UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2017
OR
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period of _________ to _________
Commission File Number 001-34821
Jacksonville Bancorp, Inc. |
(Exact name of registrant as specified in its charter) |
Maryland | 36-4670835 | |
(State or other jurisdiction of incorporation) | (I.R.S. Employer Identification Number) |
1211 West Morton Avenue | ||
Jacksonville, Illinois | 62650 | |
(Address of principal executive office) | (Zip Code) |
Registrant’s telephone number, including area code: (217) 245-4111
Indicate by check whether issuer (1) has filed all reports required to be filed by Sections 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 website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period the registrant was required to submit and post such filings).
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. See definition of “accelerated filer, large accelerated filer, and smaller reporting company” in Rule 12b-2 of the Exchange Act.
¨ Large Accelerated Filer | ¨ Accelerated Filer | |
¨ Non-Accelerated Filer (Do not check if a smaller reporting company) | ||
x 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).
x Yes ¨ No
As of November 1, 2017, there were 1,812,871 shares of the Registrant’s common stock issued and outstanding.
JACKSONVILLE BANCORP, INC.
FORM 10-Q
September 30, 2017
TABLE OF CONTENTS |
PART I – FINANCIAL INFORMATION
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, | December 31, | |||||||
2017 | 2016 | |||||||
(Unaudited) | ||||||||
ASSETS | ||||||||
Cash and cash equivalents | $ | 24,638,617 | $ | 12,909,924 | ||||
Interest-earning time deposits in banks | 998,000 | 750,000 | ||||||
Investment securities - available for sale | 49,778,562 | 55,748,263 | ||||||
Mortgage-backed securities - available for sale | 55,896,984 | 44,413,177 | ||||||
Federal Home Loan Bank stock | 428,500 | 363,800 | ||||||
Other investment securities | 53,131 | 55,481 | ||||||
Loans held for sale - net | 286,328 | 503,003 | ||||||
Loans receivable - net of allowance for loan losses of $3,083,934 and $3,007,395 as of September 30, 2017 and December 31, 2016 | 184,130,690 | 184,448,003 | ||||||
Premises and equipment - net | 4,348,244 | 4,498,653 | ||||||
Cash surrender value of life insurance | 7,399,673 | 7,271,438 | ||||||
Accrued interest receivable | 2,527,625 | 1,588,545 | ||||||
Goodwill | 2,726,567 | 2,726,567 | ||||||
Capitalized mortgage servicing rights | 547,673 | 552,827 | ||||||
Real estate owned | 10,500 | - | ||||||
Income taxes receivable | 304,697 | 45,444 | ||||||
Deferred income taxes | 2,073,818 | 2,738,789 | ||||||
Other assets | 617,081 | 704,845 | ||||||
Total Assets | $ | 336,766,690 | $ | 319,318,759 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
Deposits | $ | 272,619,107 | $ | 258,677,960 | ||||
Other borrowings | 7,196,206 | 7,135,182 | ||||||
Advance payments by borrowers for taxes and insurance | 642,305 | 1,102,204 | ||||||
Accrued interest payable | 90,266 | 106,755 | ||||||
Deferred compensation payable | 4,821,537 | 4,680,268 | ||||||
Dividends payable | 181,287 | 179,904 | ||||||
Other liabilities | 1,695,364 | 1,190,921 | ||||||
Total liabilities | 287,246,072 | 273,073,194 | ||||||
Commitments and contingencies | - | - | ||||||
Preferred stock, $0.01 par value - authorized 10,000,000 shares; none issued and outstanding | - | - | ||||||
Common stock, $0.01 par value - authorized 25,000,000 shares; issued 1,812,871 shares as of September 30, 2017 and 1,800,244 shares as of December 31, 2016 | 18,129 | 18,002 | ||||||
Additional paid-in-capital | 14,115,095 | 13,908,728 | ||||||
Retained earnings | 35,429,915 | 33,667,499 | ||||||
Less: Unallocated ESOP shares | (153,830 | ) | (172,370 | ) | ||||
Accumulated other comprehensive income (loss) | 111,309 | (1,176,294 | ) | |||||
Total stockholders' equity | 49,520,618 | 46,245,565 | ||||||
Total Liabilities and Stockholders' Equity | $ | 336,766,690 | $ | 319,318,759 |
See accompanying notes to the condensed consolidated financial statements.
1 |
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||
INTEREST INCOME: | ||||||||||||||||
Loans | $ | 2,234,561 | $ | 2,294,733 | $ | 6,581,165 | $ | 6,925,693 | ||||||||
Investment securities | 372,199 | 432,341 | 1,146,328 | 1,305,746 | ||||||||||||
Mortgage-backed securities | 213,818 | 112,277 | 673,950 | 339,461 | ||||||||||||
Other | 29,757 | 19,200 | 65,631 | 46,570 | ||||||||||||
Total interest income | 2,850,335 | 2,858,551 | 8,467,074 | 8,617,470 | ||||||||||||
INTEREST EXPENSE: | ||||||||||||||||
Deposits | 298,718 | 272,277 | 823,690 | 758,309 | ||||||||||||
Other borrowings | 15,749 | 5,326 | 31,515 | 15,388 | ||||||||||||
Total interest expense | 314,467 | 277,603 | 855,205 | 773,697 | ||||||||||||
NET INTEREST INCOME | 2,535,868 | 2,580,948 | 7,611,869 | 7,843,773 | ||||||||||||
PROVISION FOR LOAN LOSSES | 30,000 | 30,000 | 90,000 | 90,000 | ||||||||||||
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES | 2,505,868 | 2,550,948 | 7,521,869 | 7,753,773 | ||||||||||||
NON-INTEREST INCOME: | ||||||||||||||||
Fiduciary activities | 85,052 | 72,091 | 256,527 | 234,765 | ||||||||||||
Commission income | 342,291 | 326,031 | 958,290 | 960,836 | ||||||||||||
Service charges on deposit accounts | 202,808 | 198,269 | 577,453 | 538,668 | ||||||||||||
Mortgage banking operations, net | 58,060 | 89,248 | 191,405 | 172,521 | ||||||||||||
Net realized gains on sales of available-for-sale securities | 97,701 | 83,712 | 324,375 | 291,810 | ||||||||||||
Loan servicing fees | 83,974 | 81,418 | 253,913 | 249,533 | ||||||||||||
ATM and bank card interchange income | 175,406 | 171,592 | 530,846 | 506,996 | ||||||||||||
Other | 71,997 | 65,697 | 200,808 | 206,675 | ||||||||||||
Total non-interest income | 1,117,289 | 1,088,058 | 3,293,617 | 3,161,804 | ||||||||||||
NON-INTEREST EXPENSE: | ||||||||||||||||
Salaries and employee benefits | 1,640,777 | 1,692,942 | 4,957,982 | 5,075,624 | ||||||||||||
Occupancy and equipment | 266,439 | 268,360 | 789,598 | 775,342 | ||||||||||||
Data processing and telecommunications | 178,280 | 150,500 | 507,339 | 433,860 | ||||||||||||
Real estate owned expense | (720 | ) | 6,061 | (88,874 | ) | (43,617 | ) | |||||||||
Professional | 69,571 | 42,979 | 158,182 | 149,584 | ||||||||||||
Postage and office supplies | 53,937 | 53,602 | 169,014 | 176,928 | ||||||||||||
ATM and bank card expense | 107,311 | 96,774 | 315,667 | 286,669 | ||||||||||||
Other | 288,023 | 302,736 | 838,455 | 856,157 | ||||||||||||
Total non-interest expense | 2,603,618 | 2,613,954 | 7,647,363 | 7,710,547 | ||||||||||||
INCOME BEFORE INCOME TAXES | 1,019,539 | 1,025,052 | 3,168,123 | 3,205,030 | ||||||||||||
INCOME TAXES | 285,297 | 267,287 | 868,407 | 854,380 | ||||||||||||
NET INCOME | $ | 734,242 | $ | 757,765 | $ | 2,299,716 | $ | 2,350,650 | ||||||||
- | - | |||||||||||||||
NET INCOME PER COMMON SHARE - BASIC | $ | 0.41 | $ | 0.43 | $ | 1.28 | $ | 1.32 | ||||||||
NET INCOME PER COMMON SHARE - DILUTED | $ | 0.41 | $ | 0.42 | $ | 1.27 | $ | 1.31 | ||||||||
DIVIDENDS DECLARED PER SHARE | $ | 0.10 | $ | 0.10 | $ | 0.30 | $ | 0.30 |
See accompanying notes to the condensed consolidated financial statements.
2 |
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||
Net Income | $ | 734,242 | $ | 757,765 | $ | 2,299,716 | $ | 2,350,650 | ||||||||
Other Comprehensive Income (Loss) | ||||||||||||||||
Unrealized appreciation on available-for-sale securities, net of taxes of $(33,872) and $(66,426) for the three months ended September 30, 2017 and 2016, respectively, and $773,598 and $456,975 for the nine months ended September 30, 2017 and 2016, respectively. | (65,751 | ) | (128,947 | ) | 1,501,691 | 887,069 | ||||||||||
Less: reclassification adjustment for realized gains included in net income, net of taxes of $33,218 and $28,462, for the three months ended September 30, 2017 and 2016, respectively. and $110,287 and $99,215 for the nine months ended September 30, 2017 and 2016, respectively. | 64,483 | 55,250 | 214,088 | 192,595 | ||||||||||||
(130,234 | ) | (184,197 | ) | 1,287,603 | 694,474 | |||||||||||
Comprehensive Income | $ | 604,008 | $ | 573,568 | $ | 3,587,319 | $ | 3,045,124 |
See accompanying notes to condensed consolidated financial statements.
3 |
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Accumulated | ||||||||||||||||||||||||
Additional | Other | Total | ||||||||||||||||||||||
Common | Paid-in | Retained | Unallocated | Comprehensive | Stockholders' | |||||||||||||||||||
(Unaudited) | Stock | Capital | Earnings | ESOP Shares | Income (Loss) | Equity | ||||||||||||||||||
BALANCE, DECEMBER 31, 2016 | $ | 18,002 | $ | 13,908,728 | $ | 33,667,499 | $ | (172,370 | ) | $ | (1,176,294 | ) | $ | 46,245,565 | ||||||||||
Net Income | - | - | 2,299,716 | - | - | 2,299,716 | ||||||||||||||||||
Other comprehensive income | - | - | - | - | 1,287,603 | 1,287,603 | ||||||||||||||||||
Stock repurchases | (33 | ) | (104,256 | ) | - | - | - | (104,289 | ) | |||||||||||||||
Exercise of stock options | 160 | 242,384 | - | - | - | 242,544 | ||||||||||||||||||
Tax benefit of non-qualified options | - | 8,185 | - | - | - | 8,185 | ||||||||||||||||||
Vesting options expense | - | 22,232 | - | - | - | 22,232 | ||||||||||||||||||
Shares held by ESOP, committed to be released | - | 37,822 | - | 18,540 | - | 56,362 | ||||||||||||||||||
Dividends ($0.30 per share) | - | - | (537,300 | ) | - | - | (537,300 | ) | ||||||||||||||||
BALANCE, SEPTEMBER 30, 2017 | $ | 18,129 | $ | 14,115,095 | $ | 35,429,915 | $ | (153,830 | ) | $ | 111,309 | $ | 49,520,618 |
See accompanying notes to condensed consolidated financial statements.
4 |
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended | ||||||||
September 30, | ||||||||
2017 | 2016 | |||||||
(Unaudited) | ||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net income | $ | 2,299,716 | $ | 2,350,650 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation, amortization and accretion: | ||||||||
Premises and equipment | 330,235 | 289,799 | ||||||
Amortization of investment premiums and discounts, net | 932,595 | 459,436 | ||||||
Accretion of loan discounts | (388 | ) | (388 | ) | ||||
Net realized gains on sales of available-for-sale securities | (324,375 | ) | (291,810 | ) | ||||
Provision for loan losses | 90,000 | 90,000 | ||||||
Mortgage banking operations, net | (191,405 | ) | (172,521 | ) | ||||
Gain on sale of real estate owned | (89,211 | ) | (59,609 | ) | ||||
Shares held by ESOP committed to be released | 56,362 | 48,311 | ||||||
Tax benefit related to stock options exercised | 8,185 | 3,696 | ||||||
Stock option compensation expense | 22,232 | 67,436 | ||||||
Changes in income taxes payable | (259,253 | ) | (31,703 | ) | ||||
Changes in other assets and liabilities | (348,668 | ) | (2,470,488 | ) | ||||
Net cash provided by operations before loan sales | 2,526,025 | 282,809 | ||||||
Origination of loans for sale to secondary market | (13,466,072 | ) | (13,813,453 | ) | ||||
Proceeds from sales of loans to secondary market | 13,879,306 | 14,217,170 | ||||||
Net cash provided by operating activities | 2,939,259 | 686,526 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Net change in interest-earning time deposits | (248,000 | ) | 238,000 | |||||
Purchases of investment and mortgage-backed securities | (43,086,719 | ) | (45,971,968 | ) | ||||
Maturity or call of investment securities available-for-sale | 870,000 | 5,405,000 | ||||||
Sale of investment securities available-for-sale | 32,445,316 | 31,634,357 | ||||||
Net change in Federal Home Loan Bank stock | (64,700 | ) | 750,000 | |||||
Principal payments on mortgage-backed and investment securities | 5,602,341 | 4,095,378 | ||||||
Proceeds from sale of real estate owned | 255,665 | 149,202 | ||||||
Net change in loans | 50,747 | 7,608,721 | ||||||
Additions to premises and equipment | (179,826 | ) | (100,887 | ) | ||||
Net cash provided by (used in) investing activities | (4,355,176 | ) | 3,807,803 |
(Continued)
5 |
JACKSONVILLE BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended | ||||||||
September 30, | ||||||||
2017 | 2016 | |||||||
(Unaudited) | ||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Net change in deposits | $ | 13,941,147 | $ | 29,440,321 | ||||
Net change in other borrowings | 61,024 | (8,372,013 | ) | |||||
Increase in advance payments by borrowers for taxes and insurance | (459,899 | ) | (363,678 | ) | ||||
Exercise of stock options | 242,544 | 181,474 | ||||||
Stock repurchases | (104,289 | ) | (127,118 | ) | ||||
Dividends paid - common stock | (535,917 | ) | (507,662 | ) | ||||
Net cash provided by financing activities | 13,144,610 | 20,251,324 | ||||||
NET INCREASE IN CASH AND CASH EQUIVALENTS | 11,728,693 | 24,745,653 | ||||||
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR | 12,909,924 | 4,103,432 | ||||||
CASH AND CASH EQUIVALENTS, END OF PERIOD | $ | 24,638,617 | $ | 28,849,085 | ||||
ADDITIONAL DISCLOSURES OF CASH FLOW INFORMATION: | ||||||||
Cash paid during the year for: | ||||||||
Interest on deposits | $ | 840,179 | $ | 770,337 | ||||
Interest on other borrowings | 31,515 | 16,913 | ||||||
Income taxes paid | 1,126,000 | 1,030,000 | ||||||
NONCASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
Real estate acquired in settlement of loans | $ | 233,204 | $ | 114,400 | ||||
Loans to facilitate sales of real estate owned | 26,467 | 127,900 |
See accompanying notes to condensed consolidated financial statements.
6 |
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. | FINANCIAL STATEMENTS |
The accompanying interim condensed consolidated financial statements include the accounts of Jacksonville Bancorp, Inc. and its wholly-owned subsidiary, Jacksonville Savings Bank (the “Bank”) and its wholly-owned subsidiary, Financial Resources Group, Inc. (collectively, the “Company”). All significant intercompany accounts and transactions have been eliminated.
In the opinion of management, the preceding unaudited condensed consolidated financial statements contain all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation of the financial condition of the Company as of September 30, 2017 and the results of its operations for the three and nine month periods ended September 30, 2017 and 2016. The results of operations for the three and nine month periods ended September 30, 2017 and 2016 are not necessarily indicative of the results which may be expected for the entire year, or any other interim period. The condensed consolidated balance sheet of the Company as of December 31, 2016 has been derived from the audited consolidated balance sheet of the Company as of that date. Certain information and note disclosures normally included in the Company’s annual financial statements prepared in accordance with generally accepted accounting principles in the United States of America (GAAP) have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements of the Company for the year ended December 31, 2016 filed as an exhibit to the Company’s Form 10-K filed in March 2017. The accounting and reporting policies of the Company conform to GAAP and to prevailing practices within the industry.
2. | NEW ACCOUNTING PRONOUNCEMENTS |
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). The update provides a five-step revenue recognition model for all revenue arising from contracts with customers and affects all entities that enter into contracts to provide goods or services to their customers (unless the contracts are included in the scope of other standards). The guidance requires an entity to recognize the revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606) – Deferral of the Effective Date, which provides a one-year deferral of ASU 2014-09. For public entities, the guidance is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period, and must be applied either retrospectively or using the modified retrospective approach. Management continues to evaluate the impact of the new guidance, but does not expect the adoption of this guidance to have a material impact on the Company’s revenue recognition practices. However, the Company does expect additional documentation and disclosure. Early adoption would be permitted, but not before the original public entity effective date.
In January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10) - Recognition and Measurement of Financial Assets and Financial Liabilities. ASU 2016-01 is intended to enhance the reporting model for financial instruments to provide users of financial statements with more decision-useful information. ASU 2016-01 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company is currently reviewing its processes but adoption by the Company is not expected to have a material impact on the consolidated financial statements and related disclosures.
7 |
In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The ASU requires an organization to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. Organizations will continue to use judgment to determine which loss estimation method is appropriate for their circumstances. Additionally, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. For public companies, this update will be effective for interim and annual periods beginning after December 15, 2019. The Company has been receiving training and gathering historical data in order to determine the impact the adoption of ASU 2016-13 will have on the consolidated financial statements.
In March 2016, FASB issued ASU 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The objective of the simplification initiative is to identify, evaluate, and improve areas of US GAAP for which cost and complexity can be reduced while maintaining or improving the usefulness of the information provided to users of financial statements. The areas for simplification involve several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. Amendments related to the timing of when excess tax benefits are recognized, minimum statutory withholding requirements, forfeitures, and intrinsic value should be applied using a modified retrospective transition method by means of a cumulative effect adjustment to equity as of the beginning of the period in which the guidance is adopted. The new guidance was effective for public companies for reporting periods beginning after December 15, 2016. The Company adopted the ASU and there was not a material impact on the Company’s financial statements.
In January 2017, FASB amended FASB ASC Topic 350, Simplifying the Test for Goodwill. The amendments in the update simplify the measurement of goodwill by eliminating Step 2 from the goodwill impairment test. Instead, under this amendment, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss should not exceed the total amount of goodwill allocated to that reporting unit. The amendments are effective for public business entities for the first interim and annual reporting periods beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company has goodwill from a prior business combination and performs an annual impairment test or more frequently if changes or circumstances occur that would more likely than not reduce the fair value of the reporting unit below its carrying value. The Company’s most recent annual impairment assessment determined that the Company’s goodwill was not impaired. Although the Company cannot anticipate future goodwill impairment assessments, based on the most recent assessment it is unlikely that an impairment amount would need to be calculated and, therefore, does not anticipate a material impact from these amendments to the Company’s financial position and results of operations. The current accounting policies and processes are not anticipated to change, except for the elimination of the Step 2 analysis.
In March 2017, FASB issued ASU 2017-08, Receivables – Nonrefundable Fees and Other Costs: Premium Amortization on Purchased Callable Debt Securities (Subtopic 310-20). The ASU amends the amortization period for certain callable debt securities held at a premium. The amendments require the premium to be amortized to the earliest call date. The ASU’s amendments are effective for public business entities for interim and annual periods beginning after December 15, 2018. Early adoption is permitted. The Company has adopted the ASU early and there was not a material impact on the Company’s financial statements.
8 |
3. | EARNINGS PER SHARE |
Earnings Per Share - Basic earnings per share is determined by dividing net income for the period by the weighted average number of common shares. Diluted earnings per share considers the potential effects of the exercise of the outstanding stock options under the Company’s stock option plans. Average shares outstanding exclude unallocated shares held by the Jacksonville Savings Bank employee stock ownership plan (ESOP).
The following reflects earnings per share calculations for basic and diluted methods:
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Net income available to common shareholders | $ | 734,242 | $ | 757,765 | $ | 2,299,716 | $ | 2,350,650 | ||||||||
Basic average shares outstanding | 1,797,080 | 1,778,742 | 1,790,603 | 1,775,142 | ||||||||||||
Diluted potential common shares: | ||||||||||||||||
Stock option equivalents | 14,706 | 19,741 | 14,542 | 17,103 | ||||||||||||
Diluted average shares outstanding | 1,811,786 | 1,798,483 | 1,805,145 | 1,792,245 | ||||||||||||
Basic earnings per share | $ | 0.41 | $ | 0.43 | $ | 1.28 | $ | 1.32 | ||||||||
Diluted earnings per share | $ | 0.41 | $ | 0.42 | $ | 1.27 | $ | 1.31 |
4. | STOCK–BASED COMPENSATION |
In connection with our 2010 second step conversion and related stock offering, the ESOP purchased an additional 41,614 shares for the exclusive benefit of eligible employees. The ESOP borrowed funds from the Company in an amount sufficient to purchase the 41,614 shares (approximately 4% of the common stock issued in the offering). The loan is secured by the shares purchased and will be repaid by the ESOP with funds from contributions made by the Bank and dividends received by the ESOP. Contributions will be applied to repay interest on the loan first, and the remainder will be applied to principal. The loan is expected to be repaid over a period of up to 20 years. Shares purchased with the loan proceeds are held in a suspense account for allocation among participants as the loan is repaid. Shares released from the suspense account are allocated among participants in proportion to their compensation, relative to total compensation of all active participants. Participants will vest on a pro-rata basis and reach 100% vesting in the accrued benefits under the ESOP after six years. Vesting is accelerated upon retirement, death, or disability of the participant or a change in control of the Bank. Forfeitures will be reallocated to remaining plan participants. Benefits may be payable upon retirement, death, disability, separation from service, or termination of the ESOP. Discretionary contributions are determined by the board of directors annually.
The Company is accounting for its ESOP in accordance with ASC Topic 718, “Employers Accounting for Employee Stock Ownership Plans.” Accordingly, the debt of the ESOP is eliminated in consolidation and the shares pledged as collateral are reported as unearned ESOP shares in the consolidated balance sheet. Contributions to the ESOP shall be sufficient to pay principal and interest currently due under the loan agreement. As shares are committed to be released from the collateral, the Company reports compensation expense equal to the average market price of the shares for the respective period, and the shares become outstanding for earnings per share computations. Dividends, if any, on unallocated shares are recorded as a reduction of debt and accrued interest.
9 |
A summary of ESOP shares at September 30, 2017 and 2016 is shown below.
September 30, 2017 | September 30, 2016 | |||||||
Unearned shares | 13,529 | 17,599 | ||||||
Shares committed for release | 1,854 | 1,786 | ||||||
Allocated shares | 60,344 | 61,624 | ||||||
Total ESOP shares | 75,727 | 81,009 | ||||||
Fair value of unearned shares | $ | 474,566 | $ | 568,368 |
On April 24, 2012, our shareholders approved the 2012 Stock Option Plan. On this same date, the compensation committee of the board of directors approved the awards of 104,035 options to purchase Company common stock. The stock options vest over a five-year period and expire ten years after issuance. Apart from the vesting schedule, there are no performance-based conditions or any other material conditions applicable to the options issued.
The following table summarizes stock option activity for the nine months ended September 30, 2017.
Weighted | ||||||||||||||||
Weighted | Average | |||||||||||||||
Average | Remaining | Aggregate | ||||||||||||||
Exercise | Contractual | Instrinsic | ||||||||||||||
Options | Price/Share | Life (in years) | Value | |||||||||||||
Outstanding, December 31, 2016 | 47,488 | $ | 15.65 | |||||||||||||
Granted | - | - | ||||||||||||||
Exercised | (16,021 | ) | 15.65 | |||||||||||||
Forfeited | (400 | ) | 15.65 | |||||||||||||
Outstanding, September 30, 2017 | 31,067 | $ | 15.65 | 4.50 | $ | 472,218 | ||||||||||
Exercisable, September 30, 2017 | 29,282 | $ | 15.65 | 4.50 | $ | 445,086 |
Intrinsic value for stock options is defined as the difference between the current market value and the exercise price. The value is based upon a closing price of $30.85 per share on September 30, 2017.
10 |
5. | LOAN PORTFOLIO COMPOSITION |
At September 30, 2017 and December 31, 2016, the composition of the Company’s loan portfolio is shown below.
September 30, 2017 | December 31, 2016 | |||||||||||||||
Amount | Percent | Amount | Percent | |||||||||||||
Real estate loans: | ||||||||||||||||
One-to-four family residential | $ | 45,438,266 | 24.7 | % | $ | 45,311,103 | 24.6 | % | ||||||||
Commercial | 38,642,318 | 21.0 | 41,477,480 | 22.5 | ||||||||||||
Agricultural | 39,957,890 | 21.7 | 38,271,758 | 20.7 | ||||||||||||
Home equity | 10,110,539 | 5.5 | 11,606,002 | 6.3 | ||||||||||||
Total real estate loans | 134,149,013 | 72.9 | 136,666,343 | 74.1 | ||||||||||||
Commercial loans | 24,702,765 | 13.4 | 21,617,744 | 11.7 | ||||||||||||
Agricultural loans | 12,212,504 | 6.6 | 14,649,622 | 7.9 | ||||||||||||
Consumer loans | 16,141,791 | 8.8 | 14,543,356 | 7.9 | ||||||||||||
Total loans receivable | 187,206,073 | 101.7 | 187,477,065 | 101.6 | ||||||||||||
Less: | ||||||||||||||||
Net deferred loan fees | (8,551 | ) | (0.0 | ) | 21,667 | 0.0 | ||||||||||
Allowance for loan losses | 3,083,934 | 1.7 | 3,007,395 | 1.6 | ||||||||||||
Total loans receivable, net | $ | 184,130,690 | 100.0 | % | $ | 184,448,003 | 100.0 | % |
The Company believes that originating or purchasing sound loans is a necessary and desirable means of employing funds available for investment. Recognizing the Company’s obligations to its depositors and to the communities it serves, authorized personnel are expected to make sound, profitable loans that resources permit and that opportunity affords. The Company maintains lending policies and procedures designed to focus lending efforts on the types, locations, and duration of loans most appropriate for the business model and markets. The Company’s principal lending activities include the origination of one-to four-family residential mortgage loans, multi-family loans, commercial real estate loans, agricultural loans, home equity lines of credits, commercial business loans, and consumer loans. The primary lending market includes the Illinois counties of Cass, Morgan, Macoupin, Montgomery, and surrounding counties. Generally, loans are collateralized by assets, primarily real estate, of the borrowers and guaranteed by individuals. The loans are expected to be repaid from cash flows of the borrowers or from proceeds from the sale of selected assets of the borrowers.
