UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT 1934
For the quarterly period endedSeptember 30, 2017
OR
¨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 ____________000-13232_____________________________________
| |
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT 1934 |
| |
For the quarterly period ended March 31, 2021 | |
| |
OR | |
| |
☐ | 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 000-13232 | |
Juniata Valley Financial Corp. | |
(Exact name of registrant as specified in its charter) |
Pennsylvania | 23-2235254 |
(State or other jurisdiction of | (I.R.S. Employer |
incorporation or organization) | Identification No.) |
Bridge and Main Streets, Mifflintown, Pennsylvania | 17059 |
(Address of principal executive offices) | (Zip Code) |
(855) 582-5101 | |
(Registrant’s telephone number, including area code) |
| | |||
SecuritiesregisteredpursuanttoSection12(b)oftheAct: | ||||
| ||||
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
NONE | | N/A | | N/A |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
x☒Yes¨☐No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
x☒Yes¨☐No
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act.
| | |
Large accelerated filer | Accelerated filer | |
Non-accelerated filer | Smaller reporting company | |
| Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark 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).
¨☐Yesx☒No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
| | |
Class | Outstanding as of | |
Common Stock ($1.00 par value) | | 5,006,695 shares |
TABLE OF CONTENTS
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Management’s Discussion and | 37 | |||
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2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Juniata Valley Financial Corp. and Subsidiary
Consolidated Statements of Financial Condition
| | | | | | |
| | (Unaudited) | | | | |
(Dollars in thousands, except share data) |
| March 31, 2021 |
| December 31, 2020 | ||
ASSETS |
| |
|
| |
|
Cash and due from banks | | $ | 11,533 | | $ | 11,868 |
Interest bearing deposits with banks | |
| 460 | |
| 19,753 |
Federal funds sold | |
| 10,000 | |
| 10,000 |
Cash and cash equivalents | |
| 21,993 | |
| 41,621 |
Interest bearing time deposits with banks | |
| 735 | |
| 735 |
Equity securities | |
| 1,183 | |
| 1,091 |
Debt securities available for sale | |
| 301,076 | |
| 286,415 |
Restricted investment in bank stock | |
| 3,374 | |
| 3,423 |
Total loans | |
| 437,007 | |
| 422,661 |
Less: Allowance for loan losses | |
| (4,056) | |
| (4,094) |
Total loans, net of allowance for loan losses | |
| 432,951 | |
| 418,567 |
Premises and equipment, net | |
| 8,686 | |
| 8,808 |
Other real estate owned | |
| 110 | |
| 0 |
Bank owned life insurance and annuities | |
| 16,628 | |
| 16,568 |
Investment in low income housing partnerships | |
| 2,905 | |
| 3,105 |
Core deposit and other intangible assets | |
| 225 | |
| 241 |
Goodwill | |
| 9,047 | |
| 9,047 |
Mortgage servicing rights | |
| 147 | |
| 158 |
Accrued interest receivable and other assets | |
| 6,573 | |
| 3,939 |
Total assets | | $ | 805,633 | | $ | 793,718 |
LIABILITIES AND STOCKHOLDERS’ EQUITY | |
|
| |
|
|
Liabilities: | |
|
| |
|
|
Deposits: | |
|
| |
|
|
Non-interest bearing | | $ | 183,437 | | $ | 168,115 |
Interest bearing | |
| 486,023 | |
| 454,751 |
Total deposits | |
| 669,460 | |
| 622,866 |
Short-term borrowings and repurchase agreements | |
| 22,622 | |
| 24,750 |
Federal Reserve Bank ("FRB") advances | | | 0 | | | 27,955 |
Long-term debt | |
| 35,000 | |
| 35,000 |
Other interest bearing liabilities | |
| 1,557 | |
| 1,584 |
Accrued interest payable and other liabilities | |
| 4,420 | |
| 4,966 |
Total liabilities | |
| 733,059 | |
| 717,121 |
Commitments and contingent liabilities | | | | | | |
Stockholders’ Equity: | |
|
| |
|
|
Preferred stock, 0 par value: Authorized - 500,000 shares, NaN issued | |
| 0 | |
| 0 |
Common stock, par value $1.00 per share: Authorized 20,000,000 shares Issued - 5,151,279 shares at March 31, 2021; 5,151,279 shares at December 31, 2020 Outstanding - 5,006,695 shares at March 31, 2021; 5,025,441 shares at December 31, 2020 | |
| 5,151 | |
| 5,151 |
Surplus | |
| 24,893 | |
| 25,011 |
Retained earnings | |
| 45,629 | |
| 45,096 |
Accumulated other comprehensive (loss) income | |
| (590) | |
| 3,518 |
Cost of common stock in Treasury: 144,584 shares at March 31, 2021; 125,838 shares at December 31, 2020 | |
| (2,509) | |
| (2,179) |
Total stockholders’ equity | |
| 72,574 | |
| 76,597 |
Total liabilities and stockholders’ equity | | $ | 805,633 | | $ | 793,718 |
(Unaudited) | ||||||||
(Dollars in thousands, except share data) | September 30, | December 31, | ||||||
2017 | 2016 | |||||||
ASSETS | ||||||||
Cash and due from banks | $ | 13,219 | $ | 9,464 | ||||
Interest bearing deposits with banks | 133 | 95 | ||||||
Cash and cash equivalents | 13,352 | 9,559 | ||||||
Interest bearing time deposits with banks | 350 | 350 | ||||||
Securities available for sale | 159,180 | 150,488 | ||||||
Restricted investment in Federal Home Loan Bank (FHLB) stock | 3,616 | 3,610 | ||||||
Investment in unconsolidated subsidiary | 4,820 | 4,703 | ||||||
Residential mortgage loans held for sale | 117 | - | ||||||
Total loans | 382,616 | 378,297 | ||||||
Less: Allowance for loan losses | (2,907 | ) | (2,723 | ) | ||||
Total loans, net of allowance for loan losses | 379,709 | 375,574 | ||||||
Premises and equipment, net | 6,695 | 6,857 | ||||||
Other real estate owned | 576 | 638 | ||||||
Bank owned life insurance and annuities | 14,898 | 14,631 | ||||||
Investment in low income housing partnership | 5,319 | 3,812 | ||||||
Core deposit and other intangible | 210 | 262 | ||||||
Goodwill | 5,448 | 5,448 | ||||||
Mortgage servicing rights | 223 | 205 | ||||||
Accrued interest receivable and other assets | 5,409 | 4,217 | ||||||
Total assets | $ | 599,922 | $ | 580,354 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
Liabilities: | ||||||||
Deposits: | ||||||||
Non-interest bearing | $ | 109,880 | $ | 104,006 | ||||
Interest bearing | 363,703 | 351,816 | ||||||
Total deposits | 473,583 | 455,822 | ||||||
Securities sold under agreements to repurchase | 5,207 | 4,496 | ||||||
Short-term borrowings | 27,500 | 27,700 | ||||||
Long-term debt | 25,000 | 25,000 | ||||||
Other interest bearing liabilities | 1,566 | 1,545 | ||||||
Accrued interest payable and other liabilities | 6,618 | 6,701 | ||||||
Total liabilities | 539,474 | 521,264 | ||||||
Stockholders' Equity: | ||||||||
Preferred stock, no par value: Authorized - 500,000 shares, none issued | - | - | ||||||
Common stock, par value $1.00 per share: Authorized 20,000,000 shares | ||||||||
Issued - | ||||||||
4,811,611 shares at September 30, 2017; | ||||||||
4,805,000 shares at December 31, 2016 | ||||||||
Outstanding - | ||||||||
4,767,656 shares at September 30, 2017; | ||||||||
4,755,630 shares at December 31, 2016 | 4,811 | 4,805 | ||||||
Surplus | 18,548 | 18,476 | ||||||
Retained earnings | 40,759 | 39,945 | ||||||
Accumulated other comprehensive loss | (2,839 | ) | (3,209 | ) | ||||
Cost of common stock in Treasury: | ||||||||
43,955 shares at September 30, 2017; | ||||||||
49,370 shares at December 31, 2016 | (831 | ) | (927 | ) | ||||
Total stockholders' equity | 60,448 | 59,090 | ||||||
Total liabilities and stockholders' equity | $ | 599,922 | $ | 580,354 |
See Notes to Consolidated Financial Statements
3
Juniata Valley Financial Corp. and Subsidiary
Consolidated Statements of Income (Unaudited)
| | | | | | |
| | Three Months Ended | ||||
(Dollars in thousands, except share data) | | March 31, | ||||
|
| 2021 |
| 2020 | ||
Interest and dividend income: | | |
| | | |
Loans, including fees | | $ | 4,777 | | $ | 4,878 |
Taxable securities | |
| 1,006 | |
| 1,173 |
Tax-exempt securities | |
| 38 | |
| 23 |
Other interest income | |
| 5 | |
| 55 |
Total interest income | |
| 5,826 | |
| 6,129 |
Interest expense: | |
|
| |
|
|
Deposits | |
| 619 | |
| 830 |
Short-term borrowings and repurchase agreements | |
| 32 | |
| 8 |
FRB advances | | | 18 | | | 0 |
Long-term debt | |
| 212 | |
| 283 |
Other interest bearing liabilities | |
| 2 | |
| 7 |
Total interest expense | |
| 883 | |
| 1,128 |
Net interest income | |
| 4,943 | |
| 5,001 |
Provision for loan losses | |
| (79) | |
| 356 |
Net interest income after provision for loan losses | |
| 5,022 | |
| 4,645 |
Non-interest income: | |
|
| |
|
|
Customer service fees | |
| 325 | |
| 415 |
Debit card fee income | |
| 413 | |
| 324 |
Earnings on bank-owned life insurance and annuities | |
| 54 | |
| 64 |
Trust fees | |
| 112 | |
| 113 |
Commissions from sales of non-deposit products | |
| 80 | |
| 74 |
Fees derived from loan activity | |
| 104 | |
| 67 |
Mortgage banking income | |
| 8 | |
| 16 |
Gain on sales and calls of securities | |
| 4 | |
| 11 |
Change in value of equity securities | |
| 93 | |
| (172) |
Other non-interest income | |
| 79 | |
| 82 |
Total non-interest income | |
| 1,272 | |
| 994 |
Non-interest expense: | |
|
| |
|
|
Employee compensation expense | |
| 1,969 | |
| 2,003 |
Employee benefits | |
| 545 | |
| 728 |
Occupancy | |
| 330 | |
| 314 |
Equipment | |
| 189 | |
| 234 |
Data processing expense | |
| 583 | |
| 501 |
Professional fees | |
| 188 | |
| 173 |
Taxes, other than income | |
| 124 | |
| 138 |
FDIC Insurance premiums | |
| 81 | |
| 40 |
Gain on other real estate owned | |
| (49) | |
| 0 |
Amortization of intangible assets | |
| 16 | |
| 19 |
Amortization of investment in low-income housing partnerships | |
| 200 | |
| 200 |
Other non-interest expense | |
| 412 | |
| 410 |
Total non-interest expense | |
| 4,588 | |
| 4,760 |
Income before income taxes | |
| 1,706 | |
| 879 |
Income tax provision (benefit) | |
| 71 | |
| (159) |
Net income | | $ | 1,635 | | $ | 1,038 |
Earnings per share | |
|
| |
|
|
Basic | | $ | 0.33 | | $ | 0.20 |
Diluted | | $ | 0.33 | | $ | 0.20 |
Three Months Ended | Nine Months Ended | |||||||||||||||
(Dollars in thousands, except share data) | September 30, | September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Interest income: | ||||||||||||||||
Loans, including fees | $ | 4,607 | $ | 4,356 | $ | 13,491 | $ | 13,155 | ||||||||
Taxable securities | 729 | 590 | 2,128 | 1,831 | ||||||||||||
Tax-exempt securities | 112 | 100 | 340 | 314 | ||||||||||||
Other interest income | 9 | 3 | 20 | 13 | ||||||||||||
Total interest income | 5,457 | 5,049 | 15,979 | 15,313 | ||||||||||||
Interest expense: | ||||||||||||||||
Deposits | 561 | 461 | 1,555 | 1,350 | ||||||||||||
Securities sold under agreements to repurchase | 8 | 1 | 17 | 3 | ||||||||||||
Short-term borrowings | 80 | 5 | 212 | 49 | ||||||||||||
Long-term debt | 95 | 87 | 274 | 241 | ||||||||||||
Other interest bearing liabilities | 8 | 7 | 23 | 22 | ||||||||||||
Total interest expense | 752 | 561 | 2,081 | 1,665 | ||||||||||||
Net interest income | 4,705 | 4,488 | 13,898 | 13,648 | ||||||||||||
Provision for loan losses | 149 | 132 | 389 | 366 | ||||||||||||
Net interest income after provision for loan losses | 4,556 | 4,356 | 13,509 | 13,282 | ||||||||||||
Non-interest income: | ||||||||||||||||
Customer service fees | 428 | 471 | 1,302 | 1,279 | ||||||||||||
Debit card fee income | 274 | 264 | 824 | 769 | ||||||||||||
Earnings on bank-owned life insurance and annuities | 93 | 107 | 269 | 284 | ||||||||||||
Trust fees | 97 | 84 | 324 | 315 | ||||||||||||
Commissions from sales of non-deposit products | 43 | 43 | 140 | 181 | ||||||||||||
Income from unconsolidated subsidiary | 49 | 61 | 154 | 163 | ||||||||||||
Fees derived from loan activity | 77 | 58 | 181 | 175 | ||||||||||||
Mortgage banking income | 83 | 41 | 170 | 106 | ||||||||||||
Gain on sales and calls of securities | 2 | 6 | 510 | 134 | ||||||||||||
Gain on sales of loans | - | - | - | 113 | ||||||||||||
Gain on life insurance proceeds | - | 364 | - | 364 | ||||||||||||
Other non-interest income | 73 | 72 | 217 | 212 | ||||||||||||
Total non-interest income | 1,219 | 1,571 | 4,091 | 4,095 | ||||||||||||
Non-interest expense: | ||||||||||||||||
Employee compensation expense | 1,829 | 1,848 | 5,326 | 5,266 | ||||||||||||
Employee benefits | 567 | 564 | 1,802 | 1,699 | ||||||||||||
Occupancy | 291 | 278 | 878 | 847 | ||||||||||||
Equipment | 175 | 160 | 504 | 492 | ||||||||||||
Data processing expense | 440 | 493 | 1,318 | 1,358 | ||||||||||||
Director compensation | 60 | 59 | 183 | 176 | ||||||||||||
Professional fees | 148 | 130 | 431 | 405 | ||||||||||||
Taxes, other than income | 111 | 107 | 353 | 319 | ||||||||||||
FDIC Insurance premiums | 83 | 96 | 250 | 295 | ||||||||||||
Loss (gain) on sales of other real estate owned | 19 | 50 | (26 | ) | 56 | |||||||||||
Amortization of intangibles | 17 | 26 | 52 | 86 | ||||||||||||
Amortization of investment in low-income housing partnership | 173 | 120 | 412 | 359 | ||||||||||||
Merger and acquisition expense | - | - | - | 372 | ||||||||||||
Other non-interest expense | 529 | 399 | 1,457 | 1,226 | ||||||||||||
Total non-interest expense | 4,442 | 4,330 | 12,940 | 12,956 | ||||||||||||
Income before income taxes | 1,333 | 1,597 | 4,660 | 4,421 | ||||||||||||
Income tax provision | 127 | 150 | 701 | 567 | ||||||||||||
Net income | $ | 1,206 | $ | 1,447 | $ | 3,959 | $ | 3,854 | ||||||||
Earnings per share | ||||||||||||||||
Basic | $ | 0.25 | $ | 0.30 | $ | 0.83 | $ | 0.80 | ||||||||
Diluted | $ | 0.25 | $ | 0.30 | $ | 0.83 | $ | 0.80 | ||||||||
Cash dividends declared per share | $ | 0.22 | $ | 0.22 | $ | 0.66 | $ | 0.66 | ||||||||
Weighted average basic shares outstanding | 4,767,656 | 4,804,000 | 4,764,325 | 4,800,804 | ||||||||||||
Weighted average diluted shares outstanding | 4,778,950 | 4,805,177 | 4,772,935 | 4,801,521 |
See Notes to Consolidated Financial Statements
4
Juniata Valley Financial Corp. and Subsidiary
Consolidated Statements of Comprehensive Income (Unaudited)
| | | | | | | | | | | | | | | | | | |
(Dollars in thousands) | | Three Months Ended March 31, | ||||||||||||||||
| | 2021 | | 2020 | ||||||||||||||
| | Before Tax | | Tax | | Net of Tax | | Before Tax | | Tax | | Net of Tax | ||||||
|
| Amount |
| Effect |
| Amount |
| Amount |
| Effect |
| Amount | ||||||
Net income | | $ | 1,706 | | $ | (71) | | $ | 1,635 | | $ | 879 | | $ | 159 | | $ | 1,038 |
Other comprehensive (loss) income: | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Available for sale securities: | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Unrealized holding (losses) gains arising during the period | |
| (5,911) | |
| 1,241 | |
| (4,670) | |
| 4,948 | |
| (1,039) | |
| 3,909 |
Less reclassification adjustment for gains included in net income for sales of debt securities (1) (3) | |
| (4) | |
| 1 | |
| (3) | |
| (11) | |
| 2 | |
| (9) |
Unrealized gains on cash flow hedge | | | 712 | | | (150) | | | 562 | | | 0 | | | 0 | | | 0 |
Less reclassification adjustment for losses included in net income (2) (3) | | | 4 | | | (1) | | | 3 | | | 0 | | | 0 | | | 0 |
Other comprehensive (loss) income | |
| (5,199) | |
| 1,091 | |
| (4,108) | |
| 4,937 | |
| (1,037) | |
| 3,900 |
Total comprehensive (loss) income | | $ | (3,493) | | $ | 1,020 | | $ | (2,473) | | $ | 5,816 | | $ | (878) | | $ | 4,938 |
Three Months Ended September 30, | ||||||||||||||||||||||||
2017 | 2016 | |||||||||||||||||||||||
Before | Net of | Before | Net of | |||||||||||||||||||||
(Dollars in thousands) | Tax | Tax | Tax | Tax | Tax | Tax | ||||||||||||||||||
Amount | Effect | Amount | Amount | Effect | Amount | |||||||||||||||||||
Net income | $ | 1,333 | $ | (127 | ) | $ | 1,206 | $ | 1,597 | $ | (150 | ) | $ | 1,447 | ||||||||||
Other comprehensive income: | ||||||||||||||||||||||||
Unrealized gains on available for sale securities: | ||||||||||||||||||||||||
Unrealized holding gains (losses) arising during the period | (20 | ) | 7 | (13 | ) | (267 | ) | 91 | (176 | ) | ||||||||||||||
Unrealized holding gains (losses) from unconsolidated subsidiary | (3 | ) | - | (3 | ) | (4 | ) | - | (4 | ) | ||||||||||||||
Less reclassification adjustment for gains included in net income (1) (3) | (2 | ) | 1 | (1 | ) | (6 | ) | 2 | (4 | ) | ||||||||||||||
Amortization of pension net actuarial cost (2) (3) | 57 | (20 | ) | 37 | 62 | (21 | ) | 41 | ||||||||||||||||
Other comprehensive income (loss) | 32 | (12 | ) | 20 | (215 | ) | 72 | (143 | ) | |||||||||||||||
Total comprehensive income | $ | 1,365 | $ | (139 | ) | $ | 1,226 | $ | 1,382 | $ | (78 | ) | $ | 1,304 |
Nine Months Ended September 30, | ||||||||||||||||||||||||
2017 | 2016 | |||||||||||||||||||||||
Before | Net of | Before | Net of | |||||||||||||||||||||
Tax | Tax | Tax | Tax | Tax | Tax | |||||||||||||||||||
Amount | Effect | Amount | Amount | Effect | Amount | |||||||||||||||||||
Net income | $ | 4,660 | $ | (701 | ) | $ | 3,959 | $ | 4,421 | $ | (567 | ) | $ | 3,854 | ||||||||||
Other comprehensive income: | ||||||||||||||||||||||||
Unrealized gains on available for sale securities: | ||||||||||||||||||||||||
Unrealized holding gains arising during the period | 882 | (300 | ) | 582 | 2,083 | (708 | ) | 1,375 | ||||||||||||||||
Unrealized holding gains (losses) from unconsolidated subsidiary | 12 | - | 12 | (5 | ) | - | (5 | ) | ||||||||||||||||
Less reclassification adjustment for gains included in net income (1) (3) | (510 | ) | 174 | (336 | ) | (134 | ) | 46 | (88 | ) | ||||||||||||||
Amortization of pension net actuarial cost (2) (3) | 170 | (58 | ) | 112 | 186 | (63 | ) | 123 | ||||||||||||||||
Other comprehensive income | 554 | (184 | ) | 370 | 2,130 | (725 | ) | 1,405 | ||||||||||||||||
Total comprehensive income | $ | 5,214 | $ | (885 | ) | $ | 4,329 | $ | 6,551 | $ | (1,292 | ) | $ | 5,259 |
See Notes to Consolidated Financial Statements
(1) | Amounts are included in (loss) gain on sales and calls of securities on the Consolidated Statements of Income as a separate element within total non-interest income. |
(2) | Amounts are included in |
(3) | Income tax amounts are included in the provision for income taxes on the Consolidated Statements of Income. |
See Notes to Consolidated Financial Statements
5
Juniata Valley Financial Corp. and Subsidiary
Consolidated Statements of Stockholders'Stockholders’ Equity (Unaudited)
For the Nine Months Ended September 30, 2017
Number | Accumulated | |||||||||||||||||||||||||||
of | Other | Total | ||||||||||||||||||||||||||
(Dollars in thousands, except share data) | Shares | Common | Retained | Comprehensive | Treasury | Stockholders' | ||||||||||||||||||||||
Outstanding | Stock | Surplus | Earnings | Loss | Stock | Equity | ||||||||||||||||||||||
Balance, January 1, 2017 | 4,755,630 | $ | 4,805 | $ | 18,476 | $ | 39,945 | $ | (3,209 | ) | $ | (927 | ) | $ | 59,090 | |||||||||||||
Net income | 3,959 | 3,959 | ||||||||||||||||||||||||||
Other comprehensive income | 370 | 370 | ||||||||||||||||||||||||||
Cash dividends at $0.66 per share | (3,145 | ) | (3,145 | ) | ||||||||||||||||||||||||
Stock-based compensation | 54 | 54 | ||||||||||||||||||||||||||
Purchase of treasury stock | (4,289 | ) | (86 | ) | (86 | ) | ||||||||||||||||||||||
Treasury stock issued for stock plans | 9,704 | (10 | ) | 182 | 172 | |||||||||||||||||||||||
Common stock issued for stock plans | 6,611 | 6 | 28 | 34 | ||||||||||||||||||||||||
Balance, September 30, 2017 | 4,767,656 | $ | 4,811 | $ | 18,548 | $ | 40,759 | $ | (2,839 | ) | $ | (831 | ) | $ | 60,448 |
Juniata Valley Financial Corp. and Subsidiary
Consolidated Statements of Stockholders' Equity (Unaudited)
For the Nine Months Ended September 30, 2016
Number | Accumulated | |||||||||||||||||||||||||||
of | Other | Total | ||||||||||||||||||||||||||
(Dollars in thousands, except share data) | Shares | Common | Retained | Comprehensive | Treasury | Stockholders' | ||||||||||||||||||||||
Outstanding | Stock | Surplus | Earnings | Loss | Stock | Equity | ||||||||||||||||||||||
Balance, January 1, 2016 | 4,798,086 | $ | 4,798 | $ | 18,352 | $ | 39,015 | $ | (2,203 | ) | $ | - | $ | 59,962 | ||||||||||||||
Net income | 3,854 | 3,854 | ||||||||||||||||||||||||||
Other comprehensive income | 1,405 | 1,405 | ||||||||||||||||||||||||||
Cash dividends at $0.66 per share | (3,170 | ) | (3,170 | ) | ||||||||||||||||||||||||
Stock-based compensation | 50 | 50 | ||||||||||||||||||||||||||
Purchase of treasury stock | (1,000 | ) | (18 | ) | (18 | ) | ||||||||||||||||||||||
Common stock issued for stock plans | 6,914 | 7 | 57 | - | 64 | |||||||||||||||||||||||
Balance, September 30, 2016 | 4,804,000 | $ | 4,805 | $ | 18,459 | $ | 39,699 | $ | (798 | ) | $ | (18 | ) | $ | 62,147 |
See Notes to Consolidated Financial Statements
Juniata Valley Financial Corp. and Subsidiary
Consolidated Statements of Cash Flows (Unaudited)
| | | | | | | | | | | | | | | | | | | | |
| | Three months ended March 31, 2021 | ||||||||||||||||||
| | | | | | | | | | | | Accumulated | | | | | | |||
(Dollars in thousands, except share data) |
| Number |
| | | | |
| |
| Other |
| |
| Total | |||||
| | of Shares |
| Common |
| |
| Retained |
| Comprehensive |
| Treasury |
| Stockholders’ | ||||||
|
| Outstanding |
| Stock |
| Surplus |
| Earnings | | Income (Loss) |
| Stock |
| Equity | ||||||
Balance, January 1, 2021 | | 5,025,441 | | $ | 5,151 | | $ | 25,011 | | $ | 45,096 | | $ | 3,518 | | $ | (2,179) | | $ | 76,597 |
Net income |
|
| |
|
| |
|
| |
| 1,635 | |
|
| |
|
| |
| 1,635 |
Other comprehensive loss |
|
| |
|
| |
|
| |
| | |
| (4,108) | |
|
| |
| (4,108) |
Cash dividends at $0.22 per share |
|
| |
|
| |
|
| |
| (1,102) | |
|
| |
|
| |
| (1,102) |
Stock-based compensation |
|
| |
|
| |
| 35 | |
|
| |
|
| |
|
| |
| 35 |
Purchase of treasury stock |
| (27,585) | | | | | | | | | | | | | | | (483) | |
| (483) |
Treasury stock issued for stock plans |
| 8,839 | | | | | | (153) | | | | | | | | | 153 | |
| — |
Balance, March 31, 2021 |
| 5,006,695 | | $ | 5,151 | | $ | 24,893 | | $ | 45,629 | | $ | (590) | | $ | (2,509) | | $ | 72,574 |
(Dollars in thousands) | Nine Months Ended September 30, | |||||||
2017 | 2016 | |||||||
Operating activities: | ||||||||
Net income | $ | 3,959 | $ | 3,854 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Provision for loan losses | 389 | 366 | ||||||
Depreciation | 487 | 447 | ||||||
Net amortization of securities premiums | 490 | 556 | ||||||
Net amortization of loan origination fees | 48 | 31 | ||||||
Deferred net loan origination costs | (297 | ) | (94 | ) | ||||
Amortization of core deposit intangible | 52 | 86 | ||||||
Amortization of investment in low income housing partnership | 412 | 359 | ||||||
Net accretion (amortization) of purchase fair value adjustments | 4 | (7 | ) | |||||
Net realized gain on sales and calls of securities | (510 | ) | (134 | ) | ||||
Net (gain) loss on sales and valuation of other real estate owned | (26 | ) | 56 | |||||
Earnings on bank owned life insurance and annuities | (269 | ) | (284 | ) | ||||
Deferred income tax (credit) expense | (34 | ) | 31 | |||||
Equity in earnings of unconsolidated subsidiary, net of dividends of $49 and $42 | (105 | ) | (121 | ) | ||||
Stock-based compensation expense | 54 | 50 | ||||||
Gain from sale of student loans | - | (113 | ) | |||||
Mortgage loans originated for sale | (3,527 | ) | (1,582 | ) | ||||
Proceeds from mortgage loans sold to others | 3,563 | 1,822 | ||||||
Mortgage banking income | (170 | ) | (106 | ) | ||||
Gain from life insurance proceeds | - | (364 | ) | |||||
(Increase) decrease in accrued interest receivable and other assets | (1,360 | ) | 90 | |||||
Increase (decrease) in accrued interest payable and other liabilities | 146 | (813 | ) | |||||
Net cash provided by operating activities | 3,306 | 4,130 | ||||||
Investing activities: | ||||||||
Purchases of: | ||||||||
Securities available for sale | (42,510 | ) | (36,505 | ) | ||||
Premises and equipment | (324 | ) | (482 | ) | ||||
Bank owned life insurance and annuities | (36 | ) | (50 | ) | ||||
Proceeds from: | ||||||||
Sales of securities available for sale | 21,800 | 4,273 | ||||||
Maturities of and principal repayments on securities available for sale | 12,407 | 36,190 | ||||||
(Purchase) redemption of FHLB stock | (6 | ) | 636 | |||||
Sale of student loans | - | 1,706 | ||||||
Life insurance claim | - | 1,016 | ||||||
Sale of other real estate owned | 617 | 132 | ||||||
Sale of other assets | 25 | - | ||||||
Investment in low income housing partnership | (1,919 | ) | (314 | ) | ||||
Net increase in loans | (4,809 | ) | (550 | ) | ||||
Net cash (used in) provided by investing activities | (14,755 | ) | 6,052 | |||||
Financing activities: | ||||||||
Net increase in deposits | 17,756 | 6,199 | ||||||
Net increase (decrease) in short-term borrowings and securities sold under agreements to repurchase | 511 | (16,754 | ) | |||||
Issuance of long-term debt | - | 10,000 | ||||||
Repayment of long-term debt | - | (7,500 | ) | |||||
Cash dividends | (3,145 | ) | (3,170 | ) | ||||
Purchase of treasury stock | (86 | ) | (18 | ) | ||||
Common stock issued for employee stock plans | 206 | 64 | ||||||
Net cash provided by (used in) financing activities | 15,242 | (11,179 | ) | |||||
Net increase (decrease) in cash and cash equivalents | 3,793 | (997 | ) | |||||
Cash and cash equivalents at beginning of year | 9,559 | 10,458 | ||||||
Cash and cash equivalents at end of period | $ | 13,352 | $ | 9,461 | ||||
Supplemental information: | ||||||||
Interest paid | $ | 2,051 | $ | 1,673 | ||||
Income taxes paid | 385 | 200 | ||||||
Supplemental schedule of noncash investing and financing activities: | ||||||||
Transfer of loans to other real estate owned | $ | 529 | $ | 289 | ||||
Transfer of loans to repossessed vehicles | 5 | 20 |
| | | | | | | | | | | | | | | | | | | | |
| | Three months ended March 31, 2020 | ||||||||||||||||||
| | | | | | | | | | | | Accumulated | | | | | | |||
(Dollars in thousands, except share data) |
| Number |
| | | | |
| |
| Other |
| |
| Total | |||||
| | of Shares |
| Common |
| |
| Retained |
| Comprehensive |
| Treasury |
| Stockholders’ | ||||||
|
| Outstanding |
| Stock |
| Surplus |
| Earnings | | Income (Loss) |
| Stock |
| Equity | ||||||
Balance, January 1, 2020 | | 5,099,729 | | $ | 5,142 | | $ | 24,898 | | $ | 43,954 | | $ | 516 | | $ | (803) | | $ | 73,707 |
Net income |
|
| |
|
| |
|
| |
| 1,038 | |
|
| |
|
| |
| 1,038 |
Other comprehensive income |
|
| |
|
| |
|
| |
|
| |
| 3,900 | |
|
| |
| 3,900 |
Cash dividends at $0.22 per share |
|
| |
|
| |
|
| |
| (1,122) | |
|
| |
|
| |
| (1,122) |
Stock-based compensation |
|
| |
|
| |
| 29 | |
|
| |
|
| |
|
| |
| 29 |
Purchase of treasury stock |
| (15,400) | |
|
| |
| | |
|
| |
|
| |
| (186) | |
| (186) |
Common stock issued for stock plans |
| 9,530 | |
| 9 | | | (9) | |
|
| |
|
| |
|
| |
| — |
Balance, March 31, 2020 |
| 5,093,859 | | $ | 5,151 | | $ | 24,918 | | $ | 43,870 | | $ | 4,416 | | $ | (989) | | $ | 77,366 |
See Notes to Consolidated Financial Statements
6
Juniata Valley Financial Corp. and Subsidiary
Consolidated Statements of Cash Flows (Unaudited)
| | | | | | |
(Dollars in thousands) | | Three Months Ended March 31, | ||||
|
| 2021 |
| 2020 | ||
Operating activities: | | | | | | |
Net income | | $ | 1,635 | | $ | 1,038 |
Adjustments to reconcile net income to net cash provided by operating activities: | |
|
| |
|
|
Provision for loan losses | |
| (79) | |
| 356 |
Depreciation | |
| 187 | |
| 206 |
Net amortization of securities premiums | |
| 394 | |
| 228 |
Net amortization of loan origination fees | |
| 151 | |
| 5 |
Deferred net loan origination costs | |
| (92) | |
| (83) |
Amortization of intangibles | |
| 16 | |
| 19 |
Amortization of investment in low income housing partnerships | |
| 200 | |
| 200 |
Net amortization of purchase fair value adjustments | |
| (48) | |
| (27) |
Net realized gain on sales and calls of available for sale securities | |
| (4) | |
| (11) |
Change in value of equity securities | |
| (93) | |
| 172 |
Net gain on other real estate owned | |
| (49) | |
| 0 |
Earnings on bank owned life insurance and annuities | |
| (54) | |
| (64) |
Deferred income tax (benefit) expense | |
| (9) | |
| 125 |
Stock-based compensation expense | |
| 35 | |
| 29 |
Proceeds from mortgage loans sold to others | |
| 19 | |
| 20 |
Mortgage banking income | |
| (8) | |
| (16) |
Increase in accrued interest receivable and other assets | |
| (817) | |
| (1,561) |
Decrease in accrued interest payable and other liabilities | |
| (573) | |
| (109) |
Net cash provided by operating activities | |
| 811 | |
| 527 |
Investing activities: | |
|
| |
|
|
Purchases of: | |
|
| |
|
|
Securities available for sale | |
| (61,579) | |
| (23,275) |
Premises and equipment | |
| (65) | |
| (136) |
Bank owned life insurance and annuities | |
| (6) | |
| (6) |
Proceeds from: | |
| | |
|
|
Sales of securities available for sale | |
| 16,815 | |
| 15,704 |
Maturities of and principal repayments on securities available for sale | |
| 23,799 | |
| 22,339 |
Redemption of FHLB stock | |
| 49 | |
| 406 |
Net decrease in interest bearing time deposits with banks | |
| 0 | |
| 490 |
Net (increase) decrease in loans | |
| (14,377) | |
| 10,698 |
Net cash (used in) provided by investing activities | |
| (35,364) | |
| 26,220 |
Financing activities: | |
|
| |
|
|
Net increase in deposits | |
| 46,593 | |
| 9,991 |
Net decrease in short-term borrowings and securities sold under agreements to repurchase | |
| (2,128) | |
| (10,346) |
Repayment of FRB advances | | | (27,955) | | | 0 |
Cash dividends | |
| (1,102) | |
| (1,122) |
Purchase of treasury stock | |
| (483) | |
| (186) |
Net cash provided by (used in) financing activities | |
| 14,925 | |
| (1,663) |
Net (decrease) increase in cash and cash equivalents | |
| (19,628) | |
| 25,084 |
Cash and cash equivalents at beginning of year | |
| 41,621 | |
| 12,740 |
Cash and cash equivalents at end of period | | $ | 21,993 | | $ | 37,824 |
| | | | | | |
(Dollars in thousands) | | Three Months Ended March 31, | ||||
|
| 2021 |
| 2020 | ||
Supplemental information: | | | | | | |
Interest paid | | $ | 967 | | $ | 1,135 |
Income tax paid | |
| 75 | |
| 0 |
Supplemental schedule of noncash investing and financing activities: | |
|
| |
|
|
Transfer of loans to other real estate owned | | $ | 61 | | $ | 0 |
Transfer of loans to repossessed vehicles | | $ | 1 | | $ | 0 |
See Notes to Consolidated Financial Statements
7
JUNIATA VALLEY FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. Basis of Presentation and Accounting Policies
BASIS OF PRESENTATION AND ACCOUNTING POLICIES
The consolidated financial statements include the accounts of Juniata Valley Financial Corp. (the “Company” or “Juniata”) and its wholly owned subsidiary, The Juniata Valley Bank (the “Bank” or “JVB”). All significant intercompany accounts and transactions have been eliminated.
