UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2015.
or
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ______________ to ______________.
Commission file number: 001-34821
JACKSONVILLE BANCORP, INC. | ||
(Exact name of registrant as specified in its charter) |
Maryland | 36-4670835 | |||
(State or other jurisdiction of | (I.R.S. Employer | |||
incorporation or organization) | Identification Number) |
1211 West Morton Avenue, Jacksonville, Illinois | 62650 | ||
(Address of principal executive offices) | (Zip Code) |
Registrant's telephone number, including area code: (217) 245-4111
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Name of each exchange on which registered | ||||
Common Stock, $0.01 par value | The NASDAQ Stock Market, LLC |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
YES ¨ NO x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
YES ¨ NO x
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
YES x 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 that the Registrant was required to submit and post such files).
YES x NO ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x
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 definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ¨ | Accelerated filer ¨ | |
Non-accelerated filer ¨ | Smaller reporting company x | |
(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES ¨ NO x
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant, computed by reference to the last sale price on June 30, 2015, as reported by the Nasdaq Capital Market, was approximately $42.2 million.
As of March 1, 2016, there were issued and outstanding 1,792,013 shares of the Registrant’s Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE:
(1) Proxy Statement for the 2016 Annual Meeting of Stockholders of the Registrant (Part III).
(2) Annual Report to Stockholders (Parts II and IV).
TABLE OF CONTENTS
PART I
Jacksonville Bancorp, Inc.
Jacksonville Bancorp, Inc. (or the “Company”) is a Maryland corporation. On July 14, 2010, Jacksonville Bancorp, Inc. completed its conversion from the mutual holding company structure and the related public offering and is now a stock holding company that is fully owned by the public. Jacksonville Savings Bank (or the “Bank”) is 100% owned by the Company and the Company is 100% owned by public stockholders. On June 28, 2013, Jacksonville Savings Bank terminated its election to be regulated as a savings and loan holding company pursuant to Section 10(l) of the Home Owners Loan Act. On this same date, Jacksonville Bancorp, Inc. became a bank holding company.
The Company’s only significant asset is its investment in Jacksonville Savings Bank. At December 31, 2015, Jacksonville Bancorp, Inc. had consolidated assets of $308.6 million, total deposits of $239.3 million, and stockholders’ equity of $45.6 million.
Jacksonville Savings Bank
Jacksonville Savings Bank is an Illinois-chartered savings bank headquartered in Jacksonville, Illinois. We conduct our business from our main office and five branches, two of which are located in Jacksonville and one of which is located in each of the following Illinois communities: Virden, Litchfield, and Chapin. We were originally chartered in 1916 as an Illinois-chartered mutual savings and loan association and converted to a mutual savings bank in 1992. In 1995, Jacksonville Savings Bank converted to an Illinois chartered stock savings bank and reorganized from the mutual to the mutual holding company form of organization. We have been a member of the Federal Home Loan Bank System since 1932. Our deposits are insured by the Federal Deposit Insurance Corporation.
We are a community-oriented savings bank engaged primarily in the business of attracting retail deposits from the general public in our market area and using such funds, together with borrowings and funds from other sources, to originate mortgage loans secured by one- to four-family residential real estate, commercial and agricultural real estate and home equity loans. We also originate commercial and agricultural business loans and consumer loans. Additionally, we invest in United States Government agency securities, bank-qualified, general obligation municipal issues, and mortgage-backed securities issued or guaranteed by the United States Government or enterprises thereof. We maintain a portion of our assets in liquid investments, such as overnight funds at the Federal Home Loan Bank.
Our principal sources of funds are customer deposits, proceeds from the sale of loans, short-term borrowings, funds received from the repayment and prepayment of loans and mortgage-backed securities, and the sale, call, or maturity of investment securities. Principal sources of income are interest income on loans and investments, sales of loans and securities, service charges, commissions, card interchange income and other fees. Our principal expenses are interest paid on deposits, employee compensation and benefits, occupancy and equipment expense, and data processing and telecommunications expense.
We operate an investment center at our main office. The investment center is operated through Financial Resources Group, Inc., Jacksonville Savings Bank’s wholly-owned subsidiary.
Our principal executive office is located at 1211 W. Morton, Jacksonville, Illinois, and our telephone number at that address is (217) 245-4111. Our website address is www.jacksonvillesavings.com. Information on this website is not and should not be considered to be a part of this Annual Report.
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Market Area
Our market area is Morgan, Macoupin, Montgomery and Cass counties, Illinois. Our offices are located in communities that can generally be characterized as stable to low growth residential communities of predominantly one- to four-family residences. Our market for deposits is concentrated in the communities surrounding our main office and five branch offices. We are the largest independent financial institution headquartered in Morgan County.
The economy of our market area consists primarily of agriculture and related businesses, light industry and state and local government. The largest employers in our market area are Reynolds, Passavant Area Hospital, and the State of Illinois. As of December 2015, unemployment rates in our market area were: 5.5% in Morgan County, 5.9% in Cass County, 6.5% in Macoupin County, and 8.6% in Montgomery County. This compared with unemployment rates of 5.9% in Illinois and 5.0% in the United States as a whole.
Competition
We encounter significant competition both in attracting deposits and in originating real estate and other loans. Our most direct competition for deposits historically has come from commercial banks, other savings banks, savings associations and credit unions in our market area, and we expect continued strong competition from such financial institutions in the foreseeable future. We compete for deposits by offering depositors a high level of personal service and expertise together with a wide range of financial services. Our deposit sources are primarily concentrated in the communities surrounding our banking offices located in Morgan, Macoupin and Montgomery counties, Illinois. As of June 30, 2015, our FDIC-insured deposit market share in the counties we serve (out of 31 bank and thrift institutions with offices in Morgan, Macoupin and Montgomery Counties, Illinois) was 9.9%. Such data does not reflect deposits held by credit unions.
The competition for real estate and other loans comes principally from commercial banks, mortgage banking companies, government sponsored entities and other savings banks and savings associations. This competition for loans has increased substantially in recent years as a result of the large number of institutions competing in our market areas as well as the increased efforts by commercial banks to increase mortgage loan originations.
We compete for loans primarily through the interest rates and loan fees we charge and the efficiency and quality of services we provide to borrowers and home builders. Factors that affect competition include general and local economic conditions, current interest rate levels and the volatility of the mortgage markets.
Lending Activities
General. Historically, our principal lending activity has been the origination of mortgage loans secured by one- to four-family residential properties in our local market area. Over the past several years, we have increased our emphasis on originating loans secured by commercial and agricultural real estate. We also originate commercial and agricultural business loans secured by collateral other than real estate as well as unsecured commercial and agricultural business loans. We also originate home equity and consumer loans. At December 31, 2015, our loans receivable totaled $193.0 million, of which $47.4 million, or 24.6%, consisted of one- to four-family residential mortgage loans. The remainder of our loans receivable at December 31, 2015 consisted of agricultural real estate loans totaling $41.2 million, or 21.3% of net loans, commercial real estate loans totaling $40.4 million, or 20.9% of net loans, commercial business loans totaling $25.5 million, or 13.2% of net loans, agricultural business loans totaling $16.1 million, or 8.3% of net loans, consumer loans totaling $13.7 million, or 7.1% of net loans, and home equity loans totaling $11.7 million, or 6.1% of net loans.
We have made our interest-earning assets more interest rate sensitive by, among other things, originating variable interest rate loans, such as adjustable-rate mortgage loans and balloon loans with terms ranging from three to five years, as well as medium-term consumer loans and commercial business loans. Our ability to originate adjustable-rate mortgage loans is substantially affected by market interest rates.
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We originate fixed-rate residential mortgage loans secured by one- to four-family residential properties with terms up to 30 years. We sell a significant portion of our one- to four-family fixed-rate residential mortgage loan originations with terms of generally 15 years or greater directly to the secondary market. During the years ended December 31, 2015 and 2014, we sold $16.8 million and $12.5 million of fixed-rate residential mortgage loans, respectively. Loans are generally sold without recourse and with servicing retained.
At December 31, 2015, we were servicing $131.4 million in loans for which we received servicing income of $344,000 for the year ended December 31, 2015. Servicing fee income is recorded for fees earned for servicing loans. The fees are based on a contractual percentage of the outstanding principal and are recorded as income when earned as loan servicing fees in noninterest income. The amortization of mortgage servicing rights is netted from the gains on sale of loans, both cash gains as well as the capitalized gains, and is included in mortgage banking operations, net, in noninterest income.
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Loan Portfolio Composition. Set forth below are selected data relating to the composition of our loan portfolio, by type of loan as of the dates indicated, excluding loans held for sale of $539,000, $236,000, $262,000, $712,000 and $447,000 for the years ended December 31, 2015, 2014, 2013, 2012 and 2011, respectively.
