not anticipate engaging in any activities, either currently or in the long term, for which adequate funding would not be available and which would therefore result in significant pressure on liquidity.



The Company believes that the Bank maintains a sufficient level of U.S. government and government agency securities and New York State municipal bonds that can be pledged as collateral for municipal deposits.



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ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK



Additional information responsive to this Item is contained in the Liquidity section of Management’s Discussion and Analysis of Financial Condition and Results of Operations, which information is incorporated herein by reference.



Market risk is the risk of loss from adverse changes in market prices and/or interest rates of the Bank’s financial instruments.  The primary market risk that the Company is exposed to is interest rate risk.  The core banking activities of lending and deposit-taking expose the Bank to interest rate risk, which occurs when assets and liabilities reprice at different times and by different amounts as interest rates change.  As a result, net interest income earned by the Bank is subject to the effects of changing interest rates.  The Bank measures interest rate risk by calculating the variability of net interest income in future periods under various interest rate scenarios using projected balances for interest-earning assets and interest-bearing liabilities.  Management’s philosophy toward interest rate risk management is to limit the variability of net interest income to changes in net interest rates.  The balances of financial instruments used in the projections are based on expected growth from forecasted business opportunities, anticipated prepayments of loans, and expected maturities of investment securities, loans, and deposits.  Management supplements the modeling technique described above with analysis of market values of the Bank’s financial instruments and changes to such market values given changes in the interest rates.



The Bank’s Asset-Liability Committee, which includes members of senior management, monitors the Bank’s interest rate sensitivity with the aid of a model that considers the impact of ongoing lending and deposit taking activities, as well as interrelationships in the magnitude and timing of the repricing of financial instruments, including the effect of changing interest rates on expected prepayments and maturities.  When deemed prudent, management has taken actions, and intends to do so in the future, to mitigate exposure to interest rate risk through the use of on- or off-balance sheet financial instruments.  Possible actions include, but are not limited to, changing the pricing of loan and deposit products, and modifying the composition of interest-earning assets and interest-bearing liabilities, and reliance on other financial instruments used for interest rate risk management purposes.

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The following table demonstrates the possible impact of changes in interest rates on the Bank’s net interest income over a 12-month period of time:



SENSITIVITY OF NET INTEREST INCOME TO CHANGES IN INTEREST RATES





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Calculated increase

 

Calculated increase

 

in projected annual net interest income

 

in projected annual net interest income

 

(in thousands)

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2018

 

 

December 31, 2017

 

 

June 30, 2019

 

 

December 31, 2018

Changes in interest rates

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

+200 basis points

 

$

1,232 

 

$

1,907 

 

$

333 

 

$

1,598 

+100 basis points

 

 

2,723 

 

 

2,927 

 

 

2,280 

 

 

2,825 

 

 

 

 

 

 

 

 

 

 

 

 

-100 basis points

 

 

(3,017)

 

 

(3,268)

 

 

(2,489)

 

 

(3,026)

-200 basis points

 

 

NM

 

 

NM

 

 

NM

 

 

NM





Many assumptions were utilized by management to calculate the impact that changes in interest rates may have on the Bank’s net interest income.  The more significant assumptions related to the rate of prepayments of mortgage-related assets, loan and deposit volumes and pricing, and deposit maturities.  The Bank assumed immediate changes in rates including 200 basis point rate changes.

In each of the 100 and 200 basis point rate reduction scenarios,scenario, the applicable rate changes may be limited to lesser amounts such that interest rates are not less than zero.  The assumptions in the Company’s projections are inherently uncertain and, as a result, the Bank cannot precisely predict the impact of changes in interest rates on net interest income.  Actual results may differ significantly due to the timing, magnitude, and frequency of interest rate changes in market conditions and interest rate differentials (spreads) between maturity/repricing categories, as well as any actions such as those previously described, which management may take to counter such changes.  In light of the uncertainties and assumptions associated with the process, the amounts presented in the table and changes in such amounts are not considered significant to the Bank’s projected net interest income.





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ITEM 4 - CONTROLS AND PROCEDURES



DISCLOSURE CONTROLS AND PROCEDURES



The Company’s management, with the participation of the Company’s principal executive officer and principal financial officer, evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of June 30, 20182019 (the end of the period covered by this Report).  Based on that evaluation, the Company’s principal executive and principal financial officers concluded that as of June 30, 20182019 the Company’s disclosure controls and procedures were effective.



CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING



No changes in the Company’s internal control over financial reporting were identified in connection with the evaluation required by paragraph (d) of Rule 13a-15 or Rule 15d-15 under the Exchange Act that occurred during the fiscal quarter ended June 30, 20182019 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.



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PART II - OTHER INFORMATION



ITEM 1 – LEGAL PROCEEDINGS



The nature of the Company’s business generates a certain amount of litigation involving matters arising in the ordinary course of business.



In the opinion of management, there are no proceedings pending to which the Company is a party or to which its property is subject, which, if determined adversely, would have a material effect on the Company’s results of operations or financial condition.



ITEM 1A – RISK FACTORS

There have been no material changes in risk factors relating to the Company to those disclosed in response to Item 1A. Part I of Form 10-K for the year ended December 31, 2018.