The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles (“U.S. GAAP”)GAAP for complete consolidated financial statements. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts in the financial statements and accompanying notes. Actual results may differ from those estimates, and such differences could be material to the financial statements. Additionally, the ongoing effects of the COVID-19 pandemic may negatively impact significant estimates and the assumptions underlying those estimates. Estimates that are particularly susceptible to material change include the determination of the allowance for loan losses, and possible impairment of goodwill and other intangible assets.
In the opinion of management, all adjustments considered necessary for fair presentation have been included. Operating results for the three and nine monthsmonth period ended September 30, 2017March 31, 2021 are not necessarily indicative of the results for the year ending December 31, 2017.2021. For further information, refer to the consolidated financial statements and notes thereto included in Juniata Valley Financial Corp.’s Annual Report on Form 10-K (“Annual Report”) for the year ended December 31, 2016.
2020.
The Company has evaluated events and transactions occurring subsequent to the consolidated statement of financial condition date of September 30, 2017March 31, 2021 for items that should potentially be recognized or disclosed in these consolidated financial statements. The evaluation was conducted through the date these consolidated financial statements were issued.
2. Recent Accounting Standards Updates (ASU)
Accounting Standards Update 2017-12, Targeted Improvements to Accounting for Hedging Activities
Issued:2. RECENT ACCOUNTING STANDARDS UPDATESAugust 2017
Summary:ASU 2017-12 improves Topic 815 by simplifying and expanding the eligible hedging strategies for financial and nonfinancial risks by more closely aligning hedge accounting with a company’s risk management activities, and also simplifies its application through targeted improvements in key practice areas. This includes expanding the list of items eligible to be hedged and amending the methods used to measure the effectiveness of hedging relationships. In addition, the ASU prescribes how hedging results should be presented and requires incremental disclosures. These changes are intended to allow preparers more flexibility and to enhance the transparency of how hedging results are presented and disclosed. Further, the new standard provides partial relief on the timing of certain aspects of hedge documentation and eliminates the requirement to recognize hedge ineffectiveness separately in earnings in the current period.
Effective Date:The amendments are effective for public business entities, for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early application is permitted in any interim period after issuance of the amendments for existing hedging relationships on the date of adoption. This Update will have no impact on the Company’s consolidated financial position and results of operations.
Accounting Standards Update 2017-09, Scope of Modification Accounting
Issued:May 2017
Summary:ASU 2017-09 clarifies Topic 718 such that an entity must apply modification accounting to changes in the terms or conditions of a share-based payment award unless all of the following criteria are met:
Effective Date:The amendments are effective for all entities for fiscal years beginning after December 15, 2017, including interim periods within those years. This Update will have no impact on the Company’s consolidated financial position and results of operations.
Accounting Standards Update 2017-08, Premium Amortization on Purchased Callable Debt Securities
Issued:March 2017
Summary:ASU 2017-08 shortens the amortization period for premiums on purchased callable debt securities to the earliest call date, rather than amortizing over the full contractual term. The ASU does not change the accounting for securities held at a discount.
Effective Date:The amendments are effective for public business entities for fiscal years beginning after December 15, 2019. This Update will have no impact on the Company’s consolidated financial position and results of operations.
Accounting Standards Update 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost
Issued:March 2017
Summary:ASU 2017-07 requires that an employer disaggregate the service cost component from the other components of net benefit cost.
Effective Date:The amendments are effective for public business entities for fiscal years beginning after December 15, 2017. This Update will have no impact on the Company’s consolidated financial position and results of operations.
Accounting Standards Update 2017-04, Simplifying the Test for Goodwill Impairment
Issued:January 2017
Summary:ASU 2017-04 eliminates Step 2 of the goodwill impairment test.
Effective Date:The amendments are effective for public business entities for fiscal years beginning after December 15, 2019. This Update will have no impact on the Company’s consolidated financial position and results of operations.
Accounting Standards Update 2016-15, Classification of Certain Cash Receipts and Cash Payments
Issued:August 2016
Summary:ASU 2016-15 clarifies how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The amendments are intended to reduce diversity in practice.
Effective Date:The amendments are effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. This Update will have no impact on the Company’s consolidated financial position and results of operations.
Accounting Standards Update 2016-13,,Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
Issued:June 2016
Summary:ASU 2016-13 requires credit losses on most financial assets to be measured at amortized cost and certain other instruments to be measured using an expected credit loss model (referred to as the current expected credit loss (“CECL”) model). Under this model, entities will estimate credit losses over the entire contractual term of the instrument (considering estimated prepayments, but not expected extensions or modifications unless reasonable expectation of a troubled debt restructuring exists) from the date of initial recognition of that instrument.
The ASU also replaces the current accounting model for purchased credit impaired loans and debt securities. The allowance for credit losses for purchased financial assets with a more-than insignificant amount of credit deterioration since origination (“PCD assets”), should be determined in a similar manner to other financial assets measured on an amortized cost basis. However, upon initial recognition, the allowance for credit losses is added to the purchase price (“gross up approach”) to determine the initial amortized cost basis. The subsequent accounting for PCD financial assets is the same expected loss model described above.
Further, the ASU made certain targeted amendments to the existing impairment model for available-for-sale (AFS)available for sale debt securities. For an AFSavailable for sale debt security for which there is neither the intent nor a more-likely-than-not requirement to sell, an entity will record credit losses as an allowance rather than a write-down of the amortized cost basis.
8
Effective Date: The new standard isOn October 16, 2019, the FASB voted and approved to delay the effective date of this ASU for smaller reporting companies until fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.2022. Since the Company is a smaller reporting company, the delay of the effective date of ASU 2016-13 approved by the FASB applies to the Company. While the Company’s senior management is currently in the process of evaluating the impact of the amended guidance on its consolidated financial statements and disclosures, it currently expects the ALLLallowance for loan and lease losses (“ALLL”) to increase upon adoption given thatbecause the allowance will be required to cover the full remaining expected life of the portfolio, rather than the incurred loss model under current U.S. GAAP. The extent of this increase is still being evaluated and will depend on economic conditions and the composition of the Company’s loan portfolio at the time of adoption. In preparation, the Company has partneredtaken steps to prepare for the implementation when it becomes effective by forming an internal taskforce, gathering pertinent data, participating in training courses, and partnering with a software provider specializingthat specializes in ALLL analysis, and isas well as assessing the sufficiency of data currently available through its core database.
Accounting Standards Update 2016-02, Leases
Issued:February 2016
Summary:The new standard establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement.
Effective Date: The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company has determined that the provisions of ASU 2016-02 will result in an increase in assets to recognize the present value of the lease obligations with a corresponding increase in liabilities; however, the Company does not expect this new standard to have a material impact on the Company’s financial position, results of operations or cash flows.
Accounting Standards Update 2016-01,Measurement of Financial Instruments
Issued:January 2016
Summary: The amendments in this Update require all equity investments to be measured at fair value with changes in the fair value recognized through net income (other than those accounted for under equity method of accounting or those that result in consolidation of the investee). The amendments in this Update also require an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. In addition, the amendments in this Update eliminate the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public business entities and the requirement to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet for public business entities.
Effective Date: For public entities, the amendments in the Update are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company currently holds a small portfolio of equity investments for which the fair value fluctuates with market activity. Had ASU 2016-01 become effective on September 30, 2017, the cumulative effect adjustment to income before tax would have been $287,000 (see Note 6). The cumulative adjustment that will be recognized upon adoption of the amendments in this update in the first quarter of 2018 will be dependent upon the size of the equity portfolio and the market values at that time.
Accounting Standards Update 2014-09, Revenue from Contracts with Customers (Topic 606)
Issued:May 2014
Summary: The amendments in this Update establish a comprehensive revenue recognition standard for virtually all industries under U.S. GAAP, including those that previously followed industry-specific guidance such as the real estate, construction and software industries. The revenue standard’s core principle is built on the contract between a vendor and a customer for the provision of goods and services. It attempts to depict the exchange of rights and obligations between the parties in the pattern of revenue recognition based on the consideration to which the vendor is entitled. To accomplish this objective, the standard requires five basic steps: (i) identify the contract with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when (or as) the entity satisfies a performance obligation.
In August 2015, the FASB issuedAccounting Standards Update 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date.ASU 2015-14 defers the effective date of the new revenue recognition standard by one year. As such, it now takes effect for public entities in fiscal years beginning after December 15, 2017. All other entities have an additional year. However, early adoption is permitted for any entity that chooses to adopt the new standard as of the original effective date. Early adoption is permitted only as of annual reporting periods beginning after December 15, 2016, including interim periods within that year.
Three basic transition methods are available – full retrospective, retrospective with certain practical expedients, and a cumulative effect approach. Under the third alternative, an entity would apply the new revenue standard only to contracts that are incomplete under legacy U.S. GAAP at the date of initial application (e.g. January 1, 2018) and recognize the cumulative effect of the new standard as an adjustment to the opening balance of retained earnings. That is, prior years would not be restated and additional disclosures would be required to enable users of the financial statements to understand the impact of adopting the new standard in the current year compared to prior years that are presented under legacy U.S. GAAP. Early adoption is prohibited under U.S. GAAP.
Because the amended guidance does not apply to revenue associated with financial instruments, including loans and securities that are accounted for under other U.S. GAAP, the Company’s preliminary analysis suggests that the adoption of this amended guidance is not expected to have a material impact on its consolidated financial statements, although the Company will be subject to expanded disclosure requirements upon adoption for which it is still evaluating, along with the preferred adoption method. The Company is assessing the affect the guidance will have on the recognition processes for wealth and asset management revenue, banking revenue and card and processing revenue. However, there are certain areas of the amended guidance, such as credit card interchange fees programs that are subject to interpretation. The Company is still in the process of analyzing these contracts and has not made a final conclusion regarding the applicability and related impact, if any, on the consolidated financial statements. Accordingly, the results of the Company’s materiality analysis, as well as its selected adoption method, may change as these conclusions are reached.
3. Merger
On November 30, 2015, Juniata consummated the merger with FNBPA Bancorp, Inc. (“FNBPA”), a Pennsylvania corporation. FNBPA merged with and into Juniata, with Juniata continuing as the surviving entity. Simultaneously with the consummation of the foregoing merger, First National Bank of Port Allegany (“FNB”), a national banking association and a wholly-owned subsidiary of FNBPA, merged with and into the Bank.
As part of this transaction, FNBPA shareholders received either 2.7813 shares of Juniata’s common stock or $50.34 in cash in exchange for each share of FNBPA common stock. As a result, Juniata issued 607,815 shares of common stock with an acquisition date fair value of approximately $10,637,000, based on Juniata’s closing stock price of $17.50 on November 30, 2015, and cash of $2,208,000, including cash in lieu of fractional shares. The fair value of total consideration paid was $12,845,000.
The assets and liabilities of FNB and FNBPA were recorded on the consolidated balances sheet at their estimated fair value as of November 30, 2015, and their results of operations have been included in the consolidated income statement since such date.
Included in the purchase price was goodwill and a core deposit intangible of $3,335,000 and $343,000, respectively. The core deposit intangible will be amortized over a ten-year period using a sum of the year’s digits basis. The goodwill will not be amortized, but will be measured annually for impairment or more frequently if circumstances require.
The allocation of the purchase price is as follows:
(Dollars in thousands) | ||||
Purchase price assigned to FNBPA common shares exchanged for 607,815 Juniata common shares | $ | 10,637 | ||
Purchase price assigned to FNBPA common shares exchanged for cash | 2,208 | |||
Total purchase price | 12,845 | |||
FNBPA net assets acquired: | ||||
Tangible common equity | 9,854 | |||
Adjustments to reflect assets acquired and liabilities assumed at fair value: | ||||
Total fair value adjustments | (523 | ) | ||
Associated deferred income taxes | 179 | |||
Fair value adjustment to net assets acquired, net of tax | (344 | ) | ||
Total FNBPA net assets acquired | 9,510 | |||
Goodwill resulting from the merger | $ | 3,335 |
The following table summarizes the fair value of the assets acquired and liabilities assumed.
(Dollars in thousands) | ||||
Total purchase price | $ | 12,845 | ||
Net assets acquired | ||||
Cash and cash equivalents | 3,452 | |||
Interest-bearing time deposits | 350 | |||
Investment securities | 35,458 | |||
Loans | 47,055 | |||
Premises and equipment | 419 | |||
Accrued interest receivable | 550 | |||
Core deposit and other intangibles | 343 | |||
Other real estate owned | 114 | |||
Other assets | 763 | |||
Deposits | (77,665 | ) | ||
Accrued interest payable | (13 | ) | ||
Other liabilities | (1,316 | ) | ||
9,510 | ||||
Goodwill | $ | 3,335 |
As of November 30, 2015, the merger date, goodwill was recorded at $3,335,000. Accounting Standard Codification (“ASC”) 805 allows for adjustments to goodwill for a period of up to one year after the merger date for information that becomes available that reflects circumstances at the merger date. During 2016, such information became available and goodwill was adjusted by $67,000, to $3,402,000, to reflect adjustments to fair value of two assets.
The fair value of the financial assets acquired included loans receivable with a gross amortized cost basis of $47,797,000. The table below illustrates the fair value adjustments made to the amortized cost basis in order to present a fair value of the loans acquired.
(Dollars in thousands) | ||||
Gross amortized cost basis at November 30, 2015 | $ | 47,797 | ||
Market rate adjustment | (110 | ) | ||
Credit fair value adjustment on pools of homogeneous loans | (73 | ) | ||
Credit fair value adjustment on impaired loans | (559 | ) | ||
Fair value of purchased loans at November 30, 2015 | $ | 47,055 |
The market rate adjustment represents the movement in market interest rates, irrespective of credit adjustments, compared to the stated rates of the acquired loans. The credit adjustment made on pools of homogeneous loans represents the changes in credit quality of the underlying borrowers from the loan inception to the acquisition date. The credit adjustment on impaired loans is derived in accordance with ASC 310-30 and represents the portion of the loan balances that has been deemed uncollectible based on the Company’s expectations of future cash flows for each respective loan.
The information about the acquired FNBPA impaired loan portfolio as of November 30, 2015 is as follows:
(Dollars in thousands) | ||||
Contractually required principal and interest at acquisition | $ | 2,488 | ||
Contractual cash flows not expected to be collected (nonaccretable discount) | (1,427 | ) | ||
Expected cash flows at acquisition | 1,061 | |||
Interest component of expected cash flows (accretable discount) | (157 | ) | ||
Fair value of acquired loans | $ | 904 |
The following table presents unaudited pro forma information, in thousands, as if the merger between Juniata and FNBPA had been completed on January 1, 2014. The pro forma information does not necessarily reflect the results of operations that would have occurred had Juniata merged with FNBPA at the beginning of 2014. Supplemental pro forma earnings for 2015 were adjusted to exclude $1,637,000 of merger related costs (exclusive of the corresponding tax impact) incurred in 2015; the results for 2014 were adjusted to include these charges. The pro forma financial information does not include the impact of possible business model changes, nor does it consider any potential impacts of current market conditions or revenues, expense efficiencies or other factors.
(Dollars in thousands, except per share data) | Years Ended December 31, | |||||||
2015 | 2014 | |||||||
Consolidated net interest income after loan loss provision | $ | 17,731 | $ | 17,089 | ||||
Consolidated non-interest income | 4,841 | 4,745 | ||||||
Consolidated non-interest expense | 17,124 | 18,358 | ||||||
Consolidated net income | 4,862 | 3,353 | ||||||
Consolidated net income per common share | $ | 1.01 | $ | 0.70 |
4. Accumulated other Comprehensive loss
ACCUMULATED OTHER COMPREHENSIVE INCOME
Components of accumulated other comprehensive loss,income, net of tax, consisted of the following:
| | | | | | | | | |
(Dollars in thousands) | | | | | | | | | |
March 31, 2021 |
| Gains and (Losses) on Cash Flow Hedges |
| Unrealized Gains and (Losses) on Available for Sale Securities |
| Total | |||
Beginning balance, December 31, 2020 | | $ | (45) | | $ | 3,563 | | $ | 3,518 |
Current period other comprehensive income (loss): | | | | | | | | | |
Other comprehensive income (loss) before reclassification | | | 562 | | | (4,670) | | | (4,108) |
Amounts reclassified from accumulated other comprehensive loss | | | 3 | | | (3) | | | 0 |
Net current period other comprehensive income (loss) | |
| 565 | |
| (4,673) | |
| (4,108) |
Ending balance, March 31, 2021 | | $ | 520 | | $ | (1,110) | | $ | (590) |
(Dollars in thousands) | ||||||||
September 30, 2017 | December 31, 2016 | |||||||
Unrealized losses on available for sale securities | $ | (609 | ) | $ | (866 | ) | ||
Unrecognized expense for defined benefit pension | (2,230 | ) | (2,343 | ) | ||||
Accumulated other comprehensive loss | $ | (2,839 | ) | $ | (3,209 | ) |
| | | | | | | | | |
(Dollars in thousands) | | | | | | | | | |
December 31, 2020 |
| Gains and (Losses) on Cash Flow Hedges |
| Unrealized Gains and (Losses) on Available for Sale Securities |
| Total | |||
Beginning balance, December 31, 2019 | | $ | 0 | | $ | 516 | | $ | 516 |
Current period other comprehensive income: | | | | | | | | | |
Other comprehensive income before reclassification | | | (38) | | | 3,727 | | | 3,689 |
Amounts reclassified from accumulated other comprehensive income | | | (7) | | | (675) | | | (682) |
Net current period other comprehensive income | |
| (45) | |
| 3,052 | |
| 3,007 |
Reclassification for ASU 2018-02 | | | 0 | | | (5) | | | (5) |
Ending balance, December 31, 2020 | | $ | (45) | | $ | 3,563 | | $ | 3,518 |
5. Earnings Per Share
4. EARNINGS PER SHARE
Basic earnings per share (“EPS”) is computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company. Potential common shares that may be issued by the Company relate solely to outstanding stock options and are determined using the treasury stock method.
9
The following tables settable sets forth the computation of basic and diluted earnings per share:
| | | | | | |
(Amounts in thousands, except earnings per share data) | | Three Months Ended March 31, | ||||
| | 2021 |
| 2020 | ||
Net income | | $ | 1,635 | | $ | 1,038 |
Weighted-average common shares outstanding | |
| 5,017 | |
| 5,103 |
Basic earnings per share | | $ | 0.33 | | $ | 0.20 |
Weighted-average common shares outstanding | | $ | 5,017 | | $ | 5,103 |
Common stock equivalents due to effect of stock options | |
| 9 | |
| 8 |
Total weighted-average common shares and equivalents | | | 5,026 | | | 5,111 |
Diluted earnings per share | | $ | 0.33 | | $ | 0.20 |
Anti-dilutive stock options outstanding | |
| 8 | |
| 5 |
(Dollars in thousands, except earnings per share data) | Three Months Ended September 30, | |||||||
2017 | 2016 | |||||||
Net income | $ | 1,206 | $ | 1,447 | ||||
Weighted-average common shares outstanding | 4,768 | 4,804 | ||||||
Basic earnings per share | $ | 0.25 | $ | 0.30 | ||||
Weighted-average common shares outstanding | 4,768 | 4,804 | ||||||
Common stock equivalents due to effect of stock options | 11 | 1 | ||||||
Total weighted-average common shares and equivalents | 4,779 | 4,805 | ||||||
Diluted earnings per share | $ | 0.25 | $ | 0.30 |
Nine Months Ended September 30, | ||||||||
2017 | 2016 | |||||||
Net income | $ | 3,959 | $ | 3,854 | ||||
Weighted-average common shares outstanding | 4,764 | 4,801 | ||||||
Basic earnings per share | $ | 0.83 | $ | 0.80 | ||||
Weighted-average common shares outstanding | 4,764 | 4,801 | ||||||
Common stock equivalents due to effect of stock options | 9 | 1 | ||||||
Total weighted-average common shares and equivalents | 4,773 | 4,802 | ||||||
Diluted earnings per share | $ | 0.83 | $ | 0.80 |
6.
5. SECURITIES
Equity Securities
Equity securities owned by the Company consist of common stock of various financial services providers. ASC Topic 321, Investments – Equity Securities requires all equity securities within its scope to be measured at fair value with changes in fair value recognized in net income. As of March 31, 2021, the Company had $1,183,000 in equity securities recorded at fair value, and $1,091,000 in equity securities were recorded at fair value at December 31, 2020. The Company recorded a net gain of $93,000 during the three months ended March 31, 2021 and a net loss of $172,000 during the three months ended March 31, 2020 because of the change in fair value of the Company’s equity securities during the applicable period.
Debt Securities Available for Sale
Debt securities classified as available for sale, which include marketable investment securities, are within the scope of ASC Topic 320, Investments – Debt Securities. Topic 320 requires all debt securities within its scope to be stated at fair value, with the unrealized gains and losses, net of tax, reported as a component of other comprehensive income (loss). Securities classified as available for sale are those securities that the Company intends to hold for an indefinite period but not necessarily to maturity. Any decision to sell a security classified as available for sale would be based on various factors, including significant movement in interest rates, changes in maturity mix of the Company’s assets and liabilities, liquidity needs, regulatory capital considerations and other similar factors. Interest and dividends are recognized as income when earned. Premiums and discounts are recognized in interest income using the interest method over the terms of the securities. Gains or losses on the disposition of securities available for sale are based on the net proceeds and the adjusted carrying amount of the securities sold, determined on a specific identification basis.
The Company’s available for sale investment portfolio includes primarily bonds issued by U.S. Government sponsored agenciesenterprises (approximately 22%13% of the investment portfolio), mortgage-backed securities issued by Government-sponsored agenciesentities and backed by residential mortgages (approximately 61%79%), corporate debt securities (approximately 5%) and municipal bonds (approximately 16%3%) as of September 30, 2017.March 31, 2021. Most of the municipal bonds are general obligation bonds with maturities or pre-refunding dates within 5 years. The remaining 1%
10
The amortized cost and fair value of securities available for sale as of September 30, 2017March 31, 2021 and December 31, 2016,2020, by contractual maturity, are shown in the tables below. Expected maturities may differ from contractual maturities because the securities may be called or prepaid with or without prepayment penalties.
| | | | | | | | | | | | |
(Dollars in thousands) |
| March 31, 2021 | ||||||||||
| | | | | | Gross |
| Gross | ||||
| | Amortized | | Fair | | Unrealized | | Unrealized | ||||
Debt Securities Available for Sale |
| Cost |
| Value |
| Gains |
| Losses | ||||
Type and Maturity |
| |
|
| |
|
| |
|
| |
|
Obligations of U.S. Government sponsored enterprises |
| |
|
| |
|
| | |
| |
|
After five years but within ten years | | $ | 39,054 | | $ | 37,634 | | $ | 0 | | $ | (1,420) |
| |
| 39,054 | |
| 37,634 | |
| 0 | |
| (1,420) |
Obligations of state and political subdivisions | |
|
| |
|
| |
|
| |
|
|
Within one year | |
| 30 | |
| 30 | |
| 0 | | | 0 |
After one year but within five years | |
| 4,705 | | | 4,750 | |
| 45 | | | 0 |
After five years but within ten years | |
| 3,294 | |
| 3,395 | |
| 139 | | | (38) |
| |
| 8,029 | |
| 8,175 | |
| 184 | |
| (38) |
Corporate debt securities | |
|
| |
|
| |
|
| |
|
|
After five years but within ten years | |
| 15,487 | | | 16,039 | | | 580 | | | (28) |
| |
| 15,487 | |
| 16,039 | |
| 580 | |
| (28) |
Mortgage-backed securities | |
| 239,912 | | | 239,228 | | | 2,352 | | | (3,036) |
Total | | $ | 302,482 | | $ | 301,076 | | $ | 3,116 | | $ | (4,522) |
September 30, 2017 | ||||||||||||||||||||||||||||
| | | | | | | | | | | | | ||||||||||||||||
(Dollars in thousands) | Gross | Gross | | December 31, 2020 | ||||||||||||||||||||||||
Amortized | Fair | Unrealized | Unrealized | |||||||||||||||||||||||||
Cost | Value | Gains | Losses | |||||||||||||||||||||||||
Securities Available for Sale | ||||||||||||||||||||||||||||
|
|
| |
|
| |
| Gross |
| Gross | ||||||||||||||||||
| | Amortized | | Fair | | Unrealized | | Unrealized | ||||||||||||||||||||
Debt Securities Available for Sale | | Cost | | Value | | Gains | | Losses | ||||||||||||||||||||
Type and Maturity |
| |
|
| |
|
| |
|
| |
| ||||||||||||||||
Obligations of U.S. Government agencies and corporations | ||||||||||||||||||||||||||||
After one year but within five years | $ | 15,998 | $ | 15,878 | $ | - | $ | (120 | ) | |||||||||||||||||||
Obligations of U.S. Government sponsored enterprises |
| |
|
| |
|
| |
|
| |
| ||||||||||||||||
After five years but within ten years | 19,002 | 18,585 | - | (417 | ) | | $ | 22,994 | | $ | 22,949 | | $ | 7 | | $ | (52) | |||||||||||
35,000 | 34,463 | - | (537 | ) | ||||||||||||||||||||||||
| |
| 22,994 | |
| 22,949 | |
| 7 | |
| (52) | ||||||||||||||||
Obligations of state and political subdivisions | |
|
| |
|
| |
|
| |
|
| ||||||||||||||||
Within one year | 2,418 | 2,418 | 1 | (1 | ) | |
| 31 | |
| 31 | |
| 0 | | | 0 | |||||||||||
After one year but within five years | 12,659 | 12,781 | 123 | (1 | ) | |
| 4,708 | | | 4,767 | |
| 59 | | | 0 | |||||||||||
After five years but within ten years | 10,783 | 10,746 | 46 | (83 | ) | |
| 3,289 | |
| 3,484 | |
| 195 | | | 0 | |||||||||||
25,860 | 25,945 | 170 | (85 | ) | ||||||||||||||||||||||||
| |
| 8,028 | |
| 8,282 | |
| 254 | |
| 0 | ||||||||||||||||
Corporate debt securities | |
|
| |
|
| |
|
| |
|
| ||||||||||||||||
Within one year | |
| 1,033 | |
| 1,039 | |
| 6 | |
| 0 | ||||||||||||||||
After five years but within ten years | |
| 10,058 | | | 10,484 | | | 485 | | | (59) | ||||||||||||||||
| |
| 11,091 | |
| 11,523 | |
| 491 | |
| (59) | ||||||||||||||||
Mortgage-backed securities | 98,251 | 97,485 | 96 | (862 | ) | |
| 239,793 | | | 243,661 | | | 3,999 | | | (131) | |||||||||||
Equity securities | 1,000 | 1,287 | 288 | (1 | ) | |||||||||||||||||||||||
Total | $ | 160,111 | $ | 159,180 | $ | 554 | $ | (1,485 | ) | | $ | 281,906 | | $ | 286,415 | | $ | 4,751 | | $ | (242) |
December 31, 2016 | ||||||||||||||||
(Dollars in thousands) | Gross | Gross | ||||||||||||||
Amortized | Fair | Unrealized | Unrealized | |||||||||||||
Cost | Value | Gains | Losses | |||||||||||||
Securities Available for Sale | ||||||||||||||||
Type and Maturity | ||||||||||||||||
Obligations of U.S. Government agencies and corporations | ||||||||||||||||
After one year but within five years | $ | 19,495 | $ | 19,331 | $ | 13 | $ | (177 | ) | |||||||
After five years but within ten years | 17,000 | 16,468 | - | (532 | ) | |||||||||||
36,495 | 35,799 | 13 | (709 | ) | ||||||||||||
Obligations of state and political subdivisions | ||||||||||||||||
Within one year | 2,819 | 2,820 | 2 | (1 | ) | |||||||||||
After one year but within five years | 13,268 | 13,240 | 39 | (67 | ) | |||||||||||
After five years but within ten years | 10,923 | 10,599 | 16 | (340 | ) | |||||||||||
27,010 | 26,659 | 57 | (408 | ) | ||||||||||||
Mortgage-backed securities | 86,670 | 85,702 | 114 | (1,082 | ) | |||||||||||
Equity securities | 1,615 | 2,328 | 713 | - | ||||||||||||
Total | $ | 151,790 | $ | 150,488 | $ | 897 | $ | (2,199 | ) |
Certain obligations of the U.S. Government and state and political subdivisions are pledged to secure public deposits, securities sold under agreements to repurchase and for other purposes as required or permitted by law. The carrying value of the pledged assets was $49,050,000$66,521,000 and $36,638,000 at September 30, 2017$74,614,000 on March 31, 2021 and December 31, 2016,2020, respectively.
In addition to cash received from the scheduled maturities of investment securities, some investment securities available for sale are sold or called at current market values during the course of normal operations.
11
The following charttable summarizes proceeds received from sales or calls of available for sale investment securities transactions and the resulting realized gains and losses.losses during the three months ended March 31, 2021 and 2020.
| | | | | | |
(Dollars in thousands) | | Three Months Ended | ||||
| | March 31, | ||||
|
| 2021 |
| 2020 | ||
Gross proceeds from sales and calls of securities | | $ | 16,815 | | $ | 15,704 |
Securities available for sale: | |
| | |
|
|
Gross realized gains from sold and called securities | | $ | 18 | | $ | 41 |
Gross realized losses from sold and called securities | |
| (14) | |
| (30) |
Net gains from sales and calls of securities | | $ | 4 | | $ | 11 |
Three Months Ended | Nine Months Ended | |||||||||||||||
(Dollars in thousands) | September 30, | September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Gross proceeds from sales of securities | $ | 10,166 | $ | - | $ | 21,800 | $ | 4,273 | ||||||||
Securities available for sale: | ||||||||||||||||
Gross realized gains from sold and called securities | $ | 30 | $ | 6 | $ | 539 | $ | 49 | ||||||||
Gross realized losses from sold and called securities | (28 | ) | - | (32 | ) | (15 | ) | |||||||||
Gross gains from business combinations | - | - | 3 | 100 |
ASC Topic 320Investments – Debt and Equity Securities, clarifies the interaction of the factors that should be considered when determining whether a debt security is other-than-temporarily impaired. For debt securities, managementManagement must assess whether (a) it has the intent to sell the security and (b) it is more likely than not that it will be required to sell the security prior to its anticipated recovery. These steps are taken before an assessment is made as to whether the entity will recover the cost basis of the investment. For equity securities, consideration is given to management’s intention and ability to hold the securities until recovery of unrealized losses in assessing potential other-than-temporary impairment. More specifically, factors considered to determine other-than-temporary impairment status for individual equity holdings include the length of time the stock has remained in an unrealized loss position, the percentage of unrealized loss compared to the carrying cost of the stock, dividend reduction or suspension, market analyst reviews and expectations, and other pertinent factors that would affect expectations for recovery or further decline.