At December 31, | ||||||||||||||||||||||||||||||||||||||||
2015 | 2014 | 2013 | 2012 | 2011 | ||||||||||||||||||||||||||||||||||||
Amount | Percent | Amount | Percent | Amount | Percent | Amount | Percent | Amount | Percent | |||||||||||||||||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||||||||||||||||||||||
Real estate loans: | ||||||||||||||||||||||||||||||||||||||||
One- to four-family residential (1) | $ | 47,395 | 24.6 | % | $ | 44,561 | 24.2 | % | $ | 44,286 | 24.5 | % | $ | 41,386 | 23.8 | % | $ | 39,472 | 23.1 | % | ||||||||||||||||||||
Commercial (2) | 40,382 | 20.9 | 40,475 | 21.9 | 38,921 | 21.5 | 30,973 | 17.8 | 40,170 | 23.5 | ||||||||||||||||||||||||||||||
Agricultural | 41,223 | 21.3 | 40,119 | 21.7 | 35,006 | 19.4 | 37,392 | 21.5 | 29,971 | 17.5 | ||||||||||||||||||||||||||||||
Home equity (3) | 11,692 | 6.1 | 11,283 | 6.1 | 11,729 | 6.5 | 12,734 | 7.4 | 16,043 | 9.4 | ||||||||||||||||||||||||||||||
Total real estate loans | 140,692 | 72.9 | 136,438 | 73.9 | 129,942 | 71.9 | 122,485 | 70.5 | 125,656 | 73.5 | ||||||||||||||||||||||||||||||
Commercial business loans | 25,453 | 13.2 | 26,814 | 14.5 | 29,947 | 16.6 | 29,046 | 16.7 | 23,198 | 13.6 | ||||||||||||||||||||||||||||||
Agricultural business loans | 16,103 | 8.3 | 11,845 | 6.4 | 10,560 | 5.9 | 10,983 | 6.3 | 9,591 | 5.6 | ||||||||||||||||||||||||||||||
Consumer loans | 13,741 | 7.1 | 12,587 | 6.8 | 13,606 | 7.5 | 14,572 | 8.4 | 15,756 | 9.2 | ||||||||||||||||||||||||||||||
Total loans receivable | 195,989 | 101.5 | 187,684 | 101.6 | 184,055 | 101.9 | 177,086 | 101.9 | 174,201 | 101.9 | ||||||||||||||||||||||||||||||
Less: | ||||||||||||||||||||||||||||||||||||||||
Unearned premium on purchased loans, unearned discount and deferred loan fees, net | 29 | — | 9 | — | 9 | — | (6 | ) | — | 39 | — | |||||||||||||||||||||||||||||
Allowance for loan losses | 2,920 | 1.5 | 2,956 | 1.6 | 3,406 | 1.9 | 3,339 | 1.9 | 3,297 | 1.9 | ||||||||||||||||||||||||||||||
Total loans receivable, net | $ | 193,040 | 100.0 | % | $ | 184,719 | 100.0 | % | $ | 180,640 | 100.0 | % | $ | 173,753 | 100.0 | % | $ | 170,865 | 100.0 | % |
(1) | Includes one- to four-family real estate construction loans of $1.3 million, $1.2 million, $328,000, $1.9 million and $686,000 for the years ended December 31, 2015, 2014, 2013, 2012 and 2011, respectively. |
(2) | Includes commercial real estate construction loans of $4.7 million, $3.3 million, $4.7 million, $495,000 and $0 for the years ended December 31, 2015, 2014, 2013, 2012 and 2011, respectively. |
(3) | Includes real estate construction loans of $80,000, $140,000, $0, $40,000 and $0 for the years ended December 31, 2015, 2014, 2013, 2012 and 2011, respectively. |
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One- to Four-Family Mortgage Loans. Historically our primary lending origination activity has been one- to four-family, owner-occupied, residential mortgage loans secured by property located in our market area. We generate loans through our marketing efforts, existing customers and referrals, real estate brokers, builders and local businesses. We generally limit our one- to four-family loan originations to the financing of loans secured by properties located within our market area. At December 31, 2015, $47.4 million, or 24.6% of our net loan portfolio, was invested in mortgage loans secured by one- to four-family residences.
Our fixed-rate one- to four-family residential mortgage loans are generally conforming loans, underwritten according to secondary market guidelines. We generally originate both fixed- and adjustable-rate mortgage loans in amounts up to the maximum conforming loan limits established by the Federal Housing Finance Agency, which is currently $417,000 for single-family homes. At December 31, 2015, we had three one- to four-family residential mortgage loans with principal balances in excess of $417,000, commonly referred to as jumbo loans.
We originate for resale to the secondary market fixed-rate one- to four-family residential mortgage loans with terms of 15 years or more. Our 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. We offer fixed-rate one- to four-family residential mortgage loans with terms of up to 30 years without prepayment penalty.
We currently offer adjustable-rate mortgage loans for terms ranging up to 30 years. We 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 our net interest income. In the low interest rate environment that has existed over the past few years, our adjustable-rate portfolio has repriced downward resulting in lower interest income from this portion of our loan portfolio. We have 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 either one-year, three-years or five-years. Adjustable-rate mortgage loans secured by one- to four-family residential real estate totaled $18.4 million, or 38.8% of our total one- to four-family residential real estate loans receivable at December 31, 2015. 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, our interest rate risk position and our competitors’ loan products. During 2015, we originated $27.6 million of fixed-rate residential mortgage loans, most of which were subsequently sold in the secondary market, and $4.6 million of adjustable-rate mortgage loans which were held in our portfolio.
Adjustable-rate mortgage loans make our loan portfolio more interest rate sensitive and provide an alternative for those borrowers who meet our 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. It is possible that during periods of rising interest rates that the risk of delinquencies and defaults on adjustable-rate mortgage loans may increase due to the upward adjustment of interest costs to the borrower, resulting in increased loan losses.
Our residential first mortgage loans customarily include due-on-sale clauses, which give us the right to declare a loan immediately due and payable in the event, among other things, that 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 our mortgage portfolio during periods of rising interest rates.
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When underwriting residential real estate loans, we review and verify 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 30% of the applicant’s total monthly income. In addition, total monthly obligations of the applicant, including mortgage payments, should not generally exceed 43% 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%, we generally require private mortgage insurance. We require fire and casualty insurance on all properties securing real estate loans. We may require title insurance, or an attorney’s title opinion, as circumstances warrant.
We do 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). We 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. We do 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. We originate and purchase commercial real estate loans. At December 31, 2015, $40.4 million, or 20.9%, of our net loan portfolio consisted of commercial real estate loans. During 2015, loan originations secured by commercial real estate totaled $7.8 million as compared to $15.5 million in 2014. Our commercial real estate loans are secured primarily by improved properties such as multi-family residential properties, retail facilities and office buildings, restaurants, and other non-residential buildings. At December 31, 2015, our commercial real estate loan portfolio included $8.5 million in loans secured by multi-family residential properties, $4.4 million in loans secured by restaurants, $3.8 million in loans secured by hotels, and $23.7 million in loans secured by other commercial properties. The maximum loan-to-value ratio for commercial real estate loans we originate is generally 80%. Our 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 our fixed-rate commercial real estate loans are not fully amortizing and therefore require a “balloon” payment at maturity. We have $4.0 million of interest only commercial real estate loans at December 31, 2015. We purchase from time to time commercial real estate loan participations primarily from outside our market area where we are not the lead lender. All participation loans are approved following a review to ensure that the loan satisfies our underwriting standards. At December 31, 2015, commercial real estate loan participations totaled $7.6 million, or 18.9% of the commercial real estate loan portfolio consisting primarily of loan participations outside of our market area which totaled $6.8 million, or 16.9% of the commercial real estate loan portfolio. At December 31, 2015, we had one loan participation located in central Illinois with a balance of $767,000 delinquent 60 days or more.
At December 31, 2015, our largest commercial real estate loan was secured by a hotel with a principal balance of $3.3 million and was performing in accordance with its terms. At December 31, 2015, our largest commercial real estate loan participation was secured by an apartment complex with a principal balance of $1.5 million and was performing in accordance with its terms.
Our underwriting standards for commercial 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 business or real estate offered as collateral is adequate to repay the loan. We emphasize 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, 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 commercial 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 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 flow from the project is reduced, the borrower’s ability to repay the loan may be impaired.
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Agricultural Real Estate Loans. We originate and purchase agricultural real estate loans. At December 31, 2015, $41.2 million, or 21.3% of our net loan portfolio, consisted of agricultural real estate loans. During 2015, loan originations secured by agricultural real estate totaled $8.7 million, as compared to $6.7 million in 2014. The maximum loan-to-value ratio for agricultural real estate loans we originate is generally 75%. Our agricultural real estate loans are generally written up to terms of thirty 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 either 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. At December 31, 2015, agricultural real estate loan participations totaled $3.2 million, or 7.9% of the agricultural real estate loan portfolio. At December 31, 2015, we had no agricultural real estate loan participations delinquent 60 days or more. At December 31, 2015, our largest agricultural real estate loan was secured by farmland, had a principal balance of $5.1 million and was performing in accordance with its terms.
Our 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 75% 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 and carry larger loan balances than one- to four-family residential mortgage loans. 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 flow is reduced, the borrower’s ability to repay the loan may be impaired.
Home Equity Loans. At December 31, 2015, home equity loans totaled $11.7 million, or 6.1%, of our net loan portfolio. Our home equity loans and lines of credit 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 prior 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.
Our 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. At December 31, 2015, home equity loans 90 days or more delinquent totaled $70,000, or 0.6% of total home equity loans. The largest delinquent loan in this category at December 31, 2015 had a principal balance of $54,000 and was secured by a residential mortgage. No assurance can be given, however, that our delinquency rate or loss experience on home equity loans will not increase in the future.
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Home equity loans entail greater risks than one- to four-family residential mortgage loans, which are secured by first lien mortgages. In such cases, 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. We originate commercial business loans to borrowers located in our market area which are secured by collateral other than real estate or which can be unsecured. We also purchase participations of commercial business loans from other lenders, which may be made to borrowers outside our market area. Commercial business loans totaled $25.5 million, or 13.2% of our net loan portfolio at December 31, 2015. At December 31, 2015, commercial business loan participations totaled $840,000, or 3.3% of the commercial business loan portfolio. All of the commercial business loan participations were outside of our 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. On a limited basis, we will originate unsecured business loans 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. We generally obtain personal guarantees from the borrower or a third party as a condition to originating business loans. During the year ended December 31, 2015, we originated $14.0 million in commercial business loans. At that date, our largest commercial business loan was a $5.0 million line of credit. This loan was performing in accordance with its terms at December 31, 2015.
Our 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. We assess the financial strength of each applicant 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. We periodically review business loans following origination. We request financial statements at least annually and review them for substantial deviations or changes that might affect repayment of the loan. Our loan officers may 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. We originate 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 totaled $16.1 million, or 8.3% of our net loan portfolio at December 31, 2015. 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. While the repayment of our agricultural business loans is generally dependent on the successful operation of the farm operation, we have experienced a good history of low default rates. We generally obtain personal guarantees from the borrower as a condition to originating agricultural business loans. During the year ended December 31, 2015, we originated $12.2 million in agricultural business loans. At December 31, 2015, our largest agricultural business loan was a line of credit of $750,000. This loan was performing in accordance with its terms at December 31, 2015.
Our 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. We assess the financial strength of each applicant 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. We request financial statements at least annually and review them for substantial deviations or changes that might affect repayment of the loan. Our 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.
9 |
Consumer Loans. As of December 31, 2015, consumer loans totaled $13.7 million, or 7.1%, of our net loan portfolio. The principal types of consumer loans we offer are automobile loans, loans secured by deposit accounts, unsecured loans and mobile home loans. We generally offer consumer loans on a fixed-rate basis.