Loan originations are derived from a number of sources such as real estate broker referrals, existing customers, builders, attorneys and walk-in customers. Upon receipt of a loan application, a credit report is obtained to verify specific information relating to the applicant’s employment, income, and credit standing. In the case of a real estate loan, an appraisal of the real estate intended to secure the proposed loan is undertaken by an independent appraiser approved by the Company. A loan application file is first reviewed by a loan officer who checks applications for accuracy and completeness, and verifies the information provided. The financial resources of the borrower and the borrower’s credit history, as well as the collateral securing the loan, are considered an integral part of each risk evaluation prior to approval. The board of directors has established individual lending authorities for each loan officer by loan type. Loans over an individual officer’s lending limit must be approved by the officers’ loan committee consisting of the chairman of the board, president, chief lending officer and all lending officers, which meets three times a week, and has lending authority up to $750,000 depending on the type of loan. Loans to borrowers with an aggregate principal balance over this limit, up to $1.0 million, must be approved by the directors’ loan committee, which meets weekly and consists of the chairman of the board, president, senior vice president, chief lending officer and at least two outside directors, plus all lending officers as non-voting members. The board of directors approves all loans to borrowers with an aggregate principal balance over $1.0 million. The board of directors ratifies all loans that are originated. Once the loan is approved, the applicant is informed and a closing date is scheduled. Loan commitments are typically funded within 30 days.
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If the loan is approved, the borrower must provide proof of fire and casualty insurance on the property serving as collateral which insurance must be maintained during the full term of the loan; flood insurance is required in certain instances. Title insurance or an attorney’s opinion based on a title search of the property is generally required on loans secured by real property.
One-to-Four Family Mortgage Loans - Historically, the Bank’s primary lending origination activity has been one-to-four family, owner-occupied, residential mortgage loans secured by property located in the Company’s market area. The Company generates loans through marketing efforts, existing customers and referrals, real estate brokers, builders and local businesses. Generally, one-to-four family loan originations are limited to the financing of loans secured by properties located within the Company’s market area.
Fixed rate one-to-four family residential mortgage loans are generally conforming loans, underwritten according to secondary market guidelines. The Company generally originates both fixed and adjustable rate mortgage loans in amounts up to the maximum conforming loan limits established by the Federal Housing Finance Agency.
The Company originates for resale to Freddie Mac and the Federal Home Loan Bank fixed-rate one-to-four family residential mortgage loans with terms of 15 years or more. The fixed-rate mortgage loans amortize monthly with principal and interest due each month. Residential real estate loans often remain outstanding for significantly shorter periods than their contractual terms because borrowers may refinance or prepay loans at their option. The Company offers fixed-rate one-to-four family residential mortgage loans with terms of up to 30 years without prepayment penalty.
The Company currently offers adjustable-rate mortgage loans for terms ranging up to 30 years. They generally offer adjustable-rate mortgage loans that adjust between one and five years on the anniversary date of origination. Interest rate adjustments are up to two hundred basis points per year, with a cap of up to six hundred basis points on interest rate increases over the life of the loan. In a rising interest rate environment, such rate limitations may prevent adjustable-rate mortgage loans from repricing to market interest rates, which would have an adverse effect on net interest income. In the low interest rate environment that has existed over the past five years, the adjustable-rate portfolio has repriced downward resulting in lower interest income from this portion of the loan portfolio. In addition, during this period borrowers have shown a preference for fixed-rate loans. The Company has used different interest indices for adjustable-rate mortgage loans in the past such as the average yield on U.S. Treasury securities, adjusted to a constant maturity of one year, three years or five years. The origination of fixed-rate mortgage loans versus adjustable-rate mortgage loans is monitored on an ongoing basis and is affected significantly by the level of market interest rates, customer preference, interest rate risk position and competitors’ loan products.
Adjustable-rate mortgage loans make the loan portfolio more interest rate sensitive and provide an alternative for those borrowers who meet the underwriting criteria, but are unable to qualify for a fixed-rate mortgage. However, as the interest income earned on adjustable-rate mortgage loans varies with prevailing interest rates, such loans do not offer predictable cash flows in the same manner as long-term, fixed-rate loans. Adjustable-rate mortgage loans carry increased credit risk associated with potentially higher monthly payments by borrowers as general market interest rates increase. During periods of rising interest rates the risk of delinquencies and defaults on adjustable-rate mortgage loans increases due to the upward adjustment of interest costs to the borrower, which may result in increased loan losses.
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Residential first mortgage loans customarily include due-on-sale clauses, which gives the Company the right to declare a loan immediately due and payable in the event that, among other things, the borrower sells or otherwise disposes of the underlying real property serving as collateral for the loan. Due-on-sale clauses are a means of imposing assumption fees and increasing the interest rate on the mortgage portfolio during periods of rising interest rates.
When underwriting residential real estate loans, the Company reviews and verifies each loan applicant’s income and credit history. Management believes that stability of income and past credit history are integral parts in the underwriting process. Generally, the applicant’s total monthly mortgage payment, including all escrow amounts, is limited to 28% of the applicant’s total monthly income. In addition, total monthly obligations of the applicant, including mortgage payments, generally should not exceed 38% of total monthly income. Written appraisals are generally required on real estate property offered to secure an applicant’s loan. For one-to-four family real estate loans with loan to value ratios of over 80%, private mortgage insurance is generally required. Fire and casualty insurance is also required on all properties securing real estate loans. Title insurance, or an attorney’s title opinion, may be required, as circumstances warrant.
The Company does not offer an “interest only” mortgage loan product on one-to-four family residential properties (where the borrower pays interest for an initial period, after which the loan converts to a fully amortizing loan). They also do not offer loans that provide for negative amortization of principal, such as “Option ARM” loans, where the borrower can pay less than the interest owed on the loan, resulting in an increased principal balance during the life of the loan. The Company does not offer a “subprime loan” program (loans that generally target borrowers with weakened credit histories typically characterized by payment delinquencies, previous charge-offs, judgments, bankruptcies, or borrowers with questionable repayment capacity as evidenced by low credit scores or high debt-burden ratios) or Alt-A loans (traditionally defined as loans having less than full documentation).
Commercial Real Estate Loans - The Company originates and purchases commercial real estate loans. Commercial real estate loans are secured primarily by improved properties such as multi-family residential, retail facilities and office buildings, restaurants and other non-residential buildings. The maximum loan-to-value ratio for commercial real estate loans originated is generally 80%. Commercial real estate loans are generally written up to terms of five years with adjustable interest rates. The rates are generally tied to the prime rate and generally have a specified floor. Many of the fixed-rate commercial real estate loans are not fully amortizing and therefore require a “balloon” payment at maturity. The Company purchases from time to time commercial real estate loan participations primarily from outside the Company’s market area. All participation loans are approved following a review to ensure that the loan satisfies the underwriting standards.
Underwriting standards for commercial real estate loans include a determination of the applicant’s credit history and an assessment of the applicant’s ability to meet existing obligations and payments on the proposed loan. The income approach is primarily utilized to determine whether income generated from the applicant’s business or real estate offered as collateral is adequate to repay the loan. There is an emphasis on the ratio of the property’s projected net cash flow to the loan’s debt service requirement (generally requiring a minimum ratio of 120%). In underwriting a loan, the value of the real estate offered as collateral in relation to the proposed loan amount is considered. Generally, the loan amount cannot be greater than 80% of the value of the real estate. Written appraisals are usually obtained from either licensed or certified appraisers on all commercial real estate loans in excess of $250,000. Creditworthiness of the applicant is assessed by reviewing a credit report, financial statements and tax returns of the applicant, as well as obtaining other public records regarding the applicant.
13 |
Loans secured by commercial real estate generally involve a greater degree of credit risk than one-to-four family residential mortgage loans and carry larger loan balances. This increased credit risk is a result of several factors, including the effects of general economic conditions on income producing properties and the successful operation or management of the properties securing the loans. Furthermore, the repayment of loans secured by commercial real estate is typically dependent upon the successful operation of the related business and real estate property. If the cash flows from the project are reduced, the borrower’s ability to repay the loan may be impaired.
Agricultural Real Estate Loans - The Company originates and purchases agricultural real estate loans. The maximum loan-to-value ratio for agricultural real estate loans we originate is generally 80%. Our agricultural real estate loans are generally written up to terms of five years with adjustable interest rates. The rates are generally tied to the average yield on U.S. Treasury securities, adjusted to a constant maturity of one year, three years, or five years and generally have a specified floor. Many of our fixed-rate agricultural real estate loans are not fully amortizing and therefore require a “balloon” payment at maturity. We purchase from time to time agricultural real estate loan participations primarily from other local institutions within our market area. All participation loans are approved following a review to ensure that the loan satisfies our underwriting standards.
Underwriting standards for agricultural real estate include a determination of the applicant’s credit history and an assessment of the applicant’s ability to meet existing obligations and payments on the proposed loan. The income approach is primarily utilized to determine whether income generated from the applicant’s farm operation or real estate offered as collateral is adequate to repay the loan. We emphasize the ratio of the property’s projected cash flow to the loan’s debt service requirement (generally requiring a minimum ratio of 120%). In underwriting a loan, we consider the value of the real estate offered as collateral in relation to the proposed loan amount. Generally, the loan amount cannot be greater than 80% of the value of the real estate. We usually obtain written appraisals from either licensed or certified appraisers on all agricultural real estate loans in excess of $250,000. We assess the creditworthiness of the applicant by reviewing a credit report, financial statements and tax returns of the applicant, as well as obtaining other public records regarding the applicant.
Loans secured by agricultural real estate generally involve a greater degree of credit risk than one-to-four family residential mortgage loans and carry larger loan balances. This increased credit risk is a result of several factors, including the effects of general economic and market conditions on farm operations and the successful operation or management of the properties securing the loans. The repayment of loans secured by agricultural estate is typically dependent upon the successful operation of the farm and real estate property. If the cash flows are reduced, the borrower’s ability to repay the loan may be impaired.
Home Equity Loans – The Company originates home equity loans and lines of credit, which are generally secured by the borrower’s principal residence. The maximum amount of a home equity loan or line of credit is generally 95% of the appraised value of a borrower’s real estate collateral less the amount of any existing mortgages or related liabilities. Home equity loans and lines of credit are approved with both fixed and adjustable interest rates which we determine based upon market conditions. Such loans may be fully amortized over the life of the loan or have a balloon feature. Generally, the maximum term for home equity loans is 10 years.
Underwriting standards for home equity loans include a determination of the applicant’s credit history and an assessment of the applicant’s ability to meet existing obligations and payments on the proposed loan. The stability of the applicant’s monthly income may be determined by verification of gross monthly income from primary employment, and additionally from any verifiable secondary income. We also consider the length of employment with the borrower’s present employer as well as the amount of time the borrower has lived in the local area. Creditworthiness of the applicant is of primary consideration; however, the underwriting process also includes a comparison of the value of the collateral in relation to the proposed loan amount.
14 |
Home equity loans entail greater risks than one-to-four family residential mortgage loans, which are secured by first lien mortgages. Collateral repossessed after a default may not provide an adequate source of repayment of the outstanding loan balance because of damage or depreciation in the value of the property or loss of equity to the first lien position. Further, home equity loan payments are dependent on the borrower’s continuing financial stability, and therefore are more likely to be adversely affected by job loss, divorce, illness or personal bankruptcy. Finally, the application of various Federal and state laws, including Federal and state bankruptcy and insolvency laws, may limit the amount which can be recovered on such loans in the event of a default.
Commercial Business Loans - The Company originates commercial business loans to borrowers located in the Company’s market area which are secured by collateral other than real estate or which can be unsecured. Commercial business loan participations are also purchased from other lenders, which may be made to borrowers outside the Company’s market area. Commercial business loans are generally secured by equipment and inventory and generally are offered with adjustable rates tied to the prime rate or the average yield on U.S. Treasury securities, adjusted to a constant maturity of either one year, three years or five years and various terms of maturity generally from three years to five years. Unsecured business loans are originated on a limited basis in those instances where the applicant’s financial strength and creditworthiness has been established. Commercial business loans generally bear higher interest rates than residential loans, but they also may involve a higher risk of default since their repayment is generally dependent on the successful operation of the borrower’s business. Personal guarantees are generally obtained from the borrower or a third party as a condition to originating its business loans.
Underwriting standards for commercial business loans include a determination of the applicant’s ability to meet existing obligations and payments on the proposed loan from normal cash flows generated in the applicant’s business. The financial strength of each applicant is assessed through the review of financial statements and tax returns provided by the applicant. The creditworthiness of an applicant is derived from a review of credit reports as well as a search of public records. Business loans are periodically reviewed following origination. Financial statements are requested at least annually and reviewed for substantial deviations or changes that might affect repayment of the loan. Loan officers also visit the premises of borrowers to observe the business premises, facilities, and personnel and to inspect the pledged collateral. Underwriting standards for business loans are different for each type of loan depending on the financial strength of the applicant and the value of collateral offered as security.
Agricultural Business Loans - The Company originates agricultural business loans to borrowers located in our market area which are secured by collateral other than real estate or which can be unsecured. Agricultural business loans are generally secured by equipment and blanket security agreements on all farm assets. These loans are generally offered with fixed rates with terms up to five years. Agricultural business loans generally bear lower interest rates than residential loans due to competitive market pressures. The repayment of agricultural business loans is generally dependent on the successful operation of the farm operation. Personal guarantees are generally obtained from the borrower as a condition to originating agricultural business loans.
Underwriting standards for agricultural business loans include a determination of the applicant’s ability to meet existing obligations and payments on the proposed loan from normal cash flows generated in the applicant’s business. The financial strength of each applicant is assessed through the review of financial statements, pro-forma cash flow statements, and tax returns provided by the applicant. The creditworthiness of an applicant is derived from a review of credit reports as well as a search of public records. Financial statements are requested at least annually and reviewed for substantial deviations or changes that might affect repayment of the loan. Loan officers may also visit the premises of borrowers to observe the operation, facilities, equipment, and personnel and to inspect the pledged collateral. Underwriting standards for agricultural business loans are different for each type of loan depending on the financial strength of the applicant and the value of collateral offered as security.
15 |
The repayment of agricultural business loans generally is dependent on the successful operation of a farm and can be adversely affected by fluctuations in crop prices, increase in interest rates, and changes in weather conditions. These developments may result in smaller harvests and less income for farmers which may adversely affect such borrower’s ability to repay a loan, and potentially result in an increase in the level of problem loans and loan losses in our agricultural portfolio. While not required, the majority of our agricultural business loans are covered by crop insurance, which provides protection against loss due to lower crop yields as a result of unfavorable weather conditions.
Consumer Loans – The Company originates consumer loans, including automobile loans, loans secured by deposit accounts, unsecured loans and mobile home loans. Consumer loans are generally offered on a fixed-rate basis. Automobile loans are generally offered with maturities of up to 60 months for new automobiles. Loans secured by used automobiles will have maximum terms which vary depending upon the age of the automobile. Automobile loans are generally originated with a loan-to-value ratio below the greater of 80% of the purchase price or 100% of NADA loan value. In the case of a new car loan, the loan-to-value ratio may be greater or less depending on the borrower’s credit history, debt to income ratio, home ownership and other banking relationships with us.
Underwriting standards for consumer loans include a determination of the applicant’s credit history and an assessment of the applicant’s ability to meet existing obligations and payments on the proposed loan. The stability of the applicant’s monthly income may be determined by verification of gross monthly income from primary employment, and additionally from any verifiable secondary income. We also consider the length of employment with the borrower’s present employer as well as the amount of time the borrower has lived in the local area. Creditworthiness of the applicant is of primary consideration; however, the underwriting process also includes a comparison of the value of the collateral in relation to the proposed loan amount.
Consumer loans entail greater risks than one-to-four family residential mortgage loans, particularly consumer loans secured by rapidly depreciating assets such as automobiles or loans that are unsecured. In such cases, collateral repossessed after a default may not provide an adequate source of repayment of the outstanding loan balance because of damage, loss or depreciation. Further, consumer loan payments are dependent on the borrower’s continuing financial stability, and therefore are more likely to be adversely affected by job loss, divorce, illness or personal bankruptcy. Such events would increase our risk of loss on unsecured loans. Finally, the application of various Federal and state laws, including Federal and state bankruptcy and insolvency laws, may limit the amount which can be recovered on such loans in the event of a default.
The following tables present the balance in the allowance for loan losses and the recorded investment in loans based on portfolio segment and impairment method as of and for the periods ended September 30, 2017, September 30, 2016, and December 31, 2016.
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September 30, 2017 | ||||||||||||||||||||||||||||||||||||
Commercial | Agricultural | |||||||||||||||||||||||||||||||||||
1-4 Family | Real Estate | Real Estate | Home Equity | Commercial | Agricultural | Consumer | Unallocated | Total | ||||||||||||||||||||||||||||
Allowance for Loan Losses: | ||||||||||||||||||||||||||||||||||||
Beginning Balance, July 1, 2017 | $ | 772,492 | $ | 1,208,531 | $ | 220,860 | $ | 151,666 | $ | 316,514 | $ | 109,865 | $ | 172,613 | $ | 99,920 | $ | 3,052,461 | ||||||||||||||||||
Provision charged to expense | (24,925 | ) | (115,121 | ) | 3,762 | (58,828 | ) | 109,298 | 40,998 | 74,205 | 611 | 30,000 | ||||||||||||||||||||||||
Losses charged off | - | - | - | - | (2,706 | ) | - | (9,268 | ) | - | (11,974 | ) | ||||||||||||||||||||||||
Recoveries | 5,659 | 5,809 | - | 525 | 28 | - | 1,426 | - | 13,447 | |||||||||||||||||||||||||||
Ending balance, September 30, 2017 | $ | 753,226 | $ | 1,099,219 | $ | 224,622 | $ | 93,363 | $ | 423,134 | $ | 150,863 | $ | 238,976 | $ | 100,531 | $ | 3,083,934 | ||||||||||||||||||
Beginning Balance, January 1, 2017 | $ | 832,000 | $ | 1,044,553 | $ | 191,359 | $ | 173,626 | $ | 301,478 | $ | 167,469 | $ | 182,653 | $ | 114,257 | $ | 3,007,395 | ||||||||||||||||||
Provision charged to expense | (54,914 | ) | 39,177 | 33,263 | (83,838 | ) | 124,305 | (16,606 | ) | 62,339 | (13,726 | ) | 90,000 | |||||||||||||||||||||||
Losses charged off | (41,782 | ) | - | - | (2,706 | ) | - | (13,041 | ) | - | (57,529 | ) | ||||||||||||||||||||||||
Recoveries | 17,922 | 15,489 | - | 3,575 | 57 | - | 7,025 | - | 44,068 | |||||||||||||||||||||||||||
Ending balance, September 30, 2017 | $ | 753,226 | $ | 1,099,219 | $ | 224,622 | $ | 93,363 | $ | 423,134 | $ | 150,863 | $ | 238,976 | $ | 100,531 | $ | 3,083,934 | ||||||||||||||||||
Ending balance: individually evaluated for impairment | $ | 233,432 | $ | 774,201 | $ | - | $ | - | $ | 178,993 | $ | 3,731 | $ | - | $ | - | $ | 1,190,357 | ||||||||||||||||||
Ending balance: collectively evaluated for impairment | $ | 519,794 | $ | 325,018 | $ | 224,622 | $ | 93,363 | $ | 244,141 | $ | 147,132 | $ | 238,976 | $ | 100,531 | $ | 1,893,577 | ||||||||||||||||||
Loans: | ||||||||||||||||||||||||||||||||||||
Ending balance | $ | 45,438,266 | $ | 38,642,318 | $ | 39,957,890 | $ | 10,110,539 | $ | 24,702,765 | $ | 12,212,504 | $ | 16,141,791 | $ | - | $ | 187,206,073 | ||||||||||||||||||
Ending balance: individually evaluated for impairment | $ | 696,670 | $ | 1,999,362 | $ | - | $ | 57,528 | $ | 623,744 | $ | 375,951 | $ | - | $ | - | $ | 3,753,255 | ||||||||||||||||||
Ending balance:
collectively evaluated for impairment | $ | 44,741,596 | $ | 36,642,956 | $ | 39,957,890 | $ | 10,053,011 | $ | 24,079,021 | $ | 11,836,553 | $ | 16,141,791 | $ | - | $ | 183,452,818 |
17 |
September 30, 2016 | ||||||||||||||||||||||||||||||||||||
Commercial | Agricultural | |||||||||||||||||||||||||||||||||||
1-4 Family | Real Estate | Real Estate | Home Equity | Commercial | Agricultural | Consumer | Unallocated | Total | ||||||||||||||||||||||||||||
Allowance for Loan Losses: | ||||||||||||||||||||||||||||||||||||
Beginning Balance, July 1, 2016 | $ | 836,512 | $ | 913,730 | $ | 205,633 | $ | 197,901 | $ | 372,287 | $ | 162,663 | $ | 172,430 | $ | 97,409 | $ | 2,958,565 | ||||||||||||||||||
Provision charged to expense | 20,848 | (25,754 | ) | (17,258 | ) | 2,785 | (1,514 | ) | 33,389 | 14,870 | 2,634 | 30,000 | ||||||||||||||||||||||||
Losses charged off | (7,803 | ) | - | - | - | - | - | (8,602 | ) | - | (16,405 | ) | ||||||||||||||||||||||||
Recoveries | 5,340 | 5,808 | - | 525 | - | - | 764 | - | 12,437 | |||||||||||||||||||||||||||
Ending balance, September 30, 2016 | $ | 854,897 | $ | 893,784 | $ | 188,375 | $ | 201,211 | $ | 370,773 | $ | 196,052 | $ | 179,462 | $ | 100,043 | $ | 2,984,597 | ||||||||||||||||||
Beginning Balance, January 1, 2016 | $ | 829,604 | $ | 917,526 | $ | 201,918 | $ | 149,253 | $ | 386,620 | $ | 163,346 | $ | 169,381 | $ | 101,946 | $ | 2,919,594 | ||||||||||||||||||
Provision charged to expense | 45,349 | (32,550 | ) | (13,543 | ) | 50,383 | (15,963 | ) | 32,706 | 25,521 | (1,903 | ) | 90,000 | |||||||||||||||||||||||
Losses charged off | (34,682 | ) | - | - | - | - | - | (20,501 | ) | - | (55,183 | ) | ||||||||||||||||||||||||
Recoveries | 14,626 | 8,808 | - | 1,575 | 116 | - | 5,061 | - | 30,186 | |||||||||||||||||||||||||||
Ending balance, September 30, 2016 | $ | 854,897 | $ | 893,784 | $ | 188,375 | $ | 201,211 | $ | 370,773 | $ | 196,052 | $ | 179,462 | $ | 100,043 | $ | 2,984,597 | ||||||||||||||||||
Ending balance: individually evaluated for impairment | $ | 257,165 | $ | 503,492 | $ | - | $ | - | $ | 108,485 | $ | - | $ | - | $ | - | $ | 869,142 | ||||||||||||||||||
Ending balance: collectively evaluated for impairment | $ | 597,732 | $ | 390,292 | $ | 188,375 | $ | 201,211 | $ | 262,288 | $ | 196,052 | $ | 179,462 | $ | 100,043 | $ | 2,115,455 | ||||||||||||||||||
Loans: | ||||||||||||||||||||||||||||||||||||
Ending balance | $ | 46,125,444 | $ | 41,504,664 | $ | 37,674,941 | $ | 11,427,197 | $ | 23,256,734 | $ | 13,833,991 | $ | 14,540,615 | $ | - | $ | 188,363,586 | ||||||||||||||||||
Ending balance: individually evaluated for impairment | $ | 626,578 | $ | 1,177,278 | $ | - | $ | 56,409 | $ | 248,735 | $ | - | $ | - | $ | - | $ | 2,109,000 | ||||||||||||||||||
Ending balance: collectively evaluated for impairment | $ | 45,498,866 | $ | 40,327,386 | $ | 37,674,941 | $ | 11,370,788 | $ | 23,007,999 | $ | 13,833,991 | $ | 14,540,615 | $ | - | $ | 186,254,586 |
18 |
December 31, 2016 | ||||||||||||||||||||||||||||||||||||
Commercial | Agricultural | |||||||||||||||||||||||||||||||||||
1-4 Family | Real Estate | Real Estate | Home Equity | Commercial | Agricultural | Consumer | Unallocated | Total | ||||||||||||||||||||||||||||
Allowance for Loan Losses: | ||||||||||||||||||||||||||||||||||||
Beginning Balance, January 1, 2016 | $ | 829,604 | $ | 917,526 | $ | 201,918 | $ | 149,253 | $ | 386,620 | $ | 163,346 | $ | 169,381 | $ | 101,946 | $ | 2,919,594 | ||||||||||||||||||
Provision charged to expense | 14,683 | 112,411 | (10,559 | ) | 22,273 | (85,258 | ) | 4,123 | 50,016 | 12,311 | 120,000 | |||||||||||||||||||||||||
Losses charged off | (38,171 | ) | - | - | - | - | - | (43,777 | ) | - | (81,948 | ) | ||||||||||||||||||||||||
Recoveries | 25,884 | 14,616 | - | 2,100 | 116 | - | 7,033 | - | 49,749 | |||||||||||||||||||||||||||
Ending balance, December 31, 2016 | $ | 832,000 | $ | 1,044,553 | $ | 191,359 | $ | 173,626 | $ | 301,478 | $ | 167,469 | $ | 182,653 | $ | 114,257 | $ | 3,007,395 | ||||||||||||||||||
Ending balance: individually evaluated for impairment | $ | 304,922 | $ | 723,481 | $ | - | $ | - | $ | 56,409 | $ | - | $ | - | $ | - | $ | 1,084,812 | ||||||||||||||||||
Ending balance: collectively evaluated for impairment | $ | 527,078 | $ | 321,072 | $ | 191,359 | $ | 173,626 | $ | 245,069 | $ | 167,469 | $ | 182,653 | $ | 114,257 | $ | 1,922,583 | ||||||||||||||||||
Loans: | ||||||||||||||||||||||||||||||||||||
Ending balance | $ | 45,311,103 | $ | 41,477,480 | $ | 38,271,758 | $ | 11,606,002 | $ | 21,617,744 | $ | 14,649,622 | $ | 14,543,356 | $ | - | $ | 187,477,065 | ||||||||||||||||||
Ending balance: individually evaluated for impairment | $ | 713,151 | $ | 1,658,323 | $ | - | $ | 54,011 | $ | 155,067 | $ | - | $ | - | $ | - | $ | 2,580,552 | ||||||||||||||||||
Ending balance: collectively evaluated for impairment | $ | 44,597,952 | $ | 39,819,157 | $ | 38,271,758 | $ | 11,551,991 | $ | 21,462,677 | $ | 14,649,622 | $ | 14,543,356 | $ | - | $ | 184,896,513 |
19 |
Management’s opinion as to the ultimate collectability of loans is subject to estimates regarding future cash flows from operations and the value of property, real and personal, pledged as collateral. These estimates are affected by changing economic conditions and the economic prospects of borrowers.
The allowance for loan losses is maintained at a level that, in management’s judgment, is adequate to cover probable credit losses inherent in the loan portfolio at the balance sheet date. The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to earnings. Loan losses are charged against the allowance when management believes the uncollectability of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.
The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectability of the loans in light of historical experience, the size and composition of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.
The allowance consists of allocated and general components. The allocated component relates to loans that are classified as impaired. For those 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.