In instances when a determination is made that an other-than-temporary impairment exists and the entity does not intend to sell the debt security and it is not more likely than not that it will be required to sell the debt security prior to its anticipated recovery, the other-than-temporary impairment is separated into the amount of the total other-than-temporary impairment related to a decrease in cash flows expected to be collected from the debt security (the credit loss) and the amount of the total other-than-temporary impairment related to all other factors. The amount of the total other-than-temporary impairment related to the credit loss is recognized in earnings. The amount of the total other-than-temporary impairment related to all other factors is recognized in other comprehensive income (loss).
income.
The following table showstables show gross unrealized losses and fair value,values of debt securities available for sale, aggregated by category and length of time thatthe individual securities have been in a continuous unrealized loss position at September 30, 2017March 31, 2021 and December 31, 2016:2020:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Unrealized Losses at March 31, 2021 | ||||||||||||||||||||||
| | Less Than 12 Months | | 12 Months or More | | Total | ||||||||||||||||||
(Dollars in thousands) |
| Number |
| | |
| | |
| Number |
| | |
| | |
| Number |
| | |
| | |
| | of | | Fair | | Unrealized | | of | | Fair | | Unrealized | | of | | Fair | | Unrealized | ||||||
| | Securities | | Value | | Losses | | Securities | | Value | | Losses | | Securities | | Value | | Losses | ||||||
Obligations of U.S. Government sponsored enterprises |
| 7 | | $ | 37,634 | | $ | (1,420) |
| 0 | | $ | 0 | | $ | 0 |
| 7 | | $ | 37,634 | | $ | (1,420) |
Obligations of state and political subdivisions |
| 4 | | | 1,191 | |
| (38) |
| 0 | |
| 0 | |
| 0 |
| 4 | |
| 1,191 | |
| (38) |
Corporate debt securities | | 2 | | | 1,972 | | | (28) |
| 0 | | | 0 | | | 0 |
| 2 | | | 1,972 | | | (28) |
Mortgage-backed securities |
| 27 | | | 143,709 | | | (3,036) |
| 0 | | | 0 | | | 0 |
| 27 | | | 143,709 | | | (3,036) |
Total temporarily impaired securities |
| 40 | | $ | 184,506 | | $ | (4,522) |
| 0 | | $ | 0 | | $ | 0 |
| 40 | | $ | 184,506 | | $ | (4,522) |
Unrealized Losses at September 30, 2017 | ||||||||||||||||||||||||
Less Than 12 Months | 12 Months or More | Total | ||||||||||||||||||||||
(Dollars in thousands) | Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | ||||||||||||||||||
Value | Losses | Value | Losses | Value | Losses | |||||||||||||||||||
Obligations of U.S. Government agencies and corporations | $ | 27,680 | $ | (320 | ) | $ | 6,782 | $ | (217 | ) | $ | 34,462 | $ | (537 | ) | |||||||||
Obligations of state and political subdivisions | 6,070 | (67 | ) | 1,695 | (18 | ) | 7,765 | (85 | ) | |||||||||||||||
Mortgage-backed securities | 78,495 | (862 | ) | - | - | 78,495 | (862 | ) | ||||||||||||||||
Total debt securities | 112,245 | (1,249 | ) | 8,477 | (235 | ) | 120,722 | (1,484 | ) | |||||||||||||||
Equity securities | - | - | 4 | (1 | ) | 4 | (1 | ) | ||||||||||||||||
Total temporarily impaired securities | $ | 112,245 | $ | (1,249 | ) | $ | 8,481 | $ | (236 | ) | $ | 120,726 | $ | (1,485 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Unrealized Losses at December 31, 2020 | ||||||||||||||||||||||
| | Less Than 12 Months | | 12 Months or More | | Total | ||||||||||||||||||
(Dollars in thousands) |
| Number |
| | |
| | |
| Number |
| | |
| | |
| Number |
| | |
| | |
| | of | | Fair | | Unrealized | | of | | Fair | | Unrealized | | of | | Fair | | Unrealized | ||||||
| | Securities | | Value | | Losses | | Securities | | Value | | Losses | | Securities | | Value | | Losses | ||||||
Obligations of U.S. Government sponsored enterprises |
| 3 | | $ | 18,948 | | $ | (52) |
| 0 | | $ | 0 | | $ | 0 |
| 3 | | $ | 18,948 | | $ | (52) |
Corporate debt securities | | 1 | | | 2,972 | | | (59) |
| 0 | | | 0 | | | 0 |
| 1 | | | 2,972 | | | (59) |
Mortgage-backed securities |
| 7 | | | 43,583 | | | (131) |
| 0 | | | 0 | | | 0 |
| 7 | | | 43,583 | | | (131) |
Total temporarily impaired securities |
| 11 | | $ | 65,503 | | $ | (242) |
| 0 | | $ | 0 | | $ | 0 |
| 11 | | $ | 65,503 | | $ | (242) |
Unrealized Losses at December 31, 2016 | ||||||||||||||||||||||||
Less Than 12 Months | 12 Months or More | Total | ||||||||||||||||||||||
(Dollars in thousands) | Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | ||||||||||||||||||
Value | Losses | Value | Losses | Value | Losses | |||||||||||||||||||
Obligations of U.S. Government agencies and corporations | $ | 32,783 | $ | (709 | ) | $ | - | $ | - | $ | 32,783 | $ | (709 | ) | ||||||||||
Obligations of state and political subdivisions | 17,437 | (406 | ) | 300 | (2 | ) | 17,737 | (408 | ) | |||||||||||||||
Mortgage-backed securities | 68,989 | (1,082 | ) | - | - | 68,989 | (1,082 | ) | ||||||||||||||||
Total temporarily impaired securities | $ | 119,209 | $ | (2,197 | ) | $ | 300 | $ | (2 | ) | $ | 119,509 | $ | (2,199 | ) |
12
At September 30, 2017, 20March 31, 2021, 7 obligations of U.S. Government agencysponsored enterprises, 4 obligations of state and corporationpolitical subdivisions, 2 corporate debt securities, and NaN mortgage-backed securities had unrealized losses that, in the aggregate, did not exceed 2.0% of amortized cost. Fourlosses. NaN of these securities have been in a continuous loss position for 12twelve months or more.
At September 30, 2017, 12 obligations of state and political subdivisions had unrealized losses that, in the aggregate, did not exceed 1.0% of amortized cost. Four of these securities has been in a continuous loss position for 12 months or more.
At September 30, 2017, 37 mortgage-backed securities had an unrealized loss that did not exceed 1.0% of amortized cost. None of these securities has been in a continuous loss position for 12 months or more.
The mortgage-backed securities in the Company’s portfolio are government sponsored enterprise (GSE)(“GSE”) pass-through instruments issued by the Federal National Mortgage Association (FNMA)(“FNMA”) or Federal Home Loan Mortgage Corporation (FHLMC)(“FHLMC”), which guarantees the timely payment of principal on these investments.
The unrealized losses noted in the tables above are considered to be temporary impairments. The decline in the values of the debt securities is due only to interest rate fluctuations, rather than erosion of issuer credit quality. As a result, the payment of contractual cash flows, including principal repayment, is not at risk. Because the Company does not intend to sell the securities, does not believe the Company will be required to sell the securities before recovery and expects to recover the entire amortized cost basis, none of the0 debt securities arewere deemed to be other-than-temporarily impaired.
Equity securities owned by the Company consist of common stock of various financial services providers and are evaluated quarterly for evidence of other-than-temporary impairment. There was one equity security that was in an unrealized loss position for 12 months or more as of September 30, 2017. Management has identified no other-than-temporary impairment as of, orimpaired for the periods ended September 30, 2017, September 30, 2016March 31, 2021 and December 31, 2016, respectively, in the equity portfolio. Management continues to track the performance of each stock owned to determine if it is prudent to recognize any other-than-temporary impairment charges. The Company has the ability and intent to hold its equity securities until recovery of unrealized losses.2020, respectively.
7.Loans and Related Allowance for Credit Losses6. LOANS AND RELATED ALLOWANCE FOR CREDIT LOSSES
Loans that the Company originated and has the intent and ability to hold for the foreseeable future or until maturity or payoff are stated at the outstanding unpaid principal balances, net of any deferred fees or costs and the allowance for loan losses. Loans acquired through a business combination are discussed under the heading “Acquired Loans”. Interest income on all loans, other than nonaccrual loans, is accrued over the term of the loans based on the amount of principal outstanding. Unearned income is amortized to income over the life of the loans, using the interest method.
The loan portfolio is segmented into commercial and consumer loans. Commercial loans are comprised ofincludes the following classes of loans:classes: (1) commercial, financial and agricultural, (2) commercial real estate - commercial, (3) real estate - construction, a portion of (4) real estate – mortgage, loans and (5) obligations of states and political subdivisions. Consumer loans are comprised of a portion of (4) mortgage loanssubdivisions, and (6) personal loans.
LoansInterest income on which the accrual of interest has been discontinued are designated as non-accrual loans. Accrual of interest onconsumer, mortgage and commercial loans is generally discontinued whenand loans are placed on non-accrual status at the time the loan is 90 days delinquent unless the loan is well-secured and in process of collection. Loans are charged off to the extent principal or interest is deemed uncollectible. Past due status is based on the contractual paymentterms of the loan. In all cases, loans are placed on non-accrual or charged off at an earlier date if collection of principal or interest has becomeis considered doubtful. Non-accrual loans and loans past due 90 days past due or reasonable doubt exists as to the full, timely collection of principal or interest. However, it is the Company’s policy to continue to accrue intereststill on accrual include both homogeneous loans over 90 days past due as long as (1) theythat are guaranteed or well securedcollectively evaluated for impairment and (2) there is an effective means of timely collection in process. When a loan is placed on non-accrual status, all unpaid interest credited to income in the current year is reversed against current period income, and unpaid interest accrued in prior years is charged against the allowance for loan losses.individually classified impaired loans. Interest received on nonaccrualsuch loans generally is either applied against principalaccounted for on the cash-basis or reported ascost-recovery method, until qualifying for return to accrual. Under the cost-recovery method, interest income accordingis not recognized until the loan principal balance is reduced to management’s judgment as tozero. Under the collectability of principal. Generally, accruals are resumed on loans onlycash-basis method, interest income is recorded when the obligationpayment is received in cash. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought fully current, with respect to interest and principal,the loan has performed in accordance with the contractual terms for a reasonable period of time and the ultimate collectability of the total contractual principal and interest is no longer in doubt.
future payments are reasonably assured.
The Company originates loans in the portfolio with the intent to hold them until maturity. At the time the Company no longer intends to hold loans to maturity based on asset/liability management practices, the Company transfers loans from its portfolio to held for sale at fair value. Any write-down recorded upon transfer is charged against the allowance for loan losses. Any write-downs recorded after the initial transfers are recorded as a charge to other non-interest expense. Gains or losses recognized upon sale are included in gains on sales of loans, which is a component of non-interest income.
Loans Held for Sale
The Company also originateshas originated residential mortgage loans with the intent to sell. These individual loans arewere normally funded bysold to the buyer immediately. The Company maintains servicing rights on these loans. Mortgage
13
When mortgage loans are sold with servicing retained, servicing rights are recognized as an asset upon the sale of a mortgage loan. A portion of the cost of the loan is allocated to the servicing right based upon relative fair value. Servicing rights are intangible assets and are carriedinitially recorded at estimated fair value. Adjustments to fair value arewith the income statement effect recorded as non-interest income and included in gain on sales of loans in the consolidated statements of income.
In a business combination, the Company may acquire loans which it intends to sell. These loans are assigned a fair value by obtaining actual bids on the loans and adjusting for contingencies in the bids. These loans are carried at lower of cost or market value until sold, adjusted periodically if conditions change before the subsequent sale. Adjustments to fair value and gains or losses recognized upon sale are included in gains on sales of loansloans. Fair value is based on market prices for comparable mortgage servicing contracts, when available, or alternatively, is based on a valuation model that calculates the present value of estimated future net servicing income. Under the fair value measurement method, the Company measures servicing rights at fair value at each reporting date and reports changes in fair value of servicing assets in earnings in the period in which the changes occur, which are included with mortgage banking income on the income statement. The fair values of servicing rights are subject to fluctuations because of changes in estimated and actual prepayment speeds and default rates and losses.
Servicing fee income, which is reported on the income statement as mortgage banking income, is recorded for fees earned for servicing loans. The fees are based on a componentcontractual percentage of non-interest income.
the outstanding principal or a fixed amount per loan and are recorded as income when earned. Late fees and ancillary fees related to loan servicing are not material.
Commercial, Financial and Agricultural Lending
The Company originates commercial, financial and agricultural loans primarily to businesses located in its primary market area and surrounding areas. These loans are used for various business purposes, which include short-term loans and lines of credit to finance machinery and equipment purchases, inventory and accounts receivable. Generally, the maximum term for loans extended on machinery and equipment is shorter and does not exceed the projected useful life of such machinery and equipment. Most business lines of credit are written with a five year maturity, subject to an annual credit review.
Commercial loans are generally secured with short-term assets; however, in many cases, additional collateral, such as real estate, is provided as additional security for the loan. Loan-to-value maximum values have been established by the Company and are specific to the type of collateral. Collateral values may be determined using invoices, inventory reports, accounts receivable aging reports, collateral appraisals, etc.
and other methods.
In underwriting commercial loans, an analysis of the borrower’s character, capacity to repay the loan, the adequacy of the borrower’s capital and collateral, as well as an evaluation of conditions affecting the borrower, is performed. AnalysisEvaluation of the borrower’s past, present and future cash flows is also an important aspect of the Company’s analysis.
Concentration analysis assists in identifying industry specific risk inherent in commercial, financial and agricultural lending. Mitigants include the identification of secondary and tertiary sources of repayment and appropriate increases in oversight.
Commercial, financial and agricultural loans generally present a higher level of risk than certain other types of loans, particularly during slow economic conditions.
Commercial Real Estate - Commercial Lending
The Company engages in commercial real estate - commercial lending in its primary market area and surrounding areas. The Company’s commercial real estate - commercial portfolio is secured primarily by residential housing, commercial buildings, raw land and hotels. Generally, commercial real estate - commercial loans have terms that do not exceed 20 years, have loan-to-value ratios of up to 80% of the appraised value of the property and are typically secured by personal guarantees of the borrowers.
As economic conditions deteriorate, the Company reduces its exposure in real estate loans with higher risk characteristics. In underwriting these loans, the Company performs a thorough analysis of the financial condition of the borrower, the borrower’s credit history, and the reliability and predictability of the cash flow generated by the property securing the loan. Appraisals on properties securing commercial real estate loans originated by the Company are performed by independent appraisers.
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Commercial realTable of Contents
Real estate - commercial loans generally present a higher level of risk than certain other types of loans, particularly during slow economic conditions.
Real Estate - Construction Lending
The Company engages in real estate - construction lending in its primary market area and surrounding areas. The Company’s real estate - construction lending consists of commercial and residential site development loans, as well as commercial building construction and residential housing construction loans.
The Company’s commercial real estate - construction loans are generally secured with the subject property, and advances are made in conformity with a pre-determined draw schedule supported by independent inspections. Terms of construction loans depend on the specifics of the project, such as estimated absorption rates, estimated time to complete, etc.
In underwriting commercial real estate - construction loans, the Company performs a thorough analysis of the financial condition of the borrower, the borrower’s credit history and the reliability and predictability of the cash flow generated by the project using feasibility studies, market data, etc.and other resources. Appraisals on properties securing commercial real estate - commercial loans originated by the Company are performed by independent appraisers.
Real estate - construction loans generally present a higher level of risk than certain other types of loans, particularly during slow economic conditions. The difficulty of estimating total construction costs adds to the risk as well.
Real Estate - Mortgage Lending
The Company’s real estate - mortgage portfolio is comprised of consumerone-to-four family residential mortgages and business loans secured by one-to-four family properties. One-to-four family residential mortgage loan originations, including home equity installment and home equity lines of credit loans, are generated by the Company’s marketing efforts, its present customers, walk-in customers and referrals. These loans originate primarily within the Company’s market area or with customers primarily from the market area.
The Company offers fixed-rate and adjustable rate real estate - mortgage loans with termsa term up to a maximum of 25-years for both permanent structures and those under construction. The Company’s one-to-four family residential mortgage originations are secured primarily by properties located in its primary market area and surrounding areas. The majority of the Company’s residential real estate - mortgage loans originate with a loan-to-value of 80% or less. Home equity installment loans are secured by the borrower’s primary residence with a maximum loan-to-value of 80% and a maximum term of 15 years. Home equity lines of credit are secured by the borrower’s primary residence with a maximum loan-to-value of 90% and a maximum term of 20 years.
In underwriting one-to-four family residential real estate loans, the Company evaluates the borrower’s ability to make monthly payments, the borrower’s repayment history and the value of the property securing the loan. The ability to repay is determined by the borrower’s employment history, current financial conditions, and credit background. The analysis is based primarily on the customer’s ability to repay and secondarily on the collateral or security. Most properties securing real estate loans made by the Company are appraised by independent fee appraisers. The Company generally requires mortgage loan borrowers to obtain an attorney’s title opinion or title insurance, and fire and property insurance (including flood insurance, if necessary) in an amount not less than the amount of the loan. The Company does not engage in sub-prime residential mortgage originations.
Residential mortgage loans and home equity loans generally present a lower level of risk than certain other types of consumer loans because they are secured by the borrower’s primary residence. Risk is increased when the Company is in a subordinate position for the loan collateral.
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Obligations of States and Political Subdivisions
The Company lends to local municipalities and other tax-exempt organizations. These loans are primarily tax-anticipation notes and, as such, carry little risk. Historically, the Company has never had a loss on any loan of this type.
Personal Lending
The Company offers a variety of secured and unsecured personal loans, including vehicle loans, mobile home loans and loans secured by savings deposits as well as other types of personal loans.
Personal loan terms vary according to the type and value of collateral and creditworthiness of the borrower. In underwriting personal loans, a thorough analysis of the borrower’s willingness and financial ability to repay the loan as agreed is performed. The ability to repay is determined by the borrower’s employment history, current financial conditions and credit background.
Personal loans may entail greater credit risk than do residential mortgage loans, particularly in the case of personal loans which are unsecured or are secured by rapidly depreciable assets, such as automobiles or recreational equipment. In such cases, any repossessed collateral for a defaulted personal loan may not provide an adequate source of repayment of the outstanding loan balance as a resultbecause of the greater likelihood of damage, loss or depreciation. In addition, personal loan collections are dependent on the borrower’s continuing financial stability, and thus are more likely to be affected by adverse personal circumstances. Furthermore, the application of various federal and state laws, including bankruptcy and insolvency laws, may limit the amount which can be recovered on such loans.
Allowance for CreditLoan Losses
The allowance for credit losses consists of the allowance for loan losses and the reserve for unfunded lending commitments. The allowance for loan losses (“allowance”) represents management’s estimate of probable incurred losses inherent in the loan portfolio as of the consolidated statement of financial condition date and is recorded as a reduction to loans. The reserve for unfunded lending commitments represents management’s estimate of probable incurred losses inherent in its unfunded lending commitments and is recorded in other liabilities on the consolidated statement of financial condition, when necessary. The amount of the reserve for unfunded lending commitments is not material to the consolidated financial statements. The allowance for loan losses is increased by the provision for loan losses, and decreased by charge-offs, net of recoveries.recoveries and loan loss provision credits. Loans deemed to be uncollectible are charged against the allowance for loan losses, and subsequent recoveries, if any, are credited to the allowance.
For financial reporting purposes, the provision for loan losses charged to current operating income is based on management'smanagement’s estimates, and actual losses may vary from estimates. These estimates are reviewed and adjusted at least quarterly and are reported in earnings in the periods in which they become known.
Loans included in any class are considered for charge-off when:
principal or interest has been in default for 120 days or more and for which no payment has been received during the previous four months; |
all collateral securing the loan has been liquidated and a deficiency balance remains; |
a bankruptcy notice is received for an unsecured loan; |
a confirming loss event has occurred; or |
the loan is deemed to be uncollectible for any other reason. |
The allowance for loan losses is maintained at a level considered adequate to offset probable losses on the Company’s existing loans.consists of specific and general components. The analysis of the allowance for loan losses relies heavily on changes in observable trends that may indicate potential credit weaknesses. Management’s periodic evaluation of the adequacy of the allowance is based on the Company’s past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, composition of the loan portfolio, current economic conditions and other relevant factors. This evaluation is inherently subjective as it requires material estimates that may be susceptible to significant revision as more information becomes available.
In addition, regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance for loan losses and may require the Company to recognize additions to the allowance for loan losses based on their judgments about information available to them at the time of their examination, which may not be currently available to management. Based on management’s comprehensive analysis of the loan portfolio, management believes the level of the allowance for loan losses as of September 30, 2017 was adequate.
There are two components of the allowance: a specific component forrelates to loans that are deemed to be impaired; and a general component for contingencies.
A loan is considered to beindividually classified as impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest whenall amounts due according to the contractual terms of the loan agreement. Loans for which the terms have been
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modified resulting in a concession, and for which the borrower is experiencing financial difficulties, are considered troubled debt restructurings (“TDRs”) and classified as impaired.
The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) enacted on March 27, 2020 permits financial institutions to exclude loan modifications to borrowers affected by the COVID-19 pandemic from TDR treatment if (1) the borrower was not more than 30 days past due as of December 31, 2019, and (2) the loan modification is made between March 1, 2020 and the earlier of December 31, 2020 or 60 days after the end of the coronavirus emergency declaration. This period has since been expanded to the earlier of January 1, 2022 or 60 days after the end of the coronavirus emergency declaration following the passing of the 2021 Consolidated Appropriations Act (“CAA”) on December 27, 2020. A loan modification accounted for in accordance with the CARES Act is not treated as a TDR for accounting or disclosure purposes.
Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loans and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan basis by the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s observable market price or the fair value of the collateral if the loan is collateral dependent. If a loan is impaired, a portion of the allowance is allocated so that the loan is reported, net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected solely from the collateral.
The estimated fair values ofImpairment for substantially all of the Company’s impaired loans areis measured based on the estimated fair value of the loan’s collateral. For real estate - commercial loans, secured with real estate, estimated fair values are determined primarily through third-party appraisals. When a real estate secured loan becomes impaired, a decision is made regarding whether an updated certified appraisal of the real estate is necessary. This decision is based on various considerations, including the age of the most recent appraisal, the loan-to-value ratio based on the current appraisal and the condition of the property. Appraised values may be discounted to arrive at the estimated selling price of the collateral, which is considered to be the estimated fair value. The discounts also include the estimated costs to sell the property. For commercial, financial and agricultural, and obligations of states and political subdivision loans, secured by non-real estate collateral, estimated fair values are determined based on the borrower’s financial statements, inventory reports, aging accounts receivable, equipment appraisals or invoices. Indications of value from these sources are generally discounted based on the age of the financial information or the quality of the assets. For such loans that are classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The Company generally does not separately identify individual consumer segment loans for impairment disclosures,analysis unless such loans are subject to a restructuring agreement.
Troubled debt restructurings are individually evaluated for impairment and included in the separately identified impairment disclosures. Loans whose terms are modified are classified as troubled debt restructurings if the Company grants borrowers’borrowers concessions and it is deemed that those borrowers are experiencing financial difficulty. Concessions granted under a troubled debt restructuring generally involve a below-market interest rate based on the loan’s risk characteristics, or an extension of a loan’s stated maturity date. Nonaccrualdate or a significant delay in payment. Non-accrual troubled debt restructurings are restored to accrual status if principal and interest payments, under the modified terms, are current for a sustained period of time after modification. Loans classified as troubled debt restructurings are designated as impaired.
The componentFor TDRs that subsequently default, the Company determines the amount of the allowance for contingencies relates to other loanson that have been segmented into risk rated categories. The borrower’s overall financial condition, repayment sources, guarantors and value of collateral, if appropriate, are evaluated quarterly or when credit deficiencies arise, such as delinquent loan payments. Credit quality risk ratings include regulatory classifications of special mention, substandard, doubtful and loss. Loans classified as special mention have potential weaknesses that deserve management’s close attention. If uncorrected, the potential weaknesses may result in deterioration of the repayment prospects. Loans classified as substandard have one or more well-defined weaknesses that jeopardize the liquidation of the debt. Substandard loans include loans that are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans classified doubtful have all the weaknesses inherent in loans classified substandardaccordance with the added characteristic that collection or liquidation in full, on the basis of current conditions and facts, is highly improbable. Loans classified as a loss are considered uncollectible and are charged toaccounting policy for the allowance for loan losses. Loans not classified are rated pass. Specific reserves may be established for larger, individual classifiedlosses on loans individually identified as a resultimpaired. The Company incorporates recent historical experience related to TDRs, including the performance of this evaluation, as discussed above. Remaining loans are categorizedTDRs that subsequently default, into large groups of smaller balance homogeneous loans and are collectively evaluated for impairment. This computation is generally based on historical loss experience adjusted for qualitative factors. The historical loss experience is averaged over a ten-year period for eachthe calculation of the allowance by loan portfolio segments. The ten-year timeframe was selected in order to capture activity over a wide rangeclass.
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Each factor is assigned a value to reflect improving, stable or declining conditions based on management’s best judgment using relevant information available at the time of the evaluation. Adjustments to the factors are supported through documentation of changes in conditions in a narrative accompanying the allowance for loan loss calculation.
Acquired Loans
Loans that Juniata acquires through business combinations are recorded at fair value with no carryover of the related allowance for loan losses. Fair valueSome of these loans have shown evidence of credit deterioration since origination. These purchased credit impaired (“PCI”) loans are recorded at the amount paid, such that there is no carryover of the seller’s allowance for loan losses. After acquisition, losses are recognized by an increase in the allowance for loan losses.
Such purchased credit impaired loans involves estimatingare accounted for individually or aggregated into pools of loans based on common risk characteristics, such as credit score, loan type, and date of origination. Juniata estimates the amount and timing of principal and interestexpected cash flows expected to be collected onfor each loan or pool, and the loans and discounting thoseexpected cash flows at a market rate of interest.
Thein excess of cash flows expected at acquisition over the estimated fair valueamount paid is referred torecorded as the accretable discount and is recognized into interest income over the remaining life of the loan.loan or pool (accretable yield). The difference between contractually required payments at acquisitionexcess of the loan’s or pool’s contractual principal and theinterest over expected cash flows expected to be collected at acquisition is referred to as the nonaccretable discount. The nonaccretable discount includes estimated future credit losses expected to be incurred overnot recorded (nonaccretable difference).
Over the life of the loan. Subsequent decreases to theloan or pool, expected cash flows will require Juniatacontinue to evaluatebe estimated. If the need for an additional allowance for credit losses. Subsequent improvement inpresent value of expected cash flows will result inis less than the reversalcarrying amount, a loss is recorded as a provision for loan losses. If the present value of a correspondingexpected cash flows is greater than the carrying amount, it is recognized as part of the nonaccretable discount which Juniata will then reclassify as accretable discount that will be recognized intofuture interest income over the remaining life of the loan.income.
AcquiredPCI loans that met the criteria for impairedimpairment or nonaccrualnon-accrual of interest prior to the acquisition may be considered performing upon acquisition, regardless of whether the customer is contractually delinquent, if Juniata expects to fully collect the new carrying value (i.e. fair value) of the loans. As such, Juniata may no longer consider the loan to be nonaccrualnon-accrual or nonperforming and may accrue interest on these loans, including the impact of any accretable discount. In addition, charge-offs on such loans would be first applied to the nonaccretable difference portion of the fair value adjustment.
Loans acquired through business combinations that do not meet the specific criteria of ASC 310-30, but for which a discount is attributable at least in part to credit quality, are also accounted for in accordance with this guidance. As a result, related discounts are recognized subsequently through accretion based on the contractual cash flows of the acquired loans.
Paycheck Protection Program Loans
The CARES Act established the Paycheck Protection Program (“PPP”) which is administered by the Small Business Administration (“SBA”). The PPP is intended to provide economic relief to small businesses nationwide adversely impacted under the COVID-19 Emergency Declaration issued on March 13, 2020. The PPP, which began on April 3, 2020, provides small businesses with funds to cover up to eight weeks of payroll costs, including benefits. It also provides for forgiveness of up to the full principal amount of qualifying loans.
On June 5, 2020, the Paycheck Protection Program Flexibility Act of 2020 (“PPP Flexibility Act”) extended the covered period for loan forgiveness from eight weeks after the date of loan disbursement to 24 weeks. The 24 week period applies to all borrowers, but borrowers that received an SBA loan number before June 5, 2020, have the option to use an eight week period. The PPP Flexibility Act also amended the requirements regarding forgiveness of PPP loans, reducing the portion of PPP loan proceeds that must be used for payroll costs for the full amount of the PPP loan to be eligible for forgiveness from 75% to 60%. Additionally, the PPP Flexibility Act extended the maturity date for PPP loans made on, or after June 5, 2020, from two years to five years; however, lenders and borrowers may mutually agree to modify PPP loans made before such date to reflect the longer maturity.
The SBA began approving PPP forgiveness applications and remitting forgiveness payments to PPP lenders for PPP borrowers on October 2, 2020. On October 8, 2020, the SBA, in consultation with the U.S. Treasury Department, released a simpler loan forgiveness application for PPP loans of $50,000 or less to streamline the PPP forgiveness process to provide financial and administrative relief to American’s smallest businesses and eased the burden on PPP lenders, allowing them to process forgiveness applications more swiftly.
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The CAA provided several amendments to the PPP, including additional funding for first and second draws of PPP loans up to March 31, 2021. On March 30, 2021, the PPP Extension Act of 2021 was signed into law, extending the program to May 31, 2021.
The Company participates in the PPP and has funded 508 first round PPP loans totaling $32,064,000 in 2020 and, as of March 31, 2021, funded 261 second round PPP loans totaling $17,027,000. Juniata has been receiving forgiveness payments from the SBA on first round PPP loans. As of March 31, 2021, 592 PPP loans remained with a total balance of $36,377,000, net of remaining deferred fees of $1,094,000.
Loan Portfolio Classification
The following table presents the loan portfolio by class at March 31, 2021 and December 31, 2020.
| | | | | | |
(Dollars in thousands) |
| | |
| | |
|
| March 31, 2021 |
| December 31, 2020 | ||
Commercial, financial and agricultural | | $ | 80,884 | | $ | 73,057 |
Real estate - commercial | | | 150,992 | | | 122,698 |
Real estate - construction | |
| 40,587 | |
| 61,051 |
Real estate - mortgage | |
| 138,308 | |
| 141,438 |
Obligations of states and political subdivisions | | | 19,916 | | | 18,550 |
Personal | |
| 6,320 | |
| 5,867 |
Total | | $ | 437,007 | | $ | 422,661 |
The following tables presenttable summarizes the classesactivity in the allowance for loan losses by loan class, for the three months ended March 31, 2021 and 2020.
| | | | | | | | | | | | | | | | | | | | | |
(Dollars in thousands) |
| | |
| | |
| | |
| Obligations |
| | |
| | |
| | | |
| | Commercial, | | | | | | | | of states | | | | | | | | | | ||
| | financial and | | Real estate- | | Real estate- | | and political | | Real estate- | | | | | | | |||||
| | agricultural | | commercial | | construction | | subdivisions | | mortgage | | Personal | | Total | |||||||
Three Months Ended | | | | | | | | | | | | | | | | | | | | | |
March 31, 2021 | | | | | | | | | | | | | | | | | | | | | |
Balance, beginning of period | | $ | 302 | | $ | 908 | | $ | 1,586 | | $ | 28 | | $ | 1,200 | | $ | 70 | | $ | 4,094 |
Provision for loan losses | |
| (6) | |
| 612 | |
| (668) | |
| 2 | |
| (33) | |
| 14 | |
| (79) |
Charge-offs | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| (5) | |
| (5) |
Recoveries | |
| 0 | |
| 0 | |
| 28 | |
| 0 | |
| 16 | |
| 2 | |
| 46 |
Balance, end of period | | $ | 296 | | $ | 1,520 | | $ | 946 | | $ | 30 | | $ | 1,183 | | $ | 81 | | $ | 4,056 |
March 31, 2020 | | | | | | | | | | | | | | | | | | | | | |
Balance, beginning of period | | $ | 321 | | $ | 754 | | $ | 718 | | $ | 17 | | $ | 1,081 | | $ | 70 | | $ | 2,961 |
Provision for loan losses | |
| 112 | |
| 4 | |
| 154 | |
| 6 | |
| 65 | |
| 15 | |
| 356 |
Charge-offs | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| (21) | |
| (21) |
Recoveries | |
| 0 | |
| 0 | |
| 32 | |
| 0 | |
| 1 | |
| 4 | |
| 37 |
Balance, end of period | | $ | 433 | | $ | 758 | | $ | 904 | | $ | 23 | | $ | 1,147 | | $ | 68 | | $ | 3,333 |
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The following table summarizes loans by loan class, segregated into the loan portfolio summarized by the aggregate pass ratingamount required for loans individually evaluated for impairment and the classified ratings of special mention, substandard and doubtful within the Company’s internal risk rating systemamount required for loans collectively evaluated for impairment as of September 30, 2017March 31, 2021 and December 31, 2016.2020.