At December 31, 2015, consumer loans secured by automobiles totaled $6.1 million, or 3.1% of our net loan portfolio. We offer automobile loans 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. We generally originate automobile loans with a loan-to-value ratio below the greater of 80% of the purchase price or 100% of NADA loan value, although 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.
Our 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 90 days or more delinquent at December 31, 2015 totaled $6,000, or 0.04% of total consumer loans. No assurance can be given, however, that our delinquency rate or loss experience on consumer loans will not increase in the future.
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.
10 |
Loan Portfolio Maturities and Yields. The following table summarizes the scheduled repayments of our loan portfolio at December 31, 2015. Demand loans, loans having no stated repayment schedule or maturity, and overdraft loans are reported as being due in one year or less.
One- to Four-Family
Real Estate | Commercial Real Estate | Agricultural Real Estate | Home Equity | |||||||||||||||||||||||||||||
Amount | Weighted Average Rate | Amount | Weighted Average Rate | Amount | Weighted Average Rate | Amount | Weighted Average Rate | |||||||||||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||||||||||||||
Due During the Years Ending December 31, | ||||||||||||||||||||||||||||||||
2016 | $ | 4,724 | 5.67 | % | $ | 7,568 | 5.05 | % | $ | 742 | 4.76 | % | $ | 1,375 | 6.45 | % | ||||||||||||||||
2017 | 3,644 | 5.06 | 1,461 | 5.18 | 69 | 4.25 | 667 | 6.34 | ||||||||||||||||||||||||
2018 | 2,871 | 5.65 | 7,448 | 4.79 | 95 | 5.26 | 1,463 | 6.14 | ||||||||||||||||||||||||
2019 to 2020 | 2,815 | 5.60 | 12,300 | 4.54 | 267 | 5.24 | 1,561 | 6.70 | ||||||||||||||||||||||||
2021 to 2025 | 2,711 | 5.56 | 4,325 | 4.38 | 2,982 | 4.61 | 4,436 | 5.00 | ||||||||||||||||||||||||
2026 to 2030 | 10,504 | 4.27 | 4,547 | 4.99 | 2,503 | 4.42 | 1,518 | 5.47 | ||||||||||||||||||||||||
2031 and beyond | 20,126 | 4.95 | 2,733 | 4.65 | 34,565 | 4.17 | 672 | 5.33 | ||||||||||||||||||||||||
Total | $ | 47,395 | 5.00 | % | $ | 40,382 | 4.74 | % | $ | 41,223 | 4.23 | % | $ | 11,692 | 5.70 | % | ||||||||||||||||
Commercial Business | Agricultural Business | Consumer | Total | |||||||||||||||||||||||||||||
Amount | Weighted Average Rate | Amount | Weighted Average Rate | Amount | Weighted Average Rate | Amount | Weighted Average Rate | |||||||||||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||||||||||||||
Due During the Years Ending December 31, | ||||||||||||||||||||||||||||||||
2016 | $ | 9,585 | 4.25 | % | $ | 13,716 | 3.92 | % | $ | 2,066 | 6.14 | % | $ | 39,776 | 4.66 | % | ||||||||||||||||
2017 | 1,564 | 4.67 | 142 | 4.74 | 1,696 | 7.48 | 9,243 | 5.53 | ||||||||||||||||||||||||
2018 | 7,389 | 4.44 | 306 | 4.75 | 2,679 | 6.92 | 22,251 | 5.11 | ||||||||||||||||||||||||
2019 to 2020 | 2,908 | 4.89 | 1,577 | 4.56 | 4,285 | 5.25 | 25,713 | 4.95 | ||||||||||||||||||||||||
2021 to 2025 | 4,007 | 3.97 | 362 | 5.14 | 997 | 7.47 | 19,820 | 4.80 | ||||||||||||||||||||||||
2026 to 2030 | — | — | — | — | 1,037 | 8.61 | 20,109 | 4.78 | ||||||||||||||||||||||||
2031 and beyond | — | — | — | — | 981 | 8.37 | 59,077 | 4.54 | ||||||||||||||||||||||||
Total | $ | 25,453 | 4.36 | % | $ | 16,103 | 4.03 | % | $ | 13,741 | 6.62 | % | $ | 195,989 | 4.78 | % |
The following table sets forth at December 31, 2015, the dollar amount of all fixed-rate and adjustable-rate loans due after December 31, 2016. At December 31, 2015, fixed-rate loans include $8.2 million in fixed-rate balloon payment loans with original maturities of five years or less. The total dollar amount of fixed-rate loans and adjustable-rate loans due after December 31, 2016, was $73.9 million and $82.3 million, respectively.
Due after December 31, 2016 | ||||||||||||
Fixed | Adjustable | Total | ||||||||||
(In Thousands) | ||||||||||||
Real estate loans: | ||||||||||||
One- to four-family residential | $ | 24,309 | $ | 18,362 | $ | 42,671 | ||||||
Commercial | 21,909 | 10,905 | 32,814 | |||||||||
Agricultural | 888 | 39,593 | 40,481 | |||||||||
Home equity | 3,559 | 6,758 | 10,317 | |||||||||
Commercial business loans | 9,375 | 6,493 | 15,868 | |||||||||
Agricultural business loans | 2,387 | — | 2,387 | |||||||||
Consumer | 11,517 | 158 | 11,675 | |||||||||
Total loans | $ | 73,944 | $ | 82,269 | $ | 156,213 |
11 |
Loan Origination, Solicitation and Processing. 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 us. A loan application file is first reviewed by a loan officer in our loan department 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. All residential real estate loans are then verified by our loan risk management department prior to closing. The board of directors has established individual lending authorities for each loan officer by loan type. Loans over an individual officer’s lending limits 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 we originate. Once the loan is approved, the applicant is informed and a closing date is scheduled. We typically fund loan commitments within 45 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 is generally required on loans secured by real property.
Origination, Purchase and Sale of Loans. Set forth below is a table showing our loan originations, purchases, sales and repayments for the years indicated. It is our policy to originate for sale into the secondary market fixed-rate mortgage loans with maturities of 15 years or more and to originate for retention in our portfolio adjustable-rate mortgage loans and loans with balloon payments. Purchased loans consist of participations in commercial real estate, agricultural real estate, and commercial business loans originated by other financial institutions. We usually obtain commitments prior to selling fixed-rate mortgage loans.
For the Years Ended December 31, | ||||||||||||||||||||
2015 | 2014 | 2013 | 2012 | 2011 | ||||||||||||||||
(In Thousands) | ||||||||||||||||||||
Total loans receivable at beginning of year | $ | 187,684 | $ | 184,055 | $ | 177,086 | $ | 174,201 | $ | 179,455 | ||||||||||
Originations: | ||||||||||||||||||||
Real estate loans: | ||||||||||||||||||||
One- to four-family residential | 32,225 | 23,848 | 39,825 | 68,471 | 44,583 | |||||||||||||||
Commercial | 7,841 | 15,510 | 11,071 | 2,823 | 7,435 | |||||||||||||||
Agricultural | 8,714 | 6,698 | 4,585 | 11,480 | 15,482 | |||||||||||||||
Home equity | 4,881 | 3,236 | 3,598 | 3,243 | 4,081 | |||||||||||||||
Commercial business loans | 13,977 | 19,508 | 19,397 | 20,920 | 14,326 | |||||||||||||||
Agricultural business loans | 12,161 | 11,542 | 10,008 | 12,091 | 15,500 | |||||||||||||||
Consumer loans | 9,536 | 7,255 | 9,239 | 8,375 | 10,833 | |||||||||||||||
Total originations | 89,335 | 87,597 | 97,723 | 127,403 | 112,240 | |||||||||||||||
Participation loans purchased | 2,609 | 2,678 | 3,878 | 6,093 | 3,227 | |||||||||||||||
Transfer of mortgage loans to foreclosed real estate owned | 380 | 374 | 129 | 262 | 461 | |||||||||||||||
Repayments | 66,413 | 73,728 | 70,043 | 77,672 | 88,033 | |||||||||||||||
Loan sales to secondary market | 16,846 | 12,544 | 24,460 | 52,677 | 32,227 | |||||||||||||||
Total loans receivable at end of year | $ | 195,989 | $ | 187,684 | $ | 184,055 | $ | 177,086 | $ | 174,201 |
Loan Origination and Other Fees. In addition to interest earned on loans, we may charge loan origination fees. Our ability to charge loan origination fees is influenced by the demand for mortgage loans and competition from other lenders in our market area. To the extent that loans are originated or acquired for our portfolio, accounting standards require that we defer loan origination fees and costs and amortize such amounts as an adjustment of yield over the life of the loan by use of the level yield method. Fees deferred are recognized into income immediately upon the sale of the related loan. At December 31, 2015, we had $219,000 of deferred loan fees. Loan origination fees are a volatile source of income. Such fees vary with the volume and type of loans and commitments made and purchased and with competitive conditions in the mortgage markets, which in turn respond to the demand and availability of money.
In addition to loan origination fees, we also receive other fees that consist primarily of extension fees and late charges. We recognized fees of $104,000, $92,000 and $97,000 for the years ended December 31, 2015, 2014 and 2013, respectively.
12 |
Loan Concentrations. With certain exceptions, an Illinois-chartered savings bank may not make a loan or exceed credit for secured and unsecured loans for business, commercial, corporate or agricultural purposes to a single borrower in excess of 25% of the Bank’s total capital, as defined by regulation. At December 31, 2015, our loans-to-one borrower limit was $10.1 million. At December 31, 2015 we had no lending relationships in excess of our loans-to-one borrower limitation. At December 31, 2015, we had 29 borrowers with outstanding borrowings in excess of $1.0 million totaling in the aggregate $82.2 million or 41.9% of our total loan portfolio.
Delinquencies and Classified Assets
Our collection procedures provide that when a mortgage loan is either ten days (in the case of adjustable-rate mortgage and balloon loans) or 15 days (in the case of fixed-rate loans) past due, a computer-generated late charge notice is sent to the borrower requesting payment and assessing a late charge. If the mortgage loan remains delinquent, a telephone call is made or a letter is sent to the borrower stressing the importance of reinstating the loan and obtaining reasons for the delinquency. We also send a 30 day notice pursuant to Illinois law if a borrower’s primary residence is the collateral at issue. When a loan continues in a delinquent status for 90 days or more, and a repayment schedule has not been made or kept by the borrower, a notice of intent to foreclose upon the underlying property is then sent to the borrower, giving 10 days to cure the delinquency. If not cured, foreclosure proceedings are initiated after the loan is 120 days past due. Consumer loans receive a ten-day grace period before a late charge is assessed. Collection efforts begin after the grace period expires. At December 31, 2015, 2014 and 2013, the percentage of non-performing loans to total loans receivable were 1.03%, 1.21% and 0.97%, respectively. At December 31, 2015, 2014 and 2013, the percentage of non-performing assets to total assets was 0.76%, 0.78% and 0.65%, respectively.