A loan is considered impaired when, based on current information and events, it is probable that the scheduled payments of principal or interest will not be able to be collected when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan 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 for commercial and agricultural loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price or the fair value of the collateral if the loan is collateral dependent.
Groups of loans with similar risk characteristics are collectively evaluated for impairment based on the group’s historical loss experience adjusted for changes in trends, conditions and other relevant factors that affect repayment of the loans. Accordingly, individual consumer and residential loans are not separately identified for impairment measurements, unless such loans are the subject of a restructuring agreement due to financial difficulties of the borrower.
The general component covers non-classified loans and is based on historical charge-off experience and expected loss given the internal risk rating process. The loan portfolio is stratified into homogeneous groups of loans that possess similar loss characteristics and an appropriate loss ratio adjusted for other qualitative factors is applied to the homogeneous pools of loans to estimate the incurred losses in the loan portfolio.
There have been no changes to the Company’s accounting policies or methodology from the prior periods.
20 |
Credit Quality Indicators
The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis is performed on all loans at origination. In addition, lending relationships over $750,000, new commercial and commercial real estate loans, and watch list credits are reviewed annually by our external loan review department in order to verify risk ratings. The Company uses the following definitions for risk ratings:
Special Mention – Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.
Substandard – Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that 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.
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 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 present the credit risk profile of the Company’s loan portfolio based on rating category and payment activity as of September 30, 2017 and December 31, 2016.
1-4 Family | Commercial Real Estate | Agricultural Real Estate | Home Equity | |||||||||||||||||||||||||||||
September 30, | December 31, | September 30, | December 31, | September 30, | December 31, | September 30, | December 31, | |||||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | |||||||||||||||||||||||||
Rating: | ||||||||||||||||||||||||||||||||
Pass | $ | 42,608,502 | $ | 42,327,337 | $ | 36,033,628 | $ | 39,078,740 | $ | 39,721,390 | $ | 38,271,758 | $ | 9,893,071 | $ | 10,790,377 | ||||||||||||||||
Special Mention | 922,169 | 1,016,025 | 329,014 | 429,877 | - | - | 55,741 | 70,983 | ||||||||||||||||||||||||
Substandard | 1,907,595 | 1,967,741 | 2,279,676 | 1,968,863 | 236,500 | - | 161,727 | 744,642 | ||||||||||||||||||||||||
Total | $ | 45,438,266 | $ | 45,311,103 | $ | 38,642,318 | $ | 41,477,480 | $ | 39,957,890 | $ | 38,271,758 | $ | 10,110,539 | $ | 11,606,002 |
Commercial | Agricultural | Consumer | Total | |||||||||||||||||||||||||||||
September 30, | December 31, | September 30, | December 31, | September 30, | December 31, | September 30, | December 31, | |||||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | |||||||||||||||||||||||||
Rating: | ||||||||||||||||||||||||||||||||
Pass | $ | 24,058,706 | $ | 21,141,466 | $ | 11,212,515 | $ | 13,845,865 | $ | 15,422,443 | $ | 14,361,125 | $ | 178,950,255 | $ | 179,816,668 | ||||||||||||||||
Special Mention | 14,313 | 100,234 | 186,807 | 803,757 | 28,680 | 10,575 | 1,536,724 | 2,431,451 | ||||||||||||||||||||||||
Substandard | 629,746 | 376,044 | 813,182 | - | 690,668 | 171,656 | 6,719,094 | 5,228,946 | ||||||||||||||||||||||||
Total | $ | 24,702,765 | $ | 21,617,744 | $ | 12,212,504 | $ | 14,649,622 | $ | 16,141,791 | $ | 14,543,356 | $ | 187,206,073 | $ | 187,477,065 |
21 |
The following tables present the Company’s loan portfolio aging analysis as of September 30, 2017 and December 31, 2016.
September 30, 2017 | ||||||||||||||||||||||||||||
30-59 Days | 60-89 Days | Greater than 90 | Total | Total Loans >90 | ||||||||||||||||||||||||
Past Due | Past Due | Days Past Due | Past Due | Current | Total Loans | Days & Accruing | ||||||||||||||||||||||
One-to-four family residential | $ | 397,573 | $ | 164,948 | $ | 189,925 | $ | 752,446 | $ | 44,685,820 | $ | 45,438,266 | $ | - | ||||||||||||||
Commercial real estate | - | - | 19,195 | 19,195 | 38,623,123 | 38,642,318 | - | |||||||||||||||||||||
Agricultural real estate | - | - | - | - | 39,957,890 | 39,957,890 | - | |||||||||||||||||||||
Home equity | 84,518 | 87,090 | - | 171,608 | 9,938,931 | 10,110,539 | - | |||||||||||||||||||||
Commercial | - | 6,315 | 5,000 | 11,315 | 24,691,450 | 24,702,765 | - | |||||||||||||||||||||
Agricultural | - | - | - | - | 12,212,504 | 12,212,504 | - | |||||||||||||||||||||
Consumer | 80,042 | 28,390 | 19,238 | 127,670 | 16,014,121 | 16,141,791 | - | |||||||||||||||||||||
Total | $ | 562,133 | $ | 286,743 | $ | 233,358 | $ | 1,082,234 | $ | 186,123,839 | $ | 187,206,073 | $ | - |
December 31, 2016 | ||||||||||||||||||||||||||||
30-59 Days | 60-89 Days | Greater than 90 | Total | Total Loans >90 | ||||||||||||||||||||||||
Past Due | Past Due | Days Past Due | Past Due | Current | Total Loans | Days & Accruing | ||||||||||||||||||||||
One-to-four family residential | $ | 237,783 | $ | 136,340 | $ | 544,425 | $ | 918,548 | $ | 44,392,555 | $ | 45,311,103 | $ | - | ||||||||||||||
Commercial real estate | - | 16,273 | - | 16,273 | 41,461,207 | 41,477,480 | - | |||||||||||||||||||||
Agricultural real estate | - | - | - | - | 38,271,758 | 38,271,758 | - | |||||||||||||||||||||
Home equity | 151,482 | - | - | 151,482 | 11,454,520 | 11,606,002 | - | |||||||||||||||||||||
Commercial | - | 41,474 | 13,309 | 54,783 | 21,562,961 | 21,617,744 | - | |||||||||||||||||||||
Agricultural | - | - | - | - | 14,649,622 | 14,649,622 | - | |||||||||||||||||||||
Consumer | 68,077 | 17,757 | 72,150 | 157,984 | 14,385,372 | 14,543,356 | - | |||||||||||||||||||||
Total | $ | 457,342 | $ | 211,844 | $ | 629,884 | $ | 1,299,070 | $ | 186,177,995 | $ | 187,477,065 | $ | - |
The accrual of interest on loans is generally discontinued at the time the loan is 90 days past due unless the credit is well-secured and in process of collection. Past due status is based on contractual terms of the loan. In all cases, loans are placed on non-accrual or charged-off at an earlier date if collection of principal and interest is considered doubtful.
All interest accrued but not collected for loans that are placed on non-accrual or charged-off are reversed against interest income. The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all principal and interest amounts contractually due are brought current and future payments are reasonably assured.
The Company actively seeks to reduce its investment in impaired loans. The primary tools to work through impaired loans are settlement with the borrowers or guarantors, foreclosure of the underlying collateral, or restructuring.
The Company will restructure loans when the borrower demonstrates the inability to comply with the terms of the loan, but can demonstrate the ability to meet acceptable restructured terms. Restructurings generally include one or more of the following restructuring options; reduction in the interest rate on the loan, payment extensions, forgiveness of principal, forbearance, or other actions intended to maximize collection. Restructured loans in compliance with modified terms are classified as impaired.
22 |
The following tables present impaired loans at or for the three and nine months ended September 30, 2017 and for the year ended December 31, 2016.
Three Months Ended September 30, 2017 | ||||||||||||||||||||||||
Average | Interest | |||||||||||||||||||||||
Unpaid | Impairment in | Interest | Income | |||||||||||||||||||||
Recorded | Principal | Specific | Impaired | Income | Recognized | |||||||||||||||||||
Balance | Balance | Allowance | Loans | Recognized | Cash Basis | |||||||||||||||||||
Loans without a specific allowance: | ||||||||||||||||||||||||
One-to-four family residential | $ | 213,176 | $ | 213,176 | $ | - | $ | 238,138 | $ | 3,052 | $ | 2,783 | ||||||||||||
Commercial real estate | 531,007 | 531,007 | - | 553,564 | - | - | ||||||||||||||||||
Home equity | 57,528 | 57,528 | - | 52,363 | 919 | 747 | ||||||||||||||||||
Commercial | 444,751 | 444,751 | - | 459,111 | 5,877 | 4,844 | ||||||||||||||||||
Loans with a specific allowance: | ||||||||||||||||||||||||
One-to-four family residential | 483,494 | 483,494 | 233,432 | 487,986 | 6,235 | 6,375 | ||||||||||||||||||
Commercial real estate | 1,468,355 | 1,468,355 | 774,201 | 1,522,556 | 13,669 | 19,792 | ||||||||||||||||||
Commercial | 178,993 | 178,993 | 178,993 | 192,546 | - | - | ||||||||||||||||||
Agricultural | 375,951 | 375,951 | 3,731 | 376,571 | 4,431 | 2,987 | ||||||||||||||||||
Total: | ||||||||||||||||||||||||
One-to-four family residential | 696,670 | 696,670 | 233,432 | 726,124 | 9,287 | 9,158 | ||||||||||||||||||
Commercial real estate | 1,999,362 | 1,999,362 | 774,201 | 2,076,120 | 13,669 | 19,792 | ||||||||||||||||||
Home equity | 57,528 | 57,528 | - | 52,363 | 919 | 747 | ||||||||||||||||||
Commercial | 623,744 | 623,744 | 178,993 | 651,657 | 5,877 | 4,844 | ||||||||||||||||||
Agricultural | 375,951 | 375,951 | 3,731 | 376,571 | 4,431 | 2,987 | ||||||||||||||||||
Total | $ | 3,753,255 | $ | 3,753,255 | $ | 1,190,357 | $ | 3,882,835 | $ | 34,183 | $ | 37,528 |
23 |
Nine Months Ended September 30, 2017 | ||||||||||||||||||||||||
Average | Interest | |||||||||||||||||||||||
Unpaid | Impairment in | Interest | Income | |||||||||||||||||||||
Recorded | Principal | Specific | Impaired | Income | Recognized | |||||||||||||||||||
Balance | Balance | Allowance | Loans | Recognized | Cash Basis | |||||||||||||||||||
Loans without a specific allowance: | ||||||||||||||||||||||||
One-to-four family residential | $ | 213,176 | $ | 213,176 | $ | - | $ | 249,949 | $ | 9,842 | $ | 9,829 | ||||||||||||
Commercial real estate | 531,007 | 531,007 | - | 554,029 | 20,982 | 22,972 | ||||||||||||||||||
Home equity | 57,528 | 57,528 | - | 52,379 | 2,703 | 2,419 | ||||||||||||||||||
Commercial | 444,751 | 444,751 | - | 487,847 | 18,545 | 15,514 | ||||||||||||||||||
Loans with a specific allowance: | ||||||||||||||||||||||||
One-to-four family residential | 483,494 | 483,494 | 233,432 | 494,089 | 18,881 | 16,243 | ||||||||||||||||||
Commercial real estate | 1,468,355 | 1,468,355 | 774,201 | 1,536,774 | 58,510 | 62,584 | ||||||||||||||||||
Commercial | 178,993 | 178,993 | 178,993 | 195,571 | 1,646 | 1,317 | ||||||||||||||||||
Agricultural | 375,951 | 375,951 | 3,731 | 383,775 | 13,641 | 26,240 | ||||||||||||||||||
Total: | ||||||||||||||||||||||||
One-to-four family residential | 696,670 | 696,670 | 233,432 | 744,038 | 28,723 | 26,072 | ||||||||||||||||||
Commercial real estate | 1,999,362 | 1,999,362 | 774,201 | 2,090,803 | 79,492 | 85,556 | ||||||||||||||||||
Home equity | 57,528 | 57,528 | - | 52,379 | 2,703 | 2,419 | ||||||||||||||||||
Commercial | 623,744 | 623,744 | 178,993 | 683,418 | 20,191 | 16,831 | ||||||||||||||||||
Agricultural | 375,951 | 375,951 | 3,731 | 383,775 | 13,641 | 26,240 | ||||||||||||||||||
Total | $ | 3,753,255 | $ | 3,753,255 | $ | 1,190,357 | $ | 3,954,413 | $ | 144,750 | $ | 157,118 |
24 |
Year Ended December 31, 2016 | ||||||||||||||||||||||||
Average | Interest | |||||||||||||||||||||||
Unpaid | Impairment in | Interest | Income | |||||||||||||||||||||
Recorded | Principal | Specific | Impaired | Income | Recognized | |||||||||||||||||||
Balance | Balance | Allowance | Loans | Recognized | Cash Basis | |||||||||||||||||||
Loans without a specific allowance: | ||||||||||||||||||||||||
One-to-four family residential | $ | 39,598 | $ | 39,598 | $ | - | $ | 41,880 | $ | 2,653 | $ | 2,888 | ||||||||||||
Commercial real estate | 120,172 | 120,172 | - | 272,557 | 13,499 | 14,061 | ||||||||||||||||||
Commercial | 61,483 | 61,483 | - | 87,359 | 4,332 | 4,419 | ||||||||||||||||||
Home equity | 54,011 | 54,011 | - | 54,067 | 3,670 | 3,871 | ||||||||||||||||||
Loans with a specific allowance: | ||||||||||||||||||||||||
One-to-four family residential | 673,553 | 673,553 | 304,922 | 719,834 | 41,323 | 34,208 | ||||||||||||||||||
Commercial real estate | 1,538,151 | 1,538,151 | 723,481 | 1,572,203 | 68,918 | 64,878 | ||||||||||||||||||
Commercial | 93,584 | 93,584 | 56,409 | 165,473 | 7,580 | 7,814 | ||||||||||||||||||
Total: | ||||||||||||||||||||||||
One-to-four family residential | 713,151 | 713,151 | 304,922 | 761,714 | 43,976 | 37,096 | ||||||||||||||||||
Commercial real estate | 1,658,323 | 1,658,323 | 723,481 | 1,844,760 | 82,417 | 78,939 | ||||||||||||||||||
Commercial | 155,067 | 155,067 | 56,409 | 252,832 | 11,912 | 12,233 | ||||||||||||||||||
Home equity | 54,011 | 54,011 | - | 54,067 | 3,670 | 3,871 | ||||||||||||||||||
Total | $ | 2,580,552 | $ | 2,580,552 | $ | 1,084,812 | $ | 2,913,373 | $ | 141,975 | $ | 132,139 |
Included in certain loan categories in the impaired loans are troubled debt restructurings (TDRs), where economic concessions have been granted to borrowers who have experienced financial difficulties. These concessions typically result from our loss mitigation activities and could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance or other actions. TDRs are considered impaired at the time of restructuring and typically are returned to accrual status after considering the borrower’s sustained repayment performance for a reasonable period of time, usually at least six months.
When loans are modified into a TDR, the Company evaluates any possible impairment similar to other impaired loans based on the present value of expected cash flows, discounted at the contractual interest rate of the original loan agreement, or based upon on the current fair value of the collateral, less selling costs for collateral dependent loans. If the Company determines that the value of the modified loan is less than the recorded investment in the loan (net of previous charge-offs, deferred loan fees or costs and unamortized premium or discount), impairment is recognized through an allowance estimate or a charge-off to the allowance. In periods subsequent to modification, the Company evaluates all TDRs, including those that have payment defaults, for possible impairment and recognizes impairment through the allowance.
25 |
The following table presents the recorded balance, at original cost, of TDRs, as of September 30, 2017 and December 31, 2016.
September 30, 2017 | December 31, 2016 | |||||||
One-to-four family residential | $ | 670,248 | $ | 836,867 | ||||
Commercial real estate | 1,302,423 | 1,362,088 | ||||||
Agricultural real estate | 236,500 | - | ||||||
Home equity | 4,796 | 6,009 | ||||||
Commercial loans | 392,159 | 245,710 | ||||||
Agricultural loans | 93,914 | - | ||||||
Consumer loans | 70,303 | 81,880 | ||||||
Total | $ | 2,770,343 | $ | 2,532,554 |
The following table presents the recorded balance, at original cost, of TDRs, which were performing according to the terms of the restructuring, as of September 30, 2017 and December 31, 2016.
September 30, 2017 | December 31, 2016 | |||||||
One-to-four family residential | $ | 636,332 | $ | 666,744 | ||||
Commercial real estate | 1,302,423 | 1,362,088 | ||||||
Agricultural real estate | 236,500 | - | ||||||
Home equity | 4,796 | 6,009 | ||||||
Commercial loans | 392,159 | 245,710 | ||||||
Agricultural loans | 93,914 | - | ||||||
Consumer loans | 70,303 | 57,540 | ||||||
Total | $ | 2,736,427 | $ | 2,338,091 |
The following tables present loans modified as TDRs during the three and nine months ended September 30, 2017 and 2016.
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, 2017 | September 30, 2017 | |||||||||||||||
Number of | Recorded | Number of | Recorded | |||||||||||||
Modifications | Investment | Modifications | Investment | |||||||||||||
One-to-four family residential | - | $ | - | 2 | $ | 90,333 | ||||||||||
Commercial real estate | - | - | 1 | 456,158 | ||||||||||||
Agricultural real estate | - | - | 1 | 236,500 | ||||||||||||
Home equity | - | - | - | - | ||||||||||||
Commercial loans | 1 | 134,446 | 2 | 178,993 | ||||||||||||
Agricultural loans | - | - | 1 | 93,914 | ||||||||||||
Consumer loans | 1 | 1,604 | 1 | 1,604 | ||||||||||||
Total | 2 | $ | 136,050 | 8 | $ | 1,057,502 |
26 |
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, 2016 | September 30, 2016 | |||||||||||||||
Number of | Recorded | Number of | Recorded | |||||||||||||
Modifications | Investment | Modifications | Investment | |||||||||||||
One-to-four family residential | - | $ | - | 1 | $ | 40,626 | ||||||||||
Commercial real estate | 1 | 719,022 | 1 | 719,022 | ||||||||||||
Agricultural real estate | - | - | - | - | ||||||||||||
Home equity | - | - | - | - | ||||||||||||
Commercial loans | 1 | 218,331 | 1 | 218,331 | ||||||||||||
Agricultural loans | - | - | - | - | ||||||||||||
Consumer loans | - | - | - | - | ||||||||||||
Total | 2 | $ | 937,353 | 3 | $ | 977,979 |
2017 Modifications
The Company modified two residential real estate loans totaling $90,333. The modifications were made to lower the rate on one note and extend the payment schedule on the other note for three months. The Company modified one commercial real estate loan with a recorded investment of $456,158. The modification was made to lower the rate and extend the amortization. The Company modified one agricultural real estate loan with a recorded investment of $236,500. The modification was made to consolidate notes and extend the amortization. The Company modified two commercial loans with a recorded investment of $178,993. One modification was made to combine three notes and lower the rate and the other was made to consolidate two notes, capitalize interest, and extend the term. The Company modified one agricultural loan with a recorded investment of $93,914. The modification was made to extend the principal payment for nine months. The Company modified one consumer loan with a recorded investment of $1,604. The modification was made to extend the term and lower the payments. The modifications did not result in a write-off of the principal balance of any loan nor was there a significant difference between the pre-modification balance and the post-modification balance.
2016 Modifications
The Company modified one residential real estate loan with a recorded investment of $40,626. The modification was made to restructure the loan and capitalize delinquent real estate taxes. The Company modified one commercial real estate loan with a recorded investment of $719,022. The modification was made to lower the rate, extend the amortization, and capitalize interest and escrow funds as part of a bankruptcy restructuring. The Company modified one commercial loan with a recorded investment of $218,331. The modification was made to require interest only payments for four months. The modifications did not result in a write-off of the principal balance of any loan nor was there a significant difference between the pre-modification balance and the post-modification balance.
TDRs with Defaults
Management considers the level of defaults within the various portfolios when evaluating qualitative adjustments used to determine the adequacy of the allowance for loan losses. During the nine month period ended September 30, 2017, we had no defaulted TDRs as none were more than 90 days past due at September 30, 2017. Default occurs when a loan is 90 days or more past due, transferred to nonaccrual or charged-off, and is within twelve months of restructuring.
27 |
During the nine month period ended September 30, 2016, three residential real estate loans of $176,483 were considered defaulted TDRs as they were more than 90 days past due at September 30, 2016.
The following table presents the Company’s nonaccrual loans at September 30, 2017 and December 31, 2016. This table excludes performing troubled debt restructurings.
September 30, 2017 | December 31, 2016 | |||||||
One-to-four family residential | $ | 353,531 | $ | 590,514 | ||||
Commercial real estate | 682,665 | 708,922 | ||||||
Agricultural real estate | - | - | ||||||
Home equity | 40,218 | 49,542 | ||||||
Commercial loans | 140,448 | 16,561 | ||||||
Agricultural loans | - | - | ||||||
Consumer loans | 118,722 | 164,472 | ||||||
Total | $ | 1,335,584 | $ | 1,530,011 |
6. | INVESTMENTS |
The amortized cost and approximate fair value of securities, all of which are classified as available-for-sale, are as follows:
Gross | Gross | |||||||||||||||
Amortized | Unrealized | Unrealized | ||||||||||||||
Cost | Gains | Losses | Fair Value | |||||||||||||
September 30, 2017: | ||||||||||||||||
U.S. government and agencies | $ | 11,374,351 | $ | - | $ | (307,519 | ) | $ | 11,066,832 | |||||||
Mortgage-backed securities (government-sponsored enterprises - residential) | 56,208,061 | 44,247 | (355,324 | ) | 55,896,984 | |||||||||||
Municipal bonds | 37,924,484 | 924,596 | (137,350 | ) | 38,711,730 | |||||||||||
$ | 105,506,896 | $ | 968,843 | $ | (800,193 | ) | $ | 105,675,546 | ||||||||
December 31, 2016: | ||||||||||||||||
U.S. government and agencies | $ | 13,985,863 | $ | 9,641 | $ | (661,964 | ) | $ | 13,333,540 | |||||||
Mortgage-backed securities (government-sponsored enterprises - residential) | 45,457,262 | 70,512 | (1,114,597 | ) | 44,413,177 | |||||||||||
Municipal bonds | 42,500,579 | 558,776 | (644,632 | ) | 42,414,723 | |||||||||||
$ | 101,943,704 | $ | 638,929 | $ | (2,421,193 | ) | $ | 100,161,440 |
The amortized cost and fair value of available-for-sale securities at September 30, 2017, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.
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Amortized | Fair | |||||||
Cost | Value | |||||||
Within one year | $ | 323,234 | $ | 323,369 | ||||
More than one year to five years | 4,530,741 | 4,622,781 | ||||||
More than five years to ten years | 20,150,121 | 20,452,615 | ||||||
After ten years | 24,294,739 | 24,379,797 | ||||||
49,298,835 | 49,778,562 | |||||||
Mortgage-backed securities (government- sponsored enterprises - residential) | 56,208,061 | 55,896,984 | ||||||
$ | 105,506,896 | $ | 105,675,546 |
The carrying value of securities pledged as collateral, to secure public deposits and for other purposes, was $59,039,000 at September 30, 2017 and $42,463,000 at December 31, 2016.
The book value of securities sold under agreement to repurchase amounted to $7,196,000 at September 30, 2017 and $7,135,000 at December 31, 2016. At September 30, 2017, we had $2,065,000 of repurchase agreements secured by U.S. government agency bonds and $5,262,000 of repurchase agreements secured by mortgage backed securities. All of our repurchase agreements mature overnight. The right of offset for a repurchase agreement resembles a secured borrowing, whereby the collateral pledged by the Company would be used to settle the fair value of the repurchase agreement should the Company be in default. The collateral is held by the Company in a segregated custodial account. In the event the collateral fair value falls below stipulated levels, the Company will pledge additional securities. The Company closely monitors collateral levels to ensure adequate levels are maintained.
Gross gains of $107,000 and $84,000 and gross losses of $9,000 and $0 resulting from sales of available-for-sale securities were realized during the three months ended September 30, 2017 and 2016, respectively. Gross gains of $333,000 and $295,000 and gross losses of $9,000 and $3,000 resulting from sales of available-for-sale securities were realized during the nine months ended September 30, 2017 and 2016, respectively.
Certain investments in debt securities are reported in the financial statements at an amount less than their historical cost. Total fair value of these investments at September 30, 2017 and December 31, 2016 were $61,146,000, and $71,583,000, respectively, which were approximately 58% and 71% of the Company’s available-for-sale investment portfolio.
Management believes the declines in fair value for these securities are temporary. Should the impairment of any of these securities become other than temporary, the cost basis of the investment will be reduced and the resulting loss recognized in net income in the period the other-than-temporary impairment is identified.
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The following table shows the gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous loss position, at September 30, 2017 and December 31, 2016.
Less Than Twelve Months | Twelve Months or More | Total | ||||||||||||||||||||||
Gross | Gross | Gross | ||||||||||||||||||||||
Unrealized | Fair | Unrealized | Fair | Unrealized | Fair | |||||||||||||||||||
Losses | Value | Losses | Value | Losses | Value | |||||||||||||||||||
September 30, 2017: | ||||||||||||||||||||||||
U.S. government agencies | $ | (216,312 | ) | $ | 8,216,077 | $ | (91,207 | ) | $ | 2,850,755 | $ | (307,519 | ) | $ | 11,066,832 | |||||||||
Mortgage-backed securities (government sponsored enterprises - residential) | (259,857 | ) | 35,222,201 | (95,467 | ) | 6,881,713 | (355,324 | ) | 42,103,914 | |||||||||||||||
Municipal bonds | (81,973 | ) | 5,810,654 | (55,377 | ) | 2,164,130 | $ | (137,350 | ) | $ | 7,974,784 | |||||||||||||
Total | $ | (558,142 | ) | $ | 49,248,932 | $ | (242,051 | ) | $ | 11,896,598 | $ | (800,193 | ) | $ | 61,145,530 | |||||||||
December 31, 2016: | ||||||||||||||||||||||||
U.S. government agencies | $ | (661,964 | ) | $ | 12,333,924 | $ | - | $ | - | $ | (661,964 | ) | $ | 12,333,924 | ||||||||||
Mortgage-backed securities (government sponsored enterprises - residential) | (1,114,597 | ) | 37,144,915 | - | - | (1,114,597 | ) | 37,144,915 | ||||||||||||||||
Municipal bonds | (644,632 | ) | 22,104,420 | - | - | (644,632 | ) | 22,104,420 | ||||||||||||||||
Total | $ | (2,421,193 | ) | $ | 71,583,259 | $ | - | $ | - | $ | (2,421,193 | ) | $ | 71,583,259 |
The unrealized losses on the Company’s investments in municipal bonds, U.S. government agencies, and mortgage-backed securities were caused by interest rate increases. The contractual terms of these investments do not permit the issuer to settle the securities at a price less than the amortized cost bases of the investments. Because the Company does not intend to sell the investments and it is not more likely than not the Company will be required to sell the investments before recovery of their amortized cost bases, which may be maturity, the Company does not consider these investments to be other-than-temporarily impaired at September 30, 2017 and December 31, 2016.