(Dollars in thousands) | Special | |||||||||||||||||||
Pass | Mention | Substandard | Doubtful | Total | ||||||||||||||||
As of September 30, 2017 | ||||||||||||||||||||
Commercial, financial and agricultural | $ | 38,540 | $ | 8,387 | $ | 1,617 | $ | 7 | $ | 48,551 | ||||||||||
Real estate - commercial | 102,322 | 24,585 | 6,014 | 1,419 | 134,340 | |||||||||||||||
Real estate - construction | 22,033 | 2,674 | 3,438 | - | 28,145 | |||||||||||||||
Real estate - mortgage | 140,281 | 3,617 | 3,072 | 813 | 147,783 | |||||||||||||||
Obligations of states and political subdivisions | 12,863 | 999 | - | - | 13,862 | |||||||||||||||
Personal | 9,892 | 36 | 7 | - | 9,935 | |||||||||||||||
Total | $ | 325,931 | $ | 40,298 | $ | 14,148 | $ | 2,239 | $ | 382,616 |
| | | | | | | | | | | | | | | | | | | | | |
(Dollars in thousands) |
| | |
| | |
| | |
| Obligations |
| | |
| | |
| | | |
| | Commercial, | | | | | | | | of states | | | | | | | | | | ||
| | financial and | | Real estate- | | Real estate- | | and political | | Real estate- | | | | | | | |||||
| | agricultural | | commercial | | construction | | subdivisions | | mortgage | | Personal | | Total | |||||||
March 31, 2021 | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Loans allocated by: | | | | | | | | | | | | | | | | | | | | | |
individually evaluated for impairment | | $ | 0 | | $ | 3,491 | | $ | 0 | | $ | 0 | | $ | 616 | | $ | 0 | | $ | 4,107 |
acquired with credit deterioration | | | 0 | | | 330 | | | 0 | | | 0 | | | 604 | | | 0 | | | 934 |
collectively evaluated for impairment | | | 80,884 | | | 147,171 | | | 40,587 | | | 19,916 | | | 137,088 | | | 6,320 | | | 431,966 |
| | $ | 80,884 | | $ | 150,992 | | $ | 40,587 | | $ | 19,916 | | $ | 138,308 | | $ | 6,320 | | $ | 437,007 |
Allowance for loan losses allocated by: | | | | | | | | | | | | | | | | | | | | | |
individually evaluated for impairment | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 1 | | $ | 0 | | $ | 1 |
acquired with credit deterioration | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 |
collectively evaluated for impairment | | | 296 | | | 1,520 | | | 946 | | | 30 | | | 1,182 | | | 81 | | | 4,055 |
| | $ | 296 | | $ | 1,520 | | $ | 946 | | $ | 30 | | $ | 1,183 | | $ | 81 | | $ | 4,056 |
December 31, 2020 | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Loans allocated by: | | | | | | | | | | | | | | | | | | | | | |
individually evaluated for impairment | | $ | 0 | | $ | 3,483 | | $ | 0 | | $ | 0 | | $ | 744 | | $ | 0 | | $ | 4,227 |
acquired with credit deterioration | | | 0 | | | 339 | | | 0 | | | 0 | | | 623 | | | 0 | | | 962 |
collectively evaluated for impairment | | | 73,057 | | | 118,876 | | | 61,051 | | | 18,550 | | | 140,071 | | | 5,867 | | | 417,472 |
| | $ | 73,057 | | $ | 122,698 | | $ | 61,051 | | $ | 18,550 | | $ | 141,438 | | $ | 5,867 | | $ | 422,661 |
Allowance for loan losses allocated by: | | | | | | | | | | | | | | | | | | | | | |
individually evaluated for impairment | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 2 | | $ | 0 | | $ | 2 |
acquired with credit deterioration | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 |
collectively evaluated for impairment | | | 302 | | | 908 | | | 1,586 | | | 28 | | | 1,198 | | | 70 | | | 4,092 |
| | $ | 302 | | $ | 908 | | $ | 1,586 | | $ | 28 | | $ | 1,200 | | $ | 70 | | $ | 4,094 |
(Dollars in thousands) | Special | |||||||||||||||||||
Pass | Mention | Substandard | Doubtful | Total | ||||||||||||||||
As of December 31, 2016 | ||||||||||||||||||||
Commercial, financial and agricultural | $ | 34,510 | $ | 5,104 | $ | 1,213 | $ | - | $ | 40,827 | ||||||||||
Real estate - commercial | 100,153 | 15,843 | 6,726 | 989 | 123,711 | |||||||||||||||
Real estate - construction | 24,702 | 4,044 | 6,460 | - | 35,206 | |||||||||||||||
Real estate - mortgage | 144,353 | 4,426 | 4,496 | 1,630 | 154,905 | |||||||||||||||
Obligations of states and political subdivisions | 12,431 | 1,185 | - | - | 13,616 | |||||||||||||||
Personal | 9,970 | 52 | 10 | - | 10,032 | |||||||||||||||
Total | $ | 326,119 | $ | 30,654 | $ | 18,905 | $ | 2,619 | $ | 378,297 |
The Company has certain loans in its portfolio that are considered to beit considers impaired. It is the policy of the Company to recognize income on impaired loans that have been transferred to nonaccrual status on a cash basis, only to the extent that it exceeds anticipated principal balance recovery. Until an impaired loan is placed on nonaccrual status, income is recognized on the accrual basis. Collateral analysis is performed on each impaired loan at least quarterly, and results are used to determine if a specific reserve is necessary to adjust the carrying value of each individual loan down to the estimated fair value. Generally, specific reserves are carried against impaired loans based upon estimated collateral value until a confirming loss event occurs or until termination of the credit is scheduled through liquidation of the collateral or foreclosure. Charge offConsumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings were in process at March 31, 2021 and December 31, 2020 totaled $92,000 and $152,000, respectively. Charge-offs will occur when a confirmed loss is identified. Professional appraisals of collateral, discounted for expected selling costs, appraisal age, economic conditions and other known factors, are used to determine the charge-off amount.
20
The following tables summarizetable summarizes information regarding impaired loans by portfolio class as of September 30, 2017March 31, 2021 and December 31, 2016.2020.
| | | | | | | | | | | | | | | | | | |
(Dollars in thousands) | | As of March 31, 2021 | | As of December 31, 2020 | ||||||||||||||
|
| Recorded |
| Unpaid Principal |
| Related |
| Recorded |
| Unpaid Principal |
| Related | ||||||
| | Investment | | Balance | | Allowance | | Investment | | Balance | | Allowance | ||||||
Impaired loans | | | | | | | | | | | | | | | | | | |
With no related allowance recorded: |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Real estate - commercial | | $ | 3,491 | | $ | 3,587 | | $ | — | | $ | 3,483 | | $ | 3,580 | | $ | — |
Acquired with credit deterioration | |
| 330 | | | 381 | |
| — | |
| 339 | | | 386 | |
| — |
Real estate – construction | |
| 0 | |
| 882 | |
| — | |
| 0 | |
| 894 | |
| — |
Real estate - mortgage | |
| 540 | |
| 1,274 | |
| — | |
| 666 | |
| 1,396 | |
| — |
Acquired with credit deterioration | |
| 604 | | | 792 | |
| — | |
| 623 | | | 801 | |
| — |
With an allowance recorded: | |
| | |
|
| |
|
| |
| | |
|
| |
|
|
Real estate - mortgage | | $ | 76 | | $ | 75 | | $ | 1 | | $ | 78 | | $ | 77 | | $ | 2 |
Total: | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Real estate - commercial | | $ | 3,491 | | $ | 3,587 | | $ | 0 | | $ | 3,483 | | $ | 3,580 | | $ | 0 |
Acquired with credit deterioration | |
| 330 | |
| 381 | |
| 0 | |
| 339 | |
| 386 | |
| 0 |
Real estate - construction | |
| 0 | |
| 882 | |
| 0 | |
| 0 | |
| 894 | |
| 0 |
Real estate – mortgage | |
| 616 | |
| 1,349 | |
| 1 | |
| 744 | |
| 1,473 | |
| 2 |
Acquired with credit deterioration | |
| 604 | |
| 792 | |
| 0 | |
| 623 | |
| 801 | |
| 0 |
| | $ | 5,041 | | $ | 6,991 | | $ | 1 | | $ | 5,189 | | $ | 7,134 | | $ | 2 |
As of September 30, 2017 | As of December 31, 2016 | |||||||||||||||||||||||
Unpaid | Unpaid | |||||||||||||||||||||||
(Dollars in thousands) | Recorded | Principal | Related | Recorded | Principal | Related | ||||||||||||||||||
Investment | Balance | Allowance | Investment | Balance | Allowance | |||||||||||||||||||
Impaired loans | ||||||||||||||||||||||||
With no related allowance recorded: | ||||||||||||||||||||||||
Commercial, financial and agricultural | $ | 356 | $ | 364 | $ | - | $ | 436 | $ | 439 | $ | - | ||||||||||||
Real estate - commercial | 5,842 | 6,830 | - | 5,499 | 6,475 | - | ||||||||||||||||||
Acquired with credit deterioration | 199 | 253 | - | 641 | 730 | - | ||||||||||||||||||
Real estate - construction | - | - | - | 2,455 | 2,455 | - | ||||||||||||||||||
Real estate - mortgage | 2,521 | 4,047 | - | 3,345 | 5,020 | - | ||||||||||||||||||
Acquired with credit deterioration | 343 | 387 | - | 415 | 440 | - | ||||||||||||||||||
With an allowance recorded: | ||||||||||||||||||||||||
Real estate - mortgage | $ | - | $ | - | $ | - | $ | 712 | 712 | 56 | ||||||||||||||
Total: | ||||||||||||||||||||||||
Commercial, financial and agricultural | $ | 356 | $ | 364 | $ | - | $ | 436 | $ | 439 | $ | - | ||||||||||||
Real estate - commercial | 5,842 | 6,830 | - | 5,499 | 6,475 | - | ||||||||||||||||||
Acquired with credit deterioration | 199 | 253 | - | 641 | 730 | - | ||||||||||||||||||
Real estate - construction | - | - | - | 2,455 | 2,455 | - | ||||||||||||||||||
Real estate - mortgage | 2,521 | 4,047 | - | 4,057 | 5,732 | 56 | ||||||||||||||||||
Acquired with credit deterioration | 343 | 387 | - | 415 | 440 | - | ||||||||||||||||||
$ | 9,261 | $ | 11,881 | $ | - | $ | 13,503 | $ | 16,271 | $ | 56 |
Average recorded investment of impaired loans and related interest income recognized for the three and nine months ended September 30, 2017March 31, 2021 and 20162020 are summarized in the tables below.
| | | | | | | | | | | | | | | | | | |
(Dollars in thousands) | | Three Months Ended March 31, 2021 | | Three Months Ended March 31, 2020 | ||||||||||||||
|
| Average |
| Interest |
| Cash Basis |
| Average |
| Interest |
| Cash Basis | ||||||
| | Recorded | | Income | | Interest | | Recorded | | Income | | Interest | ||||||
| | Investment | | Recognized | | Income | | Investment | | Recognized | | Income | ||||||
Impaired Loans | | | | | | | | | | | | | | | | | | |
With no related allowance recorded: |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Real estate - commercial | | $ | 2,434 | | $ | 13 | | $ | 0 | | $ | 2,080 | | $ | 5 | | $ | 12 |
Acquired with credit deterioration | |
| 333 | |
| 0 | |
| 0 | |
| 361 | |
| 0 | |
| 0 |
Real estate - mortgage | |
| 603 | |
| 3 | |
| 10 | |
| 1,139 | |
| 4 | |
| 11 |
Acquired with credit deterioration | |
| 612 | |
| 0 | |
| 0 | |
| 693 | |
| 0 | |
| 0 |
Personal | |
| 0 | |
| 0 | |
| 0 | |
| 9 | |
| 0 | |
| 0 |
With an allowance recorded: | |
| | |
|
| |
|
| |
|
| |
|
| |
|
|
Commercial, financial and agricultural | | $ | | | $ | 0 | | $ | 0 | | $ | 187 | | $ | 0 | | $ | 0 |
Real estate - mortgage | | | 77 | | | 0 | | | 0 | | | 126 | | | 0 | | | 0 |
Total: | |
| | |
|
| |
|
| |
|
| |
|
| |
|
|
Commercial, financial and agricultural | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 187 | | $ | 0 | | $ | 0 |
Real estate - commercial | | | 2,434 | | | 13 | | | 0 | | | 2,080 | | | 5 | | | 12 |
Acquired with credit deterioration | |
| 333 | |
| 0 | |
| 0 | |
| 361 | |
| 0 | |
| 0 |
Real estate - mortgage | |
| 680 | |
| 3 | |
| 10 | |
| 1,265 | |
| 4 | |
| 11 |
Acquired with credit deterioration | |
| 612 | |
| 0 | |
| 0 | |
| 693 | |
| 0 | |
| 0 |
Personal | |
| 0 | |
| 0 | |
| 0 | |
| 9 | |
| 0 | |
| 0 |
| | $ | 4,059 | | $ | 16 | | $ | 10 | | $ | 4,595 | | $ | 9 | | $ | 23 |
Three Months Ended September 30, 2017 | Three Months Ended September 30, 2016 | |||||||||||||||||||||||
Average | Interest | Cash Basis | Average | Interest | Cash Basis | |||||||||||||||||||
(Dollars in thousands) | Recorded | Income | Interest | Recorded | Income | Interest | ||||||||||||||||||
Investment | Recognized | Income | Investment | Recognized | Income | |||||||||||||||||||
Impaired loans | ||||||||||||||||||||||||
With no related allowance recorded: | ||||||||||||||||||||||||
Commercial, financial and agricultural | $ | 351 | $ | 5 | $ | - | $ | 479 | $ | 7 | $ | - | ||||||||||||
Real estate - commercial | 5,336 | 81 | - | 5,972 | 84 | - | ||||||||||||||||||
Acquired with credit deterioration | 204 | - | - | 679 | - | - | ||||||||||||||||||
Real estate - construction | - | - | - | 2,561 | 34 | - | ||||||||||||||||||
Real estate - mortgage | 2,795 | 5 | 6 | 3,136 | 4 | 14 | ||||||||||||||||||
Acquired with credit deterioration | 347 | - | - | 482 | - | - | ||||||||||||||||||
Personal | - | - | - | 1 | - | - | ||||||||||||||||||
With an allowance recorded: | ||||||||||||||||||||||||
Commercial, financial and agricultural | $ | 8 | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||||
Real estate - commercial | 460 | - | - | 50 | - | - | ||||||||||||||||||
Real estate - mortgage | - | - | - | 826 | - | - | ||||||||||||||||||
Total: | ||||||||||||||||||||||||
Commercial, financial and agricultural | $ | 359 | $ | 5 | $ | - | $ | 479 | $ | 7 | $ | - | ||||||||||||
Real estate - commercial | 5,796 | 81 | - | 6,022 | 84 | - | ||||||||||||||||||
Acquired with credit deterioration | 204 | - | - | 679 | - | - | ||||||||||||||||||
Real estate - construction | - | - | - | 2,561 | 34 | - | ||||||||||||||||||
Real estate - mortgage | 2,795 | 5 | 6 | 3,962 | 4 | 14 | ||||||||||||||||||
Acquired with credit deterioration | 347 | - | - | 482 | - | - | ||||||||||||||||||
Personal | - | - | - | 1 | - | - | ||||||||||||||||||
$ | 9,501 | $ | 91 | $ | 6 | $ | 14,186 | $ | 129 | $ | 14 |
The recorded investment in loans excludes accrued interest receivable and loan origination fees, net due to immateriality. For purposes of this disclosure, the unpaid principal balance is not reduced for partial charge-offs.
Loans on which the accrual of interest has been discontinued are designated as non-accrual loans. Accrual of interest on loans is generally discontinued when the contractual payment of principal or interest has become 90 days past due or reasonable doubt exists as to the full, timely collection of principal or interest. However, it is the Company’s policy to continue to accrue interest on loans over 90 days past due if (1) they are guaranteed or well secured and (2) there is an effective means of timely collection in process. When a loan is placed on non-accrual status, all unpaid interest credited to income in the current year is reversed against current period income, and unpaid interest accrued in prior years is charged
21
Nine Months Ended September 30, 2017 | Nine Months Ended September 30, 2016 | |||||||||||||||||||||||
Average | Interest | Cash Basis | Average | Interest | Cash Basis | |||||||||||||||||||
(Dollars in thousands) | Recorded | Income | Interest | Recorded | Income | Interest | ||||||||||||||||||
Investment | Recognized | Income | Investment | Recognized | Income | |||||||||||||||||||
Impaired loans | ||||||||||||||||||||||||
With no related allowance recorded: | ||||||||||||||||||||||||
Commercial, financial and agricultural | $ | 396 | $ | 18 | $ | - | $ | 414 | $ | 23 | $ | - | ||||||||||||
Real estate - commercial | 5,671 | 238 | - | 3,909 | 252 | - | ||||||||||||||||||
Acquired with credit deterioration | 420 | - | - | 742 | - | - | ||||||||||||||||||
Real estate - construction | 1,228 | 34 | - | 1,281 | 102 | - | ||||||||||||||||||
Real estate - mortgage | 2,933 | 16 | 19 | 2,949 | 22 | 26 | ||||||||||||||||||
Acquired with credit deterioration | 379 | - | - | 526 | - | - | ||||||||||||||||||
With an allowance recorded: | ||||||||||||||||||||||||
Real estate - commercial | $ | - | $ | - | $ | - | $ | 50 | $ | - | $ | - | ||||||||||||
Real estate - mortgage | 356 | - | - | 397 | - | - | ||||||||||||||||||
Total: | ||||||||||||||||||||||||
Commercial, financial and agricultural | $ | 396 | $ | 18 | $ | - | $ | 414 | $ | 23 | $ | - | ||||||||||||
Real estate - commercial | 5,671 | 238 | - | 3,959 | 252 | - | ||||||||||||||||||
Acquired with credit deterioration | 420 | - | - | 742 | - | - | ||||||||||||||||||
Real estate - construction | 1,228 | 34 | - | 1,281 | 102 | - | ||||||||||||||||||
Real estate - mortgage | 3,289 | 16 | 19 | 3,346 | 22 | 26 | ||||||||||||||||||
Acquired with credit deterioration | 379 | - | - | 526 | - | - | ||||||||||||||||||
$ | 11,383 | $ | 306 | $ | 19 | $ | 10,268 | $ | 399 | $ | 26 |
against the allowance for loan losses. Interest received on nonaccrual loans generally is either applied against principal or reported as interest income, according to management’s judgment as to the collectability of principal. Generally, accruals are resumed on loans only when the obligation is brought fully current with respect to interest and principal, has performed in accordance with the contractual terms for a reasonable period and the ultimate collectability of the total contractual principal and interest is no longer in doubt. The Company’s nonaccrual and charge-off policies are the same, regardless of the loan type.
The following table presents nonaccrual loans by classes of the loan portfolio as of September 30, 2017March 31, 2021 and December 31, 2016.2020.
| | | | | | |
(Dollars in thousands) |
| | |
| | |
|
| March 31, 2021 |
| December 31, 2020 | ||
Non-accrual loans: | | | | | | |
Real estate - commercial | | $ | 39 | | $ | 41 |
Real estate - mortgage | |
| 296 | |
| 381 |
Total | | $ | 335 | | $ | 422 |
(Dollars in thousands) | ||||||||
September 30, 2017 | December 31, 2016 | |||||||
Nonaccrual loans: | ||||||||
Commercial, financial and agricultural | $ | 7 | $ | - | ||||
Real estate - commercial | 1,419 | 1,016 | ||||||
Real estate - mortgage | 2,203 | 3,717 | ||||||
Total | $ | 3,629 | $ | 4,733 |
The performance and credit quality of the loan portfolio is also monitored by analyzing the age of the loans receivable as determined by the length of time a recorded payment is past due. Past due status is determined by the contractual terms of the loan. The following table presentstables present the classes of the loan portfolio summarized by the past due status as of September 30, 2017March 31, 2021 and December 31, 2016.2020.
| | | | | | | | | | | | | | | | | | | | | |
|
| | |
| | |
| | |
| | |
| | |
| | |
| Loans | |
| | | | | | | | | | | | | | | | | | | | Past Due | |
| | | | | | | | | | | | | | | | | | | | Greater | |
(Dollars in thousands) | | | | | | | | | | | Greater | | | | | | | | than 89 | ||
| | | | | 30‑59 Days | | 60‑89 Days | | than 89 | | Total Past | | | | | Days and | |||||
| | Current | | Past Due(2) | | Past Due | | Days | | Due | | Total Loans | | Accruing(1) | |||||||
As of March 31, 2021 | | | | | | | | | | | | | | | | | | | | | |
Commercial, financial and agricultural | | $ | 80,880 | | $ | 4 | | $ | 0 | | $ | 0 | | $ | 4 | | $ | 80,884 | | $ | 0 |
Real estate - commercial | |
| 150,495 | |
| 128 | |
| 0 | |
| 39 | |
| 167 | |
| 150,662 | |
| 0 |
Real estate - construction | |
| 40,587 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 40,587 | |
| 0 |
Real estate - mortgage | |
| 137,347 | |
| 263 | |
| 63 | |
| 31 | |
| 357 | |
| 137,704 | |
| 0 |
Obligations of states and political subdivisions | |
| 19,916 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 19,916 | |
| 0 |
Personal | |
| 6,308 | |
| 12 | |
| 0 | |
| 0 | |
| 12 | |
| 6,320 | |
| 0 |
Subtotal | | | 435,533 | | | 407 | | | 63 | | | 70 | | | 540 | | | 436,073 | | | 0 |
Loans acquired with credit deterioration | | | | | | | | | | | | | | | | | | | | | |
Real estate - commercial | |
| 285 | |
| 45 | |
| 0 | |
| 0 | |
| 45 | |
| 330 | |
| 0 |
Real estate - mortgage | |
| 512 | |
| 0 | |
| 0 | |
| 92 | |
| 92 | |
| 604 | |
| 92 |
Subtotal | | | 797 | | | 45 | | | 0 | | | 92 | | | 137 | | | 934 | | | 92 |
| | $ | 436,330 | | $ | 452 | | $ | 63 | | $ | 162 | | $ | 677 | | $ | 437,007 | | $ | 92 |
Loans Past | ||||||||||||||||||||||||||||
Due Greater | ||||||||||||||||||||||||||||
30-59 | 60-89 | Greater | than 90 | |||||||||||||||||||||||||
(Dollars in thousands) | Days Past | Days Past | than 90 | Total Past | Total | Days and | ||||||||||||||||||||||
Due | Due | Days | Due | Current | Loans | Accruing | ||||||||||||||||||||||
As of September 30, 2017 | ||||||||||||||||||||||||||||
Commercial, financial and agricultural | $ | - | $ | - | $ | - | $ | - | $ | 48,551 | $ | 48,551 | $ | - | ||||||||||||||
Real estate - commercial: | ||||||||||||||||||||||||||||
Real estate - commercial | 22 | - | - | 22 | 134,119 | 134,141 | - | |||||||||||||||||||||
Acquired with credit deterioration | 170 | - | 29 | 199 | - | 199 | 29 | |||||||||||||||||||||
Real estate - construction | - | - | - | - | 28,145 | 28,145 | - | |||||||||||||||||||||
Real estate - mortgage: | ||||||||||||||||||||||||||||
Real estate - mortgage | 653 | 31 | 221 | 905 | 146,535 | 147,440 | 221 | |||||||||||||||||||||
Acquired with credit deterioration | 112 | - | 13 | 125 | 218 | 343 | 13 | |||||||||||||||||||||
Obligations of states and political | - | - | - | - | - | |||||||||||||||||||||||
subdivisions | - | - | - | 13,862 | 13,862 | - | ||||||||||||||||||||||
Personal | 71 | - | - | 71 | 9,864 | 9,935 | - | |||||||||||||||||||||
Total | $ | 1,028 | $ | 31 | $ | 263 | $ | 1,322 | $ | 381,294 | $ | 382,616 | $ | 263 |
22
Loans Past | ||||||||||||||||||||||||||||
Due Greater | ||||||||||||||||||||||||||||
30-59 | 60-89 | Greater | than 90 | |||||||||||||||||||||||||
(Dollars in thousands) | Days Past | Days Past | than 90 | Total Past | Total | Days and | ||||||||||||||||||||||
Due | Due | Days | Due | Current | Loans | Accruing | ||||||||||||||||||||||
As of December 31, 2016 | ||||||||||||||||||||||||||||
Commercial, financial and agricultural | $ | 15 | $ | - | $ | 6 | $ | 21 | $ | 40,806 | $ | 40,827 | $ | 6 | ||||||||||||||
Real estate - commercial: | ||||||||||||||||||||||||||||
Real estate - commercial | 55 | - | - | 55 | 123,015 | 123,070 | - | |||||||||||||||||||||
Acquired with credit deterioration | - | - | 452 | 452 | 189 | 641 | 452 | |||||||||||||||||||||
Real estate - construction | 6 | - | 508 | 514 | 34,692 | 35,206 | 508 | |||||||||||||||||||||
Real estate - mortgage: | ||||||||||||||||||||||||||||
Real estate - mortgage | 1,097 | 57 | 40 | 1,194 | 153,296 | 154,490 | 40 | |||||||||||||||||||||
Acquired with credit deterioration | - | - | 138 | 138 | 277 | 415 | 138 | |||||||||||||||||||||
Obligations of states and political | ||||||||||||||||||||||||||||
subdivisions | - | - | - | - | 13,616 | 13,616 | - | |||||||||||||||||||||
Personal | 25 | 3 | - | 28 | 10,004 | 10,032 | - | |||||||||||||||||||||
Total | $ | 1,198 | $ | 60 | $ | 1,144 | $ | 2,402 | $ | 375,895 | $ | 378,297 | $ | 1,144 |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | Loans | |
| | | | | | | | | | | | | | | | | | | | Past Due | |
| | | | | | | | | | | | | | | | | | | | Greater | |
(Dollars in thousands) | | | | | | | | | | | Greater | | | | | | | | than 89 | ||
| | | | | 30‑59 Days | | 60‑89 Days | | than 89 | | Total Past | | | | | Days and | |||||
|
| Current |
| Past Due(2) |
| Past Due |
| Days |
| Due |
| Total Loans |
| Accruing(1) | |||||||
As of December 31, 2020 | | | | | | | | | | | | | | | | | | | | | |
Commercial, financial and agricultural | | $ | 73,028 | | $ | 7 | | $ | 0 | | $ | 22 | | $ | 29 | | $ | 73,057 | | $ | 22 |
Real estate - commercial | |
| 122,318 | |
| 0 | |
| 0 | |
| 41 | |
| 41 | |
| 122,359 | |
| 0 |
Real estate - construction | |
| 61,051 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 61,051 | |
| 0 |
Real estate - mortgage | |
| 139,842 | |
| 351 | |
| 453 | |
| 169 | |
| 973 | |
| 140,815 | |
| 0 |
Obligations of states and political subdivisions | |
| 18,550 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 18,550 | |
| 0 |
Personal | |
| 5,853 | |
| 0 | |
| 14 | |
| 0 | |
| 14 | |
| 5,867 | |
| 0 |
Subtotal | | | 420,642 | | | 358 | | | 467 | | | 232 | | | 1,057 | | | 421,699 | | | 22 |
Loans acquired with credit deterioration | | | | | | | | | | | | | | | | | | | | | |
Real estate - commercial | |
| 293 | |
| 0 | |
| 46 | |
| 0 | |
| 46 | |
| 339 | |
| 0 |
Real estate - mortgage | |
| 481 | |
| 50 | |
| 0 | |
| 92 | |
| 142 | |
| 623 | |
| 92 |
Subtotal | | | 774 | | | 50 | | | 46 | | | 92 | | | 188 | | | 962 | | | 92 |
| | $ | 421,416 | | $ | 408 | | $ | 513 | | $ | 324 | | $ | 1,245 | | $ | 422,661 | | $ | 114 |
(1) | These loans are guaranteed, or well-secured, and there is an effective means of collection in process. |
(2) | Loans are considered past due when the borrower is in arrears on two or more monthly payments. |
The following table summarizes information regardingTroubled Debt Restructurings
As of March 31, 2021 and December 31, 2020, the Company had a recorded investment in troubled debt restructurings by loan portfolio class at September 30, 2017of $3,768,000 and December 31, 2016.$3,802,000, respectively.
| | | | | | | | | | | |
(Dollars in thousands) | | | | Pre-Modification | | Post-Modification | | | | ||
| | Number of | | Outstanding | | Outstanding | | | | ||
|
| Contracts |
| Recorded Investment |
| Recorded Investment |
| Recorded Investment | |||
As of March 31, 2021 |
|
|
| |
|
| |
|
| |
|
Accruing troubled debt restructurings: |
|
|
| |
|
| |
|
| |
|
Real estate - commercial | | 2 | | $ | 3,461 | | $ | 3,484 | | $ | 3,449 |
Real estate - mortgage |
| 6 | | | 434 | | | 450 | | | 319 |
|
| 8 | | $ | 3,895 | | $ | 3,934 | | $ | 3,768 |
Pre-Modification | Post-Modification | ||||||||||||||||||||||||||
| | | | | | | | | | | | ||||||||||||||||
(Dollars in thousands) | Number of | Outstanding Recorded | Outstanding Recorded | | | | Pre-Modification | | Post-Modification | | | | |||||||||||||||
Contracts | Investment | Investment | Recorded Investment | ||||||||||||||||||||||||
As of September 30, 2017 | |||||||||||||||||||||||||||
| | Number of | | Outstanding | | Outstanding | | | | ||||||||||||||||||
|
| Contracts |
| Recorded Investment |
| Recorded Investment |
| Recorded Investment | |||||||||||||||||||
As of December 31, 2020 |
|
|
| |
|
| |
|
| |
| ||||||||||||||||
Accruing troubled debt restructurings: |
|
|
| |
|
| |
|
| |
| ||||||||||||||||
Real estate - commercial |
| 3 | | $ | 3,349 | | $ | 3,487 | | $ | 3,440 | ||||||||||||||||
Real estate - mortgage | 7 | $ | 369 | $ | 397 | $ | 321 |
| 7 | | | 483 | | | 511 | | | 362 | |||||||||
Non-accruing troubled debt restructurings: | |||||||||||||||||||||||||||
Real estate - mortgage | 1 | 25 | 25 | 21 | |||||||||||||||||||||||
Commercial, financial, agricultural | 1 | 19 | 20 | 7 | |||||||||||||||||||||||
9 | $ | 413 | $ | 442 | $ | 349 | |||||||||||||||||||||
|
| 10 | | $ | 3,832 | | $ | 3,998 | | $ | 3,802 |
Pre-Modification | Post-Modification | |||||||||||||||
(Dollars in thousands) | Number of | Outstanding Recorded | Outstanding Recorded | |||||||||||||
Contracts | Investment | Investment | Recorded Investment | |||||||||||||
As of December 31, 2016 | ||||||||||||||||
Accruing troubled debt restructurings: | ||||||||||||||||
Real estate - mortgage | 7 | $ | 369 | $ | 397 | $ | 340 | |||||||||
Non-accruing troubled debt restructurings: | ||||||||||||||||
Real estate - mortgage | 1 | 25 | 25 | 23 | ||||||||||||
8 | $ | 394 | $ | 422 | $ | 363 |
The Company’s troubled debt restructurings are also impaired loans, which may result in a specific allocation and subsequent charge-off if appropriate. As of September 30, 2017,March 31, 2021, there were no0 specific reserves carried for troubled debt restructured loans. There were also no defaults of0 troubled debt restructurings that took place during the three or nine months ended September 30, 2017 or 2016restructured loans in default within 12 months of restructure.restructure during the three months ended March 31, 2021 or 2020. On December 31, 2016,2020, there were no0 specific reserves carried for the troubled debt restructured loans and norestructurings, nor any charge-offs relatingrelated to the troubled debt restructurings.restructured loans. The amended terms of the
23
restructured loans vary, wherebyand may include interest rates that have been reduced, principal payments that have been reduced or deferred for a period of time and/or maturity dates that have been extended.
There were no loan terms modified resulting in troubled debt restructuring during the three months ended SeptemberMarch 31, 2021 nor the three months ended March 31, 2020.
The CARES Act permits financial institutions to exclude loan modifications to borrowers affected by the COVID-19 pandemic from TDR treatment if (1) the borrower was not more than 30 2017days past due as of December 31, 2019, and (2) the loan modification is made between March 1, 2020 and the earlier of December 31, 2020 or 2016. 60 days after the end of the coronavirus emergency declaration. This period has since been expanded to the earlier of January 1, 2022 or 60 days after the end of the coronavirus emergency declaration following the passing of the CAA on December 27, 2020. A loan modification accounted for in accordance with the CARES Act is not treated as a TDR for accounting or disclosure purposes.