Nonperforming Assets and Delinquent Loans. Loans are reviewed on a regular basis and are placed on nonaccrual status when, in the opinion of management, the collection of additional interest is doubtful. The accrual of interest on loans is discontinued at the time the loan is 90 days past due unless the loan is well secured and in the process of collection. Interest accrued and unpaid at the time a loan is placed on nonaccrual status is charged against interest income. Subsequent payments are either applied to the outstanding principal balance or recorded as interest income, depending on management’s assessment of the ultimate collectability of the loan.
Management monitors all past due loans and nonperforming assets. Such loans are placed under close supervision with consideration given to the need for additions to the allowance for loan losses and (if appropriate) partial or full charge-off. At December 31, 2015, we had no loans 90 days or more delinquent that were still accruing interest. Nonperforming assets decreased by $89,000 to $2.4 million at December 31, 2015 as compared to December 31, 2014. The decrease in the level of nonperforming assets primarily reflected a decrease of $243,000 in nonperforming loans, partially offset by an increase of $154,000 in foreclosed assets. The decrease in nonperforming loans primarily reflected the payoff of an agricultural real estate loan and the foreclosure of several one- to four-family residential properties.
Real estate acquired through foreclosure or by deed-in-lieu of foreclosure is classified as real estate owned until such time as it is sold. When real estate owned is acquired, it is recorded at the lower of the unpaid principal balance of the related loan, or its fair market value, less estimated selling expenses. Any further write-down of real estate owned is charged against earnings. At December 31, 2015, we owned $331,000 of property classified as real estate owned.
13 |
Nonperforming Assets. The table below sets forth the amounts and categories of our non-performing assets at the dates indicated. At December 31, 2015, 2014, 2013, 2012 and 2011, we had troubled debt restructurings (loans for which a portion of interest or principal has been forgiven and loans modified at interest rates materially less than current market rates) of $2.6 million, $2.3 million, $2.6 million, $2.2 million and $2.0 million, respectively.
At December 31, | ||||||||||||||||||||
2015 | 2014 | 2013 | 2012 | 2011 | ||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||
Nonaccrual loans: (1) | ||||||||||||||||||||
Real estate loans: | ||||||||||||||||||||
One- to four-family residential | $ | 911 | $ | 995 | $ | 1,339 | $ | 1,203 | $ | 1,298 | ||||||||||
Commercial | 840 | 932 | 208 | 560 | 362 | |||||||||||||||
Agricultural | — | 123 | — | — | — | |||||||||||||||
Home equity | 119 | 121 | 134 | 277 | 423 | |||||||||||||||
Commercial business loans | 9 | 22 | 38 | 52 | 67 | |||||||||||||||
Agricultural business loans | — | — | — | — | — | |||||||||||||||
Consumer loans | 142 | 71 | 63 | 122 | 251 | |||||||||||||||
Total nonaccrual loans | 2,021 | 2,264 | 1,782 | 2,214 | 2,401 | |||||||||||||||
Loans delinquent 90 days or greater and still accruing: | ||||||||||||||||||||
Real estate loans: | ||||||||||||||||||||
One- to four-family residential | — | — | — | — | — | |||||||||||||||
Commercial | — | — | — | — | — | |||||||||||||||
Agricultural | — | — | — | — | — | |||||||||||||||
Home equity | — | — | — | — | — | |||||||||||||||
Commercial business loans | — | — | — | — | — | |||||||||||||||
Agricultural business loans | — | — | — | — | — | |||||||||||||||
Consumer loans | — | — | — | — | — | |||||||||||||||
Total loans delinquent 90 days or greater and still accruing | — | — | — | — | — | |||||||||||||||
Total nonperforming loans | 2,021 | 2,264 | 1,782 | 2,214 | 2,401 | |||||||||||||||
Real estate owned and foreclosed assets: | ||||||||||||||||||||
Real estate loans: | ||||||||||||||||||||
One- to four-family residential | 217 | 40 | 133 | — | 49 | |||||||||||||||
Commercial | 114 | 137 | 149 | 137 | 416 | |||||||||||||||
Agricultural | — | — | — | — | — | |||||||||||||||
Home equity | — | — | — | — | — | |||||||||||||||
Commercial business loans | — | — | — | — | — | |||||||||||||||
Agricultural business loans | — | — | — | — | — | |||||||||||||||
Consumer loans | — | — | 2 | — | — | |||||||||||||||
Total real estate owned and foreclosed assets | 331 | 177 | 284 | 137 | 435 | |||||||||||||||
Total nonperforming assets | $ | 2,352 | $ | 2,441 | $ | 2,066 | $ | 2,351 | $ | 2,836 | ||||||||||
Ratios: | ||||||||||||||||||||
Nonperforming loans to total loans | 1.03 | % | 1.21 | % | 0.97 | % | 1.25 | % | 1.38 | % | ||||||||||
Nonperforming assets to total assets | 0.76 | % | 0.78 | % | 0.65 | % | 0.73 | % | 0.92 | % |
(1) | Includes nonaccrual troubled debt restructurings of $1.3 million, $1.1 million, $412,000, $361,000 and $211,000 for the years ended December 31, 2015, 2014, 2013, 2012, and 2011, respectively. |
For the year ended December 31, 2015, gross interest income that would have been recorded had our nonaccrual loans and troubled debt restructurings been current in accordance with their original terms was $151,000. We did not recognize any interest income on such loans for the year ended December 31, 2015.
14 |
At December 31, 2015, we had no loans that were not currently classified as nonaccrual, 90 days past due or troubled debt restructurings where known information about possible credit problems of borrowers caused management to have serious concerns as to the ability of the borrowers to comply with present loan repayment terms and that may result in disclosure as nonaccrual, 90 days past due or troubled debt restructurings.
The following table sets forth certain information with respect to our loan portfolio delinquencies at the dates indicated.
Loans Delinquent For | ||||||||||||||||||||||||
60-89 Days | 90 Days and Over | Total | ||||||||||||||||||||||
Number | Amount | Number | Amount | Number | Amount | |||||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||||||
At December 31, 2015 | ||||||||||||||||||||||||
Real estate loans: | ||||||||||||||||||||||||
One- to four-family residential | 4 | 78 | 9 | 623 | 13 | 701 | ||||||||||||||||||
Commercial | — | — | 1 | 767 | 1 | 767 | ||||||||||||||||||
Agricultural | — | — | — | — | — | — | ||||||||||||||||||
Home equity | 3 | 66 | 3 | 69 | 6 | 135 | ||||||||||||||||||
Commercial business loans | — | — | — | — | — | — | ||||||||||||||||||
Agricultural business loans | — | — | — | — | — | — | ||||||||||||||||||
Consumer loans | 3 | 6 | 2 | 6 | 5 | 12 | ||||||||||||||||||
Total loans | 10 | $ | 150 | 15 | $ | 1,465 | 25 | $ | 1,615 | |||||||||||||||
At December 31, 2014 | ||||||||||||||||||||||||
Real estate loans: | ||||||||||||||||||||||||
One- to four-family residential | 5 | 287 | 9 | 613 | 14 | 900 | ||||||||||||||||||
Commercial | 1 | 794 | 3 | 39 | 4 | 833 | ||||||||||||||||||
Agricultural | — | — | 1 | 123 | 1 | 123 | ||||||||||||||||||
Home equity | 2 | 12 | 5 | 58 | 7 | 70 | ||||||||||||||||||
Commercial business loans | — | — | — | — | — | — | ||||||||||||||||||
Agricultural business loans | — | — | — | — | — | — | ||||||||||||||||||
Consumer loans | 3 | 5 | 6 | 17 | 9 | 22 | ||||||||||||||||||
Total loans | 11 | $ | 1,098 | 24 | $ | 850 | 35 | $ | 1,948 | |||||||||||||||
At December 31, 2013 | ||||||||||||||||||||||||
Real estate loans: | ||||||||||||||||||||||||
One- to four-family residential | 2 | $ | 96 | 12 | $ | 807 | 14 | $ | 903 | |||||||||||||||
Commercial | 2 | 68 | 2 | 78 | 4 | 146 | ||||||||||||||||||
Agricultural | — | — | — | — | — | — | ||||||||||||||||||
Home equity | 3 | 48 | 4 | 55 | 7 | 103 | ||||||||||||||||||
Commercial business loans | — | — | — | — | — | — | ||||||||||||||||||
Agricultural business loans | — | — | — | — | — | — | ||||||||||||||||||
Consumer loans | 5 | 26 | 2 | 10 | 7 | 36 | ||||||||||||||||||
Total loans | 12 | $ | 238 | 20 | $ | 950 | 32 | $ | 1,188 | |||||||||||||||
At December 31, 2012 | ||||||||||||||||||||||||
Real estate loans: | ||||||||||||||||||||||||
One- to four-family residential | 5 | $ | 213 | 15 | $ | 985 | 20 | $ | 1,198 | |||||||||||||||
Commercial | — | — | 4 | 280 | 4 | 280 | ||||||||||||||||||
Agricultural | — | — | — | — | — | — | ||||||||||||||||||
Home equity | 4 | 71 | 6 | 136 | 10 | 207 | ||||||||||||||||||
Commercial business loans | — | — | — | — | — | — | ||||||||||||||||||
Agricultural business loans | — | — | — | — | — | — | ||||||||||||||||||
Consumer loans | 2 | 64 | 4 | 34 | 6 | 98 | ||||||||||||||||||
Total loans | 11 | $ | 348 | 29 | $ | 1,435 | 40 | $ | 1,783 | |||||||||||||||
At December 31, 2011 | ||||||||||||||||||||||||
Real estate loans: | ||||||||||||||||||||||||
One- to four-family residential | 4 | $ | 162 | 12 | $ | 1,021 | 16 | $ | 1,183 | |||||||||||||||
Commercial | — | — | 2 | 49 | 2 | 49 | ||||||||||||||||||
Agricultural | — | — | — | — | — | — | ||||||||||||||||||
Home equity | 5 | 50 | 11 | 197 | 16 | 247 | ||||||||||||||||||
Commercial business loans | — | — | — | — | — | — | ||||||||||||||||||
Agricultural business loans | — | — | — | — | — | — | ||||||||||||||||||
Consumer loans | 4 | 126 | 3 | 37 | 7 | 163 | ||||||||||||||||||
Total loans | 13 | $ | 338 | 28 | $ | 1,304 | 41 | $ | 1,642 |
15 |
Classified Assets. Federal and state regulations require that each insured savings institution classify its assets on a regular basis. In addition, in connection with examination of insured institutions, Federal examiners have authority to identify problem assets and, if appropriate, classify them. There are three categories for classified assets: “substandard,” “doubtful” and “loss.” Substandard assets have one or more defined weaknesses and are characterized by the distinct possibility that the insured institution will sustain some loss if the deficiencies are not corrected. Doubtful assets have the weaknesses of substandard assets with the additional characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions and values questionable, and there is a high possibility of loss. An asset classified loss is considered uncollectible and of such little value that continuance as an asset of the institution is not warranted. For assets classified “substandard” and “doubtful,” the institution is required to establish general loan loss reserves in accordance with accounting principles generally accepted in the United States of America. Assets classified “loss” must be either completely written off or supported by a 100% specific reserve. We also maintain a category designated “special mention” which is established and maintained for assets not considered classified but having potential weaknesses or risk characteristics that could result in future problems. An institution is required to develop an in-house program to classify its assets, including investments in subsidiaries, on a regular basis and set aside appropriate loss reserves on the basis of such classification. As part of the periodic exams of Jacksonville Savings Bank by the Federal Deposit Insurance Corporation and the Illinois Department of Financial and Professional Regulation, the staff of such agencies reviews our classifications and determine whether such classifications are adequate. Such agencies have, in the past, and may in the future require us to classify certain assets which management has not otherwise classified or require a classification more severe than established by management. At December 31, 2015, our classified assets totaled $5.0 million, all of which were classified as substandard.