7. | ACCUMULATED OTHER COMPREHENSIVE INCOME |
The components of accumulated other comprehensive income (loss), included in stockholders’ equity, are as follows:
September 30, 2017 | December 31, 2016 | |||||||
Net unrealized gains on securities available-for-sale | $ | 168,650 | $ | (1,782,264 | ) | |||
Tax effect | (57,341 | ) | 605,970 | |||||
Net-of-tax amount | $ | 111,309 | $ | (1,176,294 | ) |
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8. | CHANGES IN ACCUMULATED OTHER COMPREHENSIVE INCOME (AOCI) BY COMPONENT |
Amounts reclassified from AOCI and the affected line items in the statements of income during the three and nine months ended September 30, 2017 and 2016, were as follows:
Amounts Reclassified | ||||||||||
from AOCI | ||||||||||
Three Months Ended | Affected Line Item in the | |||||||||
September 30, 2017 | September 30, 2016 | Statements of Income | ||||||||
Realized gains on available-for-sale securities | $ | 97,701 | $ | 83,712 | Net realized gains on sales of available-for-sale securities | |||||
Tax effect | (33,218 | ) | (28,462 | ) | Income taxes | |||||
Total reclassification out of AOCI | $ | 64,483 | $ | 55,250 | Net reclassified amount |
Amounts Reclassified | ||||||||||
from AOCI | ||||||||||
Nine Months Ended | Affected Line Item in the | |||||||||
September 30, 2017 | September 30, 2016 | Statements of Income | ||||||||
Realized gains on available-for-sale securities | $ | 324,375 | $ | 291,810 | Net realized gains on sales of available-for-sale securities | |||||
Tax effect | (110,287 | ) | (99,215 | ) | Income taxes | |||||
Total reclassification out of AOCI | $ | 214,088 | $ | 192,595 | Net reclassified amount |
9. | DISCLOSURES ABOUT FAIR VALUE OF ASSETS AND LIABILITIES |
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements must maximize the use of observable inputs and minimize the use of unobservable inputs. There is a hierarchy of three levels of inputs that may be used to measure fair value:
Level 1 | Quoted prices in active markets for identical assets or liabilities |
Level 2 | Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities |
Level 3 | Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities |
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Recurring Measurements
The following table presents the fair value measurements of assets recognized in the accompanying condensed consolidated balance sheets measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fall at September 30, 2017 and December 31, 2016:
September 30, 2017 | ||||||||||||||||
Fair Value Measurements Using | ||||||||||||||||
Quoted Prices | ||||||||||||||||
in Active | Significant | |||||||||||||||
Markets for | Other | Significant | ||||||||||||||
Identical | Observable | Unobservable | ||||||||||||||
Assets | Inputs | Inputs | ||||||||||||||
Fair Value | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
U.S. Government and agencies | $ | 11,066,832 | $ | - | $ | 11,066,832 | $ | - | ||||||||
Mortgage-backed securities (Government sponsored enterprises - residential) | 55,896,984 | - | 55,896,984 | - | ||||||||||||
Municipal bonds | 38,711,730 | - | 38,711,730 | - |
December 31, 2016 | ||||||||||||||||
Fair Value Measurements Using | ||||||||||||||||
Quoted Prices | ||||||||||||||||
in Active | Significant | |||||||||||||||
Markets for | Other | Significant | ||||||||||||||
Identical | Observable | Unobservable | ||||||||||||||
Assets | Inputs | Inputs | ||||||||||||||
Fair Value | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
U.S. Government and agencies | $ | 13,333,540 | $ | - | $ | 13,333,540 | $ | - | ||||||||
Mortgage-backed securities (Government sponsored enterprises - residential) | 44,413,177 | - | 44,413,177 | - | ||||||||||||
Municipal bonds | 42,414,723 | - | 42,414,723 | - |
Following is a description of the valuation methodologies and inputs used for assets measured at fair value on a recurring basis and recognized in the accompanying condensed consolidated balance sheets, as well as the general classification of such assets pursuant to the valuation hierarchy. There have been no significant changes in the valuation techniques during the nine month period ended September 30, 2017.
Available-for-Sale Securities - Where quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. If quoted market prices are not available, then fair values are estimated by using quoted prices of securities with similar characteristics or independent asset pricing services and pricing models, the inputs of which are market-based or independently sourced market parameters, including, but not limited to, yield curves, interest rates, volatilities, prepayments, defaults, cumulative loss projections, and cash flows. Such securities are classified in Level 2 of the valuation hierarchy. In certain cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy.
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Nonrecurring Measurements
The following table presents the fair value measurement of assets measured at fair value on a nonrecurring basis and the level within the fair value hierarchy in which the fair value measurements fall at September 30, 2017 and December 31, 2016:
September 30, 2017 | ||||||||||||||||
Fair Value Measurements Using | ||||||||||||||||
Quoted Prices | ||||||||||||||||
in Active | Significant | |||||||||||||||
Markets for | Other | Significant | ||||||||||||||
Identical | Observable | Unobservable | ||||||||||||||
Assets | Inputs | Inputs | ||||||||||||||
Fair Value | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
Impaired loans (collateral dependent) | $ | 1,357,769 | $ | - | $ | - | $ | 1,357,769 | ||||||||
Real estate owned | 10,500 | - | - | 10,500 |
December 31, 2016 | ||||||||||||||||
Fair Value Measurements Using | ||||||||||||||||
Quoted Prices | ||||||||||||||||
in Active | Significant | |||||||||||||||
Markets for | Other | Significant | ||||||||||||||
Identical | Observable | Unobservable | ||||||||||||||
Assets | Inputs | Inputs | ||||||||||||||
Fair Value | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
Impaired loans (collateral dependent) | $ | 1,157,329 | $ | - | $ | - | $ | 1,157,329 | ||||||||
Mortgage servicing rights | 552,827 | - | - | 552,827 |
Following is a description of the valuation methodologies and inputs used for assets measured at fair value on a nonrecurring basis and recognized in the accompanying condensed consolidated balance sheets, as well as the general classification of such assets pursuant to the valuation hierarchy. For assets classified within Level 3 of the fair value hierarchy, the process used to develop the reported fair value is described below.
Impaired Loans (Collateral Dependent) - The estimated fair value of collateral-dependent impaired loans is based on the appraised fair value of the collateral, less estimated cost to sell. Collateral-dependent impaired loans are classified within Level 3 of the fair value hierarchy.
The Company considers the appraisal or evaluation as the starting point for determining fair value and then considers other factors and events in the environment that may affect the fair value. Appraisals of the collateral underlying collateral-dependent loans are obtained when the loan is determined to be collateral-dependent and subsequently as deemed necessary. Appraisals are reviewed for accuracy and consistency. Appraisers are selected from the list of approved appraisers maintained by management. The appraised values are reduced by discounts to consider lack of marketability and estimated cost to sell if repayment or satisfaction of the loan is dependent on the sale of the collateral.
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Real Estate Owned – Real estate owned is carried at the lower of fair value at acquisition date or current estimated fair value, less estimated cost to sell when the real estate is acquired. Estimated fair value of real estate owned is based on appraisals or evaluations. Real estate owned is classified within Level 3 of the fair value hierarchy.
Appraisals of real estate owned are obtained when the real estate is acquired and subsequently as deemed necessary. Appraisals are reviewed for accuracy and consistency. Appraisers are selected from the list of approved appraisers maintained by management. The estimated fair value of collateral-dependent impaired loans is based on the appraised fair value of the collateral, less estimated cost to sell. Collateral-dependent impaired loans are classified within Level 3 of the fair value hierarchy.
Mortgage Servicing Rights – Mortgage servicing rights do not trade in an active, open market with readily observable prices. Accordingly, fair value is estimated using discounted cash flow models having significant inputs of discount rate, prepayment speed and default rate. Due to the nature of the valuation inputs, mortgage servicing rights are classified within Level 3 of the hierarchy.
Mortgage servicing rights are tested for impairment on at least an annual basis. The Company uses a third-party to measure mortgage servicing rights through the completion of a proprietary model. Inputs to the model are reviewed by the Company.
Unobservable (Level 3) Inputs
The following table presents quantitative information about unobservable inputs used in recurring and nonrecurring Level 3 fair value measurements (dollars in thousands).
Fair Value at 9/30/17 | Valuation Technique | Unobservable Inputs | Range (Weighted Average) | |||||||||
Real estate owned | $ | 10,500 | Market comparable properties | Comparability adjustments (%) | 30% | |||||||
Collateral-dependent impaired loans | 1,357,769 | Market comparable properties | Marketability discount | 25% – 50% (40%) |
Fair Value at 12/31/16 | Valuation Technique | Unobservable Inputs | Range (Weighted Average) | |||||||||
Collateral-dependent impaired loans | 1,157,329 | Market comparable properties | Marketability discount | 20% – 30% (25%) | ||||||||
Mortgage servicing rights | 552,827 | Discounted cash flow | Discount rate PSA standard prepayment model rate | 9% –13.5% (10.25%) 104 – 300 (153) |
Fair Value of Financial Instruments
The following table presents estimated fair values of the Company’s other financial instruments and the level within the fair value hierarchy in which the fair value measurements fall at September 30, 2017 and December 31, 2016
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September 30, 2017 | ||||||||||||||||
Fair Value Measurements Using | ||||||||||||||||
Quoted Prices | Significant | |||||||||||||||
in Active | Other | Significant | ||||||||||||||
Markets for | Observable | Unobservable | ||||||||||||||
Carrying | Identical Assets | Inputs | Inputs | |||||||||||||
Amount | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
Financial Assets | ||||||||||||||||
Cash and cash equivalents | $ | 24,638,617 | $ | 24,638,617 | $ | - | $ | - | ||||||||
Interest-earning time deposits in banks | 998,000 | 998,000 | - | - | ||||||||||||
Other investments | 53,131 | - | 53,131 | - | ||||||||||||
Loans held for sale | 286,328 | - | 286,328 | - | ||||||||||||
Loans, net of allowance for loan losses | 184,130,690 | - | - | 183,510,171 | ||||||||||||
Federal Home Loan Bank stock | 428,500 | - | 428,500 | - | ||||||||||||
Interest receivable | 2,527,625 | - | 2,527,625 | - | ||||||||||||
Financial Liabilities | ||||||||||||||||
Deposits | 272,619,107 | - | 200,500,496 | 72,875,950 | ||||||||||||
Short-term borrowings | 7,196,206 | - | 7,196,206 | - | ||||||||||||
Advances from borrowers for taxes and insurance | 642,305 | - | 642,305 | - | ||||||||||||
Interest payable | 90,266 | - | 90,266 | - | ||||||||||||
Unrecognized financial instruments (net of contract amount) | ||||||||||||||||
Commitments to originate loans | - | - | - | - | ||||||||||||
Letters of credit | - | - | - | - | ||||||||||||
Lines of credit | - | - | - | - |
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December 31, 2016 | ||||||||||||||||
Fair Value Measurements Using | ||||||||||||||||
Quoted Prices | Significant | |||||||||||||||
in Active | Other | Significant | ||||||||||||||
Markets for | Observable | Unobservable | ||||||||||||||
Carrying | Identical Assets | Inputs | Inputs | |||||||||||||
Amount | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
Financial Assets | ||||||||||||||||
Cash and cash equivalents | $ | 12,909,924 | $ | 12,909,924 | $ | - | $ | - | ||||||||
Interest-earning time deposits | 750,000 | 750,000 | - | - | ||||||||||||
Other investments | 55,481 | - | 55,481 | - | ||||||||||||
Loans held for sale | 503,003 | - | 503,003 | - | ||||||||||||
Loans, net of allowance for loan losses | 184,448,003 | - | - | 183,941,877 | ||||||||||||
Federal Home Loan Bank stock | 363,800 | - | 363,800 | - | ||||||||||||
Interest receivable | 1,588,545 | - | 1,588,545 | - | ||||||||||||
Financial Liabilities | ||||||||||||||||
Deposits | 258,677,960 | - | 178,491,424 | 81,241,011 | ||||||||||||
Short-term borrowings | 7,135,182 | - | 7,135,182 | - | ||||||||||||
Advances from borrowers for taxes and insurance | 1,102,204 | - | 1,102,204 | - | ||||||||||||
Interest payable | 106,755 | - | 106,755 | - | ||||||||||||
Unrecognized financial instruments (net of contract amount) | ||||||||||||||||
Commitments to originate loans | - | - | - | - | ||||||||||||
Letters of credit | - | - | - | - | ||||||||||||
Lines of credit | - | - | - | - |
The following methods were used to estimate the fair value of all other financial instruments recognized in the accompanying condensed consolidated balance sheets at amounts other than fair value.
Cash and Cash Equivalents, Interest-Earning Time Deposits in Banks, Interest Receivable, Federal Home Loan Bank Stock, and Other Investments - The carrying amount approximates fair value.
Loans Held for Sale - For homogeneous categories of loans, such as mortgage loans held for sale, fair value is estimated using the quoted market prices for securities backed by similar loans, adjusted for differences in loan characteristics.
Loans - The fair value of loans is estimated by discounting the future cash flows using the market rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. Loans with similar characteristics were aggregated for purposes of the calculations.
Deposits - Deposits include demand deposits, savings accounts, NOW accounts and certain money market deposits. The carrying amount approximates fair value. The fair value of fixed-maturity time deposits is estimated using a discounted cash flow calculation that applies the rates currently offered for deposits of similar remaining maturities.
Short-term Borrowings, Interest Payable, and Advances from Borrowers for Taxes and Insurance - The carrying amount approximates fair value.
Commitments to Originate Loans, Letters of Credit, and Lines of Credit - The fair value of commitments to originate loans is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair values of letters of credit and lines of credit are based on fees currently charged for similar agreements or on the estimated cost to terminate or otherwise settle the obligations with the counterparties at the reporting date.
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10. | MORTGAGE SERVICING RIGHTS |
Activity in the balance of mortgage servicing rights, measured using the amortization method, for the nine month period ended September 30, 2017 and the year ended December 31, 2016 was as follows:
September 30, 2017 | December 31, 2016 | |||||||
Balance, beginning of period | $ | 552,827 | $ | 597,713 | ||||
Servicing rights capitalized | 58,601 | 87,579 | ||||||
Amortization of servicing rights | (63,755 | ) | (107,239 | ) | ||||
Write-downs | - | (72,580 | ) | |||||
Change in valuation allowance | - | 47,354 | ||||||
Balance, end of period | $ | 547,673 | $ | 552,827 |
Activity in the valuation allowance for mortgage servicing rights for the nine month period ended September 30, 2017 and the year ended December 31, 2016 was as follows:
September 30, 2017 | December 31, 2016 | |||||||
Balance, beginning of period | $ | - | $ | 47,354 | ||||
Additions | - | 38,967 | ||||||
Reductions due to write-downs | (72,580 | ) | ||||||
Reductions due to payoff of loans | - | (13,741 | ) | |||||
Balance, end of period | $ | - | $ | - |
11. | INCOME TAXES |
A reconciliation of income tax expense at the statutory rate to the Company’s actual income tax expense for the nine months ended September 30, 2017 and 2016 is shown below.
September 30, 2017 | September 30, 2016 | |||||||
Computed at the statutory rate (34%) | $ | 1,077,162 | $ | 1,089,710 | ||||
Increase (decrease) resulting from | ||||||||
Tax exempt interest | (327,772 | ) | (333,465 | ) | ||||
State income taxes, net | 158,809 | 142,722 | ||||||
Increase in cash surrender value | (41,800 | ) | (44,530 | ) | ||||
Other, net | 2,008 | (57 | ) | |||||
Actual tax expense | $ | 868,407 | $ | 854,380 |
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12. | COMMITMENTS AND CONTINGENCIES |
The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers in the way of commitments to extend credit. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer's creditworthiness on a case-by-case basis. Substantially all of the Company's loans are to borrowers located in Cass, Morgan, Macoupin, Montgomery, and surrounding counties in Illinois.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS
Management’s discussion and analysis of financial condition and results of operations is intended to assist in understanding the financial condition and results of the Company. The information contained in this section should be read in conjunction with the unaudited consolidated financial statements and accompanying notes thereto.
Forward Looking Statements
This Form 10-Q contains certain “forward-looking statements” which may be identified by the use of words such as “believe,” “expect,” “anticipate,” “should,” “planned,” “estimated,” and “potential.” Examples of forward-looking statements include, but are not limited to, estimates with respect to our financial condition, results of operations and business that are subject to various factors that could cause actual results to differ materially from these estimates and most other statements that are not historical in nature. These factors include, but are not limited to, the effect of disruptions in the financial markets, changes in interest rates, general economic conditions, deposit flows, demand for mortgage and other loans, real estate values, and competition; changes in accounting principles, policies, or guidelines; changes in legislation or regulation, including the Dodd-Frank Act; and other economic, competitive, governmental, regulatory, and technological factors affecting our operations, pricing of products and services.
Critical Accounting Policies and Use of Significant Estimates
In the ordinary course of business, we have made a number of estimates and assumptions relating to the reporting of results of operations and financial condition in preparing our financial statements in conformity with accounting principles generally accepted in the United States of America. Actual results could differ significantly from those estimates under different assumptions and conditions. Management believes the following discussion addresses our most critical accounting policies and significant estimates, which are those that are most important to the portrayal of our financial condition and results of operations and require management’s most difficult, subjective and complex judgements, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.
Allowance for Loan Losses - The Company believes the allowance for loan losses is the critical accounting policy that requires the most significant judgments and assumptions used in the preparation of the consolidated financial statements. The allowance for loan losses is a material estimate that is particularly susceptible to significant changes in the near term and is established through a provision for loan losses. The allowance is based upon past loan experience and other factors which, in management’s judgement, deserve current recognition in estimating loan losses. The evaluation includes a review of all loans on which full collectibility may not be reasonably assured. Other factors considered by management include the size and composition of the loan portfolio, concentrations of loans to specific borrowers or industries, existing economic conditions and historical losses on each portfolio category. In connection with the determination of the allowance for loan losses, management obtains independent appraisals for significant properties, which collateralize loans. Management uses the available information to make such determinations. If circumstances differ substantially from the assumptions used in making determinations, future adjustments to the allowance for loan losses may be necessary and results of operations could be affected. While we believe we have established our existing allowance for loan losses in conformity with accounting principles generally accepted in the United States of America, there can be no assurance that regulators, in reviewing the Company’s loan portfolio, will not request an increase in the allowance for loan losses. Because future events affecting borrowers and collateral cannot be predicted with certainty, there can be no assurance that increases to the allowance will not be necessary if loan quality deteriorates.
39 |
Foreclosed Assets – Foreclosed assets primarily consist of real estate owned. Real estate owned acquired through loan foreclosures are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. The adjustment at the time of foreclosure is recorded through the allowance for loan losses. Due to the subjective nature of establishing fair value when the asset is acquired, the actual fair value of the other real estate owned could differ from the original estimate. If it is determined that fair value of an asset declines subsequent to foreclosure, the asset is written down through a charge to non-interest expense. Operating costs associated with the assets after acquisition are also recorded as non-interest expense. Gains and losses on the disposition of other real estate owned are netted and posted to non-interest expense.
Deferred Income Tax Assets/Liabilities – Our net deferred income tax asset arises from differences in the dates that items of income and expense enter into our reported income and taxable income. Deferred tax assets and liabilities are established for these items as they arise. From an accounting standpoint, deferred tax assets are reviewed to determine that they are realizable based upon the historical level of our taxable income, estimates of our future taxable income and the reversals of deferred tax liabilities. In most cases, the realization of the deferred tax asset is based on our future profitability. If we were to experience net operating losses for tax purposes in a future period, the realization of our deferred tax assets would be evaluated for a potential valuation reserve.
Impairment of Goodwill - Goodwill, an intangible asset with an indefinite life, was recorded on our balance sheet in prior periods as a result of acquisition activity. Goodwill is evaluated for impairment annually, unless there are factors present that indicate a potential impairment, in which case, the goodwill impairment test is performed more frequently.
Mortgage Servicing Rights - Mortgage servicing rights are very sensitive to movements in interest rates as expected future net servicing income depends on the projected outstanding principal balances of the underlying loans, which can be greatly reduced by prepayments. Prepayments usually increase when mortgage interest rates decline and decrease when mortgage interest rates rise.
Fair Value Measurements – The fair value of a financial instrument is defined as the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. The Company estimates the fair value of financial instruments using a variety of valuation methods. Where financial instruments are actively traded and have quoted market prices, quoted market prices are used for fair value. When the financial instruments are not actively traded, other observable market inputs, such as quoted prices of securities with similar characteristics, may be used, if available, to determine fair value. When observable market prices do not exist, the Company estimates fair value. Other factors such as model assumptions and market dislocations can affect estimates of fair value. Due to judgments and uncertainties involved in the estimation process, the estimates could result in materially different results under different assumptions and conditions.
The above listing is not intended to be a comprehensive list of all our accounting policies. In many cases, the accounting treatment of a particular transaction is specifically dictated by accounting principles generally accepted in the United States of America, with no need for management’s judgement in their application. There are also areas in which management’s judgement in selecting any available alternative would not produce a materially different result.
Financial Condition
September 30, 2017 Compared to December 31, 2016
Total assets at September 30, 2017 were $336.8 million, an increase of $17.4 million, or 5.5%, from $319.3 million at December 31, 2016. The increase in total assets was primarily due to increases of $11.7 million in cash and cash equivalents and $5.5 million in investment and mortgage-backed securities.
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Cash and cash equivalents increased $11.7 million to $24.6 million at September 30, 2017 from $12.9 million at December 31, 2016. Investment and mortgage-backed securities were $105.7 million at September 30, 2017, an increase of $5.5 million, or 5.5%, from $100.2 million at December 31, 2016. The increase in securities was due to an increase of $11.5 million in mortgage-backed securities, partially offset by a decrease of $6.0 million in investment securities. The decline in investment securities primarily consisted of a $3.7 million decrease in municipal bonds. The growth in cash and cash equivalents and mortgage-backed securities resulted from the investment of cash derived from deposit growth.
Net loans receivable (excluding loans held for sale) decreased $317,000, or 0.2%, to $184.1 million at September 30, 2017 from $184.5 million at December 31, 2016. The decrease in loans was primarily due to decreases of $2.8 million in commercial real estate loans and $2.4 million in agricultural business, partially offset by increases of $3.1 million in commercial business loans and $1.7 million in agricultural real estate loans.
At September 30, 2017 and December 31, 2016, goodwill totaled $2.7 million. At these dates, our goodwill was not impaired.
Total deposits increased $13.9 million, or 5.4%, to $272.6 million at September 30, 2017 from $258.7 million at December 31, 2016. The increase was primarily due to a $22.0 million increase in transaction accounts, reflecting an increase of $19.8 million in short-term, seasonal public funds. Other borrowings, which consisted of $7.2 million in overnight repurchase agreements at September 30, 2017, remained steady from $7.1 million at December 31, 2016. The repurchase agreements are a cash management service provided to our commercial deposit customers.
Total stockholders’ equity increased $3.3 million, or 7.1%, to $49.5 million at September 30, 2017, compared to $46.2 million at December 31, 2016. The increase in stockholders’ equity was the result of $2.3 million in net income and a $1.3 million increase in accumulated other comprehensive income, partially offset by the payment of $537,000 in cash dividends. Accumulated other comprehensive income increased primarily due to an increase in unrealized gains, net of tax, on available-for-sale securities reflecting increases in market prices for securities in our portfolio due to increases in market interest rates. Accumulated other comprehensive income does not include changes in the fair value of other financial instruments included in the condensed consolidated balance sheet.
Results of Operations
Comparison of Operating Results for the Three Months Ended September 30, 2017 and 2016
General: Net income for the three months ended September 30, 2017 was $734,000, or $0.41 per common share, basic and diluted, compared to net income of $758,000, or $0.43 per common share, basic and $0.42 per common share, diluted, for the three months ended September 30, 2016. The $24,000 decrease in net income during the third quarter of 2017, as compared to the third quarter of 2016, reflected a decrease of $45,000 in net interest income and an increase of $18,000 in income taxes, partially offset by an increase of $29,000 in noninterest income and a decrease of $10,000 in noninterest expense.
Interest Income: Total interest income for the three months ended September 30, 2017 decreased $8,000, or 0.3%, to $2.9 million, as compared to the same period of 2016. The decrease in interest income reflected decreases of $60,000 in interest income on loans and $60,000 in interest income on investment securities, partially offset by increases of $101,000 in interest income on mortgage backed securities and $11,000 in interest income on other interest-earning assets.
Interest income on loans decreased $60,000 to $2.2 million during the third quarter of 2017, as compared to the third quarter of 2016, primarily due to a decrease in the average balance of loans. The average balance of the loan portfolio decreased $5.9 million to $188.1 million during the third quarter of 2017, as compared to the third quarter of 2016. The decrease in the average balance of the loan portfolio reflected decreases in the average balance of commercial real estate loans and agricultural business loans. The average yield increased to 4.75% during the third quarter of 2017, compared to 4.73% during the third quarter of 2016.
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Interest income on investment securities decreased $60,000 to $372,000 during the third quarter of 2017 compared to the third quarter of 2016. The decrease reflected an $11.2 million decrease in the average balance of investment securities to $51.0 million during the third quarter of 2017, compared to $62.2 million during the third quarter of 2016, partially offset by an increase in the average yield earned. The decrease in the average balance of investment securities mostly reflected the decrease in the average balance of U.S. agency bonds, primarily due to sales. The average yield of investment securities increased 14 basis points to 2.92% during the third quarter of 2017 from 2.78% during the third quarter of 2016, due to the lower average balance of lower-yielding U.S. agency bonds. The majority of our investment portfolio (excluding mortgage-backed securities) consists of municipal bonds which are exempt from federal taxation, resulting in a higher tax-equivalent yield.
Interest income on mortgage-backed securities increased $101,000 to $214,000 during the third quarter of 2017, compared to the third quarter of 2016. The increase reflected a $26.1 million increase in the average balance of mortgage-backed securities to $55.1 million during the third quarter of 2017, compared to $29.0 million during the third quarter of 2016. The increase in the average balance of mortgage-backed securities reflected the investment of funds from loan payments and sales of investment securities, as loan demand remained weak, and acceptable higher-yielding investment securities were not available. The average yield of mortgage-backed securities remained steady at 1.55% during the third quarters of 2017 and 2016.
Interest income on other interest-earning assets, consisting of interest-earning demand and time deposit accounts and federal funds sold, increased $11,000 to $30,000 during the third quarter of 2017, compared to the third quarter of 2016. The average yield on other interest-earning assets increased 41 basis points to 1.02% during the third quarter of 2017 from 0.61% during the third quarter of 2016, reflecting the increase in short-term interest rates. The average balance of these accounts decreased by $838,000 to $11.7 million for the third quarter of 2017, as compared to the third quarter of 2016.
Interest Expense: Total interest expense increased $37,000, or 13.3%, to $314,000 during the three months ended September 30, 2017 compared to the three months ended September 30, 2016. The higher interest expense reflected increases of $27,000 in the cost of deposits and $10,000 in the cost of other borrowings.