In response to the COVID-19 pandemic, the Company established a COVID-19 Modification Program on March 20, 2020 to offer payment relief to certain borrowers. Through this program, the Company has approved interest and/or principal payment deferrals on loans for individuals and businesses affected by the economic impacts of the COVID-19 pandemic. As of March 31, 2021, 1 loan for $4,964,000 remained in deferment status while all other loans previously placed in deferment resumed contractual debt service.
Credit Quality Indicators
The following tables summarizeCompany categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans whose termsas to credit risk. This analysis includes loans to commercial customers with an aggregate loan exposure greater than $500,000 and for lines of credit in excess of $50,000. This analysis is performed on a continuing basis with all such loans reviewed annually. The Company uses the following definitions for risk ratings:
Special Mention. Loans classified as special mention have been modified resultinga potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in troubled debt restructurings duringdeterioration of the nine month periods ending September 30, 2017repayment prospects for the loan or of the institution’s credit position at some future date. Loans in this category are reviewed no less than quarterly.
Substandard. Loans classified as substandard are inadequately protected by the current net worth and 2016.paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that
Pre-Modification | Post-Modification | |||||||||||||||
(Dollars in thousands) | Number of | Outstanding Recorded | Outstanding Recorded | |||||||||||||
Contracts | Investment | Investment | Recorded Investment | |||||||||||||
Nine Months Ended September 30, 2017 | ||||||||||||||||
Accruing troubled debt restructurings: | ||||||||||||||||
Commercial, financial, agricultural | 1 | $ | 19 | $ | 20 | $ | 7 | |||||||||
1 | $ | 19 | $ | 20 | $ | 7 |
Pre-Modification | Post-Modification | |||||||||||||||
(Dollars in thousands) | Number of | Outstanding Recorded | Outstanding Recorded | |||||||||||||
Contracts | Investment | Investment | Recorded Investment | |||||||||||||
Nine Months Ended September 30, 2016 | ||||||||||||||||
Non-accruing troubled debt restructurings: | ||||||||||||||||
Real estate - mortgage | 1 | $ | 25 | $ | 25 | $ | 24 | |||||||||
1 | $ | 25 | $ | 25 | $ | 24 |
Consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings were in process at September 30, 2017 and December 31, 2016 totaled $1,167,000 and $1,778,000, respectively.
24
jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected. Loans in this category are reviewed no less than monthly.
Doubtful. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. Loans in this category are reviewed no less than monthly.
Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass-rated loans.
The following tables summarizepresent the activity inclasses of the allowance for loan lossesportfolio summarized by the aggregate pass rating and related investments in loans receivable.
Asthe classified ratings of special mention, substandard and fordoubtful within the periods ended, September 30, 2017
Obligations of | ||||||||||||||||||||||||||||
Commercial, | states and | |||||||||||||||||||||||||||
(Dollars in thousands) | financial and | Real estate - | Real estate - | Real estate - | political | |||||||||||||||||||||||
agricultural | commercial | construction | mortgage | subdivisions | Personal | Total | ||||||||||||||||||||||
Allowance for loan losses: | ||||||||||||||||||||||||||||
Beginning balance, July 1, 2017 | $ | 402 | $ | 1,125 | $ | 172 | $ | 1,093 | $ | - | $ | 84 | $ | 2,876 | ||||||||||||||
Charge-offs | (9 | ) | (70 | ) | - | (37 | ) | - | (7 | ) | (123 | ) | ||||||||||||||||
Recoveries | 2 | - | - | 1 | - | 2 | 5 | |||||||||||||||||||||
Provisions | (33 | ) | 100 | 30 | 50 | - | 2 | 149 | ||||||||||||||||||||
Ending balance, September 30, 2017 | $ | 362 | $ | 1,155 | $ | 202 | $ | 1,107 | $ | - | $ | 81 | $ | 2,907 |
Obligations of | ||||||||||||||||||||||||||||
Commercial, | states and | |||||||||||||||||||||||||||
financial and | Real estate - | Real estate - | Real estate - | political | ||||||||||||||||||||||||
agricultural | commercial | construction | mortgage | subdivisions | Personal | Total | ||||||||||||||||||||||
Allowance for loan losses: | ||||||||||||||||||||||||||||
Beginning balance, January 1, 2017 | $ | 318 | $ | 948 | $ | 231 | $ | 1,143 | $ | - | $ | 83 | $ | 2,723 | ||||||||||||||
Charge-offs | (46 | ) | (70 | ) | - | (120 | ) | - | (24 | ) | (260 | ) | ||||||||||||||||
Recoveries | 2 | - | - | 45 | - | 8 | 55 | |||||||||||||||||||||
Provisions | 88 | 277 | (29 | ) | 39 | - | 14 | 389 | ||||||||||||||||||||
Ending balance, September 30, 2017 | $ | 362 | $ | 1,155 | $ | 202 | $ | 1,107 | $ | - | $ | 81 | $ | 2,907 | ||||||||||||||
individually evaluated for impairment | - | - | - | - | - | - | - | |||||||||||||||||||||
collectively evaluated for impairment | $ | 362 | $ | 1,155 | $ | 202 | $ | 1,107 | $ | - | $ | 81 | $ | 2,907 | ||||||||||||||
Loans receivable: | ||||||||||||||||||||||||||||
Ending balance | $ | 48,551 | $ | 134,340 | $ | 28,145 | $ | 147,783 | $ | 13,862 | $ | 9,935 | $ | 382,616 | ||||||||||||||
individually evaluated for impairment | 356 | 5,842 | - | 2,521 | - | - | 8,719 | |||||||||||||||||||||
acquired with credit deterioration | - | 199 | - | 343 | - | - | 542 | |||||||||||||||||||||
collectively evaluated for impairment | $ | 48,195 | $ | 128,299 | $ | 28,145 | $ | 144,919 | $ | 13,862 | $ | 9,935 | $ | 373,355 |
AsCompany’s internal risk rating system as of March 31, 2021 and for the periods ended, September 30, 2016
Obligations of | ||||||||||||||||||||||||||||
Commercial, | states and | |||||||||||||||||||||||||||
(Dollars in thousands) | financial and | Real estate - | Real estate - | Real estate - | political | |||||||||||||||||||||||
agricultural | commercial | construction | mortgage | subdivisions | Personal | Total | ||||||||||||||||||||||
Allowance for loan losses: | ||||||||||||||||||||||||||||
Beginning balance, July 1, 2016 | $ | 308 | $ | 802 | $ | 191 | $ | 1,200 | $ | - | $ | 72 | $ | 2,573 | ||||||||||||||
Charge-offs | - | (4 | ) | - | (10 | ) | - | (7 | ) | (21 | ) | |||||||||||||||||
Recoveries | - | - | - | - | - | 4 | 4 | |||||||||||||||||||||
Provisions | 2 | 59 | 12 | 45 | - | 14 | 132 | |||||||||||||||||||||
Ending balance, September 30, 2016 | $ | 310 | $ | 857 | $ | 203 | $ | 1,235 | $ | - | $ | 83 | $ | 2,688 |
Obligations of | ||||||||||||||||||||||||||||
Commercial, | states and | |||||||||||||||||||||||||||
financial and | Real estate - | Real estate - | Real estate - | political | ||||||||||||||||||||||||
agricultural | commercial | construction | mortgage | subdivisions | Personal | Total | ||||||||||||||||||||||
Allowance for loan losses: | ||||||||||||||||||||||||||||
Beginning balance, January 1, 2016 | $ | 264 | $ | 836 | $ | 191 | $ | 1,140 | $ | - | $ | 47 | $ | 2,478 | ||||||||||||||
Charge-offs | (4 | ) | (146 | ) | - | (28 | ) | - | (20 | ) | (198 | ) | ||||||||||||||||
Recoveries | - | 24 | - | 1 | - | 17 | 42 | |||||||||||||||||||||
Provisions | 50 | 143 | 12 | 122 | - | 39 | 366 | |||||||||||||||||||||
Ending balance, September 30, 2016 | $ | 310 | $ | 857 | $ | 203 | $ | 1,235 | $ | - | $ | 83 | $ | 2,688 | ||||||||||||||
individually evaluated for impairment | - | 50 | - | 94 | - | - | 144 | |||||||||||||||||||||
collectively evaluated for impairment | $ | 310 | $ | 807 | $ | 203 | $ | 1,141 | $ | - | $ | 83 | $ | 2,544 | ||||||||||||||
Loans receivable: | ||||||||||||||||||||||||||||
Ending balance | $ | 38,653 | $ | 124,586 | $ | 30,752 | $ | 159,522 | $ | 13,857 | $ | 9,909 | $ | 377,279 | ||||||||||||||
individually evaluated for impairment | 353 | 6,067 | 2,561 | 4,056 | - | - | 13,037 | |||||||||||||||||||||
acquired with credit deterioration | - | 650 | - | 422 | - | - | 1,072 | |||||||||||||||||||||
collectively evaluated for impairment | $ | 38,300 | $ | 117,869 | $ | 28,191 | $ | 155,044 | $ | 13,857 | $ | 9,909 | $ | 363,170 |
As of December 31, 20162020.
Obligations of | ||||||||||||||||||||||||||||
Commercial, | states and | |||||||||||||||||||||||||||
(Dollars in thousands) | financial and | Real estate - | Real estate - | Real estate - | political | |||||||||||||||||||||||
agricultural | commercial | construction | mortgage | subdivisions | Personal | Total | ||||||||||||||||||||||
Allowance for loan losses: | ||||||||||||||||||||||||||||
Beginning balance, January 1, 2016 | $ | 264 | $ | 836 | $ | 191 | $ | 1,140 | $ | - | $ | 47 | $ | 2,478 | ||||||||||||||
Charge-offs | (4 | ) | (146 | ) | - | (103 | ) | - | (26 | ) | (279 | ) | ||||||||||||||||
Recoveries | - | 24 | - | 15 | - | 19 | 58 | |||||||||||||||||||||
Provisions | 58 | 234 | 40 | 91 | - | 43 | 466 | |||||||||||||||||||||
Ending balance, December 31, 2016 | $ | 318 | $ | 948 | $ | 231 | $ | 1,143 | $ | - | $ | 83 | $ | 2,723 | ||||||||||||||
individually evaluated for impairment | - | - | - | 56 | - | - | 56 | |||||||||||||||||||||
collectively evaluated for impairment | $ | 318 | $ | 948 | $ | 231 | $ | 1,087 | $ | - | $ | 83 | $ | 2,667 | ||||||||||||||
Loans receivable: | ||||||||||||||||||||||||||||
Ending balance | $ | 40,827 | $ | 123,711 | $ | 35,206 | $ | 154,905 | $ | 13,616 | $ | 10,032 | $ | 378,297 | ||||||||||||||
individually evaluated for impairment | 436 | 5,499 | 2,455 | 4,057 | - | - | 12,447 | |||||||||||||||||||||
acquired with credit deterioration | - | 641 | - | 415 | - | - | 1,056 | |||||||||||||||||||||
collectively evaluated for impairment | $ | 40,391 | $ | 117,571 | $ | 32,751 | $ | 150,433 | $ | 13,616 | $ | 10,032 | $ | 364,794 |
| | | | | | | | | | | | | | | |
(Dollars in thousands) | | | | | Special | | | | | | | | | | |
As of March 31, 2021 |
| Pass |
| Mention |
| Substandard |
| Doubtful |
| Total | |||||
Commercial, financial and agricultural | | $ | 79,357 | | $ | 596 | | $ | 931 | | $ | 0 | | $ | 80,884 |
Real estate - commercial | |
| 103,747 | |
| 40,008 | |
| 7,198 | |
| 39 | |
| 150,992 |
Real estate - construction | |
| 36,813 | |
| 3,634 | |
| 140 | |
| 0 | |
| 40,587 |
Real estate - mortgage | |
| 136,810 | |
| 278 | |
| 1,181 | |
| 39 | |
| 138,308 |
Obligations of states and political subdivisions | |
| 19,916 | |
| 0 | |
| 0 | |
| 0 | |
| 19,916 |
Personal | |
| 6,320 | |
| 0 | |
| 0 | |
| 0 | |
| 6,320 |
Total | | $ | 382,963 | | $ | 44,516 | | $ | 9,450 | | $ | 78 | | $ | 437,007 |
| | | | | | | | | | | | | | | |
(Dollars in thousands) | | | | | Special | | | | | | | | | | |
As of December 31, 2020 |
| Pass |
| Mention |
| Substandard |
| Doubtful |
| Total | |||||
Commercial, financial and agricultural | | $ | 71,983 | | $ | 495 | | $ | 579 | | $ | 0 | | $ | 73,057 |
Real estate - commercial | |
| 99,828 | |
| 15,198 | |
| 7,631 | |
| 41 | |
| 122,698 |
Real estate - construction | |
| 36,332 | |
| 24,644 | |
| 75 | |
| 0 | |
| 61,051 |
Real estate - mortgage | |
| 139,787 | |
| 289 | |
| 1,317 | |
| 45 | |
| 141,438 |
Obligations of states and political subdivisions | |
| 18,550 | |
| 0 | |
| 0 | |
| 0 | |
| 18,550 |
Personal | |
| 5,867 | |
| 0 | |
| 0 | |
| 0 | |
| 5,867 |
Total | | $ | 372,347 | | $ | 40,626 | | $ | 9,602 | | $ | 86 | | $ | 422,661 |
8. GoodwillThe decline in special mention real estate – construction loans and other intangible assetsthe increase in special mention real estate – commercial loans as of March 31, 2021 compared to December 31, 2020 was largely due to two relationships transitioning from a construction phase to permanent loan status.
7. GOODWILL AND OTHER INTANGIBLE ASSETS
Branch AcquisitionGoodwill
On September 8, 2006, the Company acquired a branch office in Richfield, PA. Goodwill associated with this transaction is carried at September$2,046,000. On November 30, 20172015, the Company acquired FNBPA Bancorp, Inc. and, as a result, carries goodwill of $3,402,000 relating to the acquisition. On April 30, 2018, the Company acquired the remainder of the outstanding common stock of Liverpool Community Bank and, as a result, carries goodwill of $3,599,000 relating to the acquisition.
Total goodwill at March 31, 2021 and December 31, 20162020 was $2,046,000. Core deposit intangible of $431,000 was fully amortized as of September 30, 2016. The core deposit intangible was amortized over a ten-year period on a straight-line basis.$9,047,000. Goodwill is not amortized but is measuredtested annually for impairment, or more frequently if certain events occur which might indicate goodwill has been impaired. Core deposit amortization expense was $7,000 and $29,000 in the three and nine months ending September 30, 2016. There was no0 goodwill impairment of goodwill during the three months ended March 31, 2021 or nine month periods ended September 30, 2017 or 2016.March 31, 2020.
25
FNBPA Acquisition
Intangible Assets
On November 30, 2015, the Company acquired FNBPA Bancorp, Inc. (“FNBPA”) and as a result, carries goodwill of $3,402,000 relating to the acquisition. Corecore deposit intangible in the amount of $303,000 associated with the FNBPA Bancorp, Inc. acquisition was recorded and is being amortized over a ten-year period using a sum of the year’s digits basis. Other intangible assets were identified and recorded as of November 30, 2015, in the amount of $40,000 and are being amortized on a straight-line basis over two years, through November 30, 2017.
Amortization expense recognized for the intangibles related to the FNBPA acquisition in the three and nine months ended SeptemberMarch 31, 2021 was $7,000.
On April 30, 20172018, a core deposit intangible in the amount of $289,000 associated with the Liverpool Community Bank acquisition was $17,000recorded and $52,000, respectively. The amortizationis being amortized over a ten-year period using a sum of the year’s digit basis. Amortization expense recognized duringfor the three and nine months ended September 30, 2016 was $19,000 and $57,000, respectively, for intangiblesintangible related to the FNBPA acquisition.Liverpool Community Bank acquisition in the three months ended March 31, 2021 was $9,000.
The following table shows the amortization schedule for each of the intangible assets recorded.
FNBPA | FNBPA | Branch | ||||||||||
Acquisition | Acquisition | Acquisition | ||||||||||
Core | Other | Core | ||||||||||
(Dollars in thousands) | Deposit | Intangible | Deposit | |||||||||
Intangible | Assets | Intangible | ||||||||||
Beginning Balance at Acquisition Date | $ | 303 | $ | 40 | $ | 431 | ||||||
Amortization expense recorded prior to January 1, 2016 | 4 | 2 | 402 | |||||||||
Amortization expense recorded in the twelve months ended December 31, 2016 | 55 | 20 | 29 | |||||||||
Unamortized balance as of December 31, 2016 | 244 | 18 | $ | - | ||||||||
Amortization expense recorded in the Nine Months Ended September 30, 2017 | 37 | 15 | ||||||||||
Unamortized balance as of September 30, 2017 | $ | 207 | $ | 3 | ||||||||
Scheduled remaining amortization expense for years ended: | ||||||||||||
December 31, 2017 | $ | 12 | $ | 3 | ||||||||
December 31, 2018 | 44 | - | ||||||||||
December 31, 2019 | 38 | - | ||||||||||
December 31, 2020 | 33 | - | ||||||||||
December 31, 2021 | 27 | - | ||||||||||
After December 31, 2021 | 53 | - |
| | | | | | |
(Dollars in thousands) |
| FNBPA |
| LCB | ||
| | Acquisition | | Acquisition | ||
| | Core | | Core | ||
| | Deposit | | Deposit | ||
| | Intangible | | Intangible | ||
Beginning Balance at Acquisition Date | | $ | 303 | | $ | 289 |
Amortization expense recorded prior to January 1, 2020 | |
| 190 | |
| 84 |
Amortization expense recorded in the twelve months | |
|
| |
|
|
ended December 31, 2020 | |
| 33 | |
| 44 |
Unamortized balance as of December 31, 2020 | |
| 80 | |
| 161 |
Amortization expense recorded in the | |
| | | | |
three months ended March 31, 2021 | | | 7 | |
| 9 |
Unamortized balance as of March 31, 2021 | | $ | 73 | | $ | 152 |
| | | | | | |
Scheduled remaining amortization expense for years ended: | |
| | |
| |
December 31, 2021 | | $ | 20 | | $ | 30 |
December 31, 2022 | | | 22 | |
| 33 |
December 31, 2023 | |
| 16 | |
| 28 |
December 31, 2024 | |
| 10 | | | 23 |
December 31, 2025 | |
| 5 | | | 17 |
December 31, 2026 | | | — | | | 12 |
After December 31, 2026 | | | — | | | 9 |
8. BORROWINGS
Borrowings consisted of the following as of March 31, 2021 and December 31, 2020.
| | | | | | |
(Dollars in thousands) | | March 31, | | December 31, | ||
|
| 2021 |
| 2020 | ||
Securities sold under agreements to repurchase | | $ | 2,622 | | $ | 4,750 |
Short-term debt with FHLB | | | 20,000 | | | 20,000 |
Federal Reserve Bank advances | | | — | | | 27,955 |
Long-term debt with FHLB | |
| 35,000 | |
| 35,000 |
| | $ | 57,622 | | $ | 87,705 |
26
Long-term debt is comprised only of FHLB advances with an original maturity of one year or more. The following table summarizes the scheduled maturities of long-term debt as of March 31, 2021.
| | | | | | |
(Dollars in thousands) | | Scheduled | | Weighted Average | | |
Year |
| Maturities |
| Interest Rate | | |
2022 | | $ | 0 | | 0 | % |
2023 | | | 0 |
| 0 | |
2024 |
| | 20,000 |
| 2.42 | |
2025 |
| | 15,000 |
| 2.41 | |
2026 |
| | 0 |
| 0 | |
Thereafter | | | 0 | | 0 | |
| | $ | 35,000 |
| 2.42 | % |
9. Investment in Unconsolidated Subsidiary
STOCK COMPENSATION PLAN
The Company owns 39.16%maintains the 2016 Long-Term Incentive Plan (the “Plan”), that amended and restated the former 2011 Stock Option Plan (the “2011 Plan”). The Plan continues in effect for any outstanding awards under the 2011 Plan in accordance with the terms and conditions governing such awards immediately prior to the effective date of the Plan but expanded the types of awards authorized to include, among others, restricted stock. Under the provisions of the Plan, while active, awards may consist of grants of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock and performance shares to officers and key employees of the Company, as well as directors. The Plan is administered by a committee of the Board of Directors.
The maximum number of shares of common stock that may be issued under the Plan is 300,000 shares, and 152,251 shares were available for grant as of March 31, 2021. Shares of common stock issued under the Plan may be treasury shares or authorized but unissued shares. Forfeited awards are returned to the pool of shares available for grant for future awards.
In the first quarter of 2021, 8,839 restricted shares were awarded to certain officers and all directors. Each of the awards vest after three-years, with no interim vesting. As of March 31, 2021, there was $289,000 of unrecognized compensation cost related to all non-vested restricted stock awards. This cost is expected to be recognized through February 2024.
Compensation expense for stock options granted and restricted stock awarded is measured using the fair value of the award on the grant date and is recognized over the vesting period. The Company recognized $35,000 and $29,000 of expense for the three months ended March 31, 2021 and 2020, respectively, for stock-based compensation.
The following table presents a summary of the status of the Company’s non-vested restricted stock awards as of March 31, 2021, and changes during the period then ended is presented below:
| | | | | |
|
| |
| Weighted | |
| | | | Average | |
| | | | Grant Date | |
| | Shares | | Fair Value | |
Non-vested at January 1, 2021 |
| 20,175 | | $ | 19.62 |
Vested |
| (4,460) | |
| 19.80 |
Forfeited | | 0 | | | 0 |
Granted |
| 8,839 | |
| 16.55 |
Non-vested at March 31, 2021 |
| 24,554 | | $ | 18.48 |
27
NaN stock options were awarded in the first quarter of 2021. Previously granted stock options vest over three to five years and are exercisable at the grant price, which is at least the fair market value of the stock on the grant date. The Plan provides that the option price per share is not to be less than the fair market value of the stock on the day the option was granted, but in no event less than the par value of such stock. Options granted under the Plan are exercisable no earlier than one year after the date of grant and expire ten years after the date of the grant. All options previously granted under the Plans are scheduled to expire by February 17, 2025.
Total options outstanding as of March 31, 2021 have exercise prices between $17.65 and $18.00, with a weighted average exercise price of $17.78 and a weighted average remaining contractual life of 2.53 years.
As of March 31, 2021, there was 0 unrecognized compensation cost related to options granted under the Plan and 0 options were exercised under the Plans during the period.
A summary of the status of the outstanding common stock of Liverpool Community Bank (LCB), Liverpool, PA. This investment is accounted for under the equity method of accounting and is being carried at $4,820,000options as of September 30, 2017. The Company increases its investment in LCB for its share of earningsMarch 31, 2021, and decreases its investment by any dividends received from LCB. The investment is evaluated quarterly for impairment. A loss in value of the investment which is determined to be other than a temporary decline would be recognized as a loss inchanges during the period in which such determinationthen ended is made. Evidence of a loss in value might include, but would not necessarily be limited to, absence of an ability to recover the carrying amount of the investment or inability of LCB to sustain an earnings capacity that would justify the current carrying value of the investment. There was no impairment of goodwill relating to LCB during the three or nine month periods ended September 30, 2017 or 2016.presented below:
| | | | | |
|
| |
| Weighted | |
| | | | Average | |
| | | | Exercise | |
| | Shares | | Price | |
Outstanding at beginning of year |
| 81,547 | | $ | 17.78 |
Granted |
| 0 | |
| 0 |
Exercised |
| 0 | |
| 0 |
Forfeited |
| 0 | |
| 0 |
Outstanding at end of year |
| 81,547 | | $ | 17.78 |
10. Fair Value Measurement
FAIR VALUE MEASUREMENT
Fair value measurement and disclosure guidance defines fair value as the price that would be received to sell an asset or transfer a liability in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. Additional guidance is provided on determining when the volume and level of activity for the asset or liability has significantly decreased. The guidance also includes guidance on identifying circumstances when a transaction may not be considered orderly.
Fair value measurement and disclosure guidance provides a list of factors that a reporting entity should evaluate to determine whether there has been a significant decrease in the volume and level of activity for the asset or liability in relation to normal market activity for the asset or liability. When the reporting entity concludes there has been a significant decrease in the volume and level of activity for the asset or liability, further analysis of the information from that market is needed, and significant adjustments to the related prices may be necessary to estimate fair value in accordance with fair value measurement and disclosure guidance.
This guidance clarifies that, when there has been a significant decrease in the volume and level of activity for the asset or liability, some transactions may not be orderly. In those situations, the entity must evaluate the weight of the evidence to determine whether the transaction is orderly. The guidance provides a list of circumstances that may indicate that a transaction is not orderly. A transaction price that is not associated with an orderly transaction is given little, if any, weight when estimating fair value.
Fair value measurement and disclosure guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability. The price in the principal (or most advantageous) market used to measure the fair value of the asset or liability is not adjusted for transaction costs. An orderly transaction is a transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets and liabilities; it is not a forced transaction. Market participants are buyers and sellers in the principal market that are (i) independent, (ii) knowledgeable, (iii) able to transact and (iv) willing to transact.
Additional guidance is provided on determining when the volume and level of activity for the asset or liability has significantly decreased. The guidance also includes guidance on identifying circumstances when a transaction may not be considered orderly.
Fair value measurement and disclosure guidance requiresprovides a list of factors that a reporting entity should evaluate to determine whether there has been a significant decrease in the usevolume and level of valuation techniquesactivity for the asset or liability in relation to normal market activity for the asset or liability. When the reporting entity concludes there has been a significant decrease in the volume and level of activity for the asset or liability, further analysis of the information from that are consistentmarket is needed, and significant adjustments to the related prices may be necessary to estimate fair value in accordance with fair value measurement and disclosure guidance.
This guidance clarifies that, when there has been a significant decrease in the market approach,volume and level of activity for the income approach and/asset or liability, some transactions may not be orderly. In those situations, the cost approach. entity must evaluate the weight of the evidence to
28
determine whether the transaction is orderly. The guidance provides a list of circumstances that may indicate that a transaction is not orderly. A transaction price that is not associated with an orderly transaction is given little, if any, weight when estimating fair value.
The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets and liabilities. The income approach uses valuation techniques to convert future amounts, such as cash flows or earnings, to a single present amount on a discounted basis. The cost approach is based on the amount that currently would be required to replace the service capacity of an asset (replacement cost). Valuation techniques should be consistently applied. Inputs to valuation techniques refer to the assumptions that market participants would use in pricing the asset or liability. Inputs may be observable, meaning those that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from independent sources, or unobservable, meaning those that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. In that regard, the guidance establishes a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:
Level 1 Inputs – Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability tocan access at the measurement date.
Level 2 Inputs – InputsSignificant other observable inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might includeprices such as quoted prices for similar assets or liabilities in active markets,liabilities; quoted prices for identical or similar assets or liabilities in markets that are not active,active; or other inputs other than quoted prices that are observable for the asset or liability (such as interest rates, volatilities, prepayment speeds, credit risks, etc.) or inputs that are derived principally from orcan be corroborated by observable market data by correlation or other means.
data.
Level 3 Inputs – UnobservableSignificant unobservable inputs for determining the fair values of assets or liabilities that reflect an entity’sa company’s own assumptions about the assumptions that market participants would use in pricing the assetsan asset or liabilities.
liability.
An asset’s or liability’s placement in the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.
A description of the valuation methodologies used for assets and liabilities measured at fair value, as well as the general classification of such assets and liabilities pursuant to the valuation hierarchy, is set forth below.
In general, fair value is based upon quoted market prices, where available. If such quoted market prices are not available, fair value is based upon internally developed models that primarily use, as inputs, observable market-based parameters. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. These adjustments may include amounts to reflect counterparty credit quality and the Company’s creditworthiness, among other things, as well as unobservable parameters. Any such valuation adjustments are applied consistently over time. The Company’s valuation methodologies may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. While management believes the Company’s valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.
Equities Securities – The fair value of equity securities is based upon quoted prices in active markets and is reported using Level 1 inputs.
Debt Securities Available for Sale – – DebtFor debt securities classified as available for sale where quoted prices are not available, fair values are calculated based on market prices of similar securities and are reported at fair value utilizing Level 2 inputs. For these securities, the Company obtains fair value measurement from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’sdebt securities’ terms
29
and conditions, among other things. EquityFor debt securities classified as available for sale where quoted prices or market prices of similar securities are not available, fair values are calculated using other market indicators and are reported at fair value utilizing Level 3 inputs.
Derivatives – The fair values of derivatives are based on valuation models using Level 1 andobservable market data as of the measurement date utilizing Level 2 inputs.
The Company’s derivatives are comprised of interest rate swaps traded in an over-the-counter market where quoted market prices are not always available; therefore, the fair values are determined using quantitative models that utilize multiple market inputs. The inputs will vary based on the type of curves, prepayment rates and volatility factors used to value the position. Most market inputs are actively quoted and can be validated through external sources, including brokers, market transactions and third-party pricing services.
Impaired Loans – – Certain impaired loans are reported on a non-recurring basis at the fair value of the underlying collateral since repayment is expected solely from the collateral. Fair value is generally determined based upon independent third-party appraisals of the properties, or discounted cash flows based upon the expected proceeds. These assets are included as Level 3 fair values, based upon the lowest level of input that is significant to the fair value measurements.
Other Real Estate Owned – – Certain assets included in other real estate owned are carried at fair value as a result of impairment and accordingly are presented as measured on a non-recurring basis. Values are estimated using Level 3 inputs, based on appraisals that consider the sales prices of property in the proximate vicinity.
Mortgage Servicing Rights – The fair value of servicing assets is based on the present value of estimated future cash flows on pools of mortgages stratified by rate and maturity date and are considered Level 3 inputs.