The total amount of classified and special mention loans increased $1.3 million, or 16.6%, to $8.8 million at December 31, 2015 from $7.5 million at December 31, 2014. The increase in classified and special mention loans during 2015 was due to an increase of $1.7 million in special mention loans, partially offset by a decrease of $434,000 in substandard loans. The increase in special mention loans reflects $2.1 million in additional loans listed as special mention, partially offset by $80,000 in principal reductions and $176,000 in loans that were upgraded to a pass rating during 2015. The decrease in substandard loans was primarily related to $1.0 million in principal reductions, $164,000 in charge-offs, and $213,000 in loans transferred to foreclosed assets, partially offset by $945,000 in additional loans classified as substandard during 2015.
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The following table shows the principal amount of special mention and classified loans at December 31, 2015 and December 31, 2014.
12/31/15 | 12/31/14 | |||||||
(In Thousands) | ||||||||
Special Mention loans | $ | 3,781 | $ | 2,096 | ||||
Substandard loans | 5,020 | 5,454 | ||||||
Total Special Mention and Substandard loans | $ | 8,801 | $ | 7,550 |
Allowance for Loan Losses
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 nature and volume 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 we will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the 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, we do not separately identify individual consumer and residential loans 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 our 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. The other qualitative factors considered by management include, but are not limited to, the following:
· | changes in lending policies and procedures, including underwriting standards and collection practices; |
· | changes in national and local economic and business conditions and developments, including the condition of various market segments; |
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· | changes in the nature and volume of the loan portfolio; |
· | changes in the experience, ability and depth of management and the lending staff; |
· | changes in the trend of the volume and severity of the past due, nonaccrual, and classified loans; |
· | changes in the quality of our loan review system and the degree of oversight by the board of directors; |
· | the existence of any concentrations of credit, and changes in the level of such concentrations; and |
· | the effect of external factors, such as competition and legal and regulatory requirements on the level of estimated credit losses in our current portfolio. |
Commercial and agricultural real estate loans generally have higher credit risks compared to one- to four-family residential mortgage loans, as they typically involve larger loan balances concentrated with single borrowers or groups of related borrowers. In addition, payment experience on loans secured by income-producing properties typically depend on the successful operation of the related real estate project and this may be subject to a greater extent to adverse conditions in the real estate market and in the general economy.
Commercial and agricultural business loans involve a greater risk of default than one- to four-residential mortgage loans of like duration since their repayment generally depends on the successful operation of the borrower’s business and the sufficiency of collateral if any. The repayment of agricultural loans can be greatly affected by weather conditions and commodity prices.
The allowance for loan losses decreased $37,000, or 1.2%, to $2.9 million at December 31, 2015 from $3.0 million at December 31, 2014. The decrease in the allowance was the result of net charge-offs exceeding the provision for loan losses. Net charge-offs decreased $513,000 to $177,000 during 2015 from $690,000 during 2014. We recorded a provision for loan losses of $140,000 during 2015.
Nonperforming assets decreased $89,000 to $2.4 million at December 31, 2015, compared to December 31, 2014. The decrease in nonperforming assets was due to a decrease of $243,000 in non-performing loans, partially offset by an increase of $154,000 in foreclosed assets held at December 31, 2015 as compared to at December 31, 2014. The allowance for loan losses to nonperforming loans increased to 144.45% at December 31, 2015 as compared to 130.57% at December 31, 2014.
Although we maintain our allowance for loan losses at a level which we consider to be adequate to provide for potential losses, there can be no assurance that such losses will not exceed the estimated amounts or that we will not be required to make additions to the allowance for loan losses in the future. Future additions to our allowance for loan losses and changes in the related ratio of the allowance for loan losses to nonperforming loans are dependent upon the economy, changes in real estate values and interest rates, the view of the regulatory authorities toward adequate loan loss reserve levels, and inflation. Management will continue to review the entire loan portfolio to determine the extent, if any, to which additional loan loss provisions may be deemed necessary.
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Analysis of the Allowance for Loan Losses. The following table summarizes changes in the allowance for loan losses by loan categories for each year indicated and additions to the allowance for loan losses, which have been charged to operations.
For the Years Ended December 31, | ||||||||||||||||||||
2015 | 2014 | 2013 | 2012 | 2011 | ||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||
Balance at beginning of year | $ | 2,956 | $ | 3,406 | $ | 3,339 | $ | 3,297 | $ | 2,964 | ||||||||||
Charge-offs: | ||||||||||||||||||||
One- to four-family residential | 199 | 100 | 162 | 82 | 130 | |||||||||||||||
Commercial real estate | 27 | 288 | — | 357 | 306 | |||||||||||||||
Agricultural real estate | — | — | — | — | — | |||||||||||||||
Home equity | 14 | 5 | 63 | 80 | 25 | |||||||||||||||
Commercial business | — | 285 | — | — | — | |||||||||||||||
Agricultural business | — | — | — | — | — | |||||||||||||||
Consumer | 53 | 26 | 67 | 67 | 25 | |||||||||||||||
Total charge-offs | 293 | 704 | 292 | 586 | 486 | |||||||||||||||
Recoveries: | ||||||||||||||||||||
One- to four-family residential | 40 | 2 | 16 | 27 | — | |||||||||||||||
Commercial real estate | 60 | 5 | 136 | 89 | 25 | |||||||||||||||
Agricultural real estate | — | — | — | — | — | |||||||||||||||
Home equity | 11 | 3 | 15 | 14 | 7 | |||||||||||||||
Commercial business | — | — | 7 | 3 | 156 | |||||||||||||||
Agricultural business | — | — | — | — | — | |||||||||||||||
Consumer | 6 | 4 | 15 | 6 | 6 | |||||||||||||||
Total recoveries | 117 | 14 | 189 | 139 | 194 | |||||||||||||||
Net loans charge-offs | 176 | 690 | 103 | 447 | 292 | |||||||||||||||
Additions charged to operations | 140 | 240 | 170 | 490 | 625 | |||||||||||||||
Balance at end of year | $ | 2,920 | $ | 2,956 | $ | 3,406 | $ | 3,339 | $ | 3,297 | ||||||||||
Total loans outstanding | $ | 195,989 | $ | 187,684 | $ | 184,055 | $ | 177,086 | $ | 174,201 | ||||||||||
Average net loans outstanding | $ | 189,667 | $ | 180,936 | $ | 174,685 | $ | 173,600 | $ | 177,597 | ||||||||||
Allowance for loan losses as a percentage of total loans at end of year | 1.49 | % | 1.57 | % | 1.85 | % | 1.89 | % | 1.89 | % | ||||||||||
Net loans charged off as a percent of average net loans outstanding | 0.09 | % | 0.38 | % | 0.06 | % | 0.26 | % | 0.16 | % | ||||||||||
Allowance for loan losses to nonperforming loans | 144.45 | % | 130.57 | % | 191.14 | % | 150.85 | % | 137.33 | % | ||||||||||
Allowance for loan losses to total nonperforming assets at end of year | 124.13 | % | 121.10 | % | 164.90 | % | 142.05 | % | 116.24 | % |
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Allocation of Allowance for Loan Losses. The following table sets forth the allocation of allowance for loan losses by loan category at the dates indicated. The table reflects the allowance for loan losses as a percentage of total loans receivable. Management believes that the allowance can be allocated by category only on an approximate basis. The allocation of the allowance by category is not necessarily indicative of future losses and does not restrict the use of the allowance to absorb losses in any category.