Interest expense on deposits increased $27,000 to $299,000 during the third quarter of 2017 compared to $272,000 during the third quarter of 2016. The increase in interest expense on deposits was primarily due to an increase in the average rate paid on our deposits during the third quarter of 2017. The average rate paid on deposits increased to 0.52% during the third quarter of 2017 from 0.47% during the third quarter of 2016. The increase in the average rate paid was impacted by the higher average rate paid on interest-bearing checking accounts, which reflected the increase in short-term interest rates and the growth in higher-cost, public funds during the third quarter of 2017. The average balance of deposits increased $1.8 million to $231.1 million during the third quarter of 2017, compared to $229.3 million during the third quarter of 2016. The increase reflected an $8.0 million increase in the average balance of transaction accounts, partially offset by a $6.2 million decrease in the average balance of time deposit accounts.
Interest paid on borrowed funds, which consisted of overnight repurchase agreements and FHLB advances, increased $10,000 to $16,000 during the third quarter of 2017. The average rate paid on borrowed funds increased 65 basis points to 0.98% during the third quarter of 2017 compared to 0.33% during the third quarter of 2016, reflecting the increase in short-term interest rates. The average balance of borrowed funds remained steady at $6.4 million during the third quarters of 2017 and 2016.
Net Interest Income. As a result of the changes in interest income and interest expense noted above, net interest income decreased by $45,000, or 1.8%, to $2.5 million during the three months ended September 30, 2017, compared to the three months ended September 30, 2016. Our net interest margin decreased to 3.32% during the third quarter of 2017 from 3.47% during the third quarter of 2016. Our interest rate spread decreased to 3.20% during the third quarter of 2017 from 3.37% during the third quarter of 2016. Our ratio of interest earning assets to interest bearing liabilities was 1.29x and 1.26x during the three months ended September 30, 2017 and 2016, respectively.
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Provision for Loan Losses: The provision for loan losses is determined by management as the amount needed to replenish the allowance for loan losses, after net charge-offs have been deducted, to a level considered adequate to absorb inherent losses in the loan portfolio, in accordance with accounting principles generally accepted in the United States of America.
The provision for loan losses remained stable at $30,000 during the third quarters of 2017 and 2016. The allowance for loan losses increased $77,000 to $3.1 million at September 30, 2017 from $3.0 million at December 31, 2016. The Company recognized a net recovery of $1,000 during the third quarter of 2017, compared to net charge-offs of $4,000 during the third quarter of 2016. Loans delinquent 30 days or more decreased to $1.1 million, or 0.58% of total loans, as of September 30, 2017, from $1.3 million, or 0.69% of total loans, as of December 31, 2016. Loans delinquent 30 days or more totaled $1.2 million, or 0.66% of total loans, at September 30, 2016.
Provisions for loan losses have been made to bring the allowance for loan losses to a level deemed adequate following management’s evaluation of the repayment capacity and collateral protection afforded by each problem credit, as well as management’s periodic review of the collectability of the remainder of the loan portfolio. This review also considered the local economy and the level of bankruptcies and foreclosures in our market area. The following table sets forth information regarding nonperforming assets at the dates indicated.
September 30, 2017 | December 31, 2016 | |||||||
Nonaccrual loans: | ||||||||
One-to-four family residential | $ | 353,531 | $ | 590,514 | ||||
Commercial real estate | 682,665 | 708,922 | ||||||
Commercial business | 140,448 | 16,561 | ||||||
Home equity | 40,218 | 49,542 | ||||||
Consumer | 118,722 | 164,472 | ||||||
Total | $ | 1,335,584 | $ | 1,530,011 | ||||
Accruing loans delinquent more than 90 days: | ||||||||
Total | $ | - | $ | - | ||||
Foreclosed assets: | ||||||||
One-to-four family residential | 10,500 | - | ||||||
Commercial real estate | - | - | ||||||
Total | $ | 10,500 | $ | - | ||||
Total nonperforming assets | $ | 1,346,084 | $ | 1,530,011 | ||||
Total nonperforming loans as a percentage of total loans | 0.71 | % | 0.82 | % | ||||
Total nonperforming assets as a percentage of total assets | 0.40 | % | 0.48 | % |
Nonperforming assets decreased $184,000 to $1.3 million, or 0.40% of total assets, as of September 30, 2017, compared to $1.5 million, or 0.48% of total assets, as of December 31, 2016. The decrease in nonperforming assets was due to a decrease of $194,000 in nonperforming loans, reflecting the foreclosure and subsequent sale of two residential properties.
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The following table shows the aggregate principal amount of potential problem credits on the Company’s watch list at September 30, 2017 and December 31, 2016. All nonaccrual loans are automatically placed on the watch list. Special Mention credits decreased $895,000 and Substandard credits increased $1.5 million, primarily reflecting the downgrade of two agricultural borrowers during the first nine months of 2017.
September 30, 2017 | December 31, 2016 | |||||||
Special Mention credits | $ | 1,536,724 | $ | 2,431,451 | ||||
Substandard credits | 6,719,094 | 5,228,946 | ||||||
Total watch list credits | $ | 8,255,818 | $ | 7,660,397 |
Non-Interest Income: Non-interest income increased $29,000, or 2.7%, to $1.1 million during the three months ended September 30, 2017, compared to the same period of 2016. The increase in non-interest income resulted primarily from increases of $16,000 in commission income, $14,000 in gains on the sales of available-for-sale securities and $13,000 in income from fiduciary activities, partially offset by a decrease of $31,000 in net income from mortgage banking operations. The increase in commission income reflected improved market conditions and higher market values. The increase in gains on the sales of securities reflected sales of $13.4 million during the third quarter of 2017 compared to $10.3 million during the same period of 2016. Securities were sold during 2017 to reduce price volatility and improve yields. The increase in income from fiduciary activities reflected growth in accounts and market values. The decrease in net income from mortgage banking operations resulted from loan sales to the secondary market of $4.8 million during the third quarter of 2017, compared to $7.2 million during the third quarter of 2016.
Non-Interest Expense: Total non-interest expense decreased $10,000, or 0.4%, to $2.6 million for the three months ended September 30, 2017. The decrease was primarily due to a decrease of $52,000 in compensation and benefits expense, partially offset by an increase of $28,000 in data processing and telecommunications expense. The decrease in salaries and employee benefits expense reflected a decrease in full-time equivalent employees to 91 at September 30, 2017 from 94 at September 30, 2016. The increase in data processing and telecommunications expense was related to the upgrading of our network monitoring equipment and support services during 2017.
Income Taxes: The provision for income taxes increased $18,000 to $285,000 during the third quarter of 2017 compared to the same period of 2016. The increase in the income tax provision reflected the increase in the Illinois state tax rate effective July 1, 2017, partially offset by a lower level of taxable income. The effective tax rate was 28.0% and 26.1% during the three months ended September 30, 2017 and 2016, respectively.
Comparison of Operating Results for the Nine Months Ended September 30, 2017 and 2016
General: Net income during the nine months ended September 30, 2017 was $2,300,000, or $1.28 per common share, basic, and $1.27 per common share, diluted, compared to net income of $2,351,000, or $1.32 per common share, basic, and $1.31 per common share, diluted, during the nine months ended September 30, 2016. The $51,000 decrease in net income reflected a decrease of $232,000 in net interest income and an increase of $14,000 in income taxes, partially offset by an increase of $132,000 in noninterest income and a decrease of $63,000 in noninterest expense.
Interest Income: Total interest income during the nine months ended September 30, 2017 decreased $151,000, or 1.8%, to $8.5 million from the same period of 2016. The decrease in interest income reflected decreases of $345,000 in interest income on loans and $159,000 in interest income on investment securities, partially offset by increases of $334,000 in interest income on mortgage backed securities and $19,000 in interest income on other interest earning assets.
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Interest income on loans decreased $345,000 to $6.6 million during the nine months ended September 30, 2017, compared to the same period of 2016. The decrease in interest income on loans was primarily due to a decrease in the average balance of loans. The average balance of the loan portfolio decreased $7.8 million to $185.4 million during the first nine months of 2017, as compared to the first nine months of 2016. The decrease in the average balance of the loan portfolio reflected decreases in the average balance of commercial real estate loans and agricultural business loans. The average yield on loans also decreased to 4.73% during the first nine months of 2017, compared to 4.78% during the first nine months of 2016, due to the continuing low interest rate environment.
Interest income on investment securities decreased $159,000 to $1.1 million during the nine months ended September 30, 2017 from the same period of 2016. The decrease in interest income reflected an $8.5 million decrease in the average balance of the investment portfolio to $53.1 million during the first nine months of 2017, as compared to the prior year period. The decrease in the average balance of investment securities mostly reflected the decrease in the average balance of U.S. agency bonds, primarily due to sales. The average yield of investment securities increased to 2.88% during the first nine months of 2017 from 2.83% during the first nine months of 2016. The majority of our investment portfolio (excluding mortgage-backed securities) consists of municipal bonds, which are exempt from federal taxation, resulting in a higher tax-equivalent yield.
Interest income on mortgage-backed securities increased $334,000 to $674,000 during the nine months ended September 30, 2017, compared to the same period of 2016. The increase primarily reflected a $29.1 million increase in the average balance of mortgage-backed securities to $52.9 million during the first nine months of 2017. The increase in the average balance of mortgage-backed securities reflected the investment of funds from loan payments, deposit growth, and sales of investment securities, as loan demand remained weak, and acceptable higher-yielding investment securities were not available. The increase in the average balance of mortgage-backed securities was partially offset by a 20 basis points decrease in the average yield of mortgage-backed securities to 1.70% during the first nine months of 2017, compared to 1.90% during the same period of 2016. The average yield was impacted by higher premium amortization resulting from faster national prepayment speeds on mortgage-backed securities. The amortization of premiums on mortgage-backed securities, which reduces the average yield, increased $447,000 to $696,000 during the first nine months of 2017, compared to $249,000 during the first nine months of 2016. The increase in premium amortization also reflected the increase in the average volume of mortgage-backed securities.
Interest income on other interest-earning assets, consisting of interest-earning demand and time deposit accounts and federal funds sold, increased $19,000 to $66,000 during the first nine months of 2017, compared to the same period of 2016. The average balance of these accounts increased $2.2 million to $10.6 million for the nine months ended September 30, 2017 compared to $8.4 million for the nine months ended September 30, 2016. The increase in the average balance reflected an increase in the average balance of federal funds sold, resulting from the growth in short-term seasonal public funds during this same time frame. The average yield on other interest-earning assets increased to 0.83% during the first nine months of 2017 from 0.74% during the first nine months of 2016, reflecting the increase in short-term interest rates.
Interest Expense: Total interest expense increased $81,000, or 10.5%, to $855,000 during the nine months ended September 30, 2017 compared to $774,000 during the nine months ended September 30, 2016. The higher interest expense reflected increases of $65,000 in the cost of deposits and $16,000 in the cost of borrowings.
Interest expense on deposits increased $65,000 to $824,000 for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016. While the average rate paid on deposits increased only 2 basis points to 0.48% during the first nine months of 2017, our interest expense on deposits was impacted by the higher average rate paid on interest-bearing checking accounts. The higher rate reflected the growth in higher-cost, public funds during the first nine months of 2017. The average balance of deposits increased $9.7 million to $227.9 million during the first nine months of 2017, compared to $218.2 million during the first nine months of 2016, reflecting the growth in public funds. The increase reflected a $13.5 million increase in the average balance of transaction accounts, partially offset by a $3.8 million decrease in the average balance of time deposit accounts.
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Interest paid on borrowed funds, which consisted of overnight repurchase agreements and FHLB advances, increased $16,000 to $32,000 during the first nine months of 2017, compared to the same period of 2016. The average rate paid on borrowed funds increased 50 basis points to 0.82% during the first nine months of 2017 compared to 0.32% during the first nine months of 2016, reflecting the increase in short-term interest rates. The average balance of borrowed funds decreased $1.3 million to $5.1 million during the first nine months of 2017, compared to the same period of 2016, due to the repayment of our FHLB advances during 2016.
Net Interest Income. As a result of the changes in interest income and interest expense noted above, net interest income decreased by $232,000, or 3.0%, to $7.6 million for the nine months ended September 30, 2017 from $7.8 million for the nine months ended September 30, 2016. Our net interest margin decreased to 3.36% for the first nine months of 2017 from 3.64% for the first nine months of 2016. Our interest rate spread decreased to 3.25% during the first nine months of 2017 from 3.54% during the first nine months of 2016. Our ratio of interest earning assets to interest bearing liabilities was 1.30x and 1.28x during the nine months ended September 30, 2017 and 2016, respectively.
Provision for Loan Losses: The provision for loan losses is determined by management as the amount needed to replenish the allowance for loan losses, after net charge-offs have been deducted, to a level considered adequate to absorb inherent losses in the loan portfolio, in accordance with accounting principles generally accepted in the United States of America. The following table shows the activity in the allowance for loan losses for the nine months ended September 30, 2017 and 2016.
Nine Months Ended | ||||||||
September 30, 2017 | September 30, 2016 | |||||||
Balance at beginning of period | $ | 3,007,395 | $ | 2,919,594 | ||||
Charge-offs: | ||||||||
One-to-four family residential | 41,782 | 34,682 | ||||||
Commercial business | 2,706 | - | ||||||
Consumer | 13,041 | 20,501 | ||||||
Total | 57,529 | 55,183 | ||||||
Recoveries: | ||||||||
One-to-four family residential | 17,922 | 14,626 | ||||||
Commercial real estate | 15,489 | 8,808 | ||||||
Commercial business | 57 | 116 | ||||||
Home equity | 3,575 | 1,575 | ||||||
Consumer | 7,025 | 5,061 | ||||||
Total | 44,068 | 30,186 | ||||||
Net loan charge-offs | 13,461 | 24,997 | ||||||
Additions charged to operations | 90,000 | 90,000 | ||||||
Balance at end of period | $ | 3,083,934 | $ | 2,984,597 |
The allowance for loan losses increased $77,000 to $3.1 million at September 30, 2017, from $3.0 million at December 31, 2016. The provision remained steady at $90,000 during the first nine months of 2017 and 2016. Net charge-offs decreased to $13,000 during the first nine months of 2017, compared to $25,000 during the first nine months of 2016.
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Non-Interest Income: Non-interest income increased $132,000, or 4.2%, to $3.3 million for the nine months ended September 30, 2017, compared to the same period of 2016. The increase in noninterest income was primarily due to increases of $39,000 in service charges on deposits, $33,000 in gains on the sale of securities, $24,000 in ATM and debit card interchange income, and $22,000 in income from fiduciary activities. The increase in service charges on deposits was mostly due to an increase in fees related to nonsufficient funds, reflecting changes made to our overdraft program during 2016. The increase in gains on the sales of securities also reflected sales of $32.4 million during the first nine months of 2017 compared to $31.6 million during the same period of 2016. Securities were sold during 2017 to reduce price volatility and improve yields. The increase in ATM and debit card interchange income reflected a higher volume of transactions. The increase in income from fiduciary activities reflected growth in accounts and market values.
Non-Interest Expense: Total non-interest expense decreased $63,000, or 0.8%, to $7.6 million for the nine months ended September 30, 2017 compared to the same period of 2016. The decrease in noninterest expense was primarily due to decreases of $118,000 in compensation and benefits expense and $45,000 in real estate owned expenses, partially offset by an increase of $73,000 in data processing and telecommunications expense. The decrease in compensation and benefits expense reflected a decrease in our full-time equivalent employees. The decrease in real estate owned expense reflected an increase of $31,000 in gains on the sales of real estate owned properties during the first nine months of 2017, compared to the first nine months of 2016. The increase in data processing and telecommunications expense was related to the upgrading of our network monitoring equipment and support services during 2017.
Income Taxes: The provision for income taxes increased $14,000 to $868,000 during the first nine months of 2017 compared to the same period of 2016. The increase in the income tax provision reflected the increase in the Illinois state tax rate effective July 1, 2017, partially offset by a lower level of taxable income. The effective tax rate was 27.4% and 26.7% during the nine months ended September 30, 2017 and 2016, respectively.
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Liquidity and Capital Resources
The Company’s most liquid assets are cash and cash equivalents. The levels of these assets are dependent on the Company’s operating, financing, and investing activities. At September 30, 2017 and December 31, 2016, cash and cash equivalents totaled $24.6 million and $12.9 million, respectively. The Company’s primary sources of funds include principal and interest repayments on loans (both scheduled payments and prepayments), maturities of investment securities and principal repayments from mortgage-backed securities (both scheduled payments and prepayments). During the nine months ended September 30, 2017, the most significant sources of funds have been deposit growth, sales of investment and mortgage-backed securities, and principal repayments on loans and mortgage-backed securities. These funds have been used primarily for purchases of investment and mortgage-backed securities and to fund loan originations.
While scheduled loan repayments and proceeds from maturing investment securities and principal repayments on mortgage-backed securities are relatively predictable, deposit flows and prepayments are more influenced by interest rates, general and local economic conditions, and competition. The Company attempts to price its deposits to meet asset-liability objectives and stay competitive with local market conditions.
Liquidity management is both a short- and long-term responsibility. The Company adjusts its investments in liquid assets based upon management’s assessment of (i) expected loan demand, (ii) projected purchases of investment and mortgage-backed securities, (iii) expected deposit flows, (iv) yields available on interest-earning deposits, and (v) liquidity of its asset/liability management program. Excess liquidity is generally invested in interest-earning overnight deposits and other short-term U.S. agency obligations. If the Company requires funds beyond its ability to generate them internally, it has the ability to borrow funds from the FHLB. The Company may borrow from the FHLB under a blanket agreement which assigns all investments in FHLB stock as well as qualifying first mortgage loans equal to 150% of the outstanding balance as collateral to secure the amounts borrowed. This borrowing arrangement is limited to a maximum of 30% of the Company’s total assets or twenty times the balance of FHLB stock held by the Company. At September 30, 2017, the Company had no outstanding FHLB advances and approximately $78.7 million available to it under the above-mentioned borrowing arrangement.
The Company maintains minimum levels of liquid assets as established by the Board of Directors. The Company’s liquidity ratios at September 30, 2017 and December 31, 2016 were 35.2% and 36.3%, respectively. This ratio represents the volume of short-term liquid assets as a percentage of net deposits and borrowings due within one year.
The Company must also maintain adequate levels of liquidity to ensure the availability of funds to satisfy loan commitments. The Company anticipates that it will have sufficient funds available to meet its current commitments principally through the use of current liquid assets and through its borrowing capacity discussed above. The following table summarizes these commitments at September 30, 2017 and December 31, 2016.
September 30, 2017 | December 31, 2016 | |||||||
Commitments to fund loans | $ | 43,931,413 | $ | 47,944,348 | ||||
Standby letters of credit | 80,250 | 110,000 |
Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the table below) of total, Tier 1 and common equity Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined) and Tier 1 capital (as defined) to average assets (as defined). In addition, the Bank is subject to the new capital conservation buffer which began phasing in during the first quarter of 2016 at 0.625% of risk-weighted assets. For 2017, the conservation buffer is 1.25% of risk-weighted assets. The capital conservation buffer will continue to increase 0.625% each year until fully phased in at 2.50% of risk-weighted assets beginning in the first quarter of 2019. Management believes that at September 30, 2017, the Bank met all its capital adequacy requirements.
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Under Illinois law, Illinois-chartered savings banks are required to maintain a minimum core capital to total assets ratio of 3%. The Illinois Commissioner of Savings and Residential Finance (the “Commissioner”) is authorized to require a savings bank to maintain a higher minimum capital level if the Commissioner determines that the savings bank’s financial condition or history, management or earnings prospects are not adequate. If a savings bank’s core capital ratio falls below the required level, the Commissioner may direct the savings bank to adhere to a specific written plan established by the Commissioner to correct the savings bank’s capital deficiency, as well as a number of other restrictions on the savings bank’s operations, including a prohibition on the declaration of dividends by the savings bank’s board of directors. At September 30, 2017, the Bank’s core capital ratio was 13.11% of total average assets, which substantially exceeded the required amount.
The Bank is also required to maintain regulatory capital requirements imposed by the Federal Deposit Insurance Corporation. At September 30, 2017, minimum requirements and the Bank's actual ratios are as follows:
September 30, 2017 | Minimum | Minimum Required | ||||||||||
Actual | Required | With Capital Buffer | ||||||||||
Tier 1 Capital to Average Assets | 13.11 | % | 4.00 | % | 4.000 | % | ||||||
Common Equity Tier 1 | 19.63 | % | 4.50 | % | 5.750 | % | ||||||
Tier 1 Capital to Risk-Weighted Assets | 19.63 | % | 6.00 | % | 7.250 | % | ||||||
Total Capital to Risk-Weighted Assets | 20.89 | % | 8.00 | % | 9.250 | % |
Effect of Inflation and Changing Prices
The condensed consolidated financial statements and related financial data presented herein have been prepared in accordance with GAAP which require the measurement of financial position and operating results in terms of historical dollars, without considering the change in the relative purchasing power of money over time due to inflation. The impact of inflation is reflected in the increased cost of the Company’s operations. Unlike most industrial companies, virtually all the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates generally have a more significant impact on a financial institution’s performance than do general levels of inflation. Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services.
49 |
The following table sets forth the average balances and interest rates (costs) on the Company’s assets and liabilities during the periods presented.
Consolidated Average Balance Sheet and Interest Rates | ||||||||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
Three Months Ended September 30, | ||||||||||||||||||||||||
2017 | 2016 | |||||||||||||||||||||||
Average | Average | |||||||||||||||||||||||
Balance | Interest | Yield/Cost | Balance | Interest | Yield/Cost | |||||||||||||||||||
Interest-earnings assets: | ||||||||||||||||||||||||
Loans | $ | 188,124 | $ | 2,234 | 4.75 | % | $ | 194,060 | $ | 2,295 | 4.73 | % | ||||||||||||
Investment securities | 50,958 | 372 | 2.92 | % | 62,218 | 432 | 2.78 | % | ||||||||||||||||
Mortgage-backed securities | 55,121 | 214 | 1.55 | % | 29,026 | 112 | 1.55 | % | ||||||||||||||||
Other | 11,689 | 30 | 1.02 | % | 12,527 | 19 | 0.61 | % | ||||||||||||||||
Total interest-earning assets | 305,892 | 2,850 | 3.73 | % | 297,831 | 2,858 | 3.84 | % | ||||||||||||||||
Non-interest earnings assets | 19,781 | 20,310 | ||||||||||||||||||||||
Total assets | $ | 325,673 | $ | 318,141 | ||||||||||||||||||||
Interest-bearing liabilities: | ||||||||||||||||||||||||
Interest-bearing checking | $ | 69,616 | $ | 109 | 0.63 | % | $ | 64,192 | $ | 57 | 0.35 | % | ||||||||||||
Savings accounts | 46,234 | 21 | 0.18 | % | 42,947 | 21 | 0.20 | % | ||||||||||||||||
Certificates of deposit | 73,281 | 141 | 0.77 | % | 79,514 | 166 | 0.83 | % | ||||||||||||||||
Money market savings | 33,919 | 24 | 0.29 | % | 34,429 | 25 | 0.29 | % | ||||||||||||||||
Money market deposits | 8,075 | 3 | 0.17 | % | 8,225 | 3 | 0.15 | % | ||||||||||||||||
Total interest-bearing deposits | 231,125 | 298 | 0.52 | % | 229,307 | 272 | 0.47 | % | ||||||||||||||||
Federal Home Loan Bank advances | - | - | 0.00 | % | 426 | - | 0.42 | % | ||||||||||||||||
Short-term borrowings | 6,421 | 16 | 0.98 | % | 6,019 | 5 | 0.32 | % | ||||||||||||||||
Total borrowings | 6,421 | 16 | 0.98 | % | 6,445 | 5 | 0.33 | % | ||||||||||||||||
Total interest-bearing liabilities | 237,546 | 314 | 0.53 | % | 235,752 | 277 | 0.47 | % | ||||||||||||||||
Non-interest bearing liabilities | 38,951 | 34,403 | ||||||||||||||||||||||
Stockholders' equity | 49,176 | 47,986 | ||||||||||||||||||||||
Total liabilities/stockholders' equity | $ | 325,673 | $ | 318,141 | ||||||||||||||||||||
Net interest income | $ | 2,536 | $ | 2,581 | ||||||||||||||||||||
Interest rate spread (average yield earned minus average rate paid) | 3.20 | % | 3.37 | % | ||||||||||||||||||||
Net interest margin (net interest income divided by average interest-earning assets) | 3.32 | % | 3.47 | % |
50 |
The following table sets forth the changes in rate and changes in volume of the Company’s interest earning assets and liabilities for the comparative three month periods.
Analysis of Volume and Rate Changes | ||||||||||||
(In thousands) | ||||||||||||
Three Months Ended September 30, | ||||||||||||
2017 Compared to 2016 | ||||||||||||
Increase(Decrease) Due to | ||||||||||||
Rate | Volume | Net | ||||||||||
Interest-earnings assets: | ||||||||||||
Loans | $ | 11 | $ | (71 | ) | $ | (60 | ) | ||||
Investment securities | 21 | (81 | ) | (60 | ) | |||||||
Mortgage-backed securities | - | 101 | 101 | |||||||||
Other | 12 | (1 | ) | 11 | ||||||||
Total net change in income on interest-earning assets | 44 | (52 | ) | (8 | ) | |||||||
Interest-bearing liabilities: | ||||||||||||
Interest-bearing checking | 47 | 5 | 52 | |||||||||
Savings accounts | (2 | ) | 2 | - | ||||||||
Certificates of deposit | (13 | ) | (12 | ) | (25 | ) | ||||||
Money market savings | 1 | (1 | ) | - | ||||||||
Money market deposits | - | - | - | |||||||||
Total interest-bearing deposits | 33 | (6 | ) | 27 | ||||||||
Federal Home Loan Bank advances | - | - | - | |||||||||
Short-term borrowings | 10 | - | 10 | |||||||||
Total borrowings | 10 | - | 10 | |||||||||
Total net change in expense on interest-bearing liabilities | 43 | (6 | ) | 37 | ||||||||
Net change in net interest income | $ | 1 | $ | (46 | ) | $ | (45 | ) |
51 |
The following table sets forth the average balances and interest rates (costs) on the Company’s assets and liabilities during the periods presented.