The following table summarizestables summarize financial assets and financial liabilities measured at fair value as of September 30, 2017March 31, 2021 and December 31, 2016,2020 segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value. There were no transfers
| | | | | | | | | | | | |
|
| (Level 1) |
| (Level 2) |
| (Level 3) |
| | | |||
| | Quoted Prices in | | Significant | | Significant | | | | |||
(Dollars in thousands) | | Active Markets | | Other | | Other | | | | |||
| | for Identical | | Observable | | Unobservable | | | ||||
March 31, 2021 | | Assets | | Inputs | | Inputs | | Total | ||||
Assets measured at fair value on a recurring basis: |
| |
|
| |
|
| |
|
| |
|
Debt securities available for sale: |
| |
|
| |
|
| |
|
| |
|
Obligations of U.S. Government agencies and corporations | | $ | — | | $ | 37,634 | | $ | — | | $ | 37,634 |
Obligations of state and political subdivisions | |
| — | |
| 8,175 | |
| — | |
| 8,175 |
Corporate debt securities | | | — | | | 14,039 | | | 2,000 | | | 16,039 |
Mortgage-backed securities | |
| — | |
| 239,228 | |
| — | |
| 239,228 |
Total debt securities available for sale | | $ | — | | $ | 299,076 | | $ | 2,000 | | $ | 301,076 |
Equity securities | | $ | 1,183 | | $ | — | | $ | — | | $ | 1,183 |
Mortgage servicing rights | | $ | — | | $ | — | | $ | 147 | | $ | 147 |
Interest rate swaps | | $ | — | | $ | 659 | | $ | — | | $ | 659 |
| | | | | | | | | | | | |
Assets measured at fair value on a non-recurring basis: | |
|
| |
|
| |
|
| |
|
|
Impaired loans | | $ | — | | $ | — | | $ | 78 | | $ | 78 |
30
| | | | | | | | | | | | |
|
| (Level 1) |
| (Level 2) |
| (Level 3) |
| | | |||
| | Quoted Prices in | | Significant | | Significant | | | | |||
(Dollars in thousands) | | Active Markets | | Other | | Other | | | | |||
| | for Identical | | Observable | | Unobservable | | | ||||
December 31, 2020 | | Assets | | Inputs | | Inputs | | Total | ||||
Assets measured at fair value on a recurring basis: |
| |
|
| |
|
| |
|
| |
|
Debt securities available for sale: |
| |
|
| |
|
| |
|
| |
|
Obligations of U.S. Government agencies and corporations | | $ | — | | $ | 22,949 | | $ | — | | $ | 22,949 |
Obligations of state and political subdivisions | |
| — | |
| 8,282 | |
| — | |
| 8,282 |
Corporate debt securities | | | — | | | 9,523 | | | 2,000 | | | 11,523 |
Mortgage-backed securities | |
| — | |
| 243,661 | |
| — | |
| 243,661 |
Total debt securities available for sale | | $ | — | | $ | 284,415 | | $ | 2,000 | | $ | 286,415 |
Equity securities | | $ | 1,091 | | $ | — | | $ | — | | $ | 1,091 |
Mortgage servicing rights | | $ | — | | $ | — | | $ | 158 | | $ | 158 |
Liabilities measured at fair value on a recurring basis: |
| |
|
| |
|
| |
|
| |
|
Interest rate swaps | | $ | — | | $ | 57 | | $ | — | | $ | 57 |
| | | | | | | | | | | | |
Assets measured at fair value on a non-recurring basis: | |
|
| |
|
| |
|
| |
|
|
Impaired loans | | $ | — | | $ | — | | $ | 84 | | $ | 84 |
(Level 1) | (Level 2) | (Level 3) | ||||||||||||||
Quoted Prices in | Significant | Significant | ||||||||||||||
Active Markets | Other | Other | ||||||||||||||
(Dollars in thousands) | September 30, | for Identical | Observable | Unobservable | ||||||||||||
2017 | Assets | Inputs | Inputs | |||||||||||||
Measured at fair value on a recurring basis: | ||||||||||||||||
Debt securities available-for-sale: | ||||||||||||||||
Obligations of U.S. Government agencies and corporations | $ | 34,463 | $ | - | $ | 34,463 | $ | - | ||||||||
Obligations of state and political subdivisions | 25,945 | - | 25,945 | - | ||||||||||||
Mortgage-backed securities | 97,485 | - | 97,485 | - | ||||||||||||
Equity securities available-for-sale | 1,287 | 1,107 | 180 | - | ||||||||||||
Measured at fair value on a non-recurring basis: | ||||||||||||||||
Impaired loans | $ | 2,239 | $ | - | $ | - | $ | 2,239 | ||||||||
Other real estate owned | 165 | - | - | 165 | ||||||||||||
Mortgage servicing rights | 223 | - | - | 223 |
(Level 1) | (Level 2) | (Level 3) | ||||||||||||||
Quoted Prices in | Significant | Significant | ||||||||||||||
Active Markets | Other | Other | ||||||||||||||
(Dollars in thousands) | December 31, | for Identical | Observable | Unobservable | ||||||||||||
2016 | Assets | Inputs | Inputs | |||||||||||||
Measured at fair value on a recurring basis: | ||||||||||||||||
Debt securities available-for-sale: | ||||||||||||||||
Obligations of U.S. Government agencies and corporations | $ | 35,799 | $ | - | $ | 35,799 | $ | - | ||||||||
Obligations of state and political subdivisions | 26,659 | - | 26,659 | - | ||||||||||||
Mortgage-backed securities | 85,702 | - | 85,702 | - | ||||||||||||
Equity securities available-for-sale | 2,328 | 2,148 | 180 | - | ||||||||||||
Measured at fair value on a non-recurring basis: | ||||||||||||||||
Impaired loans | $ | 2,563 | $ | - | $ | - | $ | 2,563 | ||||||||
Other real estate owned | 358 | - | - | 358 | ||||||||||||
Mortgage servicing rights | 205 | - | - | 205 |
The following table presents additional quantitative information about assetsAssets measured at fair value on a nonrecurring basis and for which Level 3 inputs have been used to determine fair value:
(Dollars in thousands) | ||||||||||||||
September 30, 2017 | Fair Value Estimate | Valuation Technique | Unobservable Input | Range | Weighted Average | |||||||||
Impaired loans | $ | 2,239 | Appraisal of collateral (1) | Appraisal and liquidation adjustments (2) | 0% - 12% | 7 | % | |||||||
Other real estate owned | 165 | Appraisal of collateral (1) | Appraisal and liquidation adjustments (2) | 13% - 72% | 30 | % | ||||||||
Mortgage servicing rights | 223 | Multiple of annual servicing fee | Estimated pre-payment speed, based on rate and term | 300% - 400% | 369 | % |
(Dollars in thousands) | ||||||||||||||
December 31, 2016 | Fair Value Estimate | Valuation Technique | Unobservable Input | Range | Weighted Average | |||||||||
Impaired loans | $ | 2,563 | Appraisal of collateral (1) | Appraisal and liquidation adjustments (2) | 7% - 58% | 8.9 | % | |||||||
Other real estate owned | 358 | Appraisal of collateral (1) | Appraisal and liquidation adjustments (2) | 30 - 72% | 46 | % | ||||||||
Mortgage servicing rights | 205 | Multiple of annual servicing fee | Estimated pre-payment speed, based on rate and term | 300% - 400% | 368 | % |
value are immaterial to the Company’s consolidated financial statements.
Fair Value of Financial Instruments
Management uses its best judgment in estimating the fair value of the Company’s financial instruments; however, there are inherent weaknesses in any estimation technique. Therefore, the fair value estimates reported herein are not necessarily indicative of the amounts the Company could have realized in sales transactions on the dates indicated. The estimated fair value amounts have been measured as of their respective year ends and have not been re-evaluated or updated for purposes of these consolidated financial statements subsequent to those respective dates. As such, the estimated fair values of these financial instruments subsequent to the respective reporting dates may be different from the amounts reported at each quarter end.
The information presented below should not be interpreted as an estimate of the fair value of the entire Company since a fair value calculation is provided only for a limited portion of the Company’s assets and liabilities. Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Company’s disclosures and those of other companies may not be meaningful.
31
The following describes the estimated fair value of the Company’s financial instruments as well as the significant methodscarrying amounts and assumptions not previously disclosed used to determine these estimated fair values.
Carrying values approximate fair value for cash and due from banks, interest-bearing demand deposits with banks, restricted stock in the Federal Home Loan Bank, loans held for sale, interest receivable, mortgage servicing rights, non-interest bearing deposits, securities sold under agreements to repurchase, short-term borrowings and interest payable. Other than cash and due from banks, which are considered Level 1 inputs, and mortgage servicing rights, which are Level 3 inputs, these instruments are Level 2 inputs.
Interest bearing time deposits with banks – The estimated fair value is determined by discounting the contractual future cash flows, using the rates currently offered for deposits of similar remaining maturities.
Loans– For variable-rate loans that reprice frequently and which entail no significant changes in credit risk, carrying values approximated fair value. Substantially all commercial loans and real estate mortgages are variable rate loans. The fair value of other loans (i.e. consumer loans and fixed-rate real estate mortgages) is estimated by calculating the present value of the cash flow difference between the current rate and the market rate, for the average maturity, discounted quarterly at the market rate.
Fixed rate time deposits – The estimated fair value is determined by discounting the contractual future cash flows, using the rates currently offered for deposits of similar remaining maturities.
Long-term debt and other interest-bearing liabilities – The fair value is estimated using discounted cash flow analysis, based on incremental borrowing rates for similar types of arrangements.
Commitments to extend credit and letters of credit – The fair value of commitments to extend credit is estimated using the fees currently charged to enter into similar agreements, taking into account market interest rates, the remaining terms and present credit-worthiness of the counterparties. The fair value of guarantees and letters of credit is based on fees currently charged for similar agreements.
The estimated fair values of the Company’s financial instruments are as follows:
| | | | | | | | | | | | |
| | Financial Instruments | ||||||||||
(Dollars in thousands) | | March 31, 2021 | | December 31, 2020 | ||||||||
|
| Carrying |
| Fair |
| Carrying |
| Fair | ||||
| | Value | | Value | | Value | | Value | ||||
Financial assets: | | | | | | | | | | | | |
Cash and due from banks | | $ | 11,533 | | $ | 11,533 | | $ | 11,868 | | $ | 11,868 |
Interest bearing deposits with banks | |
| 460 | |
| 460 | |
| 19,753 | |
| 19,753 |
Federal funds sold | |
| 10,000 | |
| 10,000 | |
| 0 | |
| 0 |
Interest bearing time deposits with banks | |
| 735 | |
| 735 | |
| 735 | |
| 735 |
Securities | |
| 302,259 | |
| 302,259 | |
| 287,506 | |
| 287,506 |
Restricted investment in bank stock | | | 3,374 | |
| N/A | |
| 3,423 | |
| N/A |
Loans, net of allowance for loan losses | |
| 432,951 | |
| 434,033 | |
| 418,567 | |
| 424,791 |
Interest rate swaps | | | 659 | | | 659 | | | 0 | | | 0 |
Accrued interest receivable | |
| 2,233 | |
| 2,233 | |
| 2,105 | |
| 2,105 |
| | | | | | | | | | | | |
Financial liabilities: | |
|
| |
|
| |
|
| |
|
|
Non-interest bearing deposits | | $ | 183,437 | | $ | 183,437 | | $ | 168,115 | | $ | 168,115 |
Interest bearing deposits | |
| 486,023 | |
| 489,985 | |
| 454,751 | |
| 459,224 |
Securities sold under agreements to repurchase | |
| 2,622 | |
| N/A | |
| 475 | |
| N/A |
Short-term borrowings | |
| 20,000 | |
| 20,002 | |
| 20,000 | |
| 20,002 |
FRB advances | | | 0 | | | 0 | | | 27,955 | | | 27,955 |
Long-term debt | |
| 35,000 | |
| 36,745 | |
| 35,000 | |
| 37,365 |
Interest rate swaps | | | 0 | | | 0 | | | 57 | | | 57 |
Other interest bearing liabilities | |
| 1,557 | |
| 1,557 | |
| 1,584 | |
| 1,585 |
Accrued interest payable | |
| 364 | |
| 364 | |
| 448 | |
| 448 |
| | | | | | | | | | | | |
Off-balance sheet financial instruments: | |
|
| |
|
| |
|
| |
|
|
Commitments to extend credit | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 |
Letters of credit | |
| 0 | |
| 0 | |
| 0 | |
| 0 |
Financial Instruments | ||||||||||||||||
September 30, 2017 | December 31, 2016 | |||||||||||||||
(Dollars in thousands) | Carrying | Fair | Carrying | Fair | ||||||||||||
Value | Value | Value | Value | |||||||||||||
Financial assets: | ||||||||||||||||
Cash and due from banks | $ | 13,219 | $ | 13,219 | $ | 9,464 | $ | 9,464 | ||||||||
Interest bearing deposits with banks | 133 | 133 | 95 | 95 | ||||||||||||
Interest bearing time deposits with banks | 350 | 350 | 350 | 350 | ||||||||||||
Securities | 159,180 | 159,180 | 150,488 | 150,488 | ||||||||||||
Restricted investment in FHLB stock | 3,616 | 3,616 | 3,610 | 3,610 | ||||||||||||
Loans held for sale | 117 | 117 | - | - | ||||||||||||
Loans, net of allowance for loan losses | 379,709 | 374,642 | 375,574 | 366,660 | ||||||||||||
Mortgage servicing rights | 223 | 223 | 205 | 205 | ||||||||||||
Accrued interest receivable | 1,620 | 1,620 | 1,582 | 1,582 | ||||||||||||
Financial liabilities: | ||||||||||||||||
Non-interest bearing deposits | $ | 109,880 | $ | 109,880 | $ | 104,006 | $ | 104,006 | ||||||||
Interest bearing deposits | 363,703 | 363,854 | 351,816 | 354,628 | ||||||||||||
Securities sold under agreements to repurchase | 5,207 | 5,207 | 4,496 | 4,496 | ||||||||||||
Short-term borrowings | 27,500 | 27,500 | 27,700 | 27,700 | ||||||||||||
Long-term debt | 25,000 | 24,965 | 25,000 | 24,963 | ||||||||||||
Other interest bearing liabilities | 1,566 | 1,568 | 1,545 | 1,549 | ||||||||||||
Accrued interest payable | 298 | 298 | 268 | 268 | ||||||||||||
Off-balance sheet financial instruments: | ||||||||||||||||
Commitments to extend credit | $ | - | $ | - | $ | - | $ | - | ||||||||
Letters of credit | - | - | - | - |
The following tables present the carrying amount, fair value and placement in the fair value hierarchy of the Company’s financial instruments not previously disclosed as of September 30, 2017March 31, 2021 and December 31, 2016. This table excludes2020. The tables exclude financial instruments for which the carrying amount approximates fair value.
| | | | | | | | | | | | | | | |
|
| | |
| | |
| (Level 1) |
| (Level 2) |
| (Level 3) | |||
| | | | | | | | Quoted Prices in | | Significant | | Significant | |||
(Dollars in thousands) | | | | | | | | Active Markets | | Other | | Other | |||
| | Carrying | | | | | for Identical | | Observable | | Unobservable | ||||
| | Amount | | Fair Value | | Assets or Liabilities | | Inputs | | Inputs | |||||
March 31, 2021 | | | | | | | | | | | | | | | |
Financial instruments - Assets |
| |
|
| |
|
| |
|
| |
|
| |
|
Interest bearing time deposits with banks | | $ | 735 | | $ | 735 | | $ | — | | $ | 735 | | $ | — |
Loans, net of allowance for loan losses | |
| 432,951 | |
| 434,033 | |
| — | |
| — | |
| 434,033 |
Financial instruments - Liabilities | |
| | |
| | |
|
| |
| | |
|
|
Interest bearing deposits | | $ | 486,023 | | $ | 489,985 | | $ | — | | $ | 489,985 | | $ | — |
Long-term debt | |
| 35,000 | |
| 36,745 | |
| — | |
| 36,745 | |
| — |
Other interest bearing liabilities | |
| 1,557 | |
| 1,557 | |
| — | |
| 1,557 | |
| — |
(Level 1) | (Level 2) | (Level 3) | ||||||||||||||||||
Quoted Prices in | Significant | Significant | ||||||||||||||||||
Active Markets | Other | Other | ||||||||||||||||||
(Dollars in thousands) | Carrying | for Identical | Observable | Unobservable | ||||||||||||||||
Amount | Fair Value | Assets or Liabilities | Inputs | Inputs | ||||||||||||||||
September 30, 2017 | ||||||||||||||||||||
Financial instruments - Assets | ||||||||||||||||||||
Interest bearing time deposits with banks | $ | 350 | $ | 350 | $ | - | $ | 350 | $ | - | ||||||||||
Loans held for sale | 117 | 117 | - | 117 | - | |||||||||||||||
Loans, net of allowance for loan losses | 379,709 | 374,642 | - | - | 374,642 | |||||||||||||||
Financial instruments - Liabilities | ||||||||||||||||||||
Interest bearing deposits | $ | 363,703 | $ | 363,854 | $ | - | $ | 363,854 | $ | - | ||||||||||
Long-term debt | 25,000 | 24,965 | - | 24,965 | - | |||||||||||||||
Other interest bearing liabilities | 1,566 | 1,568 | - | 1,568 | - |
(Level 1) | (Level 2) | (Level 3) | ||||||||||||||||||
Quoted Prices in | Significant | Significant | ||||||||||||||||||
Active Markets | Other | Other | ||||||||||||||||||
(Dollars in thousands) | Carrying | for Identical | Observable | Unobservable | ||||||||||||||||
Amount | Fair Value | Assets or Liabilities | Inputs | Inputs | ||||||||||||||||
December 31, 2016 | ||||||||||||||||||||
Financial instruments - Assets | ||||||||||||||||||||
Interest bearing time deposits with banks | $ | 350 | $ | 350 | $ | - | $ | 350 | $ | - | ||||||||||
Loans, net of allowance for loan losses | 375,574 | 366,660 | - | - | 366,660 | |||||||||||||||
Financial instruments - Liabilities | ||||||||||||||||||||
Interest bearing deposits | $ | 351,816 | $ | 354,628 | $ | - | $ | 354,628 | $ | - | ||||||||||
Long-term debt | 25,000 | 24,963 | - | 24,963 | - | |||||||||||||||
Other interest bearing liabilities | 1,545 | 1,549 | - | 1,549 | - |
11. Defined Benefit Retirement Plan
The Company sponsors a defined benefit retirement plan [The Juniata Valley Bank Retirement Plan (“JVB Plan”)], which covers substantially all of its employees employed prior to December 31, 2007. As of January 1, 2008, the JVB Plan was amended to close the plan to new entrants. All active participants as of December 31, 2007 became 100% vested in their accrued benefit and, as long as they remained eligible, continued to accrue benefits until December 31, 2012. The benefits are based on years of service and the employee’s compensation. Effective December 31, 2012, the JVB Plan was amended to cease future service accruals after that date (i.e., it was frozen).
As a result of the FNBPA acquisition, as of November 30, 2015, the Company assumed sponsorship of a second defined benefit retirement plan, the [Retirement Plan for the First National Bank of Port Allegany (“FNB Plan”)], which covers substantially all former FNBPA employees that were employed prior to September 30, 2008. The FNBPA Plan was amended as of December 31, 2015 to cease future service accruals to previously unfrozen participants and is now considered to be “frozen”. Effective December 31, 2016, the FNB Plan was merged into the JVB Plan, which was amended to provide the same benefits to the class of participants previously included in the FNB Plan.
The Company’s funding policy with respect to the JVB Plan is to contribute annually no more than the maximum amount that can be deducted for federal income tax purposes. Contributions are intended to provide for benefits attributed to service through December 31, 2012. The Company made no contributions during the nine months ended September 30, 2017 and is not required to make a contribution in the remainder of 2017; however, it is considering doing so.
32
| | | | | | | | | | | | | | | |
| | | | | | | | (Level 1) | | (Level 2) | | (Level 3) | |||
| | | | | | | | Quoted Prices in | | Significant | | Significant | |||
(Dollars in thousands) | | | | | | | | Active Markets | | Other | | Other | |||
| | Carrying | | | | | for Identical | | Observable | | Unobservable | ||||
|
| Amount |
| Fair Value |
| Assets or Liabilities |
| Inputs |
| Inputs | |||||
December 31, 2020 | | | | | | | | | | | | | | | |
Financial instruments - Assets |
| |
|
| |
|
| |
|
| |
|
| |
|
Interest bearing time deposits with banks | | $ | 735 | | $ | 735 | | $ | — | | $ | 735 | | $ | — |
Loans, net of allowance for loan losses | |
| 418,567 | |
| 424,791 | |
| — | |
| — | |
| 424,791 |
Financial instruments - Liabilities | |
| | |
| | |
|
| |
| | |
|
|
Interest bearing deposits | | $ | 454,751 | | $ | 459,224 | | $ | — | | $ | 459,224 | | $ | — |
Long-term debt | |
| 35,000 | |
| 37,365 | |
| — | |
| 37,365 | |
| — |
Other interest bearing liabilities | |
| 1,584 | |
| 1,585 | |
| — | |
| 1,585 | |
| — |
Pension expense included the following components for the three and nine month periods ended September 30, 2017 and 2016, with the 2016 year reclassified to include combined results for the JVB Plan and the former FNB Plan:
Three Months Ended | Nine Months Ended | |||||||||||||||
(Dollars in thousands) | September 30, | September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Components of net periodic pension cost: | ||||||||||||||||
Interest cost | $ | 161 | $ | 167 | $ | 483 | $ | 501 | ||||||||
Expected return on plan assets | (202 | ) | (199 | ) | (605 | ) | (597 | ) | ||||||||
Recognized net actuarial loss | 57 | 62 | 170 | 186 | ||||||||||||
Net periodic pension cost | $ | 16 | $ | 30 | $ | 48 | $ | 90 | ||||||||
Amortization of net actuarial loss recognized in other comprehensive income | $ | (57 | ) | $ | (62 | ) | $ | (170 | ) | $ | (186 | ) | ||||
Total recognized in net periodic pension cost and other comprehensive income | $ | (41 | ) | $ | (32 | ) | $ | (122 | ) | $ | (96 | ) |
12. Commitments, Contingent Liabilities and Guarantees
11. COMMITMENTS, CONTINGENT LIABILITIES AND GUARANTEES
In the ordinary course of business, the Company makes commitments to extend credit to its customers through letters of credit, loan commitments and lines of credit. At September 30, 2017,March 31, 2021, the Company had $90,150,000$92,688,000 outstanding in loan commitments and other unused lines of credit extended to its customers as compared to $59,984,000$95,089,000 at December 31, 2016.
2020.
The Company does not issue any guarantees that would require liability recognition or disclosure, other than its letters of credit. Letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third-party. Generally, financial and performance letters of credit have expiration dates within one year of issuance, while commercial letters of credit have longer term commitments. The credit risk involved in issuing letters of credit is essentially the same as the risks that are involved in extending loan facilities to customers. The Company generally holds collateral and/or personal guarantees supporting these commitments. The Company had outstanding $2,097,000$3,991,000 and $2,300,000$2,371,000 of financial and performance letters of credit commitments as of September 30, 2017March 31, 2021 and $1,541,000 and $2,365,000 of financial and performance letters of credit commitments as of December 31, 2016, respectively.2020. Commercial letters of credit as of both September 30, 2017March 31, 2021 and December 31, 20162020 totaled $12,650,000.$7,475,000 and $6,975,000, respectively. Management believes that the proceeds obtained through a liquidation of collateral and the enforcement of guarantees would be sufficient to cover the potential amount of future payments required under the corresponding guarantees. The amount of the liability as of September 30, 2017March 31, 2021 for payments under letters of credit issued was not material. Because these instruments have fixed maturity dates, and because many of them will expire without being drawn upon, they do not generally present any significant liquidity risk.
Additionally, the Company has committed to fund and sellsold qualifying residential mortgage loans to the Federal Home Loan BankFHLB as part of Pittsburghits Mortgage Partnership Finance Program (“Program”). Under the terms of the Program, there is limited recourse back to the Company for loans that do not perform in accordance with the terms of the loan agreement. Each loan sold under the Program is “credit enhanced” such that the individual loan’s rating is raised to “BBB”, as determined by the FHLB. The Program can be terminated by either the FHLB or the Company, without cause. The FHLB has no obligation to commit to purchase any mortgage loans through, or from, the Company.
33
12. REVENUE RECOGNITION
The Company accounts for revenue from contracts with customers under Topic 606. The Company generally acts in a principal capacity, on its own behalf, in most contracts with customers. In such transactions, revenue and related costs to provide these services are recognized on a gross basis in the financial statements. In some cases, the Company acts in an agent capacity, deriving revenue through assisting other entities in transactions with its customers. In such transactions, revenue and the related costs to provide the services are recognized on a net basis in the financial statements. These transactions primarily relate to non-deposit product commissions and fees derived from customers’ use of various interchange and ATM/debit card networks.
All of the Company’s revenue from contracts with customers in the scope of Topic 606 are recognized within non-interest income on the consolidated statements of income, except for the gain/loss on the sale of other real estate owned, which is included in other non-interest expense. Revenue streams not within the scope of Topic 606 included in non-interest income on the consolidated statements of income include earnings on bank-owned life insurance and annuities, income from unconsolidated subsidiary, fees derived from loan activity, mortgage banking income, gain/loss on sales and calls of securities, and the change in value of equity securities.
A description of the Company’s sources of revenue accounted for under Topic 606 are as follows:
Customer Service Fees – fees mainly represent fees from deposit customers for transaction based, account maintenance, and overdraft services. Transaction based fees include, but are not limited to, stop payment and overdraft fees. These fees are recognized at the time of the transaction when the performance obligation has been fulfilled. Account maintenance fees and account analysis fees are earned over the course of a month, representing the period of the performance obligation, and are recognized monthly.
Debit Card Fee Income – consists of interchange fees from cardholder transactions conducted through the card payment network. Cardholders use debit cards to conduct point-of-sale transactions that produce interchange fees. The Company acts in an agent capacity to offer processing services for debit cards to its customers. Fees are recognized with the processing of the transactions and netted against the related fees from such transactions.
Trust Fees – include asset management and estate fees. Asset management fees are generally based on a fee schedule, based upon the market value of the assets under management, and recognized monthly when the service obligation is completed. Asset management fees recognized during the three month periods ended March 31, 2021 and March 31, 2020 totaled $92,000 and $85,000, respectively. Fees for estate management services are based on a specified fee schedule and generally recognized as the following performance obligations are fulfilled: (i) 25% of total estate fee recognized when all estate assets are collected and debts paid, (ii) 50% of the total fee is recognized when the inheritance tax return is filed, and (iii) remaining 25% is recognized when the first and final account is confirmed, settling the estate. Estate fees recognized during the three month periods ended March 31, 2021 and March 31, 2020 totaled $20,000 and $28,000, respectively.
Commissions From Sales Of Non-Deposit Products – include, but are not limited to, brokerage services, employer-based retirement solutions, individual retirement planning, insurance solutions, and fee-based investment advisory services. The Company acts in an agent capacity to offer these services to customers. Revenue is recognized, net of related fees, in the month in which the contract is fulfilled.
Other Non-Interest Income – includes certain revenue streams within the scope of Topic 606 comprised primarily of ATM surcharges, commissions on check orders, and wire transfer fees. ATM surcharges are the result of customers conducting ATM transactions that generate fee income. All of these fees, as well as wire transfer fees, are transaction based and are recognized at the time of the transaction. In addition, the Company acts in an agent capacity to offer checks to its customers and recognizes commissions, net of related fees, when the contract is fulfilled.
34
Gains/Losses On Sales Of Other Real Estate Owned – are recognized when control of the property transfers to the buyer, which generally occurs when the deed is executed.
Contract Balances
A contract asset balance occurs when an entity performs a service for a customer before the customer pays consideration (resulting in a contract receivable) or before payment is due (resulting in a contract asset). A contract liability balance is an entity’s obligation to transfer a service to a customer for which the entity has already received payment (or payment is due from the customer). The company’s non-interest revenue streams are largely based on transactional activity, or standard month-end revenue accruals such as asset management fees based on month-end market values. Consideration is often received immediately or shortly after the Company satisfies its performance obligation and revenue is recognized. The Company does not typically enter into longer-term revenue contracts with the customer, and therefore, does not experience significant contract balances.
Contract Acquisition Costs
The Company expenses all contract acquisition costs as costs are incurred.
13. DERIVATIVES
The Company began utilizing interest rate swap agreements as part of its asset liability management strategy to help manage its interest rate risk position in the second quarter of 2020. The notional amount of $10,000,000. Asthe interest rate swaps does not represent amounts exchanged by the parties. The amount exchanged is determined by reference to the notional amount and the other terms of September 30, 2017, $5,788,000 remainedthe individual interest rate swap agreements.
Interest rate swaps with a notional amount totaling $40,000,000 as of March 31, 2021 and December 31, 2020, were designated as cash flow hedges on certain FHLB advances. The interest rate swaps were determined to be deliveredfully effective during the periods presented, and as such, no amount of ineffectiveness have been included in net income. The aggregate fair value of the swaps is recorded in either other assets or other liabilities on that commitment, $140,000the Consolidated Statements of which has been committedCondition with changes in fair value recorded in other comprehensive income. The Company expects the hedges to borrowers.remain fully effective during the remaining terms of the swaps.
The Company presents derivative positions gross on the balance sheet. The following table reflects the derivatives recorded on the Consolidated Statements of Condition as of March 31, 2021 and December 31, 2020.
| | | | | | | | | | | | |
(Dollars in thousands) | | March 31, 2021 | | December 31, 2020 | ||||||||
|
| Notional |
| Fair |
| Notional |
| Fair | ||||
| | Amount | | Value | | Amount | | Value | ||||
Included in other assets: | | | | | | | | | | | | |
Derivatives designated as hedges: | | | | | | | | | | | | |
Interest rate swap - pay fixed / receive floating on 3-month FHLB advance | | $ | 20,000 | | $ | (66) | | $ | 0 | | $ | 0 |
Interest rate swaps - forward-starting on long-term FHLB advances | | | 20,000 | | | 725 | | | 0 | | | 0 |
Total included in other assets | | | | | $ | 659 | | | | | $ | 0 |
| | | | | | | | | | | | |
Included in other liabilities: | | | | | | | | | | | | |
Derivatives designated as hedges: | | | | | | | | | | | | |
Interest rate swap - pay fixed / receive floating on 3-month FHLB advance | | $ | 0 | | $ | 0 | | $ | 20,000 | | $ | (123) |
Interest rate swaps - forward-starting on long-term FHLB advances | |
| 0 | |
| 0 | |
| 20,000 | |
| 66 |
Total included in other liabilities | | | | | $ | 0 | | | | | $ | (57) |
35
The effect of cash flow hedge accounting on accumulated other comprehensive income for the period ended March 31, 2021 is as follows:
| | | | | | | | |
(Dollars in thousands) | | March 31, 2021 | ||||||
|
| Amount of Gain |
| Location of (Gain) |
| Amount of (Gain) | ||
| | (Loss) Recognized in | | Loss Reclassified | | Loss Reclassified | ||
| | OCI on Derivatives | | from OCI into Income | | from OCI into Income | ||
Interest rate contracts | | $ | 712 | | Interest expense on short-term borrowings and repurchase agreements | | $ | 4 |
The effect of cash flow hedge accounting on the Consolidated Statements of Income for the three months ended March 31, 2021 was as follows:
Location and Amount of Gain or Loss Recognized in Income on Fair Value and Cash Flow Hedging Relationships
| | | | | | |
| | Three Months Ended | ||||
(Dollars in thousands) | | March 31, 2021 | ||||
|
| Interest |
| Other | ||
| | Income | | Income | ||
| | (Expense) | | (Expense) | ||
Effects of cash flow hedging: | | | | | | |
Gain on cash flow hedging relationships: | | | | | | |
Amount reclassified from AOCI into income | | $ | (4) | | $ | 0 |
Total | | | (4) | | | 0 |
13. Subsequent Events14. SUBSEQUENT EVENTS
On October 17, 2017,April 20, 2021, the Board of Directors declared a cash dividend of $0.22 per share to shareholders of record on November 15, 2017,May 17, 2021, payable on DecemberJune 1, 2017.2021.
On October 5, 2017, the Company purchased a group annuity to satisfy defined benefit obligations to a group of its retirees. The transaction resulted in settlement charges of $377,000.
36
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward Looking Statements:
The information contained in this Quarterly Report on Form 10-Q contains forward looking statements (as such term is defined in the Securities Exchange Act of 1934 and the regulations thereunder) including statements whichthat are not historical facts or that address trends or management'smanagement’s intentions, plans, beliefs, expectations or opinions. SuchAny forward-looking statement made by us in this document is based only on information currently available to us and speaks only as of the date when made. Juniata undertakes no obligation to publicly update or revise forward looking information, whether as a result of new or updated information, future events, or otherwise. Forward-looking statements are not historical facts or guarantees of future performance, events or results and are subject to potential risks and uncertainties, and may be affected by various factorsmany of which are outside of our control that maycould cause actual results to differ materially from this forward-looking information. Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements including,include, without limitation:
the impact of adverse changes in the economy and real estate markets, including protracted periods of low-growth and sluggish loan demand; |
the effect of market interest rates |
the effect of competition on rates of deposit and loan growth and net interest margin; |
increases in non-performing assets, which may result in increases in the allowance for credit losses, loan charge-offs and elevated collection and carrying costs related to such non-performing assets; |
other income growth, including the impact of regulatory changes which have reduced debit card interchange revenue; |
investment securities gains and losses, including other than temporary declines in the value of securities which may result in charges to earnings; |
the effects of changes in the applicable federal income tax rate; |
● | the level of other expenses, including salaries and employee benefit expenses; |
the impact of increased regulatory scrutiny of the banking industry; |
the impact of governmental monetary and fiscal policies, as well as legislative and regulatory changes; |
● | the results of regulatory examination and supervision processes; |
● | the failure of assumptions underlying the establishment of reserves for loan and lease losses, and estimations of collateral values and various financial assets and liabilities; |
● | the increasing time and expense associated with regulatory compliance and risk management; |
the |
capital and liquidity strategies, including the |
the effects of changes in accounting policies, standards, and interpretations on the presentation in the Company’s consolidated balance sheets and consolidated statements of income; |
the Company’s failure to identify and to address cyber-security risks; |
the Company’s ability to keep pace with technological changes; |
the Company’s ability to attract and retain talented personnel; |
the Company’s reliance on its subsidiary for substantially all of its revenues and its ability to pay dividends; |
disruptions due to flooding, severe weather, or other natural disasters; |
● | failure of |
● | the scope and duration of the COVID-19 pandemic, actions taken by governmental authorities in response to the pandemic and the direct and indirect impacts of the pandemic on the Company, its customers and third parties. |
37
The Company undertakes no obligation to publicly update or revise forward looking information, whether as a resultTable of new or updated information, future events or otherwise. Contents
For a more complete discussion of certain risks, uncertainties and other factors affecting the Company, refer to the Company’s Risk Factors, contained in Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2016,2020, a copy of which may be obtained from the Company upon request and without charge (except for the exhibits thereto), and Item 1A of Part II of this Quarterly Report on Form 10-Q.
COVID-19 Update:
On March 27, 2020, the CARES Act was signed into law, providing relief from certain requirements under U.S. GAAP. The CARES Act permits the suspension of ASC 310-40 for loan modifications that are made by financial institutions in response to the COVID-19 pandemic if (1) the borrower was not more than 30 days past due as of December 31, 2019, and (2) the loan modification is made between March 1, 2020 and the earlier of December 31, 2020 or 60 days after the end of the coronavirus emergency declaration. This period has since been expanded to the earlier of January 1, 2022 or 60 days after the end of the coronavirus emergency declaration following the passing of the CAA on December 27, 2020. A loan modification accounted for in accordance with the CARES Act is not treated as a TDR for accounting or disclosure purposes.
In response to the COVID-19 pandemic, the Company established a COVID-19 Modification Program on March 20, 2020 to offer payment relief to certain borrowers. Through this program, the Company has approved interest and/or principal payment deferrals on loans for individuals and businesses affected by the economic impacts of the COVID-19 pandemic. As of March 31, 2021, one loan for $4,964,000 remained in deferment status while all other loans previously placed in deferment resumed contractual debt service.
As part of the CARES Act and in recognition of the challenging circumstances faced by small businesses, Congress created the Paycheck Protection Program (“PPP”), in which the Company is a participant. PPP covered loans are fully guaranteed as to principal and accrued interest by the SBA, and therefore, require a zero percent risk weight for risk-based capital requirements. The SBA reimburses PPP lenders for any amount of a PPP covered loan that is forgiven. PPP lenders are not held liable for any representations made by PPP borrowers in connection with a borrower's request for PPP covered loan forgiveness.