At December 31, | ||||||||||||||||||||||||
2015 | 2014 | 2013 | ||||||||||||||||||||||
Amount | Percent of Loans in Each Category to Total Loans | Amount | Percent of Loans in Each Category to Total Loans | Amount | Percent of Loans in Each Category to Total Loans | |||||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||||||
One- to four-family residential | $ | 830 | 24.2 | % | $ | 999 | 23.7 | % | $ | 856 | 24.1 | % | ||||||||||||
Commercial real estate | 918 | 20.6 | 855 | 21.6 | 746 | 21.1 | ||||||||||||||||||
Agricultural real estate | 202 | 21.0 | 196 | 21.4 | 175 | 19.0 | ||||||||||||||||||
Home equity | 149 | 6.0 | 206 | 6.0 | 202 | 6.4 | ||||||||||||||||||
Commercial business | 387 | 13.0 | 422 | 14.3 | 1,034 | 16.3 | ||||||||||||||||||
Agricultural business | 163 | 8.2 | 58 | 6.3 | 53 | 5.7 | ||||||||||||||||||
Consumer | 169 | 7.0 | 167 | 6.7 | 185 | 7.4 | ||||||||||||||||||
Unallocated | 102 | — | 53 | — | 155 | — | ||||||||||||||||||
Total | $ | 2,920 | 100 | % | $ | 2,956 | 100 | % | $ | 3,406 | 100 | % |
At December 31, | ||||||||||||||||||||||||
2012 | 2011 | |||||||||||||||||||||||
Amount | Percent of Loans in Each Category to Total Loans | Amount | Percent of Loans in Each Category to Total Loans | |||||||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||||||
One- to four-family residential | $ | 741 | 23.4 | % | $ | 697 | 22.7 | % | ||||||||||||||||
Commercial real estate | 829 | 17.5 | 1,108 | 23.1 | ||||||||||||||||||||
Agricultural real estate | 150 | 21.1 | 115 | 17.2 | ||||||||||||||||||||
Home equity | 329 | 7.2 | 309 | 9.2 | ||||||||||||||||||||
Commercial business | 934 | 16.4 | 712 | 13.3 | ||||||||||||||||||||
Agricultural business | 44 | 6.2 | 59 | 5.5 | ||||||||||||||||||||
Consumer | 151 | 8.2 | 138 | 9.0 | ||||||||||||||||||||
Unallocated | 161 | — | 159 | — | ||||||||||||||||||||
Total | $ | 3,339 | 100 | % | $ | 3,297 | 100 | % |
Investment Activities
General. The asset/liability management committee, consisting of our Chairman of the Board, President, Senior Vice President and Investment Officer, Vice President of Operations, Chief Financial Officer, and at least two outside directors from the board, has primary responsibility for establishing our investment policy and overseeing its implementation, subject to oversight by our entire board of directors. Authority to make investments under approved guidelines is delegated to the Senior Vice President and Investment Officer. The committee meets at least quarterly. All investment transactions are reported to the board of directors for ratification quarterly.
The investment policy is reviewed at least annually by the full board of directors. This policy dictates that investment decisions be made based on providing liquidity, meeting pledging requirements, generating a reasonable rate of return, minimizing our tax liability through the purchase of municipal securities, minimizing exposure to credit risk and ensuring consistency with our interest rate risk management strategy. During the prolonged period of low interest rates and weak loan demand, our investment activities are a more pronounced part of our operations.
Our current investment policy permits us to invest in U.S. treasuries, federal agency securities, mortgage-backed securities, investment grade corporate bonds, municipal bonds, short-term instruments, and other securities. Investments in municipal bonds will be correlated with Jacksonville Savings Bank’s current level of taxable income, the need for tax-exempt income, and investment in the community. The investment policy also permits investments in certificates of deposit, securities purchased under an agreement to resell, bankers acceptances, commercial paper and federal funds.
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Our current investment policy generally does not permit investment in stripped mortgage-backed securities, short sales, derivatives, or in other high-risk securities. Federal and Illinois state law generally limit our investment activities to those permissible for a national bank.
The accounting rules require that, at the time of purchase, we designate a security as held to maturity, available-for-sale, or trading, depending on our ability and intent. Securities available for sale are reported at fair value, while securities held to maturity are reported at amortized cost. We only maintain a securities available-for-sale portfolio.
The portfolio consists primarily of mortgage-backed securities, municipal bonds and U.S. government and agency securities all of which are classified as available for sale. Mortgage-backed securities totaled $23.2 million at December 31, 2015. General obligation municipal bonds, most of which have been issued within the States of Illinois, Texas, and Missouri totaled $48.4 million at December 31, 2015. Our portfolio of U.S. Government and agency securities totaled $15.9 million at December 31, 2015. We expect the composition of our investment portfolio to continue to change based on liquidity needs associated with loan origination activities. During the year ended December 31, 2015, we had no investment securities that were deemed to be other than temporarily impaired.
Under Federal regulations, we are required to maintain a minimum amount of liquid assets that may be invested in specified short-term securities and certain other investments. Liquidity levels may be increased or decreased depending upon the yields on investment alternatives and upon management’s judgment as to the attractiveness of the yields then available in relation to other opportunities and its expectation of the level of yield that will be available in the future, as well as management’s projections as to the short-term demand for funds to be used in our loan originations and other activities.
Mortgage-Backed Securities. We invest in mortgage-backed securities insured or guaranteed by the United States Government or government sponsored enterprises. These securities, which consist of mortgage-backed securities issued by Ginnie Mae, Fannie Mae, and Freddie Mac, had an amortized cost of $23.1 million, $41.2 million and $49.5 million at December 31, 2015, 2014 and 2013, respectively. The fair value of our mortgage-backed securities portfolio was $23.2 million, $41.4 million and $48.3 million at December 31, 2015, 2014 and 2013, respectively, and the weighted average rate as of December 31, 2015, 2014 and 2013 was 2.30%, 2.33% and 2.27%, respectively. At December 31, 2015, $23.2 million of the mortgage-backed securities in the investment portfolio had fixed rates of interest.
Mortgage-backed securities are created by pooling mortgages and issuing a security with an interest rate that is less than the interest rate on the underlying mortgages. Mortgage-backed securities typically represent a participation interest in a pool of single-family or multi-family mortgages, although we invest primarily in mortgage-backed securities backed by one- to four-family mortgages. The issuers of such securities pool and resell the participation interests in the form of securities to investors such as Jacksonville Savings Bank. Some securities pools are guaranteed as to payment of principal and interest to investors. Mortgage-backed securities generally yield less than the loans that underlie such securities because of the cost of payment guarantees and credit enhancements. However, mortgage-backed securities are more liquid than individual mortgage loans since there is an active trading market for such securities. In addition, mortgage-backed securities may be used to collateralize our specific liabilities and obligations. Finally, mortgage-backed securities are assigned lower risk-weightings for purposes of calculating our risk-based capital level.
Investments in mortgage-backed securities involve a risk that actual payments will be greater or less than the prepayment rate estimated at the time of purchase, which may require adjustments to the amortization of any premium or acceleration of any discount relating to such interests, thereby affecting the net yield on our securities. We periodically review current prepayment speeds to determine whether prepayment estimates require modification that could cause amortization or accretion adjustments.
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Municipal Bonds. At December 31, 2015, we held municipal bonds with a fair value of $48.4 million. All of our municipal bonds are general obligation bonds with full taxing authority and ratings (when available) of A or above. Nearly all of our municipal bonds are issued by local municipalities or school districts located in Illinois, Texas, or Missouri.
U.S. Government and Agency Securities. At December 31, 2015, we held U.S. Government and agency securities with a fair value of $15.9 million. These securities have an average expected life of 4.8 years. While these securities generally provide lower yields than other investments such as mortgage-backed securities, our current investment strategy is to maintain investments in such instruments to the extent appropriate for liquidity purposes, as collateral for borrowings, and for prepayment protection.
Investment Securities Portfolio. The following table sets forth the composition of our investment securities portfolio at the dates indicated. Investment securities do not include Federal Home Loan Bank of Chicago stock of $1.1 million. All of such securities were classified as available for sale.
At December 31, | ||||||||||||||||||||||||
2015 | 2014 | 2013 | ||||||||||||||||||||||
Amortized Cost | Fair Value | Amortized Cost | Fair Value | Amortized Cost | Fair Value | |||||||||||||||||||
(In Thousands) | ||||||||||||||||||||||||
Mortgage-backed securities: | ||||||||||||||||||||||||
Fannie Mae | $ | 16,367 | $ | 16,453 | $ | 24,023 | $ | 24,241 | $ | 23,435 | $ | 23,013 | ||||||||||||
Freddie Mac | 6,368 | 6,397 | 12,492 | 12,491 | 14,447 | 14,022 | ||||||||||||||||||
Ginnie Mae | 332 | 328 | 4,682 | 4,688 | 11,604 | 11,311 | ||||||||||||||||||
Total mortgage-backed securities | 23,067 | 23,178 | 41,197 | 41,420 | 49,486 | 48,346 | ||||||||||||||||||
U.S. government and agencies | 15,980 | 15,939 | 10,032 | 9,958 | 10,711 | 10,420 | ||||||||||||||||||
Municipal bonds | 47,229 | 48,356 | 44,378 | 45,307 | 50,889 | 50,219 | ||||||||||||||||||
Total | $ | 86,276 | $ | 87,473 | $ | 95,607 | $ | 96,685 | $ | 111,086 | $ | 108,985 |
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Portfolio Maturities and Yields. The composition and maturities of the investment securities portfolio at December 31, 2015 are summarized in the following table. Maturities are based on the final contractual payment dates, and do not reflect the impact of prepayments or early redemptions that may occur. All of such securities were classified as available for sale.