Consolidated Average Balance Sheet and Interest Rates | ||||||||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
Nine Months Ended September 30, | ||||||||||||||||||||||||
2017 | 2016 | |||||||||||||||||||||||
Average | Average | |||||||||||||||||||||||
Balance | Interest | Yield/Cost | Balance | Interest | Yield/Cost | |||||||||||||||||||
Interest-earnings assets: | ||||||||||||||||||||||||
Loans | $ | 185,442 | $ | 6,581 | 4.73 | % | $ | 193,263 | $ | 6,926 | 4.78 | % | ||||||||||||
Investment securities | 53,091 | 1,146 | 2.88 | % | 61,605 | 1,306 | 2.83 | % | ||||||||||||||||
Mortgage-backed securities | 52,888 | 674 | 1.70 | % | 23,817 | 339 | 1.90 | % | ||||||||||||||||
Other | 10,550 | 66 | 0.83 | % | 8,388 | 46 | 0.74 | % | ||||||||||||||||
Total interest-earning assets | 301,971 | 8,467 | 3.74 | % | 287,073 | 8,617 | 4.00 | % | ||||||||||||||||
Non-interest earnings assets | 19,500 | 20,176 | ||||||||||||||||||||||
Total assets | $ | 321,471 | $ | 307,249 | ||||||||||||||||||||
Interest-bearing liabilities: | ||||||||||||||||||||||||
Interest-bearing checking | $ | 63,382 | $ | 242 | 0.51 | % | $ | 54,090 | $ | 119 | 0.29 | % | ||||||||||||
Savings accounts | 46,330 | 67 | 0.19 | % | 43,118 | 63 | 0.19 | % | ||||||||||||||||
Certificates of deposit | 74,595 | 429 | 0.77 | % | 78,351 | 492 | 0.84 | % | ||||||||||||||||
Money market savings | 35,247 | 75 | 0.29 | % | 34,960 | 75 | 0.29 | % | ||||||||||||||||
Money market deposits | 8,376 | 10 | 0.17 | % | 7,670 | 9 | 0.15 | % | ||||||||||||||||
Total interest-bearing deposits | 227,930 | 823 | 0.48 | % | 218,189 | 758 | 0.46 | % | ||||||||||||||||
Federal Home Loan Bank advances | 2 | - | 0.72 | % | 1,798 | 4 | 0.30 | % | ||||||||||||||||
Short-term borrowings | 5,106 | 32 | 0.82 | % | 4,616 | 11 | 0.33 | % | ||||||||||||||||
Total borrowings | 5,108 | 32 | 0.82 | % | 6,414 | 15 | 0.32 | % | ||||||||||||||||
Total interest-bearing liabilities | 233,038 | 855 | 0.49 | % | 224,603 | 773 | 0.46 | % | ||||||||||||||||
Non-interest bearing liabilities | 40,441 | 35,618 | ||||||||||||||||||||||
Stockholders' equity | 47,992 | 47,028 | ||||||||||||||||||||||
Total liabilities/stockholders' equity | $ | 321,471 | $ | 307,249 | ||||||||||||||||||||
Net interest income | $ | 7,612 | $ | 7,844 | ||||||||||||||||||||
Interest rate spread (average yield earned minus average rate paid) | 3.25 | % | 3.54 | % | ||||||||||||||||||||
Net interest margin (net interest income divided by average interest-earning assets) | 3.36 | % | 3.64 | % |
52 |
The following table sets forth the changes in rate and changes in volume of the Company’s interest earning assets and liabilities for the comparative six month periods.
Analysis of Volume and Rate Changes | ||||||||||||
(In thousands) | ||||||||||||
Nine Months Ended September 30, | ||||||||||||
2017 Compared to 2016 | ||||||||||||
Increase(Decrease) Due to | ||||||||||||
Rate | Volume | Net | ||||||||||
Interest-earnings assets: | ||||||||||||
Loans | $ | (67 | ) | $ | (278 | ) | $ | (345 | ) | |||
Investment securities | 24 | (183 | ) | (159 | ) | |||||||
Mortgage-backed securities | (40 | ) | 374 | 334 | ||||||||
Other | 6 | 13 | 19 | |||||||||
Total net change in income on interest-earning assets | (77 | ) | (74 | ) | (151 | ) | ||||||
Interest-bearing liabilities: | ||||||||||||
Interest-bearing checking | 100 | 23 | 123 | |||||||||
Savings accounts | (1 | ) | 5 | 4 | ||||||||
Certificates of deposit | (41 | ) | (23 | ) | (64 | ) | ||||||
Money market savings | (1 | ) | 1 | - | ||||||||
Money market deposits | 1 | 1 | 2 | |||||||||
Total interest-bearing deposits | 58 | 7 | 65 | |||||||||
Federal Home Loan Bank advances | 2 | (6 | ) | (4 | ) | |||||||
Short-term borrowings | 19 | 1 | 20 | |||||||||
Total borrowings | 21 | (5 | ) | 16 | ||||||||
Total net change in expense on interest-bearing liabilities | 79 | 2 | 81 | |||||||||
Net change in net interest income | $ | (156 | ) | $ | (76 | ) | $ | (232 | ) |
53 |
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company’s policy in recent years has been to reduce its interest rate risk by better matching the maturities of its interest rate sensitive assets and liabilities, selling its long-term fixed-rate residential mortgage loans with terms of 15 years or more in the secondary market, originating adjustable rate loans, and balloon loans with terms ranging from three to five years and originating consumer and commercial business loans, which typically are for a shorter duration and at higher rates of interest than one-to-four family residential loans. Our portfolio of mortgage-backed securities also provides monthly cash flows. The remaining investment portfolio has been structured to better match the maturities and rates of its interest-bearing liabilities. With respect to liabilities, the Company has attempted to increase its savings and transaction deposit accounts, which management believes are more resistant to changes in interest rates than certificate accounts. The Board of Directors appoints the Asset-Liability Management Committee (ALCO), which is responsible for reviewing the Company’s asset and liability policies. The ALCO meets quarterly to review interest rate risk and trends, as well as liquidity and capital ratio requirements.
The Company uses a comprehensive asset/liability software package provided by a third-party vendor to perform interest rate sensitivity analysis for all product categories. The primary focus of the Company’s analysis is on the effect of interest rate increases and decreases on net interest income. Management believes that this analysis reflects the potential effects on current earnings of interest rate changes. Call criteria and prepayment assumptions are taken into consideration for investment securities and loans. All of the Company’s interest rate sensitive assets and liabilities are analyzed by product type and repriced based upon current offering rates. The software performs interest rate sensitivity analysis by performing rate shocks of plus 300 basis points in 100 basis point increments and minus 100 basis points.
The following table shows projected results at September 30, 2017 and December 31, 2016 of the impact on net interest income from an immediate change in interest rates, as well as the benchmarks established by the ALCO. The results are shown as a dollar and percentage change in net interest income over the next twelve months.
Change in Net Interest Income | ||||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
September 30, 2017 | December 31, 2016 | ALCO | ||||||||||||||||||
Rate Shock: | $ Change | % Change | $ Change | % Change | Benchmark | |||||||||||||||
+ 300 basis points | 131 | 1.12 | % | (99 | ) | -0.87 | % | > (20.00)% | ||||||||||||
+ 200 basis points | 82 | 0.70 | % | (64 | ) | -0.56 | % | > (12.50)% | ||||||||||||
+ 100 basis points | 43 | 0.37 | % | (13 | ) | -0.12 | % | > (12.50)% | ||||||||||||
- 100 basis points | (540 | ) | -4.61 | % | (195 | ) | -1.70 | % | > (20.00)% |
The table above indicates that as of September 30, 2017, in the event of a 200 basis points increase in interest rates, we would experience a 0.70% increase in net interest income. In the event of a 100 basis points decrease in interest rates, we would experience a 4.61% decrease in net interest income.
The foregoing computations are based upon numerous assumptions, including relative levels of market interest rates, prepayments, and deposit mix. The computed estimates should not be relied upon as a projection of actual results. Despite the limitations on precision inherent in these computations, management believes that the information provided is reasonably indicative of the effect of changes in interest rate levels on the net earning capacity of the Company’s current mix of interest earning assets and interest bearing liabilities. Management continues to use the results of these computations, along with the results of its computer model projections, in order to maximize current earnings while positioning the Company to minimize the effect of a prolonged shift in interest rates that would adversely affect future results of operations.
At the present time, the most significant market risk affecting the Company is interest rate risk. Other market risks such as foreign currency exchange risk and commodity price risk do not occur in the normal business of the Company. The Company also is not currently using trading activities or derivative instruments to control interest rate risk.
54 |
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
he Company’s management, including the Company’s principal executive officer and principal financial officer, have evaluated the effectiveness of the Company’s “disclosure controls and procedures,” as such term is defined in Rules 13a-15(e) or 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based upon their evaluation, the principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective for the purpose of ensuring that the information required to be disclosed in the reports that the Company files or submits under the Exchange Act with the Securities and Exchange Commission (the “SEC”) (1) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (2) is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Controls
There have been no changes in the Company’s internal control over financial reporting identified in connection with the evaluation required by Rules 13(a)-15(d) or 15d-15(d) of the Exchange Act that occurred during the Company’s last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
55 |
Item 1. | Legal Proceedings |
At September 30, 2017, neither the Company nor the Bank is involved in any pending legal proceedings other than non-material legal proceedings undertaken in the normal course of business.
Item 1A. | Risk Factors |
There have been no material changes in the Company’s risk factors from those disclosed in its annual report on Form 10-K for the year ended December 31, 2016.
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
The following table sets forth the issuer purchases of equity securities during the prior three months.
Total number of shares purchased | Average price paid per share | Total number of shares purchased under publicly announced plan | Maximum number of shares that may be purchased under the repurchase plan (1) | |||||||||||||
July 1 – July 31 | - | - | - | 18,758 | ||||||||||||
August 1 – August 31 | - | - | - | 18,758 | ||||||||||||
September 1 – September 30 | - | - | - | 18,758 |
(1) | On October 16, 2013, the Company announced the adoption of a stock repurchase program under which the Company can repurchase up to 92,018 shares of its common stock, or approximately 5% of the then current outstanding shares, from time to time, depending on market conditions and other considerations. The program provides for repurchases through open market or private transactions, through block trades, and pursuant to any trading plan adopted in accordance with Rule 10b5-1 of the Securities and Exchange Commission. The Company has completed the repurchase of 73,260 shares permitted under the program. The program will continue until it is completed or terminated by the Company’s Board of Directors. |
Item 3. | Defaults Upon Senior Securities |
None.
Item 4. | Mine Safety Disclosures |
None.
Item 5. | Other Information |
None.
56 |
Item 6. | Exhibits |
10.1 - | Change in Control Agreement between Jacksonville Savings Bank and Chris A. Royal dated August 16, 2017. (1) |
31.1 - | Certification of the Chief Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a) |
31.2 - | Certification of the Chief Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a) |
32.1 - | Certification of the Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
101 INS - | XBRL Instance Document |
101 SCH - | XBRL Taxonomy Extension Schema Document |
101 CAL - | XBRL Taxonomy Calculation Linkbase Document |
101 DEF - | XBRL Taxonomy Extension Definition Linkbase Document |
101 LAB - | XBRL Taxonomy Label Linkbase Document |
101 PRE - | XBRL Taxonomy Presentation Linkbase Document |
___________________
(1) | Incorporated by reference into this document from the exhibit to the Form 8-K as filed with the Securities and Exchange Commission on August 17, 2017. |
57 |
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.
JACKSONVILLE BANCORP, INC. | |||
Registrant | |||
Date: | 11/9/2017 | /s/ Richard A. Foss | |
Richard A. Foss | |||
President and Chief Executive Officer | |||
/s/ Diana S. Tone | |||
Diana S. Tone | |||
Executive Vice President and Chief Financial Officer |
58 |
Exhibit 31.1
Certification of Chief Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Richard A. Foss, certify that:
1. | I have reviewed this quarterly report on Form 10-Q of Jacksonville Bancorp, Inc.; |
2. | Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; |
4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | designed such internal controls over financial reporting, or caused such internal controls over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principle; |
c) | evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the period covered by this report based on such evaluation; and |
d) | disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions): |
a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting. |
11/9/2017 | /s/ Richard A. Foss | |
Date | Richard A. Foss | |
President and Chief Executive Officer |
Exhibit 31.2
Certification of Chief Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Diana S. Tone, certify that:
1. | I have reviewed this quarterly report on Form 10-Q of Jacksonville Bancorp, Inc.; |
2. | Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; |
4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | designed such internal controls over financial reporting, or caused such internal controls over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principle; |
c) | evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the period covered by this report based on such evaluation; and |
d) | disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions): |
a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting. |
11/9/17 | /s/ Diana S. Tone | |
Date | Diana S. Tone | |
Executive Vice President and Chief Financial Officer |
Exhibit 32.1
Certification pursuant to
18 U.S.C. Section 1350,
as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report of Jacksonville Bancorp, Inc. (“Company”) on Form 10-Q for the period ending September 30, 2017 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Richard A. Foss, President and Chief Executive Officer and I, Diana S. Tone, Executive Vice President and Chief Financial Officer of the Company certify pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002:
(1) | the Report fully complies with the requirements of Sections 13(a) of the Securities Exchange Act of 1934; and |
(2) | the information contained in the report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
11/9/17 | /s/Richard A. Foss | |
Date | Richard A. Foss | |
President and Chief Executive Officer | ||
11/9/17 | /s/Diana S. Tone | |
Date | Diana S. Tone | |
Executive Vice President and Chief Financial Officer |
Document and Entity Information - shares |
9 Months Ended | |
---|---|---|
Sep. 30, 2017 |
Nov. 01, 2017 |
|
Document And Entity Information Abstract | ||
Entity Registrant Name | Jacksonville Bancorp, Inc. | |
Entity Central Index Key | 0001484949 | |
Trading Symbol | jxsb | |
Current Fiscal Year End Date | --12-31 | |
Entity Filer Category | Smaller Reporting Company | |
Entity Common Stock Shares Outstanding | 1,812,871 | |
Document Type | 10-Q | |
Document Period End Date | Sep. 30, 2017 | |
Amendment Flag | false | |
Document Fiscal Year Focus | 2017 | |
Document Fiscal Period Focus | Q3 |
CONDENSED CONSOLIDATED BALANCE SHEETS (Parentheticals) - USD ($) |
Sep. 30, 2017 |
Dec. 31, 2016 |
---|---|---|
Statement Of Financial Position [Abstract] | ||
Allowance for loan losses of loans receivable (in dollars) | $ 3,083,934 | $ 3,007,395 |
Preferred stock, par value (in dollars per share) | $ 0.01 | $ 0.01 |
Preferred stock, shares authorized | 10,000,000 | 10,000,000 |
Preferred stock, shares issued | 0 | 0 |
Preferred stock, shares outstanding | 0 | 0 |
Common stock, par value (in dollars per share) | $ 0.01 | $ 0.01 |
Common stock, shares authorized | 25,000,000 | 25,000,000 |
Common stock, shares issued | 1,812,871 | 1,800,244 |
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) - USD ($) |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2017 |
Sep. 30, 2016 |
Sep. 30, 2017 |
Sep. 30, 2016 |
|
INTEREST INCOME: | ||||
Loans | $ 2,234,561 | $ 2,294,733 | $ 6,581,165 | $ 6,925,693 |
Investment securities | 372,199 | 432,341 | 1,146,328 | 1,305,746 |
Mortgage-backed securities | 213,818 | 112,277 | 673,950 | 339,461 |
Other | 29,757 | 19,200 | 65,631 | 46,570 |
Total interest income | 2,850,335 | 2,858,551 | 8,467,074 | 8,617,470 |
INTEREST EXPENSE: | ||||
Deposits | 298,718 | 272,277 | 823,690 | 758,309 |
Other borrowings | 15,749 | 5,326 | 31,515 | 15,388 |
Total interest expense | 314,467 | 277,603 | 855,205 | 773,697 |
NET INTEREST INCOME | 2,535,868 | 2,580,948 | 7,611,869 | 7,843,773 |
PROVISION FOR LOAN LOSSES | 30,000 | 30,000 | 90,000 | 90,000 |
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES | 2,505,868 | 2,550,948 | 7,521,869 | 7,753,773 |
NON-INTEREST INCOME: | ||||
Fiduciary activities | 85,052 | 72,091 | 256,527 | 234,765 |
Commission income | 342,291 | 326,031 | 958,290 | 960,836 |
Service charges on deposit accounts | 202,808 | 198,269 | 577,453 | 538,668 |
Mortgage banking operations, net | 58,060 | 89,248 | 191,405 | 172,521 |
Net realized gains on sales of available-for-sale securities | 97,701 | 83,712 | 324,375 | 291,810 |
Loan servicing fees | 83,974 | 81,418 | 253,913 | 249,533 |
ATM and bank card interchange income | 175,406 | 171,592 | 530,846 | 506,996 |
Other | 71,997 | 65,697 | 200,808 | 206,675 |
Total non-interest income | 1,117,289 | 1,088,058 | 3,293,617 | 3,161,804 |
NON-INTEREST EXPENSE: | ||||
Salaries and employee benefits | 1,640,777 | 1,692,942 | 4,957,982 | 5,075,624 |
Occupancy and equipment | 266,439 | 268,360 | 789,598 | 775,342 |
Data processing and telecommunications | 178,280 | 150,500 | 507,339 | 433,860 |
Real estate owned expense | (720) | 6,061 | (88,874) | (43,617) |
Professional | 69,571 | 42,979 | 158,182 | 149,584 |
Postage and office supplies | 53,937 | 53,602 | 169,014 | 176,928 |
ATM and bank card expense | 107,311 | 96,774 | 315,667 | 286,669 |
Other | 288,023 | 302,736 | 838,455 | 856,157 |
Total non-interest expense | 2,603,618 | 2,613,954 | 7,647,363 | 7,710,547 |
INCOME BEFORE INCOME TAXES | 1,019,539 | 1,025,052 | 3,168,123 | 3,205,030 |
INCOME TAXES | 285,297 | 267,287 | 868,407 | 854,380 |
NET INCOME | $ 734,242 | $ 757,765 | $ 2,299,716 | $ 2,350,650 |
NET INCOME PER COMMON SHARE - BASIC (in dollars per share) | $ 0.41 | $ 0.43 | $ 1.28 | $ 1.32 |
NET INCOME PER COMMON SHARE - DILUTED (in dollars per share) | 0.41 | 0.42 | 1.27 | 1.31 |
DIVIDENDS DECLARED PER SHARE (in dollars per share) | $ 0.10 | $ 0.10 | $ 0.30 | $ 0.30 |
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) (Parentheticals) - USD ($) |
3 Months Ended | 9 Months Ended | ||
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Sep. 30, 2017 |
Sep. 30, 2016 |
Sep. 30, 2017 |
Sep. 30, 2016 |
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Statement Of Income And Comprehensive Income [Abstract] | ||||
Taxes on unrealized appreciation (depreciation) on available-for-sale securities | $ (33,872) | $ (66,426) | $ 773,598 | $ 456,975 |
Taxes on reclassification adjustment for realized gains included in net income | $ 33,218 | $ 28,462 | $ 110,287 | $ 99,215 |
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (Unaudited) - 9 months ended Sep. 30, 2017 - USD ($) |
Common Stock |
Additional Paid-in Capital |
Retained Earnings |
Unallocated ESOP Shares |
Accumulated Other Comprehensive Income (Loss) |
Total |
---|---|---|---|---|---|---|
BALANCE at Dec. 31, 2016 | $ 18,002 | $ 13,908,728 | $ 33,667,499 | $ (172,370) | $ (1,176,294) | $ 46,245,565 |
Increase (Decrease) in Stockholders' Equity [Roll Forward] | ||||||
Net Income | 2,299,716 | 2,299,716 | ||||
Other comprehensive income | 1,287,603 | 1,287,603 | ||||
Stock repurchases | (33) | (104,256) | (104,289) | |||
Exercise of stock options | 160 | 242,384 | 242,544 | |||
Tax benefit of non-qualified options | 8,185 | 8,185 | ||||
Vesting options expense | 22,232 | 22,232 | ||||
Shares held by ESOP, committed to be released | 37,822 | 18,540 | 56,362 | |||
Dividends ($0.30 per share) | (537,300) | (537,300) | ||||
BALANCE at Sep. 30, 2017 | $ 18,129 | $ 14,115,095 | $ 35,429,915 | $ (153,830) | $ 111,309 | $ 49,520,618 |
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (Unaudited) (Parentheticals) - $ / shares |
3 Months Ended | 9 Months Ended | ||
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Sep. 30, 2017 |
Sep. 30, 2016 |
Sep. 30, 2017 |
Sep. 30, 2016 |
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Statement Of Stockholders Equity [Abstract] | ||||
DIVIDENDS DECLARED PER SHARE (in dollars per share) | $ 0.10 | $ 0.10 | $ 0.30 | $ 0.30 |
FINANCIAL STATEMENTS |
9 Months Ended | ||
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Sep. 30, 2017 | |||
Accounting Policies [Abstract] | |||
FINANCIAL STATEMENTS |
The accompanying interim condensed consolidated financial statements include the accounts of Jacksonville Bancorp, Inc. and its wholly-owned subsidiary, Jacksonville Savings Bank (the “Bank”) and its wholly-owned subsidiary, Financial Resources Group, Inc. (collectively, the “Company”). All significant intercompany accounts and transactions have been eliminated.
In the opinion of management, the preceding unaudited condensed consolidated financial statements contain all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation of the financial condition of the Company as of September 30, 2017 and the results of its operations for the three and nine month periods ended September 30, 2017 and 2016. The results of operations for the three and nine month periods ended September 30, 2017 and 2016 are not necessarily indicative of the results which may be expected for the entire year, or any other interim period. The condensed consolidated balance sheet of the Company as of December 31, 2016 has been derived from the audited consolidated balance sheet of the Company as of that date. Certain information and note disclosures normally included in the Company’s annual financial statements prepared in accordance with generally accepted accounting principles in the United States of America (GAAP) have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements of the Company for the year ended December 31, 2016 filed as an exhibit to the Company’s Form 10-K filed in March 2017. The accounting and reporting policies of the Company conform to GAAP and to prevailing practices within the industry. |
NEW ACCOUNTING PRONOUNCEMENTS |
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Sep. 30, 2017 | |||
Accounting Changes And Error Corrections [Abstract] | |||
NEW ACCOUNTING PRONOUNCEMENTS |
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). The update provides a five-step revenue recognition model for all revenue arising from contracts with customers and affects all entities that enter into contracts to provide goods or services to their customers (unless the contracts are included in the scope of other standards). The guidance requires an entity to recognize the revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606) – Deferral of the Effective Date, which provides a one-year deferral of ASU 2014-09. For public entities, the guidance is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period, and must be applied either retrospectively or using the modified retrospective approach. Management continues to evaluate the impact of the new guidance, but does not expect the adoption of this guidance to have a material impact on the Company’s revenue recognition practices. However, the Company does expect additional documentation and disclosure. Early adoption would be permitted, but not before the original public entity effective date.
In January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10) - Recognition and Measurement of Financial Assets and Financial Liabilities. ASU 2016-01 is intended to enhance the reporting model for financial instruments to provide users of financial statements with more decision-useful information. ASU 2016-01 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company is currently reviewing its processes but adoption by the Company is not expected to have a material impact on the consolidated financial statements and related disclosures.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The ASU requires an organization to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. Organizations will continue to use judgment to determine which loss estimation method is appropriate for their circumstances. Additionally, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. For public companies, this update will be effective for interim and annual periods beginning after December 15, 2019. The Company has been receiving training and gathering historical data in order to determine the impact the adoption of ASU 2016-13 will have on the consolidated financial statements.
In March 2016, FASB issued ASU 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The objective of the simplification initiative is to identify, evaluate, and improve areas of US GAAP for which cost and complexity can be reduced while maintaining or improving the usefulness of the information provided to users of financial statements. The areas for simplification involve several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. Amendments related to the timing of when excess tax benefits are recognized, minimum statutory withholding requirements, forfeitures, and intrinsic value should be applied using a modified retrospective transition method by means of a cumulative effect adjustment to equity as of the beginning of the period in which the guidance is adopted. The new guidance was effective for public companies for reporting periods beginning after December 15, 2016. The Company adopted the ASU and there was not a material impact on the Company’s financial statements.
In January 2017, FASB amended FASB ASC Topic 350, Simplifying the Test for Goodwill. The amendments in the update simplify the measurement of goodwill by eliminating Step 2 from the goodwill impairment test. Instead, under this amendment, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss should not exceed the total amount of goodwill allocated to that reporting unit. The amendments are effective for public business entities for the first interim and annual reporting periods beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company has goodwill from a prior business combination and performs an annual impairment test or more frequently if changes or circumstances occur that would more likely than not reduce the fair value of the reporting unit below its carrying value. The Company’s most recent annual impairment assessment determined that the Company’s goodwill was not impaired. Although the Company cannot anticipate future goodwill impairment assessments, based on the most recent assessment it is unlikely that an impairment amount would need to be calculated and, therefore, does not anticipate a material impact from these amendments to the Company’s financial position and results of operations. The current accounting policies and processes are not anticipated to change, except for the elimination of the Step 2 analysis.
In March 2017, FASB issued ASU 2017-08, Receivables – Nonrefundable Fees and Other Costs: Premium Amortization on Purchased Callable Debt Securities (Subtopic 310-20). The ASU amends the amortization period for certain callable debt securities held at a premium. The amendments require the premium to be amortized to the earliest call date. The ASU’s amendments are effective for public business entities for interim and annual periods beginning after December 15, 2018. Early adoption is permitted. The Company has adopted the ASU early and there was not a material impact on the Company’s financial statements. |
EARNINGS PER SHARE |
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Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
EARNINGS PER SHARE |
Earnings Per Share - Basic earnings per share is determined by dividing net income for the period by the weighted average number of common shares. Diluted earnings per share considers the potential effects of the exercise of the outstanding stock options under the Company’s stock option plans. Average shares outstanding exclude unallocated shares held by the Jacksonville Savings Bank employee stock ownership plan (ESOP).
The following reflects earnings per share calculations for basic and diluted methods:
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STOCK-BASED COMPENSATION |
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Disclosure Of Compensation Related Costs Share based Payments [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
STOCK-BASED COMPENSATION |
In connection with our 2010 second step conversion and related stock offering, the ESOP purchased an additional 41,614 shares for the exclusive benefit of eligible employees. The ESOP borrowed funds from the Company in an amount sufficient to purchase the 41,614 shares (approximately 4% of the common stock issued in the offering). The loan is secured by the shares purchased and will be repaid by the ESOP with funds from contributions made by the Bank and dividends received by the ESOP. Contributions will be applied to repay interest on the loan first, and the remainder will be applied to principal. The loan is expected to be repaid over a period of up to 20 years. Shares purchased with the loan proceeds are held in a suspense account for allocation among participants as the loan is repaid. Shares released from the suspense account are allocated among participants in proportion to their compensation, relative to total compensation of all active participants. Participants will vest on a pro-rata basis and reach 100% vesting in the accrued benefits under the ESOP after six years. Vesting is accelerated upon retirement, death, or disability of the participant or a change in control of the Bank. Forfeitures will be reallocated to remaining plan participants. Benefits may be payable upon retirement, death, disability, separation from service, or termination of the ESOP. Discretionary contributions are determined by the board of directors annually.
The Company is accounting for its ESOP in accordance with ASC Topic 718, “Employers Accounting for Employee Stock Ownership Plans.” Accordingly, the debt of the ESOP is eliminated in consolidation and the shares pledged as collateral are reported as unearned ESOP shares in the consolidated balance sheet. Contributions to the ESOP shall be sufficient to pay principal and interest currently due under the loan agreement. As shares are committed to be released from the collateral, the Company reports compensation expense equal to the average market price of the shares for the respective period, and the shares become outstanding for earnings per share computations. Dividends, if any, on unallocated shares are recorded as a reduction of debt and accrued interest.
A summary of ESOP shares at September 30, 2017 and 2016 is shown below.
On April 24, 2012, our shareholders approved the 2012 Stock Option Plan. On this same date, the compensation committee of the board of directors approved the awards of 104,035 options to purchase Company common stock. The stock options vest over a five-year period and expire ten years after issuance. Apart from the vesting schedule, there are no performance-based conditions or any other material conditions applicable to the options issued.