The CAA also provided several amendments to the PPP, including additional funding for first and second draws of PPP loans up to March 31, 2021. On March 30, 2021, the PPP Extension Act of 2021 was signed into law, extending the program to May 31, 2021.
The Company participates in the PPP and has funded 508 first round PPP loans totaling $32,064,000 in 2020, and as of March 31, 2021, funded 261 second round PPP loans totaling $17,027,000. Juniata has been receiving forgiveness payments from the SBA on first round PPP loans. As of March 31, 2021, 592 PPP loans remained with a total balance of $36,377,000, net of remaining deferred fees of $1,094,000.
On April 7, 2020, the Federal Reserve Banks extended credit under the Paycheck Protection Program Liquidity Facility (“PPPLF”) to provide liquidity to small business lenders and the broader credit markets, and to help stabilize the financial system. Only PPP covered loans guaranteed by the SBA under the Paycheck Protection Program with respect to both principal and interest, and that are originated by an eligible institution, may be pledged as collateral to the Federal Reserve Banks. The Company participated in the PPPLF and as of March 31, 2021, had repaid all remaining Federal Reserve Bank advances.
38
Critical Accounting Policies:
Disclosure of the Company’s significant accounting policies is included in the notes to the consolidated financial statements of the Company’s critical accounting policies in its Annual Report on Form 10-K for the year ended December 31, 2016.2020. Some of these policies require significant judgments, estimates, and assumptions to be made by management, most particularly in connection with determining the provision for loan losses and the appropriate level of the allowance for loan losses, as well as management’s evaluation of the investment portfolio for other-than-temporary impairment. There have been no changes in critical accounting policies since December 31, 2016.losses.
General:
The following discussion relates to the consolidated financial condition of the Company as of September 30, 2017, asMarch 31, 2021, compared to December 31, 2016,2020, and the consolidated results of operations for the three and nine months ended September 30, 2017,March 31, 2021, compared to the same periodsperiod in 2016.2020. This discussion should be read in conjunction with the interim consolidated financial statements and related notes included herein.
Overview:
Juniata Valley Financial Corp. is a Pennsylvania corporation organized in 1983 to be the holding company of The Juniata Valley Bank. The Bank is a state-chartered bank headquartered in Mifflintown, Pennsylvania. Juniata Valley Financial Corp. and its subsidiary bank derive substantially all of their income from banking and bank-related services, including interest earned on residential real estate, commercial mortgage, commercial and consumer loans, interest earned on investment securities and fee income from deposit services and other financial services provided to its customers through 15 locations in Pennsylvania. The Company completed its acquisition of FNBPA Bancorp, Inc. (“FNBPA”) on November 30, 2015, at which time total assets increased by approximately $92 million, or 19%. Juniata Valley Financial Corp. also owns 39.16% of Liverpool Community Bank (“LCB”), located in Liverpool, Pennsylvania. The Company accounts for LCB as an unconsolidated subsidiary using the equity method of accounting.customers.
Financial Condition:
Total assets as of September 30, 2017,March 31, 2021, were $599.9 million,$805,633,000, an increase of $19.6 million,$11,915,000, or 3.4%1.5%, compared to December 31, 2016.2020. Comparing theasset balances at September 30, 2017on March 31, 2021 and December 31, 2016,2020, total cash and cash equivalents decreased by $19,628,000, as excess cash was used to repay the remaining $27,955,000 in FRB advances in the first quarter of 2021. Over the same period, debt securities available for sale and loans increased by $14,661,000 and $14,346,000, respectively. As of March 31, 2021, total deposits increased by $17.8 million,$46,594,000, or 7.5%, compared to December 31, 2020, with noninterestgrowth in both non-interest and interest bearing deposits, increasing $5.9 millionprimarily due to government stimulus payments and interest-bearing deposits increasing $11.9 million. The Company’s investment portfolio increased by $8.7 million and total loans increased by $4.3 million during the nine months ended September 30, 2017.
PPP loan balances on deposit.
The table below shows changes in deposit volumes by type of deposit between December 31, 20162020 and September 30, 2017.March 31, 2021.
| | | | | | | | | | | | |
(Dollars in thousands) | | March 31, | | December 31, | | Change |
| |||||
|
| 2021 |
| 2020 |
| $ |
| % |
| |||
Deposits: | | | | | | | | | | | | |
Demand, non-interest bearing |
| $ | 183,437 |
| $ | 168,115 |
| $ | 15,322 |
| 9.1 | % |
Interest bearing demand and money market | | | 196,196 | | | 176,469 | | | 19,727 |
| 11.2 | |
Savings | | | 137,601 | | | 123,572 | | | 14,029 |
| 11.4 | |
Time deposits, $250,000 and more | | | 13,688 | | | 13,475 | | | 213 |
| 1.6 | |
Other time deposits | | | 138,538 | | | 141,235 | | | (2,697) |
| (1.9) | |
Total deposits |
| $ | 669,460 |
| $ | 622,866 |
| $ | 46,594 |
| 7.5 | % |
(Dollars in thousands) | September 30, | December 31, | Change | |||||||||||||
2017 | 2016 | $ | % | |||||||||||||
Deposits: | ||||||||||||||||
Demand, non-interest bearing | $ | 109,880 | $ | 104,006 | $ | 5,874 | 5.6 | % | ||||||||
Interest bearing demand and money market | 122,833 | 118,429 | 4,405 | 3.7 | ||||||||||||
Savings | 99,414 | 95,449 | 3,965 | 4.2 | ||||||||||||
Time deposits, $250,000 and more | 7,559 | 5,773 | 1,786 | 30.9 | ||||||||||||
Other time deposits | 133,897 | 132,165 | 1,731 | 1.3 | ||||||||||||
Total deposits | $ | 473,583 | $ | 455,822 | $ | 17,761 | 3.9 | % |
39
Overall, loans increased $4.3 million, or 1.1%, between December 31, 2016 and September 30, 2017, asTable of Contents
As shown in the table below, total loans increased $14,346,000, or 3.4%, between December 31, 2020 and March 31, 2021. PPP loans, which are included in the commercial, financial and agricultural class, accounted for approximately half of the growth, with the rest primarily due to increases in commercial and commercialthe real estate loans, partially offset by reductions– commercial class. Also contributing to the increase in residentialthe real estate and– commercial class was the transition of two large relationships from the real estate – construction loans.loan class as of December 31, 2020 to permanent loan status in the real estate – commercial loan class as of March 31, 2021.
| | | | | | | | | | | | | ||||||||||||||||
(Dollars in thousands) | September 30, | December 31, | Change | | March 31, | | December 31, | | Change |
| ||||||||||||||||||
2017 | 2016 | $ | % | |||||||||||||||||||||||||
|
| 2021 |
| 2020 |
| $ |
| % |
| |||||||||||||||||||
Loans: | | | | | | | | | | | | | ||||||||||||||||
Commercial, financial and agricultural | $ | 48,551 | $ | 40,827 | $ | 7,724 | 18.9 | % |
| $ | 80,884 |
| $ | 73,057 |
| $ | 7,827 |
| 10.7 | % | ||||||||
Real estate - commercial | 134,340 | 123,711 | 10,629 | 8.6 | | | 150,992 | | | 122,698 | | | 28,294 |
| 23.1 | | ||||||||||||
Real estate - construction | 28,145 | 35,206 | (7,061 | ) | (20.1 | ) | | | 40,587 | | | 61,051 | | | (20,464) |
| (33.5) | | ||||||||||
Real estate - mortgage | 147,783 | 154,905 | (7,122 | ) | (4.6 | ) | | | 138,308 | | | 141,438 | | | (3,130) |
| (2.2) | | ||||||||||
Obligations of states and political subdivisions | 13,862 | 13,616 | 246 | 1.8 | | | 19,916 | | | 18,550 | | | 1,366 |
| 7.4 | | ||||||||||||
Personal | 9,935 | 10,032 | (97 | ) | (1.0 | ) | | | 6,320 | | | 5,867 | | | 453 |
| 7.7 | | ||||||||||
Total loans | $ | 382,616 | $ | 378,297 | $ | 4,319 | 1.1 | % |
| $ | 437,007 |
| $ | 422,661 |
| $ | 14,346 |
| 3.4 | % |
A summary of the activity in the allowance for loan losses for each of the ninethree month periods ended September 30, 2017March 31, 2021 and 20162020 is presented below.
| | | | | | | |
(Dollars in thousands) | | Three months ended March 31, |
| ||||
|
| 2021 |
| 2020 |
| ||
Balance of allowance - January 1 |
| $ | 4,094 |
| $ | 2,961 | |
Loans charged off | | | (5) | | | (21) | |
Recoveries of loans previously charged off | | | 46 | | | 37 | |
Net recoveries | | | 41 | | | 16 | |
Provision for loan losses | | | (79) | | | 356 | |
Balance of allowance - end of period |
| $ | 4,056 |
| $ | 3,333 | |
| | | | | | | |
Ratio of net recoveries during period to average loans outstanding | | | (0.01) | % | | 0.00 | % |
(Dollars in thousands) | Periods Ended September 30, | |||||||
2017 | 2016 | |||||||
Balance of allowance - January 1 | $ | 2,723 | $ | 2,478 | ||||
Loans charged off | (260 | ) | (198 | ) | ||||
Recoveries of loans previously charged off | 55 | 42 | ||||||
Net charge-offs | (205 | ) | (156 | ) | ||||
Provision for loan losses | 389 | 366 | ||||||
Balance of allowance - end of period | $ | 2,907 | $ | 2,688 | ||||
Ratio of net charge-offs during period to average loans outstanding | 0.05 | % | 0.04 | % |
Juniata continued to experience favorable asset quality trends and net recoveries during the first quarter of 2021. One loan, in the amount of $4,964,000, placed on payment deferral in accordance with the CARES Act remained in deferment as of March 31, 2021, while all other loans previously placed in deferment resumed contractual debt service. Juniata applied elevated qualitative risk factors to all loan segments in the loan portfolio in its allowance for loan loss analysis in the first quarter of 2021 due to the remaining uncertainty as to the strength of the economy once it fully reopens and the ability of borrowers no longer on payment deferral to continue making payments; however, due to the positive trends noted above and sustained performance of the loan portfolio, the analysis resulted in a provision credit of $79,000 in the first quarter of 2021 compared to a provision expense of $356,000 recorded in the first quarter of 2020.
As of September 30, 2017, 46March 31, 2021, 23 loans (exclusive of loans acquired from FNBPA with existing credit deterioration), with aggregate outstanding balances of $8,719,000$4,107,000 were individually evaluated for impairment. A collateral analysis was performed on each of these 46 loans in order to establish a portion of the reserve needed to carry the impaired loans at no higher than fair value. ThereAs a result of this analysis, two loans, totaling $76,000, were no loans determined to have insufficient collateral thus,at March 31, 2021 requiring the establishment of a specific reserve was not required for any of the impaired loans.reserves totaling $1,000.
As of September 30, 2017,March 31, 2021, there was $40,298,000 inwere $44,516,000 loans classified as special mention loans compared to $30,654,000$40,626,000 at December 31, 2016 and $14,148,0002020, $9,450,000 in substandard loans at March 31, 2021 compared to $18,905,000$9,602,000 at December 31, 2016. Causing some of the variance was a $2.5 million relationship that was upgraded from substandard classification2020, and $78,000 in doubtful loans at March 31, 2021 compared to $86,000 at December 31, 2016 to special mention in 2017. Additionally, there were two relationships totaling $9.1 million that were downgraded to special mention classification in 2017.2020.
40
Management believes that the specific reserves carried are adequate to cover potential futureprobable incurred losses related to these relationships. Other thanrelationships as described herein, Management does not believe thereof March 31, 2021. There are any trends, events or uncertainties that are reasonably expected toabout the lasting effects of the COVID-19 impact on the economy. Such effects could have a material impact on future results of operations if businesses are not able to remain solvent and unemployment remains high. We believe we have sufficient liquidity, or capital resources. Further, based on known information, Management believesand loss allowance reserves to withstand losses that the effects of current and past economic conditions and other unfavorable business conditions may influence certain borrowers’ abilitiesoccur but continue to comply with their repayment terms, and as such, continues toclosely monitor the financial strength of these borrowers closely.
whose ability to comply with repayment terms may become permanently impaired.
The following is a summary of the Bank’s non-performing loans, exclusive of loans acquired with credit deterioration, on September 30, 2017 asMarch 31, 2021 compared to December 31, 2016.2020.
| | | | | | | |
(Dollar amounts in thousands) | | March 31, 2021 | | December 31, 2020 | | ||
Non-performing loans | | | | | | | |
Non-accrual loans | | $ | 335 | | $ | 422 | |
Accruing loans past due 90 days or more | |
| — | |
| 22 | |
Total | | $ | 335 | | $ | 444 | |
| | | | | | | |
Loans outstanding | | $ | 437,007 | | $ | 422,661 | |
| | | | | | | |
Ratio of non-performing loans to loans outstanding | | | 0.08 | % | | 0.11 | % |
(Dollar amounts in thousands) | As of and for the | As of and for the | ||||||
nine months ended | year ended | |||||||
September 30, 2017 | December 31, 2016 | |||||||
Non-performing loans | ||||||||
Non-accrual loans | $ | 3,608 | $ | 4,733 | ||||
Accruing loans past due 90 days or more, exclusive of loans acquired with credit deterioration | 221 | 554 | ||||||
Non-accruing restructured loans in default | 21 | 25 | ||||||
Total | $ | 3,850 | $ | 5,312 | ||||
Average loans outstanding | 385,623 | 379,177 | ||||||
Ratio of non-performing loans to average loans outstanding | 1.00 | % | 1.40 | % |
Total non-performing loans as of March 31, 2021 decreased $109,000 over total non-performing loans as of December 31, 2020. The change was primarily due to foreclosure upon a non-accrual loan during the first quarter of 2021, which reduced non-performing loans by $61,000.
Stockholders’ equity increaseddecreased from December 31, 20162020 to September 30, 2017March 31, 2021 by $1,358,000,$4,023,000, or 2.3%. The Company’s net income exceeded dividends paid by $814,000. The adjustment5.3%, mainly due to accumulated other comprehensive loss to record the amortization of the net actuarial loss of the Company’s defined benefit retirement plan increased the Company’s equity by $112,000. The change in unrealized gainslosses resulting from both the change in market value of debt securities available for sale and from the unconsolidated subsidiary increased shareholders’ equity by $258,000 when comparing September 30, 2017 to December 31, 2016. Stock based compensation expense recorded pursuant to the Company’s Stock Option Plan added $54,000 to stockholders’ equity during the nine month period, and payments for exercised stock options and the Employee Stock Purchase Plan added $172,000 and $34,000, respectively. Treasury stock purchases during the nine months ended September 30, 2017 decreased stockholders’ equity by $86,000.
sale.
Subsequent to September 30, 2017,March 31, 2021, the following eventsevent took place:
On October 17, 2017,April 20, 2021, the Board of Directors declared a cash dividend of $0.22 per share to shareholders of record on November 15, 2017,May 17, 2021, payable on DecemberJune 1, 2017.2021.
41
On October 5, 2017, the Company purchased a group annuity to satisfy defined benefit obligations to a groupTable of its retirees. The transaction resulted in settlement charges of $377,000.Contents
Comparison of the Three Months Ended September 30, 2017March 31, 2021 and 20162020
Operations Overview:
Net income for the thirdfirst quarter of 20172021 was $1,206,000, a decrease$1,635,000, an increase of $241,000, or 16.7%,$597,000 when compared to the thirdfirst quarter of 2016. The decrease was primarily due to the recognition of life insurance proceeds of $364,000 in the third quarter of 2016; no similar recognition occurred in the corresponding 2017 period.2020. Basic and diluted earnings per share were $0.25$0.33 in the thirdfirst quarter of 20172021 compared to $0.30basic and diluted earnings per share of $0.20 in the thirdfirst quarter of 2016. 2020.
Annualized return on average equity for the three months ended March 31, 2021 was 8.68%, compared to the return on average equity of 5.54% for the same period in 2020. For the three months ended March 31, annualized return on average assets was 0.82% in 2021, compared to 0.62% in 2020.
Presented below are selected key ratios for the two periods:
| | | | | | |
| | Three Months Ended | | |||
| | March 31, | | |||
|
| 2021 |
| | 2020 |
|
Return on average assets (annualized) |
| 0.82 | % | | 0.62 | % |
Return on average equity (annualized) |
| 8.68 | % | | 5.54 | % |
Average equity to average assets | | 9.48 | % | | 11.28 | % |
Non-interest income, excluding gain/loss on sales and calls of securities and change in value of equity securities, as a percentage of average assets (annualized) |
| 0.59 | % | | 0.70 | % |
Non-interest expense as a percentage of average assets (annualized) |
| 2.31 | % | | 2.87 | % |
Three Months Ended | ||||||||
September 30, | ||||||||
2017 | 2016 | |||||||
Return on average assets (annualized) | 0.81 | % | 1.02 | % | ||||
Return on average equity (annualized) | 8.00 | % | 9.35 | % | ||||
Average equity to average assets | 10.10 | % | 10.87 | % | ||||
Non-interest income, excluding securities gains, as a percentage of average assets (annualized) | 0.82 | % | 1.10 | % | ||||
Non-interest expense as a percentage of average assets (annualized) | 2.97 | % | 3.04 | % |
The discussion that follows further explains changes in the components of net income when comparing the thirdfirst quarter of 20172021 with the thirdfirst quarter of 2016.2020.
Net Interest Income:
Net interest income, after the provision for loan losses, was $4,705,000$5,022,000 during the three months ended March 31, 2021 when compared to $4,645,000 during the three months ended March 31, 2020. A $79,000 loan loss provision credit was recorded for the thirdthree months ended March 31, 2021 while a $356,000 loan loss provision expense was recorded for the three months ended March 31, 2020, a decrease of $435,000 between periods. The decline was mainly the result of continued improvement in asset quality and net recoveries. Total interest income decreased by $303,000 during the first quarter of 2017, as2021 compared to $4,488,000 in the same quarterperiod in 2016. 2020, while total interest expense decreased by $245,000.
Overall, average earning assets increased 5.6%21.5%, while average interest bearing liabilities increased 7.0%21.8%. NetThe net interest margin, on a fully tax equivalent basis, declined 3 basis pointsdecreased from 3.32% during the three months ended September 30, 2017March 31, 2020 to 2.71% during the three months ended March 31, 2021.
Average loan balances increased by $39,555,000, while interest on loans declined by $101,000 during for the first quarter of 2021 compared to the same period in 2016.
Average loan balances increased by $11,565,000, or 3.1%, and interest on loans was $251,000 higher in the third quarter of 2017 compared to the same period in 2016.2020. The increase in the average volume of loans outstanding and the 13 basis point increase in the weighted average yield on loans increased interest income by approximately $144,000 and $107,000, respectively.
Interest earned on investment securities increased $151,000 in$495,000, while the third quarter of 2017 as compared to the third quarter of 2016. The overall pre-tax yield on the investment securities portfolio increased during the period by 16 basis points, adding $67,000 toloans decreased interest income while theby $596,000.
The average balance of investment securities increased $88,521,000, while interest earned on investment securities declined by $17.8 million, adding $84,000$152,000 in the first quarter of 2021 compared to the first quarter of 2020. The increase in average balance on investment securities during the period increased interest income.income by $519,000, while the decline in yield on investment securities decreased interest income by $671,000.
42
Total averageTable of Contents
Average earning assets increased $130,928,000, to $740,892,000, when comparing the three months ended March 31, 2021 to the three months ended March 31, 2020 due to a 43.3% increase in average investment securities, as well as a 10.1% increase in average loans. The yield on earning assets declined to 3.15% during the third quarter of 2017 were $548.3 million, compared to $519.1 millionthree months ended March 31, 2021 from 4.02% during the third quartersame period in 2020. The average balance of 2016, yielding 3.98% and 3.89%, respectively. Average interest bearing liabilities increased over the period by $27.6 million,$97,684,000 compared to the same 2020 period, while average non-interest bearing deposits increased by $1.6 million. Thethe cost to fund interest earningbearing assets with interest bearing liabilities increased by 15decreased 36 basis points, to 0.71%, in0.65% during the thirdfirst quarter of 20172021 compared to the thirdsame period in 2020. The yields on earning assets and cost of funds were affected by changes in interest rates between the first quarter of 2016.2021 and the first quarter of 2020.
Net43
The table below shows the net interest margin on a fully tax-equivalent basis for the third quarter of 2017 was 3.56%, while it was 3.59% for the same period in 2016.three months ended March 31, 2021 and 2020.
Average Balance Sheets and Net Interest Income Analysis
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Three Months Ended | | | | | | | | | | ||||||||||||
(Dollars in thousands) | | March 31, 2021 | | March 31, 2020 | | Increase (Decrease) Due To (6) | |||||||||||||||||||
| | Average | | | | | Yield/ | | Average | | | | | Yield/ | | | | | | | | | | ||
|
| Balance(1) |
| Interest |
| Rate |
| Balance(1) |
| Interest |
| Rate |
| Volume |
| Rate |
| Total | |||||||
ASSETS | | |
| | |
| |
| | |
| | |
| |
| | |
| | |
| | |
|
Interest earning assets: |
| |
|
| |
|
|
|
| |
|
| |
|
|
|
| |
|
| |
|
| |
|
Taxable loans (5) | | $ | 398,664 | | $ | 4,543 |
| 4.56 | % | $ | 361,850 | | $ | 4,651 |
| 5.14 | % | $ | 473 | | $ | (581) |
| $ | (108) |
Tax-exempt loans | |
| 31,404 | |
| 234 |
| 2.98 | |
| 28,663 | |
| 227 |
| 3.17 | |
| 22 | |
| (15) |
|
| 7 |
Total loans | |
| 430,068 | |
| 4,777 |
| 4.44 | |
| 390,513 | |
| 4,878 |
| 5.00 | |
| 495 | |
| (596) |
|
| (101) |
Taxable investment securities | |
| 286,778 | |
| 1,006 |
| 1.40 | |
| 200,322 | |
| 1,173 |
| 2.34 | |
| 508 | |
| (675) |
|
| (167) |
Tax-exempt investment securities | |
| 6,302 | |
| 38 |
| 2.41 | |
| 4,237 | |
| 23 |
| 2.17 | |
| 11 | |
| 4 |
|
| 15 |
Total investment securities | |
| 293,080 | |
| 1,044 |
| 1.42 | |
| 204,559 | |
| 1,196 |
| 2.34 | |
| 519 | |
| (671) |
|
| (152) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Interest bearing deposits | |
| 10,855 | |
| 5 |
| 0.19 | |
| 9,419 | |
| 42 |
| 1.78 | |
| 6 | |
| (43) |
|
| (37) |
Federal funds sold | |
| 6,889 | |
| 0 |
| 0.02 | |
| 5,473 | |
| 13 |
| 0.95 | |
| 3 | |
| (16) |
|
| (13) |
Total interest earning assets | |
| 740,892 | |
| 5,826 |
| 3.15 | |
| 609,964 | |
| 6,129 |
| 4.02 | |
| 1,023 | |
| (1,326) |
|
| (303) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Other assets (7) | |
| 53,987 | |
|
|
|
| |
| 54,438 | |
|
|
|
| |
|
| |
|
|
|
|
|
Total assets | | $ | 794,879 | |
|
|
|
| | $ | 664,402 | |
|
|
|
| |
|
| |
|
|
|
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | |
|
| |
|
|
|
| |
|
| |
|
|
|
| |
|
| |
|
|
|
|
|
Interest bearing liabilities: | |
|
| |
|
|
|
| |
|
| |
|
|
|
| |
| | |
|
|
|
|
|
Interest bearing demand deposits (2) | | $ | 182,591 | |
| 68 |
| 0.15 | | $ | 147,316 | |
| 164 |
| 0.45 | | $ | 32 | | $ | (128) |
| $ | (96) |
Savings deposits | |
| 129,408 | |
| 16 |
| 0.05 | |
| 98,916 | |
| 25 |
| 0.10 | |
| 8 | |
| (17) |
|
| (9) |
Time deposits | |
| 153,161 | |
| 535 |
| 1.40 | |
| 150,980 | |
| 641 |
| 1.70 | |
| 16 | |
| (122) |
|
| (106) |
Short-term and long-term borrowings and other interest bearing liabilities | |
| 80,676 | |
| 264 |
| 1.31 | |
| 50,940 | |
| 298 |
| 2.34 | |
| 273 | |
| (307) |
|
| (34) |
Total interest bearing liabilities | |
| 545,836 | |
| 883 |
| 0.65 | |
| 448,152 | |
| 1,128 |
| 1.01 | |
| 329 | |
| (574) |
|
| (245) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Non-interest bearing liabilities: | |
|
| |
|
|
|
| |
|
| |
|
|
|
| |
|
| |
|
|
|
|
|
Demand deposits | |
| 168,866 | |
|
|
|
| |
| 136,328 | |
|
|
|
| |
| | |
|
|
|
|
|
Other | |
| 4,825 | |
|
|
|
| |
| 4,977 | |
|
|
|
| |
| | |
|
|
|
|
|
Stockholders’ equity | |
| 75,352 | |
|
|
|
| |
| 74,945 | |
|
|
|
| |
| | |
|
|
|
|
|
Total liabilities and stockholders’ equity | | $ | 794,879 | |
|
|
|
| | $ | 664,402 | |
|
|
|
| | | | |
|
|
|
|
|
Net interest income and net interest rate spread | |
|
| | $ | 4,943 |
| 2.50 | % |
|
| | $ | 5,001 |
| 3.01 | % | $ | 694 | | $ | (752) |
| $ | (58) |
Net interest margin on interest earning assets (3) | |
|
| |
|
|
| 2.67 | % |
|
| |
|
|
| 3.28 | % |
|
| |
| |
|
| |
Net interest income and net interest margin - Tax equivalent basis (4) | |
|
| | $ | 5,016 |
| 2.71 | % |
|
| | $ | 5,067 |
| 3.32 | % |
|
| | | | | | |
Three Months Ended | Three Months Ended | |||||||||||||||||||||||||||||||||||
(Dollars in thousands) | September 30, 2017 | September 30, 2016 | ||||||||||||||||||||||||||||||||||
Average | Yield/ | Average | Yield/ | Increase (Decrease) Due To (6) | ||||||||||||||||||||||||||||||||
Balance (1) | Interest | Rate | Balance (1) | Interest | Rate | Volume | Rate | Total | ||||||||||||||||||||||||||||
ASSETS | ||||||||||||||||||||||||||||||||||||
Interest earning assets: | ||||||||||||||||||||||||||||||||||||
Taxable loans (5) | $ | 358,478 | $ | 4,381 | 4.89 | % | $ | 348,305 | $ | 4,133 | 4.75 | % | $ | 138 | $ | 110 | $ | 248 | ||||||||||||||||||
Tax-exempt loans | 29,737 | 226 | 3.04 | 28,345 | 223 | 3.13 | 6 | (3 | ) | 3 | ||||||||||||||||||||||||||
Total loans | 388,215 | 4,607 | 4.75 | 376,650 | 4,356 | 4.62 | 144 | 107 | 251 | |||||||||||||||||||||||||||
Taxable investment securities | 135,104 | 729 | 2.16 | 119,693 | 590 | 1.97 | 74 | 65 | 139 | |||||||||||||||||||||||||||
Tax-exempt investment securities | 24,454 | 112 | 1.83 | 22,071 | 100 | 1.81 | 10 | 2 | 12 | |||||||||||||||||||||||||||
Total investment securities | 159,558 | 841 | 2.11 | 141,764 | 690 | 1.95 | 84 | 67 | 151 | |||||||||||||||||||||||||||
Interest bearing deposits | 530 | 9 | 6.79 | 657 | 3 | 1.82 | (6 | ) | 12 | 6 | ||||||||||||||||||||||||||
Federal funds sold | - | - | 65 | - | 0.61 | - | - | - | ||||||||||||||||||||||||||||
Total interest earning assets | 548,303 | 5,457 | 3.98 | 519,136 | 5,049 | 3.89 | 222 | 186 | 408 | |||||||||||||||||||||||||||
Other assets (7) | 49,289 | 50,302 | ||||||||||||||||||||||||||||||||||
Total assets | $ | 597,592 | $ | 569,438 | ||||||||||||||||||||||||||||||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||||||||||||||||||||||||||||||
Interest bearing liabilities: | ||||||||||||||||||||||||||||||||||||
Interest bearing demand deposits (2) | $ | 126,149 | 114 | 0.36 | $ | 123,629 | 68 | 0.22 | $ | 1 | $ | 45 | $ | 46 | ||||||||||||||||||||||
Savings deposits | 100,323 | 26 | 0.10 | 97,861 | 24 | 0.10 | 1 | 1 | 2 | |||||||||||||||||||||||||||
Time deposits | 140,859 | 421 | 1.20 | 138,913 | 369 | 1.06 | (2 | ) | 54 | 52 | ||||||||||||||||||||||||||
Short-term and long-term borrowings and other interest bearing liabilities | 55,653 | 191 | 1.37 | 34,983 | 100 | 1.14 | 73 | 18 | 91 | |||||||||||||||||||||||||||
Total interest bearing liabilities | 422,984 | 752 | 0.71 | 395,386 | 561 | 0.56 | 73 | 118 | 191 | |||||||||||||||||||||||||||
Non-interest bearing liabilities: | ||||||||||||||||||||||||||||||||||||
Demand deposits | 107,494 | 105,847 | ||||||||||||||||||||||||||||||||||
Other | 6,787 | 6,583 | ||||||||||||||||||||||||||||||||||
Stockholders' equity | 60,327 | 61,622 | ||||||||||||||||||||||||||||||||||
Total liabilities and stockholders' equity | $ | 597,592 | $ | 569,438 | ||||||||||||||||||||||||||||||||
Net interest income and net interest rate spread | $ | 4,705 | 3.27 | % | $ | 4,488 | 3.33 | % | $ | 149 | $ | 68 | $ | 217 | ||||||||||||||||||||||
Net interest margin on interest earning assets (3) | 3.43 | % | 3.46 | % | ||||||||||||||||||||||||||||||||
Net interest income and net interest margin-Tax equivalent basis (4) | $ | 4,879 | 3.56 | % | $ | 4,654 | 3.59 | % |
Notes:
1) Average balances were calculated using a daily average.
2) Includes interest-bearing demand and money market accounts.
3) Net margin on interest earning assets is net interest income divided by average interest earning assets.
4)
1) | Average balances were calculated using a daily average. |
2) | Includes interest-bearing demand and money market accounts. |
3) | Net margin on interest earning assets is net interest income divided by average interest earning assets. |
4) | Interest on obligations of states and municipalities is not subject to federal income tax. In order to make the net yield comparable on a fully taxable basis, a tax equivalent adjustment is applied against the tax-exempt income utilizing a federal tax rate of 21%. |
5) | Non-accruing loans are included in the above table until they are charged off. |
6) | The change in interest due to rate and volume has been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amounts of the change in each. |
7) | Includes gross unrealized gains (losses) on securities available for sale. |
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5) Non-accruing loans are included in the above table until they are charged off.
6) The change in interest due to rate and volume has been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amounts of the change in each.
7) Includes gross unrealized gains (losses) on securities available for sale.
Provision for Loan Losses:
In the thirdfirst quarter of 2017, the2021, a $79,000 loan loss provision for loan lossescredit was $149,000, asrecorded, compared to a provision expense of $132,000$356,000 in the thirdfirst quarter of 2016.2020. Based on an analysis of the allowance of loan losses as of March 31, 2021, the decreased provision was primarily the result of continued improvement in asset quality trends and net recoveries. Management regularly reviews the adequacy of the allowance for loan loss reservelosses and makes assessments as to specific loan impairment, historical charge-off expectations, general economic conditions in the Bank’s market area, specific loan quality and other factors. Factors affecting the provision for loan losses were the increased loan balances considered in the analysis and credit concentrations. See the earlier discussion in the Financial Condition section, explaining the information used to determine the provision.
Non-interest Income:
Non-interest income in the third quarter of 2017 was $1,219,000 compared to $1,571,000 in the third quarter of 2016, representing a decrease of $352,000, or 22.4%.
Most significantly impacting the comparative third quarter periods was $364,000 in life insurance proceeds recognized in 2016. Excluding securities gains and life insurance proceeds, non-interest income in the third quarters of 2017 and 2016 were $1,217,000 and $1,201,000, respectively, reflecting a 1.3% increase in the 2017 period.
The Company originates mortgages to sell on the secondary market, while retaining the servicing rights; the Company has built a servicing portfolio of approximately $23.4 million as of September 30, 2017. The mortgage servicing right asset, as of September 30, 2017, was $223,000. Mortgage banking income is made up of origination and servicing fees collected from the buyer, origination points collected from the borrower and an adjustment to the fair value of the mortgage servicing rights asset. In the third quarter of 2017, mortgage banking income was $83,000, an increase of $42,000, or 102.4%, from the third quarter of 2016, due to increased mortgage activity.