One Year or Less | More than One Year through Five Years | More than Five Years through Ten Years | More than Ten Years | Total Securities | ||||||||||||||||||||||||||||||||||||||||
Amortized Cost | Weighted Average Yield | Amortized Cost | Weighted Average Yield | Amortized Cost | Weighted Average Yield | Amortized Cost | Weighted Average Yield | Amortized Cost | Fair Value | Weighted Average Yield | ||||||||||||||||||||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||||||||||||||||||||||||||
Mortgage-backed securities: | ||||||||||||||||||||||||||||||||||||||||||||
Fannie Mae | $ | — | — | % | $ | — | — | % | $ | — | — | % | $ | 16,367 | 2.27 | % | $ | 16,367 | $ | 16,453 | 2.27 | % | ||||||||||||||||||||||
FreddieMac | — | — | — | — | — | — | 6,368 | 2.42 | 6,368 | 6,397 | 2.42 | |||||||||||||||||||||||||||||||||
Ginnie Mae | — | — | — | — | — | — | 332 | 1.41 | 332 | 328 | 1.41 | |||||||||||||||||||||||||||||||||
Total mortgage-backed securities | — | — | — | — | — | — | 23,067 | 2.30 | 23,067 | 23,178 | 2.30 | |||||||||||||||||||||||||||||||||
U.S. government and agencies | 1,000 | 2.32 | 3,540 | 1.96 | 9,593 | 2.25 | 1,847 | 1.97 | 15,980 | 15,939 | 2.15 | |||||||||||||||||||||||||||||||||
Municipal bonds(1) | 526 | 3.00 | 7,896 | 2.98 | 25,195 | 3.00 | 13,612 | 3.32 | 47,229 | 48,356 | 3.09 | |||||||||||||||||||||||||||||||||
Total | $ | 1,526 | 2.55 | % | $ | 11,436 | 2.66 | % | $ | 34,788 | 2.79 | % | $ | 38,526 | 2.64 | % | $ | 86,276 | $ | 87,473 | 2.70 | % |
(1) | We used an assumed 34% tax rate in computing tax equivalent adjustments. The tax equivalent yield of municipal bonds was 4.55% for maturities of one year or less, 4.51% for maturities of more than one year through five years, 4.54% for maturities for more than five years through ten years, 5.03% for maturities of more than 10 years and 4.68% for the total municipal bonds securities portfolio at December 31, 2015. The tax equivalent adjustments to interest income of municipal bonds was less than $1,000 for maturities of one year or less, $121,000 for maturities of more than one year through five years, $389,000 for maturities for more than five years through ten years, $233,000 for maturities of more than 10 years and $751,000 for the total municipal bonds securities portfolio for the year ended December 31, 2015. |
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Sources of Funds
General. Deposits and borrowings are our major sources of funds for lending and other investment purposes. In addition, we derive funds from the repayment and prepayment of loans and mortgage-backed securities, operations, sales of loans into the secondary market, and the sale, call, or maturity of investment securities. Scheduled loan principal repayments are a relatively stable source of funds, while deposit inflows and outflows and loan prepayments are influenced significantly by general interest rates and market conditions. Other sources of funds include advances from the Federal Home Loan Bank. For further information see “—Borrowings.” Borrowings may be used on a short-term basis to compensate for reductions in the availability of funds from other sources or on a longer term basis for general business purposes.
Deposits. We attract consumer and commercial deposits principally from within our market areas through the offering of a broad selection of deposit instruments including interest-bearing checking accounts, noninterest-bearing checking accounts, savings accounts, money market accounts, term certificate accounts and individual retirement accounts. We will accept deposits of $100,000 or more and may offer negotiated interest rates on such deposits. At December 31, 2015, we had deposits of $100,000 or more from public entities that totaled $19.1 million. Deposit account terms vary according to the minimum balance required, the time periods the funds must remain on deposit and the interest rate, among other factors. We regularly evaluate our internal cost of funds, survey rates offered by competing institutions, review our cash flow requirements for lending and liquidity and execute rate changes when deemed appropriate. We do not obtain funds through brokers, nor do we solicit funds outside our market area.
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The following tables set forth the distribution of our average deposit accounts, by account type, for the years indicated.
For the Years Ended December 31, | ||||||||||||||||||||||||||||||||||||
2015 | 2014 | 2013 | ||||||||||||||||||||||||||||||||||
Average Balance | Percent | Weighted Average Rate | Average Balance | Percent | Weighted Average Rate | Average Balance | Percent | Weighted Average Rate | ||||||||||||||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||||||||||||||||||
Deposit type: | ||||||||||||||||||||||||||||||||||||
Non-interest bearing checking | $ | 29,414 | 12.3 | % | — | % | $ | 27,315 | 11.0 | % | — | % | $ | 25,089 | 9.8 | % | — | % | ||||||||||||||||||
Interest-bearing checking | 39,270 | 16.5 | 0.14 | 38,080 | 15.3 | 0.14 | 37,595 | 14.7 | 0.14 | |||||||||||||||||||||||||||
Savings accounts | 39,954 | 16.8 | 0.20 | 37,323 | 15.0 | 0.21 | 34,860 | 13.7 | 0.22 | |||||||||||||||||||||||||||
Money market deposits | 7,957 | 3.3 | 0.15 | 8,026 | 3.2 | 0.15 | 8,441 | 3.3 | 0.16 | |||||||||||||||||||||||||||
Money market savings | 34,947 | 14.7 | 0.29 | 35,408 | 14.2 | 0.31 | 33,554 | 13.1 | 0.34 | |||||||||||||||||||||||||||
Certificates of deposit | 86,614 | 36.4 | 0.98 | 102,890 | 41.3 | 1.15 | 116,036 | 45.4 | 1.30 | |||||||||||||||||||||||||||
Total deposits | $ | 238,156 | 100.00 | % | 0.46 | % | $ | 249,042 | 100.00 | % | 0.58 | % | $ | 255,575 | 100.00 | % | 0.69 | % |
The following table sets forth certificates of deposit classified by interest rate as of the dates indicated.
At December 31, | ||||||||||||
2015 | 2014 | 2013 | ||||||||||
(In Thousands) | ||||||||||||
Interest Rate: | ||||||||||||
Less than 1.00% | $ | 47,140 | $ | 53,255 | $ | 21,405 | ||||||
1.00% to 1.99% | 24,093 | 21,607 | 60,177 | |||||||||
2.00% to 2.99% | 7,821 | 13,324 | 15,707 | |||||||||
3.00% to 3.99% | — | 6,414 | 10,863 | |||||||||
Total | $ | 79,054 | $ | 94,600 | $ | 108,152 |
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The following table sets forth, by interest rate ranges and scheduled maturity, information concerning our certificates of deposit at December 31, 2015.
At December 31, 2015 | ||||||||||||||||||||||||
Period to Maturity | ||||||||||||||||||||||||
Less Than or Equal to One Year | More Than One to Two Years | More Than Two to Three Years | More Than Three Years | Total | Percent of Total | |||||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||||||
Interest Rate Range: | ||||||||||||||||||||||||
Less than 1.00% | $ | 34,822 | $ | 10,224 | $ | 1,805 | $ | 289 | $ | 47,140 | 59.6 | % | ||||||||||||
1.00% to 1.99% | 846 | 5,818 | 5,310 | 12,119 | 24,093 | 30.5 | ||||||||||||||||||
2.00% to 2.99% | 5,645 | 2,167 | 9 | — | 7,821 | 9.9 | ||||||||||||||||||
Total | $ | 41,313 | $ | 18,209 | $ | 7,124 | $ | 12,408 | $ | 79,054 | 100.0 | % |
As of December 31, 2015, the aggregate amount of outstanding certificates of deposit in amounts greater than or equal to $100,000 was approximately $26.9 million, of which $5.1 million were deposits from public entities. The following table set forth the maturity of those certificates as of December 31, 2015.
At December 31, 2015 | ||||
(In Thousands) | ||||
Three months or less | $ | 5,713 | ||
Over three months through six months | 4,978 | |||
Over six months through one year | 2,774 | |||
Over one year to three years | 8,000 | |||
Over three years | 5,389 | |||
Total | $ | 26,854 |
Borrowings. Deposits are our primary source of funds for lending and investment activities. If the need arises, we may rely upon advances from the Federal Home Loan Bank to supplement our supply of available funds and to fund deposit withdrawals. We typically secure advances from the Federal Home Loan Bank with mortgage loans, and small business and small farm loans. The Federal Home Loan Bank functions as a central reserve bank providing credit for us and other member savings associations and financial institutions. As a member, we are required to own capital stock in the Federal Home Loan Bank and are authorized to apply for advances on the security of such stock and certain of our loans, provided certain standards related to creditworthiness have been met. Advances are made pursuant to several different programs. Each credit program has its own interest rate and range of maturities. Depending on the program, limitations on the amount of advances are based either on a fixed percentage of a member institution’s stockholders’ equity or on the Federal Home Loan Bank’s assessment of the institution’s creditworthiness. At December 31, 2015, we had $8.5 million in Federal Home Loan Bank advances outstanding.
Other borrowings consist of securities sold under agreements to repurchase which are swept daily from commercial deposit accounts. We may be required to provide additional collateral based on the fair value of the underlying securities.
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Our borrowings consist of advances from the Federal Home Loan Bank of Chicago and funds borrowed under repurchase agreements. At December 31, 2015, we had access to Federal Home Loan Bank advances of up to $79.4 million. The following table sets forth information concerning balances and interest rates on our Federal Home Loan Bank advances at or for the years indicated.
At or For the Years Ended December 31, | ||||||||||||
2015 | 2014 | 2013 | ||||||||||
(Dollars in thousands) | ||||||||||||
Balance at end of year | $ | 8,500 | $ | 5,000 | $ | 10,800 | ||||||
Average balance during year | $ | 7,877 | $ | 4,803 | $ | 4,518 | ||||||
Maximum outstanding at any month end | $ | 14,200 | $ | 12,000 | $ | 15,500 | ||||||
Weighted average interest rate at end of year | 0.16 | % | 0.33 | % | 0.13 | % | ||||||
Average interest rate during year | 0.24 | % | 0.20 | % | 0.14 | % | ||||||
The following table sets forth information concerning balances and interest rates on our repurchase agreements at or for the years indicated.
At or For the Years Ended December 31, | ||||||||||||
2015 | 2014 | 2013 | ||||||||||
(Dollars in thousands) | ||||||||||||
Balance at end of year | $ | 6,632 | $ | 8,822 | $ | 8,810 | ||||||
Average balance during year | $ | 6,009 | $ | 5,996 | $ | 6,208 | ||||||
Maximum outstanding at any month end | $ | 9,549 | $ | 9,484 | $ | 9,446 | ||||||
Weighted average interest rate at end of year | 0.23 | % | 0.07 | % | 0.10 | % | ||||||
Average interest rate during year | 0.12 | % | 0.08 | % | 0.13 | % | ||||||
Trust Services
We operate a full-service trust department which is primarily engaged in asset management. Investment securities and farm real estate comprise most of the $90.7 million of assets administered in 124 accounts as of December 31, 2015. We also provide institutional trust services for regional bond issuers. Trust fees collected in 2015 and 2014 totaled $289,000 and $291,000, respectively.
Subsidiary Activities
Jacksonville Savings Bank has one wholly owned subsidiary, Financial Resources Group, Inc. (“Financial Resources”), an Illinois corporation. Financial Resources operates an investment center engaged in the business of buying and selling stocks, bonds, annuities and mutual funds for its customers’ accounts. In addition, Financial Resources has historically engaged in the business of originating commercial business loans and commercial real estate loans. For the years ended December 31, 2015 and 2014, Financial Resources had gross revenues of $1.4 million and $1.3 million, respectively.