ITEM 2 – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS



In the second quarter of 2018,2019, the Company purchaseddid not purchase shares of its common stock as follows:stock.



Issuer Purchases of Equity Securities





 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

Period

 

Total Number of Shares Purchased (1)

 

Average Price Paid per Share

 

Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs

 

Maximum Number of Shares that may yet be Purchased Under the Plans or Programs (2)

April 2018:

 

 

 

 

 

 

 

 

 

 

April 1, 2018 - April 30, 2018

 

 

-    

 

$

-    

 

-    

 

100,000 

May 2018:

 

 

 

 

 

 

 

 

 

 

May 1, 2018 - May 31, 2018

 

 

2,648 

 

$

46.98 

 

-    

 

100,000 

June 2018:

 

 

 

 

 

 

 

 

 

 

June 1, 2018 - June 30, 2018

 

 

636 

 

$

45.90 

 

-    

 

100,000 



 

 

 

 

 

 

 

 

 

 

Total:

 

 

3,284 

 

$

46.77 

 

-    

 

100,000 

(1)

The total shares purchased in

Period

Total Number of Shares Purchased

Average Price Paid per Share

Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs

Maximum Number of Shares that may yet be Purchased Under the period consist of shares constructively tendered to the Company by attestation in satisfaction of the exercise price due upon exercise of options issued pursuant to the Company’s 2009 Long-Term Incentive Plan.  The “average price paid per share” reported in the table above, with respect to such shares, reflects the fair market value of the Company’s common stock on the exercise date, which was the closing sales price of the Company’s common stock as reported on the NYSE American on that date.Plans or Programs (1)

April 2019:

April 1, 2019 - April 30, 2019

-    

$

-    

-    

100,000 

May 2019:

May 1, 2019 - May 31, 2019

-    

$

-    

-    

100,000 

June 2019:

June 1, 2019 - June 30, 2019

-    

$

-    

-    

100,000 

Total:

-    

$

-    

-    

100,000 



(2)(1)

On October 17, 2017, the Board of Directors authorized the Company to repurchase up to 100,000 shares of the Company’s common stock (the “2017 RepurchasesRepurchase Program”). The 2017 Repurchase Program expires 24 months after its adoption and may be suspended or discontinued by the Board of Directors at any time. The maximum number of shares that may be purchased under the 2017 Repurchase Program as of June 30, 20182019 was 100,000.

ITEM 3 – DEFAULTS UPON SENIOR SECURITIES

(Not Applicable.)

ITEM 4 – MINE SAFETY DISCLOSURE

(Not Applicable.)

ITEM 5 – OTHER INFORMATION

(Not Applicable.)

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ITEM 6 – EXHIBITS



The following exhibits are filed as a part of this report:



EXHIBIT INDEX



 

EXHIBIT INDEX



 

 

Exhibit No.

 

Name

31.1

Certification of Principal Executive Officer pursuant to

Section 302 of the Sarbanes-Oxley Act of 2002.  

 

 



 

 

31.231.1

 

Certification of the Principal FinancialExecutive Officer pursuant to

Section 302 of the Sarbanes-Oxley Act of 2002.

 

 



 

 

32.131.2

 

Certification of the Principal ExecutiveFinancial Officer pursuant to 18Section 302 of the Sarbanes-Oxley Act of 2002.



USC Section 1350 Chapter 63 of Title 18, United States Code,

as adopted pursuant to Section 906 of the Sarbanes-Oxley Act

of 2002.

 

 



 

 

32.232.1

 

Certification of Principal FinancialExecutive Officer pursuant to 18 USC Section 1350 Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 



 

USC Section 1350 Chapter 63 of Title 18, United States Code,

 

 



 

32.2

Certification of Principal Financial Officer pursuant to 18 USC Section 1350 Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 



 

of 2002.

 

 



 

 

101

 

The following materials from Evans Bancorp, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2018,2019, formatted in XBRL (eXtensible Business Reporting Language): (i) Unaudited Consolidated Balance Sheets – June 30, 20182019 and December 31, 2017;2018; (ii) Unaudited Consolidated Statements of Income – Three months ended June 30, 20182019 and 2017;2018; (iii) Unaudited Consolidated Statements of Income – Six months ended June 30, 20182019 and 2017;2018; (iv) Unaudited Statements of Consolidated Comprehensive Income – Three months ended June 30, 20182019 and 2017;2018; (v) Unaudited Statements of Consolidated Comprehensive Income – Six months ended June 30, 20182019 and 2017;2018; (vi) Unaudited Consolidated Statements of Stockholders' Equity – Six months ended June 30, 20182019 and 2017;2018; (vii) Unaudited Consolidated Statements of Cash Flows – Six months ended June 30, 20182019 and 2017;2018; and (vii)(viii) Notes to Unaudited Consolidated Financial Statements

Statements.



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SIGNATURES



Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.





                                                                              Evans Bancorp, Inc.









DATE

August 1, 20189, 2019



/s/ David J. Nasca

David J. Nasca

President and CEO

(Principal Executive Officer)







DATE

August 1, 20189, 2019



/s/ John B. Connerton

John B. Connerton

Treasurer

(Principal Financial Officer and Principal Accounting Officer)









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