Customer service fees decreased $43,000, or 9.1%, in the third quarter of 2017, and bank-owned life insurance decreased by $14,000, or 13.1%, compared to the third quarter of 2016. Offsetting these declines were increases in fees derived from loan and trust activity, which grew 32.8% and 15.5%, respectively. Less significant changes in non-interest income categories included slight changes in debit card fee income, income from unconsolidated subsidiary, and other miscellaneous income.
As a percentage of average assets, annualized non-interest income, exclusive of net gains on the sale of securities, was 0.82% in the third quarter of 2017 as compared to 1.10% in the third quarter of 2016. Excluding proceeds from life insurance, the ratio for the third quarter of 2016 was 0.84%
Non-interest Expense:
Total non-interest expense for the third quarter of 2017 was $4,442,000 which was $112,000, or 2.6%, higher than the third quarter of 2016. The increase was primarily due to the addition of $53,000 in amortization expense in the third quarter of 2017 related to an increase in the investment in a low-income housing community project and an increase of $57,000 in consulting fees and other costs to maintain employee benefits. Foreclosure costs also increased in the three months ended September 30, 2017 over the comparable 2016 period by $16,000.
Noninterest expense decreases in the third quarter of 2017 were recorded in data processing expense, which was $53,000, or 10.8%, less than the third quarter of 2016, with the loss on the sales of foreclosed properties also decreasing by $31,000, or 62.0%, in the 2017 period in comparison to the 2016 period.
As a percentage of average assets, annualized non-interest expense was 2.97% in the third quarter of 2017 compared to 3.04% in the third quarter of 2016.
Provision for income taxes:
Income tax expense in the third quarter of 2017 was $127,000 as compared to the $150,000 recorded in the third quarter of 2016. The Company qualifies for a federal tax credit for a low-income housing project investment, and the tax provisions for each period reflect the application of the tax credit. For the third quarter of 2017, the tax credit of $198,000 lowered the effective tax rate from 24.4% to 9.5%. In the third quarter of 2016, the tax credit of $143,000 lowered the effective tax rate from 18.3% to 9.4%.
Comparison of the Nine Months Ended September 30, 2017 and 2016
Operations Overview:
Net income for the nine months ended September 30, 2017 was $3,959,000, an increase of $105,000, or 2.7%, compared to the nine months ended September 30, 2016. Basic and diluted earnings per share were $0.83 in the first nine months of 2017, representing an increase of 3.8% from the $0.80 per share earned in the first nine months of 2016. Annualized return on average equity for the first nine months in 2017 was 8.81%, compared to 8.38% for the same period in the prior year, an increase of 5.1%. For the nine months ended September 30, annualized return on average assets was 0.89% in both 2017 and 2016.
Presented below are selected key ratios for the two periods:
Nine Months Ended | ||||||||
September 30, | ||||||||
2017 | 2016 | |||||||
Return on average assets (annualized) | 0.89 | % | 0.89 | % | ||||
Return on average equity (annualized) | 8.81 | % | 8.38 | % | ||||
Average equity to average assets | 10.11 | % | 10.67 | % | ||||
Non-interest income, excluding securities gains, as a percentage of average assets (annualized) | 0.81 | % | 0.92 | % | ||||
Non-interest expense as a percentage of average assets (annualized) | 2.91 | % | 3.01 | % |
The discussion that follows explains changes in the components of net income when comparing the first nine months of 2017 with the first nine months of 2016.
Net Interest Income:
Net interest income was $13,898,000 for the first nine months of 2017, as compared to $13,648,000 for the same period in 2016, an increase of $250,000, or 1.8%. Average earning assets increased by $18.9 million, or 3.6%, while average interest bearing liabilities increased by $16.3 million, or 4.0%. Net interest margin on a fully tax-equivalent basis declined 6 basis points during the nine months ended September 30, 2017 compared to the same period in 2016.
On average, loans outstanding increased by $7.8 million, or 2.1%. Interest on loans increased $336,000, or 2.6%, in the first nine months of 2017 compared to the same period in 2016. The higher volume and weighted average yield on loans increased interest income by $125,000 and $211,000, respectively..
Interest earned on investment securities increased $323,000 in the first nine months of 2017 compared to 2016, with average balances increasing $12.4 million during the period. The overall pre-tax yield on the investment securities portfolio increased during the period by 12 basis points.
Average interest-bearing liabilities increased by $16.3 million, while average noninterest bearing deposits increased $1.1 million during the nine months ended September 30, 2017. The cost of interest bearing liabilities rose 10 basis points as a result of increases in the federal funds borrowing rate in the current period.
Total average earning assets during the first nine months of 2017 were $545.0 million, compared to $526.0 million during the first nine months of 2016, yielding 3.91% in 2017 and 3.88% in the 2016 period. Interest bearing funding costs for earning assets were 0.66% and 0.56% for the first nine months of 2017 and 2016, respectively. Net interest margin on a fully tax-equivalent basis for the first nine months of 2017 was 3.53%. For the same period in 2016, the fully-tax equivalent net interest margin was 3.59%.
Average Balance Sheets and Net Interest Income Analysis
Nine Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||||||
(Dollars in thousands) | September 30, 2017 | September 30, 2016 | ||||||||||||||||||||||||||||||||||
Average | Yield/ | Average | Yield/ | Increase (Decrease) Due To (6) | ||||||||||||||||||||||||||||||||
Balance (1) | Interest | Rate | Balance (1) | Interest | Rate | Volume | Rate | Total | ||||||||||||||||||||||||||||
ASSETS | ||||||||||||||||||||||||||||||||||||
Interest earning assets: | ||||||||||||||||||||||||||||||||||||
Taxable loans (5) | $ | 354,753 | $ | 12,798 | 4.81 | % | $ | 347,183 | $ | 12,479 | 4.79 | % | $ | 133 | $ | 186 | $ | 319 | ||||||||||||||||||
Tax-exempt loans | 30,870 | 693 | 2.99 | 30,671 | 676 | 2.94 | (8 | ) | 25 | 17 | ||||||||||||||||||||||||||
Total loans | 385,623 | 13,491 | 4.66 | 377,854 | 13,155 | 4.64 | 125 | 211 | 336 | |||||||||||||||||||||||||||
Taxable investment securities | 133,694 | 2,128 | 2.12 | 122,526 | 1,831 | 1.99 | 110 | 187 | 297 | |||||||||||||||||||||||||||
Tax-exempt investment securities | 25,093 | 340 | 1.81 | 23,869 | 314 | 1.75 | 10 | 16 | 26 | |||||||||||||||||||||||||||
Total investment securities | 158,787 | 2,468 | 2.07 | 146,395 | 2,145 | 1.95 | 120 | 203 | 323 | |||||||||||||||||||||||||||
Interest bearing deposits | 556 | 20 | 4.80 | 884 | 10 | 1.51 | (5 | ) | 15 | 10 | ||||||||||||||||||||||||||
Federal funds sold | - | - | 902 | 3 | 0.44 | (1 | ) | (2 | ) | (3 | ) | |||||||||||||||||||||||||
Total interest earning assets | 544,966 | 15,979 | 3.91 | 526,035 | 15,313 | 3.88 | 239 | 427 | 666 | |||||||||||||||||||||||||||
Other assets (7) | 47,949 | 48,336 | ||||||||||||||||||||||||||||||||||
Total assets | $ | 592,915 | $ | 574,371 | ||||||||||||||||||||||||||||||||
LIABILITIES AND | ||||||||||||||||||||||||||||||||||||
STOCKHOLDERS' EQUITY | ||||||||||||||||||||||||||||||||||||
Interest bearing liabilities: | ||||||||||||||||||||||||||||||||||||
Interest bearing demand deposits (2) | $ | 123,580 | 281 | 0.30 | $ | 121,858 | 186 | 0.20 | $ | 1 | $ | 94 | $ | 95 | ||||||||||||||||||||||
Savings deposits | 99,502 | 74 | 0.10 | 97,415 | 78 | 0.11 | 1 | (5 | ) | (4 | ) | |||||||||||||||||||||||||
Time deposits | 139,343 | 1,200 | 1.15 | 139,966 | 1,086 | 1.04 | (14 | ) | 128 | 114 | ||||||||||||||||||||||||||
Short-term and long-term borrowings and other interest bearing liabilities | 57,087 | 526 | 1.23 | 41,375 | 315 | 1.02 | 71 | 140 | 211 | |||||||||||||||||||||||||||
Total interest bearing liabilities | 419,512 | 2,081 | 0.66 | 403,257 | 1,665 | 0.56 | 59 | 357 | 416 | |||||||||||||||||||||||||||
Non-interest bearing liabilities: | ||||||||||||||||||||||||||||||||||||
Demand deposits | 107,136 | 106,042 | ||||||||||||||||||||||||||||||||||
Other | 6,340 | 6,410 | ||||||||||||||||||||||||||||||||||
Stockholders' equity | 59,927 | 61,305 | ||||||||||||||||||||||||||||||||||
Total liabilities and stockholders' equity | $ | 592,915 | $ | 574,371 | ||||||||||||||||||||||||||||||||
Net interest income and net interest rate spread | $ | 13,898 | 3.25 | % | $ | 13,648 | 3.32 | % | $ | 180 | $ | 70 | $ | 250 | ||||||||||||||||||||||
Net interest margin on interest earning assets (3) | 3.40 | % | 3.46 | % | ||||||||||||||||||||||||||||||||
Net interest income and net interest margin-Tax equivalent basis (4) | $ | 14,430 | 3.53 | % | $ | 14,158 | 3.59 | % |
Notes:
1) Average balances were calculated using a daily average.
2) Includes interest-bearing demand and money market accounts.
3) Net margin on interest earning assets is net interest income divided by average interest earning assets.
4) Interest on obligations of states and municipalities is not subject to federal income tax. In order to make the net yield comparable on a fully taxable basis, a tax equivalent adjustment is applied against the tax-exempt income utilizing a federal tax rate of 34%.
5) Non-accruing loans are included in the above table until they are charged off.
6) The change in interest due to rate and volume has been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amounts of the change in each.
7) Includes gross unrealized gains (losses) on securities available for sale.
Provision for Loan Losses:
In the first nine months of 2017, the provision for loan losses was $389,000, as compared to a provision of $366,000 in the first nine months of 2016. Management regularly reviews the adequacy of the loan loss reserve and makes assessments as to specific loan impairment, historical charge-off expectations, general economic conditions in the Bank’s market area, specific loan quality and other factors. See the earlier discussion in the Financial Condition section explaining the information used to determine the provision.
Non-interest Income:
Non-interest income in the first nine monthsquarter of 20172021 was $4,091,000, a decrease of $4,000, or 0.1%,$1,272,000 compared to $4,095,000$994,000 in the first nine monthsquarter of 2016. Significantly2021, an increase of $278,000, or 28.0%.
Most significantly impacting non-interest income comparisons between the two periods were securities gains of $510,000 from an executed tax strategy during the first nine monthscomparative three month periods was the increase in the value of 2017 and gains onequity securities and loans of $134,000 and $113,000, respectively, during the same period in 2016. Also significantly impacting the nine month comparison was a gain on life insurance proceeds of $364,000 recorded$93,000 in the first nine monthsquarter of 2016; no similar recognition occurred2021 compared to a decrease in the corresponding 2017 period. Excluding all gains, non-interest incomevalue of equity securities of $172,000 in the first nine monthsquarter of 2017 was $3,581,000,2020, as well as an $89,000 increase over the same period in 2016 by $97,000, or 2.8%.
Mortgage banking income increased $64,000, or 60.4%, during the nine months ended September 30, 2017 compared to same period in 2016. Debitdebit card fee income also increased over the same period in 2016, increasing $55,000, or 7.2%, during the first nine months of 2017 compared to the same period in 2016.income. Partially offsetting these increases were lower volumes of sales of non-deposit products resulting inwas a $90,000 decline in commission income in of $41,000, or 22.7%, during the first nine months of 2017. Less significant changes in non-interest income categories included slight changes in customer service fees earnings on bank-owned life insurance, trust fees, income from unconsolidated subsidiary, fees derived from loan activity, and other non-interest income, combining for an increase in non-interest income of $19,000 in the first nine monthsquarter of 20172021 compared to the same time period in 2016.
comparable 2020 period.
As a percentage of average assets, annualized non-interest income excluding all gains, was 0.81%0.64% in the first nine monthsquarter of 2017 and 2016.
Non-interest Expense:
Total non-interest expense was $12,940,000 for the first nine months of 2017, a $16,000, or 0.1%, decrease in comparison2021 compared to the first nine months of 2016. Expenses of $372,000, related to the aforementioned FNBPA acquisition were recorded0.60% in the first nine monthsquarter of 2016 while no such expenses were incurred2020. Excluding the gain/loss on sales and calls of securities and change in value of equity securities, the percentage of average assets to annualized non-interest income was 0.59% in the 2017 period. Excludingfirst quarter of 2021 compared to 0.70% in the merger and acquisition expenses, non-interestfirst quarter of 2020.
Non-interest Expense:
Non-interest expense was $4,588,000 for the first ninethree months of 2016 was $12,584,000, or 2.8%, less thanended March 31, 2021 compared to $4,760,000 for the comparablesame period in 2017. The increase2020, a decrease of $172,000, or 3.6%.
Non-interest expense decreased in non-interest expense in 2017 was partially attributable to an increase in employee benefit expensethe first quarter of $103,000 relating to an increase in medical insurance claims year-to-date in 20172021 compared to the same period in 2016, as well as an increase2020, primarily driven by a decline of $53,000$183,000 in amortizationemployee benefits expense fromdue to lower medical claims expenses. Also contributing to the increased investmentdecline in a low-income housing community project. Other non-interest expense increased 18.8% during the nine months ended September 30, 2017 compared to the same period in 2016. Contributing to this increasebetween periods was an increase in electronic banking losses of $85,000 primarily due to fraudulent debit card transactions and increased consulting fees. Other significant variancesa $49,000 gain on other real estate owned recorded in the first nine monthsquarter of 2017 versus2021 while no gain was reported in the same period in 2016 included an increase in net gains on sales of foreclosed properties of $82,000 andcomparable 2020, as well a $45,000 decrease in FDIC premiumsequipment expense. Partially offsetting these declines during the three months ended March 31, 2021 compared to the comparative 2020 period was an $82,000 increase in data processing expense, predominantly due to improved asset quality.
expenses associated with Juniata’s new online deposit account opening platform launched in the fourth quarter of 2020.
As a percentage of average assets, annualized non-interest expense was 2.91%2.31% in the first nine monthsquarter of 20172021 compared to 3.01%2.87% in the first nine monthsquarter of 2016. Excluding merger and acquisition expenses, annualized non-interest2020.
Provision for income taxes:
Income tax expense as a percentage of average assets$71,000 was 2.92%recorded in the first nine monthsquarter of 2016.
Provision for2021 compared to an income taxes:
Incometax benefit of $159,000 recorded in the first quarter of 2020, primarily due to higher taxable income recorded in the 2021 period. Additionally, under the provisions of the CARES Act, the Company recorded a tax refund in excess of its deferred tax carrying value, resulting in a $57,000 credit to income tax expense in the first nine monthsquarter of 2017 was $701,000 as compared to the $567,000 recorded in the first nine months of 2016. 2020.
The Company qualifies for a federal tax credit for itsa low-income housing project investment, and the tax provisions for each period reflect the application of the tax credit. TheFor the first quarters of 2021 and 2020, the tax credit recordedcredits were $225,000 in each of the first nine months periods, of 2017offsetting $296,000 and 2016 was $484,000 and $429,000, respectively, offsetting $1,185,000$66,000 in regular tax expense in the 2017 periodfirst quarter of 2021 and $996,000the first quarter of regular tax expense in the 2016 period.
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2020, respectively. For the first nine monthsquarter of 2017,2021, the tax credit lowered the effective tax rate from 25.4%17.4% to 15.0% as4.2% compared to the same period in 2016, in which2020, when the tax credit lowered the effective tax rate from 22.5%7.5% to 12.8%(18.1)%.
Liquidity:
The objective of liquidity management is to ensure that sufficient funding is available, at a reasonable cost, to meet the ongoing operational cash needs of the Company and to take advantage of income producing opportunities as they arise. While the desired level of liquidity will vary depending upon a variety of factors, it is the primary goal of the Company to maintain a high level of liquidity in all economic environments. Principal sources of asset liquidity are provided by loans and securities maturing in one year or less, and other short-term investments, such as federal funds sold and cash and due from banks. Liability liquidity, which is more difficult to measure, can be met by attracting deposits and maintaining the core deposit base. The Company is a member of the Federal Home Loan Bank of Pittsburgh for the purpose of providing short-term liquidity when other sources are unable to fill these needs. During the first ninethree months of 2017,ended March 31, 2021, the Company did not borrow overnight borrowings from the Federal Home Loan Bank averaged $26,067,000.Bank. As of September 30, 2017,March 31, 2021, the Company also had no short-term borrowings, andbut had $35,000,000 in long-term debt with the Federal Home Loan Bank of $27,500,000 and $25,000,000, respectively, and hadwith a remaining unused borrowing capacity with the Federal Home Loan Bank of $110.6 million.
$110,691,000.
Funding derived from securities sold under agreements to repurchase (accounted for as collateralized financing transactions) is available through corporate cash management accounts for business customers. This product gives the Company the ability to pay interest on corporate checking accounts.
In view of the sources previously mentioned, management believes that the Company'sCompany’s liquidity is capable of providing the funds needed to meet operational cash needs.needs, including the cash needs arising from funding of PPP loans.
Off-Balance Sheet Arrangements:
The Company’s consolidated financial statements do not reflect various off-balance sheet arrangements that are made in the normal course of business, which may involve some liquidity risk, credit risk, and interest rate risk. These commitments consist mainly of loans approved but not yet funded, unused lines of credit and outstanding letters of credit. Letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third-party. Generally, financial and performance letters of credit have expiration dates within one year of issuance, while commercial letters of credit have longer term commitments. The credit risk involved in issuing letters of credit is essentially the same as the risks that are involved in extending loan facilities to customers. The Company generally holds collateral and/or personal guarantees supporting these commitments. The Company had $2,097,000$3,991,000 and $2,300,000$2,371,000 of financial and performance letters of credit commitments outstanding as of September 30, 2017March 31, 2021 and December 31, 2016,2020, respectively. Commercial letters of credit as of September 30, 2017March 31, 2021 and December 31, 20162020 totaled $12,650,000.$7,475,000 and $6,975,000, respectively. Management believes that the proceeds obtained through a liquidation of collateral and the enforcement of guarantees would be sufficient to cover the potential amount of future payments required under the corresponding guarantees. The current amount of the liability as of September 30, 2017March 31, 2021 for payments under letters of credit issued was not material. Because these instruments have fixed maturity dates, and because many of them will expire without being drawn upon, they do not generally present any significant liquidity risk.
Additionally, the Company has committed to fund and sellsold qualifying residential mortgage loans to the Federal Home Loan BankFHLB as part of Pittsburghits Mortgage Partnership Finance Program (“Program”). Under the terms of the Program, there is limited recourse back to the Company for loans that do not perform in accordance with the total amountterms of $10,000,000. As of September 30, 2017, $5,788,000 remainedthe loan agreement. Each loan sold under the Program is “credit enhanced” such that the individual loan’s rating is raised to “BBB”, as determined by the FHLB. The Program can be delivered on that commitment, $140,000 of which has been committed to borrowers.
The Company is expected to act as a source of financial strength to its unconsolidated subsidiary (LCB). The Company believes that commitment is not reasonably likely to have a material effect on its liquidityterminated by either the FHLB or the availabilityCompany, without cause. The FHLB has no obligation to commit to purchase any mortgage through, or from, the Company.
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Interest Rate Sensitivity:
Interest rate sensitivity management is overseen by the Asset/Liability Management Committee. This process involves the development and implementation of strategies to maximize net interest margin, while minimizing the earnings risk associated with changing interest rates. Traditional gap analysis identifies the maturity and re-pricing terms of all assets and liabilities. A simulation analysis is used to assess earnings and capital at risk from movements in interest rates. See Item 3 for a description of the complete simulation process and results.
Capital Adequacy:
Bank regulatory authorities in the United States issue risk-based capital standards. These capital standards relate a banking company’s capital to the risk profile of its assets and provide the basis by which all banking companies and banks are evaluated in terms of capital adequacy. Effective
In September 2019, the FDIC finalized a rule to simplify the capital calculation for qualifying community banking organizations (i.e., the community bank leverage ratio (“CBLR framework”)), as required by the Economic Growth, Regulatory Relief and Consumer Protection Act. The CBLR framework was effective on January 1, 2015,2020 and is designed to reduce the burden of calculating a risk-based capital rules were modified subjectratio by removing the requirements for calculating and reporting risk-based capital ratios for qualifying community banking organizations that opt into the framework. Qualifying banking organizations that elect to use the CBLR framework and maintain a transition period for several aspectsleverage ratio of greater than required minimums will be considered to have satisfied the final rules, including the new minimum capital ratio requirements, the capital conservation buffer and the regulatory capital adjustments and deductions. The new framework is commonly called “BASEL III”. The final rules revised federal regulatory agencies’generally applicable risk-based and leverage capital requirements in the agencies’ capital rules and, their methodif applicable, will be considered to have met the well-capitalized ratio requirements for calculating risk-weighted assetspurposes of Section 38 of the Federal Deposit Insurance Act. Under the interim final rules, the community bank leverage ratio minimum requirement is 8.5% for calendar year 2021 and 9.0% for calendar year 2022 and beyond. The interim rule allows for a two-quarter grace period to make them consistent withcorrect a ratio that falls below the required amount, provided the Bank maintains a leverage ratio of 7.5% for calendar year 2021 and 8.0% for calendar year 2022 and beyond.
Under the final rule, an eligible banking organization can opt out of the CBLR framework and revert back to the risk-weighting framework without restriction. As of March 31, 2021, the Bank was a qualifying community banking organization as defined by the federal banking agencies and elected to measure capital adequacy under the CBLR framework. The Bank’s Tier One leverage ratio was 8.3% on March 31, 2021; and therefore, did not meet the minimum requirement of 8.5%, but does qualify for the two-quarter grace period allowed to correct the ratio. In the event an organization fails to meet the CBLR framework requirements following the two-quarter grace period, it will become subject to the Basel III framework. capital requirements, described below.
The final rules apply to all depository institutions, top-tier bank holding companies with total consolidated assets of $500 million or more, and top-tier savings and loan holding companies (“banking organizations”). Among other things, the rules established a new common equity tier 1 (CET1) minimum capital requirement (4.5% of risk-weighted assets) and a higher minimum tier 1 capital requirement (from 4.0% to 6.0% of risk-weighted assets), and assign higher risk weightings (150%) to exposures that are more than 90 days past due or are on nonaccrual status and certain commercial real estate facilities that finance the acquisition, development or construction of real property.
Basel III requiresrisk-based capital standards require financial institutions to maintain: (a) a minimum ratio of CET1common equity tier 1 (“CET1”) to risk-weighted assets of at least 4.5%, plus a 2.5% “capital conservation buffer” (which is added to the 4.5% CET1 ratio as that buffer is phased in, effectively resulting in a minimum ratio of CET1 to risk-weighted assets of at least 7.0%); (b) a minimum ratio of tier 1 capital to risk-weighted assets of at least 6.0%, plus the capital conservation buffer (which is added to the 6.0% tier 1 capital ratio as that buffer is phased in, effectively resulting in a minimum tier 1 capital ratio of 8.5% upon full implementation); (c) a minimum ratio of total (that is, tier 1 plus tier 2) capital to risk-weighted assets of at least 8.0%, plus the capital conservation buffer (which is added to the 8.0% total capital ratio as that buffer is phased in, effectively resulting in a minimum total capital ratio of 10.5% upon full implementation)); and (d) a minimum leverage ratio of 3.0%, calculated as the ratio of tier 1 capital balance sheet exposures plus certain off-balance sheet exposures (computed as the average for each quarter of the month-end ratios for the quarter). In addition, the proposed rules also limit a banking organization’s capital distributions and certain discretionary bonus payments if the banking organization does not hold a “capital conservation buffer”. of 2.5% above the minimum standards stated in (a) - (c) above.
AccordingThe CARES Act requires banking organizations to apply a zero percent risk weight to PPP covered loans for risk-based capital requirement purposes. In addition, because of the non-recourse nature of the Federal Reserve's extension of credit to the rules, CET1banking organization, the banking organization is comprised of common stock plus related surplus, net of treasury stock and other contra-equity components, retained earnings and accumulated other comprehensive income. However, certain banking institutions, including the Bank, were permittednot exposed to make a one-time election to opt out of the requirement to include most components of AOCI in CET1. This opt-out option was available only until March 31, 2015. The Bank elected to opt-out.
At September 30, 2017, the Bank exceeded the regulatory requirements to be considered a "well capitalized" financial institution under the new rules. The Bank’s CET1 and Tier 1 Capital ratio was 12.44%, its Total Capital ratio was 13.20% and its Tier 1 leverage was 8.34%. On a consolidated basis, the Company’s CET1 and Tier 1 Capital ratio was 14.16%, and Total Capital ratio and Tier 1 leverage ratio was 14.93% and 9.51%, respectively.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Market risk is the exposure to economic loss that arises from changes in the values of certain financial instruments. The types ofcredit or market risk exposures generally faced by financial institutions include equity market price risk, interest rate risk, foreign currency risk and commodity price risk. Due tofrom the naturepledged PPP covered loans. Therefore, pledged PPP covered loans are excluded from the banking organization's regulatory capital.
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Equity market price risk is the risk that changes in the values of equity investments could have a material impact on the financial position or results of operations of the Company. The Company’s equity investments consist of common stocks of publicly traded financial institutions.
There can be volatility in the values of financial institution stocks, but the primary objective of the portfolio is to achieve value appreciation in the long term while earning consistently attractive after-tax yields from dividends. The carrying value of the financial institutions stocks accounted for 0.2% of the Company’s total assets as of September 30, 2017. Management performs an impairment analysis on the entire investment portfolio, including the financial institutions stocks, on a quarterly basis. For the nine months ended September 30, 2017, no “other-than-temporary” impairment was identified. There is no assurance that declines in market values of the common stock portfolio in the future will not result in “other-than-temporary” impairment charges, depending upon facts and circumstances present.
The equity investments in the Company’s portfolio had a cost basis of approximately $1,000,000 and a fair value of $1,287,000 at September 30, 2017. Net unrealized gains in this portfolio were approximately $287,000 at September 30, 2017.
In addition to its equity portfolio, the Company’s investment management and trust services revenue could be impacted by fluctuations in the securities markets. A portion of the Company’s trust revenue is based on the value of the underlying investment portfolios. If securities values decline, the Company’s trust revenue could be negatively impacted.
Interest rate risk creates exposure in two primary areas. First, changes in rates have an impact on the Company’s liquidity position and could affect its ability to meet obligations and continue to grow. Second, movements in interest rates can create fluctuations in the Company’s net interest income and changes in the economic value of equity.
The primary objective of the Company’s asset-liability management process is to maximize current and future net interest income within acceptable levels of interest rate risk while satisfying liquidity and capital requirements. Management recognizes that a certain amount of interest rate risk is inherent, appropriate and necessary to ensure profitability. A simulation analysis is used to assess earnings and capital at risk from movements in interest rates. The model considers three major factors: (1) volume differences; (2) repricing differences; and (3) timing in its income simulation. As of the most recent model run, data was disseminated into appropriate repricing buckets, based upon the static position at that time. The interest-earning assets and interest-bearing liabilities were assigned a multiplier to simulate how much that particular balance sheet item would re-price when interest rates change. Finally, the estimated timing effect of rate changes is applied, and the net interest income effect is determined on a static basis (as if no other factors were present). As the table below indicates, based upon rate shock simulations on a static basis over a one-year period, the net effect of an immediate 100, 200, 300 and 400 basis point rate increase would change net interest income by ($63,000), ($322,000), ($969,000) and ($2,092,000), respectively. The net effect of an immediate 100, 200, 300, and 400 basis point rate decline would change net interest income by ($277), ($121), ($225), and ($348), respectively. The existence of rate floors on variable rate loans aid in mitigating against large fluctuations in the change in net interest income in a decreasing rate environment.
Effect of Interest Rate Risk on Net Interest Income | ||||||
(Dollars in thousands) | ||||||
Change in Interest Rates (Basis Points) | Total Change in Net Interest Income | |||||
400 | $ | (2,092 | ) | |||
300 | (969 | ) | ||||
200 | (322 | ) | ||||
100 | (63 | ) | ||||
0 | - | |||||
(100) | (277 | ) | ||||
(200) | (121 | ) | ||||
(300) | (225 | ) | ||||
(400) | (348 | ) |
The Company’s rate risk policies provide for maximum limits on net interest income that can be at risk for 100 through 400 basis point changes in interest rates. The net interest income at risk position remained within the guidelines established by the Company’s asset/liability policy.
No material change has been noted in the Bank’s equity value at risk. Please refer to the Annual Report on Form 10-K as of December 31, 2016 for further discussion of this topic.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
As of September 30, 2017,March 31, 2021, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as defined by the Securities Exchange Act of 1934 (“Exchange Act”), Rule 13a-15(e). Disclosure controls and procedures are controls and procedures that are designed to ensure that information required to be disclosed in Company reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. These controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this quarterly report.
It should be noted that any system of controls, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system are met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events. Because of these and other inherent limitations of control systems, there can be no assurance that any design will succeed in achieving its stated goals under all potential conditions, regardless of how remote.
Attached as Exhibits 31 and 32 to this quarterly report are certifications of the Chief Executive Officer and the Chief Financial Officer required by Rule 13a-14(a) and Rule 15d-14(a) of the Exchange Act. This portion of the Company’s quarterly report includes the information concerning the controls evaluation referred to in the certifications and should be read in conjunction with the certifications for a more complete understanding of the topics presented.
Changes in Internal Control Over Financial Reporting
There were no significant changes in the Company’s internal control over financial reporting during the fiscal quarter ended September 30, 2017,March 31, 2021, that has materially affected, or is reasonably likely to materially affect, the internal controls over financial reporting.
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Item 1. LEGAL PROCEEDINGS
In the opinion of management of the Company, there are no legal or governmental proceedings pending to which the Company or its subsidiary is a party or to which its property is subject, which, if determined adversely to the Company or its subsidiary, would be material in relation to the Company’s or its subsidiary’s financial condition. There are no proceedings pending other than ordinary routine litigation incident to the business of the Company or its subsidiary. In addition, no material proceedings are pending or are known to be threatened or contemplated against the Company or its subsidiary by government authorities.
Item 1A. RISK FACTORS
There have been no other material changes to the risk factors that were disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.2020.
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The Company has an activeperiodically repurchases shares of its common stock under the share repurchase program in place, to which there is no expiration date.approved by the Board of Directors. In December of 2016, the Board of Directors authorized the repurchase of an additional 200,000 shares of its common stock through its share repurchase program. The program will remain authorized until all approved shares are repurchased, unless terminated by the Board of Directors. As of November 9, 2017, the number ofMay 14, 2021, 32,404 shares remained available to purchase under that may yet be purchased under the program was 173,990.program. Transactions pursuant to the repurchase program in the three month period ended September 30, 2017March 31, 2021 are shown below.
| | | | | | | | | |
|
| |
| | |
| Total Number of |
| |
| | | | | | | Shares Purchased as | | Maximum Number of |
| | Total Number | | Average | | Part of Publicly | | Shares that May Yet Be | |
| | of Shares | | Price Paid | | Announced Plans or | | Purchased Under the | |
Period | | Purchased | | per Share | | Programs | | Plans or Programs (1) | |
January 1-31, 2021 |
| — | | $ | — |
| — | | 59,989 |
February 1-28, 2021 |
| 15,585 | | | 17.63 | | 15,585 | | 44,404 |
March 1-31, 2021 |
| 12,000 | | | 17.40 | | 12,000 | | 32,404 |
| | | | | | | | | |
Totals |
| 27,585 | |
|
|
| 27,585 |
| 32,404 |
No repurchase plan or program expired during the quarter. The Company has no stock repurchase plan or program that it has determined to terminate prior to expiration or under which it does not intend to make further purchases.
Certain regulatory restrictions exist regarding the ability of the Bank to transfer funds to the Company in the form of cash dividends, loans or advances. At September 30, 2017, $33,771,000March 31, 2021, $35,808,000 of undistributed earnings of the Bank, included in the consolidated stockholders’ equity, was available for distribution to the Company as dividends without prior regulatory approval, subject to regulatory capital requirements.
Item 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
Item 4. MINE SAFETY DISCLOSURES
Not applicable
Item 5. OTHER INFORMATION
None
Item 6. EXHIBITS
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3.1 | | |||||
3.2 | ||||||
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31.1 | ||||||
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31.2 | ||||||
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32.1 | ||||||
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32.2 | ||||||
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104 | | Cover Page Interactive Data File (embedded within the Inline XBRL document). |
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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.
| | | |
| | Juniata Valley Financial Corp. | |
| | (Registrant) |
| | | | |
Date: | MAY 14, 2021 | By: | /s/ Marcie A. Barber | |
| | | Marcie A. Barber, President | |
| | | Chief Executive Officer | |
| | | (Principal Executive Officer) | |
| | | | |
Date: | May 14, 2021 | By: | /s/ JoAnn N. McMinn | |
| | | JoAnn N. McMinn | |
| | | Chief Financial Officer | |
| | | (Principal Accounting Officer and | |
| | | Principal Financial Officer) |
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