The following table summarizes stock option activity for the nine months ended September 30, 2017.
Intrinsic value for stock options is defined as the difference between the current market value and the exercise price. The value is based upon a closing price of $30.85 per share on September 30, 2017. |
LOAN PORTFOLIO COMPOSITION |
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Receivables [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
LOAN PORTFOLIO COMPOSITION |
At September 30, 2017 and December 31, 2016, the composition of the Company’s loan portfolio is shown below.
The Company believes that originating or purchasing sound loans is a necessary and desirable means of employing funds available for investment. Recognizing the Company’s obligations to its depositors and to the communities it serves, authorized personnel are expected to make sound, profitable loans that resources permit and that opportunity affords. The Company maintains lending policies and procedures designed to focus lending efforts on the types, locations, and duration of loans most appropriate for the business model and markets. The Company’s principal lending activities include the origination of one-to four-family residential mortgage loans, multi-family loans, commercial real estate loans, agricultural loans, home equity lines of credits, commercial business loans, and consumer loans. The primary lending market includes the Illinois counties of Cass, Morgan, Macoupin, Montgomery, and surrounding counties. Generally, loans are collateralized by assets, primarily real estate, of the borrowers and guaranteed by individuals. The loans are expected to be repaid from cash flows of the borrowers or from proceeds from the sale of selected assets of the borrowers.
Loan originations are derived from a number of sources such as real estate broker referrals, existing customers, builders, attorneys and walk-in customers. Upon receipt of a loan application, a credit report is obtained to verify specific information relating to the applicant’s employment, income, and credit standing. In the case of a real estate loan, an appraisal of the real estate intended to secure the proposed loan is undertaken by an independent appraiser approved by the Company. A loan application file is first reviewed by a loan officer who checks applications for accuracy and completeness, and verifies the information provided. The financial resources of the borrower and the borrower’s credit history, as well as the collateral securing the loan, are considered an integral part of each risk evaluation prior to approval. The board of directors has established individual lending authorities for each loan officer by loan type. Loans over an individual officer’s lending limit must be approved by the officers’ loan committee consisting of the chairman of the board, president, chief lending officer and all lending officers, which meets three times a week, and has lending authority up to $750,000 depending on the type of loan. Loans to borrowers with an aggregate principal balance over this limit, up to $1.0 million, must be approved by the directors’ loan committee, which meets weekly and consists of the chairman of the board, president, senior vice president, chief lending officer and at least two outside directors, plus all lending officers as non-voting members. The board of directors approves all loans to borrowers with an aggregate principal balance over $1.0 million. The board of directors ratifies all loans that are originated. Once the loan is approved, the applicant is informed and a closing date is scheduled. Loan commitments are typically funded within 30 days.
If the loan is approved, the borrower must provide proof of fire and casualty insurance on the property serving as collateral which insurance must be maintained during the full term of the loan; flood insurance is required in certain instances. Title insurance or an attorney’s opinion based on a title search of the property is generally required on loans secured by real property.
One-to-Four Family Mortgage Loans - Historically, the Bank’s primary lending origination activity has been one-to-four family, owner-occupied, residential mortgage loans secured by property located in the Company’s market area. The Company generates loans through marketing efforts, existing customers and referrals, real estate brokers, builders and local businesses. Generally, one-to-four family loan originations are limited to the financing of loans secured by properties located within the Company’s market area.
Fixed rate one-to-four family residential mortgage loans are generally conforming loans, underwritten according to secondary market guidelines. The Company generally originates both fixed and adjustable rate mortgage loans in amounts up to the maximum conforming loan limits established by the Federal Housing Finance Agency.
The Company originates for resale to Freddie Mac and the Federal Home Loan Bank fixed-rate one-to-four family residential mortgage loans with terms of 15 years or more. The fixed-rate mortgage loans amortize monthly with principal and interest due each month. Residential real estate loans often remain outstanding for significantly shorter periods than their contractual terms because borrowers may refinance or prepay loans at their option. The Company offers fixed-rate one-to-four family residential mortgage loans with terms of up to 30 years without prepayment penalty.
The Company currently offers adjustable-rate mortgage loans for terms ranging up to 30 years. They generally offer adjustable-rate mortgage loans that adjust between one and five years on the anniversary date of origination. Interest rate adjustments are up to two hundred basis points per year, with a cap of up to six hundred basis points on interest rate increases over the life of the loan. In a rising interest rate environment, such rate limitations may prevent adjustable-rate mortgage loans from repricing to market interest rates, which would have an adverse effect on net interest income. In the low interest rate environment that has existed over the past five years, the adjustable-rate portfolio has repriced downward resulting in lower interest income from this portion of the loan portfolio. In addition, during this period borrowers have shown a preference for fixed-rate loans. The Company has used different interest indices for adjustable-rate mortgage loans in the past such as the average yield on U.S. Treasury securities, adjusted to a constant maturity of one year, three years or five years. The origination of fixed-rate mortgage loans versus adjustable-rate mortgage loans is monitored on an ongoing basis and is affected significantly by the level of market interest rates, customer preference, interest rate risk position and competitors’ loan products.
Adjustable-rate mortgage loans make the loan portfolio more interest rate sensitive and provide an alternative for those borrowers who meet the underwriting criteria, but are unable to qualify for a fixed-rate mortgage. However, as the interest income earned on adjustable-rate mortgage loans varies with prevailing interest rates, such loans do not offer predictable cash flows in the same manner as long-term, fixed-rate loans. Adjustable-rate mortgage loans carry increased credit risk associated with potentially higher monthly payments by borrowers as general market interest rates increase. During periods of rising interest rates the risk of delinquencies and defaults on adjustable-rate mortgage loans increases due to the upward adjustment of interest costs to the borrower, which may result in increased loan losses.
Residential first mortgage loans customarily include due-on-sale clauses, which gives the Company the right to declare a loan immediately due and payable in the event that, among other things, the borrower sells or otherwise disposes of the underlying real property serving as collateral for the loan. Due-on-sale clauses are a means of imposing assumption fees and increasing the interest rate on the mortgage portfolio during periods of rising interest rates.
When underwriting residential real estate loans, the Company reviews and verifies each loan applicant’s income and credit history. Management believes that stability of income and past credit history are integral parts in the underwriting process. Generally, the applicant’s total monthly mortgage payment, including all escrow amounts, is limited to 28% of the applicant’s total monthly income. In addition, total monthly obligations of the applicant, including mortgage payments, generally should not exceed 38% of total monthly income. Written appraisals are generally required on real estate property offered to secure an applicant’s loan. For one-to-four family real estate loans with loan to value ratios of over 80%, private mortgage insurance is generally required. Fire and casualty insurance is also required on all properties securing real estate loans. Title insurance, or an attorney’s title opinion, may be required, as circumstances warrant.
The Company does not offer an “interest only” mortgage loan product on one-to-four family residential properties (where the borrower pays interest for an initial period, after which the loan converts to a fully amortizing loan). They also do not offer loans that provide for negative amortization of principal, such as “Option ARM” loans, where the borrower can pay less than the interest owed on the loan, resulting in an increased principal balance during the life of the loan. The Company does not offer a “subprime loan” program (loans that generally target borrowers with weakened credit histories typically characterized by payment delinquencies, previous charge-offs, judgments, bankruptcies, or borrowers with questionable repayment capacity as evidenced by low credit scores or high debt-burden ratios) or Alt-A loans (traditionally defined as loans having less than full documentation).
Commercial Real Estate Loans - The Company originates and purchases commercial real estate loans. Commercial real estate loans are secured primarily by improved properties such as multi-family residential, retail facilities and office buildings, restaurants and other non-residential buildings. The maximum loan-to-value ratio for commercial real estate loans originated is generally 80%. Commercial real estate loans are generally written up to terms of five years with adjustable interest rates. The rates are generally tied to the prime rate and generally have a specified floor. Many of the fixed-rate commercial real estate loans are not fully amortizing and therefore require a “balloon” payment at maturity. The Company purchases from time to time commercial real estate loan participations primarily from outside the Company’s market area. All participation loans are approved following a review to ensure that the loan satisfies the underwriting standards.
Underwriting standards for commercial real estate loans include a determination of the applicant’s credit history and an assessment of the applicant’s ability to meet existing obligations and payments on the proposed loan. The income approach is primarily utilized to determine whether income generated from the applicant’s business or real estate offered as collateral is adequate to repay the loan. There is an emphasis on the ratio of the property’s projected net cash flow to the loan’s debt service requirement (generally requiring a minimum ratio of 120%). In underwriting a loan, the value of the real estate offered as collateral in relation to the proposed loan amount is considered. Generally, the loan amount cannot be greater than 80% of the value of the real estate. Written appraisals are usually obtained from either licensed or certified appraisers on all commercial real estate loans in excess of $250,000. Creditworthiness of the applicant is assessed by reviewing a credit report, financial statements and tax returns of the applicant, as well as obtaining other public records regarding the applicant.
Loans secured by commercial real estate generally involve a greater degree of credit risk than one-to-four family residential mortgage loans and carry larger loan balances. This increased credit risk is a result of several factors, including the effects of general economic conditions on income producing properties and the successful operation or management of the properties securing the loans. Furthermore, the repayment of loans secured by commercial real estate is typically dependent upon the successful operation of the related business and real estate property. If the cash flows from the project are reduced, the borrower’s ability to repay the loan may be impaired.
Agricultural Real Estate Loans - The Company originates and purchases agricultural real estate loans. The maximum loan-to-value ratio for agricultural real estate loans we originate is generally 80%. Our agricultural real estate loans are generally written up to terms of five years with adjustable interest rates. The rates are generally tied to the average yield on U.S. Treasury securities, adjusted to a constant maturity of one year, three years, or five years and generally have a specified floor. Many of our fixed-rate agricultural real estate loans are not fully amortizing and therefore require a “balloon” payment at maturity. We purchase from time to time agricultural real estate loan participations primarily from other local institutions within our market area. All participation loans are approved following a review to ensure that the loan satisfies our underwriting standards.
Underwriting standards for agricultural real estate include a determination of the applicant’s credit history and an assessment of the applicant’s ability to meet existing obligations and payments on the proposed loan. The income approach is primarily utilized to determine whether income generated from the applicant’s farm operation or real estate offered as collateral is adequate to repay the loan. We emphasize the ratio of the property’s projected cash flow to the loan’s debt service requirement (generally requiring a minimum ratio of 120%). In underwriting a loan, we consider the value of the real estate offered as collateral in relation to the proposed loan amount. Generally, the loan amount cannot be greater than 80% of the value of the real estate. We usually obtain written appraisals from either licensed or certified appraisers on all agricultural real estate loans in excess of $250,000. We assess the creditworthiness of the applicant by reviewing a credit report, financial statements and tax returns of the applicant, as well as obtaining other public records regarding the applicant.
Loans secured by agricultural real estate generally involve a greater degree of credit risk than one-to-four family residential mortgage loans and carry larger loan balances. This increased credit risk is a result of several factors, including the effects of general economic and market conditions on farm operations and the successful operation or management of the properties securing the loans. The repayment of loans secured by agricultural estate is typically dependent upon the successful operation of the farm and real estate property. If the cash flows are reduced, the borrower’s ability to repay the loan may be impaired.
Home Equity Loans – The Company originates home equity loans and lines of credit, which are generally secured by the borrower’s principal residence. The maximum amount of a home equity loan or line of credit is generally 95% of the appraised value of a borrower’s real estate collateral less the amount of any existing mortgages or related liabilities. Home equity loans and lines of credit are approved with both fixed and adjustable interest rates which we determine based upon market conditions. Such loans may be fully amortized over the life of the loan or have a balloon feature. Generally, the maximum term for home equity loans is 10 years.
Underwriting standards for home equity loans include a determination of the applicant’s credit history and an assessment of the applicant’s ability to meet existing obligations and payments on the proposed loan. The stability of the applicant’s monthly income may be determined by verification of gross monthly income from primary employment, and additionally from any verifiable secondary income. We also consider the length of employment with the borrower’s present employer as well as the amount of time the borrower has lived in the local area. Creditworthiness of the applicant is of primary consideration; however, the underwriting process also includes a comparison of the value of the collateral in relation to the proposed loan amount.
Home equity loans entail greater risks than one-to-four family residential mortgage loans, which are secured by first lien mortgages. Collateral repossessed after a default may not provide an adequate source of repayment of the outstanding loan balance because of damage or depreciation in the value of the property or loss of equity to the first lien position. Further, home equity loan payments are dependent on the borrower’s continuing financial stability, and therefore are more likely to be adversely affected by job loss, divorce, illness or personal bankruptcy. Finally, the application of various Federal and state laws, including Federal and state bankruptcy and insolvency laws, may limit the amount which can be recovered on such loans in the event of a default.
Commercial Business Loans - The Company originates commercial business loans to borrowers located in the Company’s market area which are secured by collateral other than real estate or which can be unsecured. Commercial business loan participations are also purchased from other lenders, which may be made to borrowers outside the Company’s market area. Commercial business loans are generally secured by equipment and inventory and generally are offered with adjustable rates tied to the prime rate or the average yield on U.S. Treasury securities, adjusted to a constant maturity of either one year, three years or five years and various terms of maturity generally from three years to five years. Unsecured business loans are originated on a limited basis in those instances where the applicant’s financial strength and creditworthiness has been established. Commercial business loans generally bear higher interest rates than residential loans, but they also may involve a higher risk of default since their repayment is generally dependent on the successful operation of the borrower’s business. Personal guarantees are generally obtained from the borrower or a third party as a condition to originating its business loans.
Underwriting standards for commercial business loans include a determination of the applicant’s ability to meet existing obligations and payments on the proposed loan from normal cash flows generated in the applicant’s business. The financial strength of each applicant is assessed through the review of financial statements and tax returns provided by the applicant. The creditworthiness of an applicant is derived from a review of credit reports as well as a search of public records. Business loans are periodically reviewed following origination. Financial statements are requested at least annually and reviewed for substantial deviations or changes that might affect repayment of the loan. Loan officers also visit the premises of borrowers to observe the business premises, facilities, and personnel and to inspect the pledged collateral. Underwriting standards for business loans are different for each type of loan depending on the financial strength of the applicant and the value of collateral offered as security.
Agricultural Business Loans - The Company originates agricultural business loans to borrowers located in our market area which are secured by collateral other than real estate or which can be unsecured. Agricultural business loans are generally secured by equipment and blanket security agreements on all farm assets. These loans are generally offered with fixed rates with terms up to five years. Agricultural business loans generally bear lower interest rates than residential loans due to competitive market pressures. The repayment of agricultural business loans is generally dependent on the successful operation of the farm operation. Personal guarantees are generally obtained from the borrower as a condition to originating agricultural business loans.
Underwriting standards for agricultural business loans include a determination of the applicant’s ability to meet existing obligations and payments on the proposed loan from normal cash flows generated in the applicant’s business. The financial strength of each applicant is assessed through the review of financial statements, pro-forma cash flow statements, and tax returns provided by the applicant. The creditworthiness of an applicant is derived from a review of credit reports as well as a search of public records. Financial statements are requested at least annually and reviewed for substantial deviations or changes that might affect repayment of the loan. Loan officers may also visit the premises of borrowers to observe the operation, facilities, equipment, and personnel and to inspect the pledged collateral. Underwriting standards for agricultural business loans are different for each type of loan depending on the financial strength of the applicant and the value of collateral offered as security.
The repayment of agricultural business loans generally is dependent on the successful operation of a farm and can be adversely affected by fluctuations in crop prices, increase in interest rates, and changes in weather conditions. These developments may result in smaller harvests and less income for farmers which may adversely affect such borrower’s ability to repay a loan, and potentially result in an increase in the level of problem loans and loan losses in our agricultural portfolio. While not required, the majority of our agricultural business loans are covered by crop insurance, which provides protection against loss due to lower crop yields as a result of unfavorable weather conditions.
Consumer Loans – The Company originates consumer loans, including automobile loans, loans secured by deposit accounts, unsecured loans and mobile home loans. Consumer loans are generally offered on a fixed-rate basis. Automobile loans are generally offered with maturities of up to 60 months for new automobiles. Loans secured by used automobiles will have maximum terms which vary depending upon the age of the automobile. Automobile loans are generally originated with a loan-to-value ratio below the greater of 80% of the purchase price or 100% of NADA loan value. In the case of a new car loan, the loan-to-value ratio may be greater or less depending on the borrower’s credit history, debt to income ratio, home ownership and other banking relationships with us.
Underwriting standards for consumer loans include a determination of the applicant’s credit history and an assessment of the applicant’s ability to meet existing obligations and payments on the proposed loan. The stability of the applicant’s monthly income may be determined by verification of gross monthly income from primary employment, and additionally from any verifiable secondary income. We also consider the length of employment with the borrower’s present employer as well as the amount of time the borrower has lived in the local area. Creditworthiness of the applicant is of primary consideration; however, the underwriting process also includes a comparison of the value of the collateral in relation to the proposed loan amount.
Consumer loans entail greater risks than one-to-four family residential mortgage loans, particularly consumer loans secured by rapidly depreciating assets such as automobiles or loans that are unsecured. In such cases, collateral repossessed after a default may not provide an adequate source of repayment of the outstanding loan balance because of damage, loss or depreciation. Further, consumer loan payments are dependent on the borrower’s continuing financial stability, and therefore are more likely to be adversely affected by job loss, divorce, illness or personal bankruptcy. Such events would increase our risk of loss on unsecured loans. Finally, the application of various Federal and state laws, including Federal and state bankruptcy and insolvency laws, may limit the amount which can be recovered on such loans in the event of a default.
The following tables present the balance in the allowance for loan losses and the recorded investment in loans based on portfolio segment and impairment method as of and for the periods ended September 30, 2017, September 30, 2016, and December 31, 2016.
Management’s opinion as to the ultimate collectability of loans is subject to estimates regarding future cash flows from operations and the value of property, real and personal, pledged as collateral. These estimates are affected by changing economic conditions and the economic prospects of borrowers.
The allowance for loan losses is maintained at a level that, in management’s judgment, is adequate to cover probable credit losses inherent in the loan portfolio at the balance sheet date. The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to earnings. Loan losses are charged against the allowance when management believes the uncollectability of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.
The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectability of the loans in light of historical experience, the size and composition of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.
The allowance consists of allocated and general components. The allocated component relates to loans that are classified as impaired. For those 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.
A loan is considered impaired when, based on current information and events, it is probable that the scheduled payments of principal or interest will not be able to be collected when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan 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 for commercial and agricultural loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price or the fair value of the collateral if the loan is collateral dependent.
Groups of loans with similar risk characteristics are collectively evaluated for impairment based on the group’s historical loss experience adjusted for changes in trends, conditions and other relevant factors that affect repayment of the loans. Accordingly, individual consumer and residential loans are not separately identified for impairment measurements, unless such loans are the subject of a restructuring agreement due to financial difficulties of the borrower.
The general component covers non-classified loans and is based on historical charge-off experience and expected loss given the internal risk rating process. The loan portfolio is stratified into homogeneous groups of loans that possess similar loss characteristics and an appropriate loss ratio adjusted for other qualitative factors is applied to the homogeneous pools of loans to estimate the incurred losses in the loan portfolio.
There have been no changes to the Company’s accounting policies or methodology from the prior periods.
Credit Quality Indicators
The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis is performed on all loans at origination. In addition, lending relationships over $750,000, new commercial and commercial real estate loans, and watch list credits are reviewed annually by our external loan review department in order to verify risk ratings. The Company uses the following definitions for risk ratings:
Special Mention – Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.
Substandard – Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that 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.
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 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 present the credit risk profile of the Company’s loan portfolio based on rating category and payment activity as of September 30, 2017 and December 31, 2016.
The following tables present the Company’s loan portfolio aging analysis as of September 30, 2017 and December 31, 2016.
The accrual of interest on loans is generally discontinued at the time the loan is 90 days past due unless the credit is well-secured and in process of collection. Past due status is based on contractual terms of the loan. In all cases, loans are placed on non-accrual or charged-off at an earlier date if collection of principal and interest is considered doubtful.
All interest accrued but not collected for loans that are placed on non-accrual or charged-off are reversed against interest income. The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all principal and interest amounts contractually due are brought current and future payments are reasonably assured.
The Company actively seeks to reduce its investment in impaired loans. The primary tools to work through impaired loans are settlement with the borrowers or guarantors, foreclosure of the underlying collateral, or restructuring.
The Company will restructure loans when the borrower demonstrates the inability to comply with the terms of the loan, but can demonstrate the ability to meet acceptable restructured terms. Restructurings generally include one or more of the following restructuring options; reduction in the interest rate on the loan, payment extensions, forgiveness of principal, forbearance, or other actions intended to maximize collection. Restructured loans in compliance with modified terms are classified as impaired.
The following tables present impaired loans at or for the three and nine months ended September 30, 2017 and for the year ended December 31, 2016.
Included in certain loan categories in the impaired loans are troubled debt restructurings (TDRs), where economic concessions have been granted to borrowers who have experienced financial difficulties. These concessions typically result from our loss mitigation activities and could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance or other actions. TDRs are considered impaired at the time of restructuring and typically are returned to accrual status after considering the borrower’s sustained repayment performance for a reasonable period of time, usually at least six months.
When loans are modified into a TDR, the Company evaluates any possible impairment similar to other impaired loans based on the present value of expected cash flows, discounted at the contractual interest rate of the original loan agreement, or based upon on the current fair value of the collateral, less selling costs for collateral dependent loans. If the Company determines that the value of the modified loan is less than the recorded investment in the loan (net of previous charge-offs, deferred loan fees or costs and unamortized premium or discount), impairment is recognized through an allowance estimate or a charge-off to the allowance. In periods subsequent to modification, the Company evaluates all TDRs, including those that have payment defaults, for possible impairment and recognizes impairment through the allowance.
The following table presents the recorded balance, at original cost, of TDRs, as of September 30, 2017 and December 31, 2016.
The following table presents the recorded balance, at original cost, of TDRs, which were performing according to the terms of the restructuring, as of September 30, 2017 and December 31, 2016.
The following tables present loans modified as TDRs during the three and nine months ended September 30, 2017 and 2016.
2017 Modifications The Company modified two residential real estate loans totaling $90,333. The modifications were made to lower the rate on one note and extend the payment schedule on the other note for three months. The Company modified one commercial real estate loan with a recorded investment of $456,158. The modification was made to lower the rate and extend the amortization. The Company modified one agricultural real estate loan with a recorded investment of $236,500. The modification was made to consolidate notes and extend the amortization. The Company modified two commercial loans with a recorded investment of $178,993. One modification was made to combine three notes and lower the rate and the other was made to consolidate two notes, capitalize interest, and extend the term. The Company modified one agricultural loan with a recorded investment of $93,914. The modification was made to extend the principal payment for nine months. The Company modified one consumer loan with a recorded investment of $1,604. The modification was made to extend the term and lower the payments. The modifications did not result in a write-off of the principal balance of any loan nor was there a significant difference between the pre-modification balance and the post-modification balance.
2016 Modifications The Company modified one residential real estate loan with a recorded investment of $40,626. The modification was made to restructure the loan and capitalize delinquent real estate taxes. The Company modified one commercial real estate loan with a recorded investment of $719,022. The modification was made to lower the rate, extend the amortization, and capitalize interest and escrow funds as part of a bankruptcy restructuring. The Company modified one commercial loan with a recorded investment of $218,331. The modification was made to require interest only payments for four months. The modifications did not result in a write-off of the principal balance of any loan nor was there a significant difference between the pre-modification balance and the post-modification balance.
TDRs with Defaults Management considers the level of defaults within the various portfolios when evaluating qualitative adjustments used to determine the adequacy of the allowance for loan losses. During the nine month period ended September 30, 2017, we had no defaulted TDRs as none were more than 90 days past due at September 30, 2017. Default occurs when a loan is 90 days or more past due, transferred to nonaccrual or charged-off, and is within twelve months of restructuring.
During the nine month period ended September 30, 2016, three residential real estate loans of $176,483 were considered defaulted TDRs as they were more than 90 days past due at September 30, 2016.
The following table presents the Company’s nonaccrual loans at September 30, 2017 and December 31, 2016. This table excludes performing troubled debt restructurings.
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Investments, Debt and Equity Securities [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
INVESTMENTS |
The amortized cost and approximate fair value of securities, all of which are classified as available-for-sale, are as follows:
The amortized cost and fair value of available-for-sale securities at September 30, 2017, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.
The carrying value of securities pledged as collateral, to secure public deposits and for other purposes, was $59,039,000 at September 30, 2017 and $42,463,000 at December 31, 2016.
The book value of securities sold under agreement to repurchase amounted to $7,196,000 at September 30, 2017 and $7,135,000 at December 31, 2016. At September 30, 2017, we had $2,065,000 of repurchase agreements secured by U.S. government agency bonds and $5,262,000 of repurchase agreements secured by mortgage backed securities. All of our repurchase agreements mature overnight. The right of offset for a repurchase agreement resembles a secured borrowing, whereby the collateral pledged by the Company would be used to settle the fair value of the repurchase agreement should the Company be in default. The collateral is held by the Company in a segregated custodial account. In the event the collateral fair value falls below stipulated levels, the Company will pledge additional securities. The Company closely monitors collateral levels to ensure adequate levels are maintained.
Gross gains of $107,000 and $84,000 and gross losses of $9,000 and $0 resulting from sales of available-for-sale securities were realized during the three months ended September 30, 2017 and 2016, respectively. Gross gains of $333,000 and $295,000 and gross losses of $9,000 and $3,000 resulting from sales of available-for-sale securities were realized during the nine months ended September 30, 2017 and 2016, respectively.
Certain investments in debt securities are reported in the financial statements at an amount less than their historical cost. Total fair value of these investments at September 30, 2017 and December 31, 2016 were $61,146,000, and $71,583,000, respectively, which were approximately 58% and 71% of the Company’s available-for-sale investment portfolio.
Management believes the declines in fair value for these securities are temporary. Should the impairment of any of these securities become other than temporary, the cost basis of the investment will be reduced and the resulting loss recognized in net income in the period the other-than-temporary impairment is identified.
The following table shows the gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous loss position, at September 30, 2017 and December 31, 2016.
The unrealized losses on the Company’s investments in municipal bonds, U.S. government agencies, and mortgage-backed securities were caused by interest rate increases. The contractual terms of these investments do not permit the issuer to settle the securities at a price less than the amortized cost bases of the investments. Because the Company does not intend to sell the investments and it is not more likely than not the Company will be required to sell the investments before recovery of their amortized cost bases, which may be maturity, the Company does not consider these investments to be other-than-temporarily impaired at September 30, 2017 and December 31, 2016. |
ACCUMULATED OTHER COMPREHENSIVE INCOME |
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Equity [Abstract] | |||||||||||||||||||||||||||||||||||||||
ACCUMULATED OTHER COMPREHENSIVE INCOME |
The components of accumulated other comprehensive income (loss), included in stockholders’ equity, are as follows:
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CHANGES IN ACCUMULATED OTHER COMPREHENSIVE INCOME (AOCI) BY COMPONENT |
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Changes In Accumulated Other Comprehensive Income (Aoci) By Component [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
CHANGES IN ACCUMULATED OTHER COMPREHENSIVE INCOME (AOCI) BY COMPONENT |
Amounts reclassified from AOCI and the affected line items in the statements of income during the three and nine months ended September 30, 2017 and 2016, were as follows:
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DISCLOSURES ABOUT FAIR VALUE OF ASSETS AND LIABILITIES |
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Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
DISCLOSURES ABOUT FAIR VALUE OF ASSETS AND LIABILITIES |
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements must maximize the use of observable inputs and minimize the use of unobservable inputs. There is a hierarchy of three levels of inputs that may be used to measure fair value:
Recurring Measurements
The following table presents the fair value measurements of assets recognized in the accompanying condensed consolidated balance sheets measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fall at September 30, 2017 and December 31, 2016:
Following is a description of the valuation methodologies and inputs used for assets measured at fair value on a recurring basis and recognized in the accompanying condensed consolidated balance sheets, as well as the general classification of such assets pursuant to the valuation hierarchy. There have been no significant changes in the valuation techniques during the nine month period ended September 30, 2017.
Available-for-Sale Securities - Where quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. If quoted market prices are not available, then fair values are estimated by using quoted prices of securities with similar characteristics or independent asset pricing services and pricing models, the inputs of which are market-based or independently sourced market parameters, including, but not limited to, yield curves, interest rates, volatilities, prepayments, defaults, cumulative loss projections, and cash flows. Such securities are classified in Level 2 of the valuation hierarchy. In certain cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy.
Nonrecurring Measurements
The following table presents the fair value measurement of assets measured at fair value on a nonrecurring basis and the level within the fair value hierarchy in which the fair value measurements fall at September 30, 2017 and December 31, 2016:
Following is a description of the valuation methodologies and inputs used for assets measured at fair value on a nonrecurring basis and recognized in the accompanying condensed consolidated balance sheets, as well as the general classification of such assets pursuant to the valuation hierarchy. For assets classified within Level 3 of the fair value hierarchy, the process used to develop the reported fair value is described below.
Impaired Loans (Collateral Dependent) - The estimated fair value of collateral-dependent impaired loans is based on the appraised fair value of the collateral, less estimated cost to sell. Collateral-dependent impaired loans are classified within Level 3 of the fair value hierarchy.
The Company considers the appraisal or evaluation as the starting point for determining fair value and then considers other factors and events in the environment that may affect the fair value. Appraisals of the collateral underlying collateral-dependent loans are obtained when the loan is determined to be collateral-dependent and subsequently as deemed necessary. Appraisals are reviewed for accuracy and consistency. Appraisers are selected from the list of approved appraisers maintained by management. The appraised values are reduced by discounts to consider lack of marketability and estimated cost to sell if repayment or satisfaction of the loan is dependent on the sale of the collateral.
Real Estate Owned – Real estate owned is carried at the lower of fair value at acquisition date or current estimated fair value, less estimated cost to sell when the real estate is acquired. Estimated fair value of real estate owned is based on appraisals or evaluations. Real estate owned is classified within Level 3 of the fair value hierarchy.
Appraisals of real estate owned are obtained when the real estate is acquired and subsequently as deemed necessary. Appraisals are reviewed for accuracy and consistency. Appraisers are selected from the list of approved appraisers maintained by management. The estimated fair value of collateral-dependent impaired loans is based on the appraised fair value of the collateral, less estimated cost to sell. Collateral-dependent impaired loans are classified within Level 3 of the fair value hierarchy.
Mortgage Servicing Rights – Mortgage servicing rights do not trade in an active, open market with readily observable prices. Accordingly, fair value is estimated using discounted cash flow models having significant inputs of discount rate, prepayment speed and default rate. Due to the nature of the valuation inputs, mortgage servicing rights are classified within Level 3 of the hierarchy.
Mortgage servicing rights are tested for impairment on at least an annual basis. The Company uses a third-party to measure mortgage servicing rights through the completion of a proprietary model. Inputs to the model are reviewed by the Company.
Unobservable (Level 3) Inputs
The following table presents quantitative information about unobservable inputs used in recurring and nonrecurring Level 3 fair value measurements (dollars in thousands).
Fair Value of Financial Instruments The following table presents estimated fair values of the Company’s other financial instruments and the level within the fair value hierarchy in which the fair value measurements fall at September 30, 2017 and December 31, 2016
The following methods were used to estimate the fair value of all other financial instruments recognized in the accompanying condensed consolidated balance sheets at amounts other than fair value.
Cash and Cash Equivalents, Interest-Earning Time Deposits in Banks, Interest Receivable, Federal Home Loan Bank Stock, and Other Investments - The carrying amount approximates fair value.
Loans Held for Sale - For homogeneous categories of loans, such as mortgage loans held for sale, fair value is estimated using the quoted market prices for securities backed by similar loans, adjusted for differences in loan characteristics.
Loans - The fair value of loans is estimated by discounting the future cash flows using the market rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. Loans with similar characteristics were aggregated for purposes of the calculations.
Deposits - Deposits include demand deposits, savings accounts, NOW accounts and certain money market deposits. The carrying amount approximates fair value. The fair value of fixed-maturity time deposits is estimated using a discounted cash flow calculation that applies the rates currently offered for deposits of similar remaining maturities.
Short-term Borrowings, Interest Payable, and Advances from Borrowers for Taxes and Insurance - The carrying amount approximates fair value.
Commitments to Originate Loans, Letters of Credit, and Lines of Credit - The fair value of commitments to originate loans is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair values of letters of credit and lines of credit are based on fees currently charged for similar agreements or on the estimated cost to terminate or otherwise settle the obligations with the counterparties at the reporting date. |
MORTGAGE SERVICING RIGHTS |
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Transfers and Servicing [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
MORTGAGE SERVICING RIGHTS |
Activity in the balance of mortgage servicing rights, measured using the amortization method, for the nine month period ended September 30, 2017 and the year ended December 31, 2016 was as follows:
Activity in the valuation allowance for mortgage servicing rights for the nine month period ended September 30, 2017 and the year ended December 31, 2016 was as follows:
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INCOME TAXES |
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Income Tax Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
INCOME TAXES |
A reconciliation of income tax expense at the statutory rate to the Company’s actual income tax expense for the nine months ended September 30, 2017 and 2016 is shown below.
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COMMITMENTS AND CONTINGENCIES |
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Commitments And Contingencies Disclosure [Abstract] | |||
COMMITMENTS AND CONTINGENCIES |
The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers in the way of commitments to extend credit. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer's creditworthiness on a case-by-case basis. Substantially all of the Company's loans are to borrowers located in Cass, Morgan, Macoupin, Montgomery, and surrounding counties in Illinois. |
EARNINGS PER SHARE (Tables) |
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Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of earnings per share calculations for basic and diluted methods |
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STOCK-BASED COMPENSATION (Tables) |
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Disclosure Of Compensation Related Costs Share based Payments [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of ESOP shares |
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Schedule of stock option activity |
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LOAN PORTFOLIO COMPOSITION (Tables) |
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Receivables [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of composition of loan portfolio |
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Schedule of allowance for loan losses and recorded investment in loans based on portfolio segment and impairment method |
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Schedule of credit risk profile of loan portfolio based on rating category and payment activity |
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Schedule of loan portfolio aging analysis |
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Schedule of impaired loan |
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Schedule of recorded balance at original cost of troubled debt restructurings |
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Schedule of recorded balance at original cost of troubled debt restructurings performing according to terms of restructuring |
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Schedule of loans modified as troubled debt restructurings |
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Schedule of nonaccrual loans |
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INVESTMENTS (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Investments, Debt and Equity Securities [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of amortized cost and approximate fair values of available for sale securities |
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Schedule of amortized cost and fair value of available-for-sale securities by contractual maturities |
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Schedule of gross unrealized losses and fair value in continuous loss position |
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ACCUMULATED OTHER COMPREHENSIVE INCOME (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||
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Sep. 30, 2017 | |||||||||||||||||||||||||||||||||||||
Equity [Abstract] | |||||||||||||||||||||||||||||||||||||
Schedule of accumulated other comprehensive income |
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CHANGES IN ACCUMULATED OTHER COMPREHENSIVE INCOME (AOCI) BY COMPONENT (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Changes In Accumulated Other Comprehensive Income (Aoci) By Component [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of reclassified from AOCI and the affected line items in the statements of income |
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DISCLOSURES ABOUT FAIR VALUE OF ASSETS AND LIABILITIES (Tables) |
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Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of fair value measurements of assets recognized in balance sheets measured at fair value on recurring basis |
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Schedule of fair value measurement of assets measured at fair value on nonrecurring basis |
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Schedule of quantitative information about unobservable inputs used in recurring and nonrecurring level 3 fair value measurements |
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Schedule of estimated fair values of other financial instrument |
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MORTGAGE SERVICING RIGHTS (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2017 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Transfers and Servicing [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of activity in balance of mortgage servicing rights measured using amortization method |
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Schedule of activity in valuation allowance for mortgage servicing rights |
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INCOME TAXES (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2017 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income Tax Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of reconciliation of income tax expense at statutory rate to actual income tax expense |
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EARNINGS PER SHARE - Earnings Per Share Calculations for Basic and Diluted Methods (Details) - USD ($) |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2017 |
Sep. 30, 2016 |
Sep. 30, 2017 |
Sep. 30, 2016 |
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Earnings Per Share [Abstract] | ||||
Net income available to common shareholders | $ 734,242 | $ 757,765 | $ 2,299,716 | $ 2,350,650 |
Basic average shares outstanding | 1,797,080 | 1,778,742 | 1,790,603 | 1,775,142 |
Diluted potential common shares: | ||||
Stock option equivalents | 14,706 | 19,741 | 14,542 | 17,103 |
Diluted average shares outstanding | 1,811,786 | 1,798,483 | 1,805,145 | 1,792,245 |
Basic earnings per share (in dollars per share) | $ 0.41 | $ 0.43 | $ 1.28 | $ 1.32 |
Diluted earnings per share (in dollars per share) | $ 0.41 | $ 0.42 | $ 1.27 | $ 1.31 |
STOCK-BASED COMPENSATION - Summary of ESOP Shares (Details) - USD ($) |
Sep. 30, 2017 |
Sep. 30, 2016 |
---|---|---|
Disclosure Of Compensation Related Costs Share based Payments [Abstract] | ||
Unearned shares | 13,529 | 17,599 |
Shares committed for release | 1,854 | 1,786 |
Allocated shares | 60,344 | 61,624 |
Total ESOP shares | 75,727 | 81,009 |
Fair value of unearned shares | $ 474,566 | $ 568,368 |
STOCK-BASED COMPENSATION - Stock Option Activity (Details 1) - Stock Options |
9 Months Ended |
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Sep. 30, 2017
USD ($)
$ / shares
shares
| |
Options | |
Outstanding, December 31, 2016 | shares | 47,488 |
Exercised | shares | (16,021) |
Forfeited | shares | (400) |
Outstanding, September 30, 2017 | shares | 31,067 |
Exercisable, September 30, 2017 | shares | 29,282 |
Weighted Average Exercise Price/Share | |
Outstanding, December 31, 2016 | $ / shares | $ 15.65 |
Exercised | $ / shares | 15.65 |
Forfeited | $ / shares | 15.65 |
Outstanding, September 30, 2017 | $ / shares | 15.65 |
Exercisable, September 30, 2017 | $ / shares | $ 15.65 |
Weighted Average Remaining Contractual Life (in years) | |
Outstanding, September 30, 2017 | 4 years 6 months |
Exercisable, September 30, 2017 | 4 years 6 months |
Aggregate Intrinsic Value | |
Outstanding, September 30, 2017 | $ | $ 472,218 |
Exercisable, September 30, 2017 | $ | $ 445,086 |
STOCK-BASED COMPENSATION (Detail Textuals) - $ / shares |
1 Months Ended | 9 Months Ended |
---|---|---|
Apr. 24, 2012 |
Sep. 30, 2017 |
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Employee Stock Ownership Plan (ESOP) Disclosures [Line Items] | ||
Closing price per share | $ 30.85 | |
Stock Options | ||
Employee Stock Ownership Plan (ESOP) Disclosures [Line Items] | ||
Common stock reserved and awarded | 104,035 | |
Vesting period | 5 years | |
Award expiration period | 10 years | |
Employee Stock Ownership Plan (ESOP) | ||
Employee Stock Ownership Plan (ESOP) Disclosures [Line Items] | ||
ESOP purchased an additional shares | 41,614 | |
ESOP shares, percentage of common stock issued in the offering | 4.00% | |
Maximum loan repayment term | 20 years | |
Vesting percentage | 100.00% | |
Award expiration period | 6 years |
LOAN PORTFOLIO COMPOSITION - Balance in Allowances for Loan Losses and Recorded Investment in Loans Based on Portfolio Segment and Impairment Method (Details 1) - USD ($) |
3 Months Ended | 9 Months Ended | 12 Months Ended | ||
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Sep. 30, 2017 |
Sep. 30, 2016 |
Sep. 30, 2017 |
Sep. 30, 2016 |
Dec. 31, 2016 |
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Allowance for Loan Losses: | |||||
Beginning Balance | $ 3,052,461 | $ 2,958,565 | $ 3,007,395 | $ 2,919,594 | $ 2,919,594 |
Provision charged to expense | 30,000 | 30,000 | 90,000 | 90,000 | 120,000 |
Losses charged off | (11,974) | (16,405) | (57,529) | (55,183) | (81,948) |
Recoveries | 13,447 | 12,437 | 44,068 | 30,186 | 49,749 |
Ending balance | 3,083,934 | 2,984,597 | 3,083,934 | 2,984,597 | 3,007,395 |
Ending balance: individually evaluated for impairment, ending balance | 1,190,357 | 869,142 | 1,190,357 | 869,142 | 1,084,812 |
Ending balance: collectively evaluated for impairment, ending balance | 1,893,577 | 2,115,455 | 1,893,577 | 2,115,455 | 1,922,583 |
Loans: | |||||
Ending balance | 187,206,073 | 188,363,586 | 187,206,073 | 188,363,586 | 187,477,065 |
Ending balance: individually evaluated for impairment, ending balance | 3,753,255 | 2,109,000 | 3,753,255 | 2,109,000 | 2,580,552 |
Ending balance: collectively evaluated for impairment, ending balance | 183,452,818 | 186,254,586 | 183,452,818 | 186,254,586 | 184,896,513 |
Real estate loans | |||||
Loans: | |||||
Ending balance | 134,149,013 | 134,149,013 | 136,666,343 | ||
Real estate loans | 1-4 Family | |||||
Allowance for Loan Losses: | |||||
Beginning Balance | 772,492 | 836,512 | 832,000 | 829,604 | 829,604 |
Provision charged to expense | (24,925) | 20,848 | (54,914) | 45,349 | 14,683 |
Losses charged off | (7,803) | (41,782) | (34,682) | (38,171) | |
Recoveries | 5,659 | 5,340 | 17,922 | 14,626 | 25,884 |
Ending balance | 753,226 | 854,897 | 753,226 | 854,897 | 832,000 |
Ending balance: individually evaluated for impairment, ending balance | 233,432 | 257,165 | 233,432 | 257,165 | 304,922 |
Ending balance: collectively evaluated for impairment, ending balance | 519,794 | 597,732 | 519,794 | 597,732 | 527,078 |
Loans: | |||||
Ending balance | 45,438,266 | 46,125,444 | 45,438,266 | 46,125,444 | 45,311,103 |
Ending balance: individually evaluated for impairment, ending balance | 696,670 | 626,578 | 696,670 | 626,578 | 713,151 |
Ending balance: collectively evaluated for impairment, ending balance | 44,741,596 | 45,498,866 | 44,741,596 | 45,498,866 | 44,597,952 |
Real estate loans | Commercial real estate | |||||
Allowance for Loan Losses: | |||||
Beginning Balance | 1,208,531 | 913,730 | 1,044,553 | 917,526 | 917,526 |
Provision charged to expense | (115,121) | (25,754) | 39,177 | (32,550) | 112,411 |
Recoveries | 5,809 | 5,808 | 15,489 | 8,808 | 14,616 |
Ending balance | 1,099,219 | 893,784 | 1,099,219 | 893,784 | 1,044,553 |
Ending balance: individually evaluated for impairment, ending balance | 774,201 | 503,492 | 774,201 | 503,492 | 723,481 |
Ending balance: collectively evaluated for impairment, ending balance | 325,018 | 390,292 | 325,018 | 390,292 | 321,072 |
Loans: | |||||
Ending balance | 38,642,318 | 41,504,664 | 38,642,318 | 41,504,664 | 41,477,480 |
Ending balance: individually evaluated for impairment, ending balance | 1,999,362 | 1,177,278 | 1,999,362 | 1,177,278 | 1,658,323 |
Ending balance: collectively evaluated for impairment, ending balance | 36,642,956 | 40,327,386 | 36,642,956 | 40,327,386 | 39,819,157 |
Real estate loans | Agricultural Real Estate | |||||
Allowance for Loan Losses: | |||||
Beginning Balance | 220,860 | 205,633 | 191,359 | 201,918 | 201,918 |
Provision charged to expense | 3,762 | (17,258) | 33,263 | (13,543) | (10,559) |
Ending balance | 224,622 | 188,375 | 224,622 | 188,375 | 191,359 |
Ending balance: collectively evaluated for impairment, ending balance | 224,622 | 188,375 | 224,622 | 188,375 | 191,359 |
Loans: | |||||
Ending balance | 39,957,890 | 37,674,941 | 39,957,890 | 37,674,941 | 38,271,758 |
Ending balance: collectively evaluated for impairment, ending balance | 39,957,890 | 37,674,941 | 39,957,890 | 37,674,941 | 38,271,758 |
Real estate loans | Home equity | |||||
Allowance for Loan Losses: | |||||
Beginning Balance | 151,666 | 197,901 | 173,626 | 149,253 | 149,253 |
Provision charged to expense | (58,828) | 2,785 | (83,838) | 50,383 | 22,273 |
Recoveries | 525 | 525 | 3,575 | 1,575 | 2,100 |
Ending balance | 93,363 | 201,211 | 93,363 | 201,211 | 173,626 |
Ending balance: collectively evaluated for impairment, ending balance | 93,363 | 201,211 | 93,363 | 201,211 | 173,626 |
Loans: | |||||
Ending balance | 10,110,539 | 11,427,197 | 10,110,539 | 11,427,197 | 11,606,002 |
Ending balance: individually evaluated for impairment, ending balance | 57,528 | 56,409 | 57,528 | 56,409 | 54,011 |
Ending balance: collectively evaluated for impairment, ending balance | 10,053,011 | 11,370,788 | 10,053,011 | 11,370,788 | 11,551,991 |
Commercial | |||||
Allowance for Loan Losses: | |||||
Beginning Balance | 316,514 | 372,287 | 301,478 | 386,620 | 386,620 |
Provision charged to expense | 109,298 | (1,514) | 124,305 | (15,963) | (85,258) |
Losses charged off | (2,706) | (2,706) | |||
Recoveries | 28 | 57 | 116 | 116 | |
Ending balance | 423,134 | 370,773 | 423,134 | 370,773 | 301,478 |
Ending balance: individually evaluated for impairment, ending balance | 178,993 | 108,485 | 178,993 | 108,485 | 56,409 |
Ending balance: collectively evaluated for impairment, ending balance | 244,141 | 262,288 | 244,141 | 262,288 | 245,069 |
Loans: | |||||
Ending balance | 24,702,765 | 23,256,734 | 24,702,765 | 23,256,734 | 21,617,744 |
Ending balance: individually evaluated for impairment, ending balance | 623,744 | 248,735 | 623,744 | 248,735 | 155,067 |
Ending balance: collectively evaluated for impairment, ending balance | 24,079,021 | 23,007,999 | 24,079,021 | 23,007,999 | 21,462,677 |
Agricultural | |||||
Allowance for Loan Losses: | |||||
Beginning Balance | 109,865 | 162,663 | 167,469 | 163,346 | 163,346 |
Provision charged to expense | 40,998 | 33,389 | (16,606) | 32,706 | 4,123 |
Ending balance | 150,863 | 196,052 | 150,863 | 196,052 | 167,469 |
Ending balance: individually evaluated for impairment, ending balance | 3,731 | 3,731 | |||
Ending balance: collectively evaluated for impairment, ending balance | 147,132 | 196,052 | 147,132 | 196,052 | 167,469 |
Loans: | |||||
Ending balance | 12,212,504 | 13,833,991 | 12,212,504 | 13,833,991 | 14,649,622 |
Ending balance: individually evaluated for impairment, ending balance | 375,951 | 375,951 | |||
Ending balance: collectively evaluated for impairment, ending balance | 11,836,553 | 13,833,991 | 11,836,553 | 13,833,991 | 14,649,622 |
Consumer | |||||
Allowance for Loan Losses: | |||||
Beginning Balance | 172,613 | 172,430 | 182,653 | 169,381 | 169,381 |
Provision charged to expense | 74,205 | 14,870 | 62,339 | 25,521 | 50,016 |
Losses charged off | (9,268) | (8,602) | (13,041) | (20,501) | (43,777) |
Recoveries | 1,426 | 764 | 7,025 | 5,061 | 7,033 |
Ending balance | 238,976 | 179,462 | 238,976 | 179,462 | 182,653 |
Ending balance: collectively evaluated for impairment, ending balance | 238,976 | 179,462 | 238,976 | 179,462 | 182,653 |
Loans: | |||||
Ending balance | 16,141,791 | 14,540,615 | 16,141,791 | 14,540,615 | 14,543,356 |
Ending balance: collectively evaluated for impairment, ending balance | 16,141,791 | 14,540,615 | 16,141,791 | 14,540,615 | 14,543,356 |
Unallocated | |||||
Allowance for Loan Losses: | |||||
Beginning Balance | 99,920 | 97,409 | 114,257 | 101,946 | 101,946 |
Provision charged to expense | 611 | 2,634 | (13,726) | (1,903) | 12,311 |
Ending balance | 100,531 | 100,043 | 100,531 | 100,043 | 114,257 |
Ending balance: collectively evaluated for impairment, ending balance | $ 100,531 | $ 100,043 | $ 100,531 | $ 100,043 | $ 114,257 |
INVESTMENTS - Amortized Cost and Fair Value of Available-for-Sale Securities by Contractual Maturities (Details 1) - USD ($) |
Sep. 30, 2017 |
Dec. 31, 2016 |
---|---|---|
Amortized Cost | ||
Within one year | $ 323,234 | |
More than one year to five years | 4,530,741 | |
More than five years to ten years | 20,150,121 | |
After ten years | 24,294,739 | |
Available-for-sale securities, single maturity date, amortized cost | 49,298,835 | |
Mortgage-backed securities (government- sponsored enterprises - residential) | 56,208,061 | |
Available-for-sale securities, amortized cost, total | 105,506,896 | |
Fair Value | ||
Within one year | 323,369 | |
More than one year to five years | 4,622,781 | |
More than five years to ten years | 20,452,615 | |
After ten years | 24,379,797 | |
Available-for-sale securities, single maturity date, fair value | 49,778,562 | $ 55,748,263 |
Mortgage-backed securities (government- sponsored enterprises - residential) | 55,896,984 | $ 44,413,177 |
Available-for-sale securities, fair value, total | $ 105,675,546 |
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) - Other Comprehensive Income Components and Related Taxes (Details) - USD ($) |
Sep. 30, 2017 |
Dec. 31, 2016 |
---|---|---|
Accumulated Other Comprehensive Income (Loss) [Line Items] | ||
Net-of-tax amount | $ 111,309 | $ (1,176,294) |
Realized gains on securities available-for-sale securities | ||
Accumulated Other Comprehensive Income (Loss) [Line Items] | ||
Net unrealized gains on securities available-for-sale | 168,650 | (1,782,264) |
Tax effect | (57,341) | 605,970 |
Net-of-tax amount | $ 111,309 | $ (1,176,294) |
CHANGES IN ACCUMULATED OTHER COMPREHENSIVE INCOME (AOCI) BY COMPONENT - Amount Reclassified from Accumulated Other Comprehensive Income and Affected Line Items in Statements of Income (Details) - USD ($) |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2017 |
Sep. 30, 2016 |
Sep. 30, 2017 |
Sep. 30, 2016 |
|
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items] | ||||
Tax effect | $ (33,218) | $ (28,462) | $ (110,287) | $ (99,215) |
Total reclassification out of AOCI | 64,483 | 55,250 | 214,088 | 192,595 |
Reclassification out of Accumulated Other Comprehensive Income | Realized gains on securities available-for-sale securities | Net realized gains on sales of available-for-sale securities | ||||
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items] | ||||
Net realized gains on sales of available-for-sale securities | 97,701 | 83,712 | 324,375 | 291,810 |
Tax effect | (33,218) | (28,462) | (110,287) | (99,215) |
Total reclassification out of AOCI | $ 64,483 | $ 55,250 | $ 214,088 | $ 192,595 |
MORTGAGE SERVICING RIGHTS- Activity in the balance of Mortgage Servicing Rights Measured using Amortization Method (Details) - Mortgage servicing rights - USD ($) |
9 Months Ended | 12 Months Ended |
---|---|---|
Sep. 30, 2017 |
Dec. 31, 2016 |
|
Servicing Asset at Amortized Cost, Balance [Roll Forward] | ||
Balance, beginning of period | $ 552,827 | $ 597,713 |
Servicing rights capitalized | 58,601 | 87,579 |
Amortization of servicing rights | (63,755) | (107,239) |
Write-downs | (72,580) | |
Change in valuation allowance | 47,354 | |
Balance, end of period | $ 547,673 | $ 552,827 |
MORTGAGE SERVICING RIGHTS - Activity in the valuation allowance for mortgage servicing rights (Details 1) - Mortgage servicing rights - USD ($) |
9 Months Ended | 12 Months Ended |
---|---|---|
Sep. 30, 2017 |
Dec. 31, 2016 |
|
Valuation Allowance for Impairment of Recognized Servicing Assets [Roll Forward] | ||
Balance, beginning of period | $ 0 | $ 47,354 |
Additions | 0 | 38,967 |
Reductions due to write-downs | (72,580) | |
Reductions due to payoff of loans | 0 | (13,741) |
Balance, end of period | $ 0 | $ 0 |
INCOME TAXES - Reconciliation of Income Tax Expense at Statutory Rate to Actual Income Tax Expense (Details) - USD ($) |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2017 |
Sep. 30, 2016 |
Sep. 30, 2017 |
Sep. 30, 2016 |
|
Income Tax Disclosure [Abstract] | ||||
Computed at the statutory rate (34%) | $ 1,077,162 | $ 1,089,710 | ||
Increase (decrease) resulting from | ||||
Tax exempt interest | (327,772) | (333,465) | ||
State income taxes, net | 158,809 | 142,722 | ||
Increase in cash surrender value | (41,800) | (44,530) | ||
Other, net | 2,008 | (57) | ||
Actual tax expense | $ 285,297 | $ 267,287 | $ 868,407 | $ 854,380 |
INCOME TAXES - Reconciliation of Income Tax Expense at Statutory Rate to Actual Income Tax Expense (Parentheticals) (Details) |
9 Months Ended |
---|---|
Sep. 30, 2017 | |
Income Tax Disclosure [Abstract] | |
Statutory income tax rate | 34.00% |
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