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REGULATION AND SUPERVISION
General
Jacksonville Bancorp, Inc. is a bank holding company within the meaning of the Bank Holding Company Act of 1956, as amended. As such, it is registered with, subject to examination and supervision by and otherwise required to comply with the rules and, regulations of, the Federal Reserve Board. Jacksonville Bancorp, Inc., was previously regulated as a savings and loan holding company. However, in June 2013, Jacksonville Savings Bank revoked its previous election to have Jacksonville, Bancorp, Inc. regulated as a savings and loan holding company. As a result, Jacksonville Bancorp, Inc. is now regulated as a bank holding company.
Jacksonville Savings Bank is an Illinois-chartered savings bank subject to extensive regulation by the Illinois Department of Financial and Professional Regulation and the Federal Deposit Insurance Corporation. Jacksonville Savings Bank’s deposit accounts are insured up to applicable limits by the Federal Deposit Insurance Corporation. Jacksonville Savings Bank must file reports with the Illinois Department of Financial and Professional Regulation and the Federal Deposit Insurance Corporation concerning its activities and financial condition, in addition to obtaining regulatory approvals prior to entering into certain transactions such as mergers or acquisitions with other depository institutions. There are periodic examinations of the Bank by the Illinois Department of Financial and Professional Regulation and the Federal Deposit Insurance Corporation to review Jacksonville Savings Bank’s compliance with various regulatory requirements. Jacksonville Savings Bank is also subject to certain reserve requirements established by the Federal Reserve Board. This regulation and supervision establishes a comprehensive framework of activities in which a savings bank can engage and is intended primarily for the protection of the Federal Deposit Insurance Corporation and depositors. The regulatory structure also gives the regulatory authorities extensive discretion in connection with their supervisory and enforcement activities and examination policies, including policies with respect to the classification of assets and the establishment of adequate loan loss reserves for regulatory purposes. Any change in such regulation, whether by the Illinois Department of Financial and Professional Regulation, the Federal Deposit Insurance Corporation, the Federal Reserve Board or Congress could have a material impact on the operations of Jacksonville Savings Bank.
Set forth below is a brief description of material regulatory requirements that are or will be applicable to Jacksonville Bancorp, Inc. and Jacksonville Savings Bank. The description is limited to certain material aspects of the statutes and regulations addressed, is not intended to be a complete description of such statutes and regulations and their effects on Jacksonville Bancorp, Inc. and Jacksonville Savings Bank and is qualified in its entirety by reference to the actual statutes and regulations involved.
Federal Legislation
The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) was enacted in 2010. The Dodd-Frank Act has significantly changed the bank regulatory structure and is affecting the lending, investment, trading and operating activities of depository institutions and their holding companies.
The Dodd-Frank Act created a new Consumer Financial Protection Bureau with expansive powers to supervise and enforce consumer protection laws. The Consumer Financial Protection Bureau has broad rule-making authority for a wide range of consumer protection laws that apply to all banks and savings institutions, including the authority to prohibit “unfair, deceptive or abusive” acts and practices. The Consumer Financial Protection Bureau has examination and enforcement authority over all banks and savings institutions with more than $10 billion in assets. Banks and savings institutions with $10 billion or less in assets, such as Jacksonville Savings Bank, will continue to be examined for compliance with these laws by their applicable federal bank regulators. The legislation gave state attorneys general the ability to enforce applicable federal consumer protection laws and weakened federal preemption of state laws as to federal saving banks in certain respects.
The Dodd-Frank Act also broadened the base for Federal Deposit Insurance Corporation assessments for deposit insurance, permanently increased the maximum amount of deposit insurance to $250,000 per depositor. The Dodd-Frank Act also provided for originators of certain securitized loans to retain a percentage of the risk for transferred credits, directed the Federal Reserve Board to regulate pricing of certain debit card interchange fees, repealed restrictions on paying interest on checking accounts and contained a number of reforms related to mortgage origination. The Dodd-Frank Act increased shareholder influence over boards of directors by requiring companies to give shareholders a non-binding vote on executive compensation and so-called “golden parachute” payments.
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The Dodd-Frank Act also required the Consumer Financial Protection Bureau to issue regulations requiring lenders to make a reasonable, good faith determination as to the ability of a prospective borrower to repay a residential mortgage loan. The “Ability to Repay” final rule, effective January 1, 2014, established a “qualified mortgage” safe harbor from liability for loans which have terms and features which are deemed to make the loan less risky.
Many of the provisions of the Dodd-Frank Act are subject to delayed effective dates and/or require the issuance of implementing regulations. Their impact on operations cannot yet fully be assessed. However, it is likely that the Dodd-Frank Act will increase regulatory burden, compliance costs and interest expense for Jacksonville Bancorp, Inc. and Jacksonville Savings Bank.
Illinois Savings Bank Regulation
As an Illinois-chartered savings bank, Jacksonville Savings Bank is subject to regulation and supervision by the Illinois Department of Financial and Professional Regulation. The Illinois Department of Financial and Professional Regulation’s regulation of Jacksonville Savings Bank covers, among other things, Jacksonville Savings Bank’s internal organization (i.e., charter, bylaws, capital requirements, transactions with directors and officers, and composition of the board of directors), as well as supervision of permissible activities and mergers and acquisitions. The lending and investment authority of Jacksonville Savings Bank is prescribed by Illinois law and regulations, as well as applicable Federal laws and regulations, and Jacksonville Savings Bank is prohibited from engaging in any activities not permitted by such laws and regulations. Jacksonville Savings Bank is required to file reports with, and is subject to periodic examinations by the Illinois Department of Financial and Professional Regulation. The Illinois Department of Financial and Professional Regulation also maintains extensive enforcement power to assure compliance with law and regulations and correct unsafe practices, including cease and desist orders, civil penalties and removal of directors and officers. The Illinois Department of Financial and Professional Regulation also may appoint a receiver or conservator for a savings bank under certain circumstances.
Under Illinois law, savings banks are required to maintain a minimum total capital to total assets ratio of 3%. The Illinois Department of Financial and Professional Regulation is authorized to require a savings bank to maintain a higher minimum capital level if the Illinois Department of Financial and Professional Regulation determines that the savings bank’s financial condition or history, management or earnings prospects are not adequate. If a savings bank’s total capital ratio falls below the required level, the Illinois Department of Financial and Professional Regulation may direct the savings bank to adhere to a specific written plan established by the Illinois Department of Financial and Professional Regulation 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.
Under Illinois law, a savings bank may make both secured and unsecured loans. However, loans for business, corporate, commercial or agricultural purposes, whether secured or unsecured, may not in the aggregate exceed 15% of a savings bank’s total assets unless authorized by the Illinois Department of Financial and Professional Regulation. With the prior written consent of the Illinois Department of Financial and Professional Regulation, savings banks may also engage in real estate development activities, provided that the total investment in any one project may not exceed 15% of total capital, and the total investment in all projects may not exceed 50% of total capital. The investment authority of state chartered banks is also constrained by federal law, as is explained later. The total loans and extensions of credit outstanding at one time, both direct and indirect, by a savings bank to any borrower may not exceed 25% of the savings bank’s total capital. At December 31, 2015, Jacksonville Savings Bank did not have any loans-to-one borrower which exceeded these limitations.
Illinois-chartered savings banks generally have all lending, investment and other powers which are possessed by federal savings banks based in Illinois. Recent federal and state legislative developments have reduced distinctions between commercial banks and savings institutions in Illinois with respect to lending and investment authority. As federal law has expanded the authority of federally chartered savings institutions to engage in activities previously reserved for commercial banks, Illinois legislation and regulations (“parity legislation”) have given Illinois-chartered savings banks, such as Jacksonville Savings Bank, the powers of federally chartered savings institutions.
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The board of directors of a savings bank may declare dividends on its capital stock based upon the savings bank’s annualized net profits except (1) dividends may not be declared if the bank fails to meet its capital requirements, (2) dividends are limited to 100% of net income in that year and (3) if total capital is less than 6% of total assets, dividends are limited to 50% of net income without prior approval of the Illinois Department of Financial and Professional Regulation.
Branching and Interstate Banking. The establishment of branches by Jacksonville Savings Bank is subject to approval of the Illinois Department of Financial and Professional Regulation and Federal Deposit Insurance Corporation and geographic limits established by state laws. The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the “Riegle-Neal Act”), as amended, facilitates the interstate expansion and consolidation of banking organizations by permitting, among other things, (i) bank holding companies that are adequately capitalized and managed to acquire banks located in states outside their home state regardless of whether such acquisitions are authorized under the law of the host state, (ii) the interstate merger of banks, and (iii) banks to establish new branches on an interstate basis.
Investment Activities. Under federal law, all state-chartered banks and savings banks, and their subsidiaries, generally limited to activities as principal and equity investments of the type and in the amount authorized are national banks. There are certain exceptions. For example, the Federal Deposit Insurance Corporation is authorized to permit institutions to engage in state-authorized activities or investments not permitted for national banks (other than non-subsidiary equity investments) for institutions that meet all applicable capital requirements if it is determined that such activities or investments do not pose a significant risk to the deposit insurance fund. Federal law and Federal Deposit Insurance Corporation regulations impose certain quantitative and qualitative restrictions on such activities and on a bank’s dealings with a subsidiary that engages in specified activities.
Transactions with Related Parties. A savings bank’s authority to engage in transactions with its affiliates is limited by Sections 23A and 23B of the Federal Reserve Act and Regulation W promulgated by the Board of Governors of the Federal Reserve System. An affiliate is generally a company that controls, is controlled by, or is under common control with an insured depository institution such as Jacksonville Savings Bank. Jacksonville Bancorp, Inc. is an affiliate of Jacksonville Savings Bank. In general, transactions between an insured depository institution and its affiliates are subject to certain quantitative and collateral requirements. In addition, applicable regulations prohibit a savings bank from lending to any of its affiliates that are engaged in activities that are not permissible for bank holding companies and from purchasing the securities of any affiliate, other than a subsidiary. Finally, transactions with affiliates must be consistent with safe and sound banking practices, not involve low-quality assets and be on terms that are as favorable to the institution as comparable transactions with non-affiliates. Applicable regulators require savings banks to maintain detailed records of all transactions with affiliates.
Jacksonville Savings Bank’s authority to extend credit to its directors, executive officers and 10% or greater stockholders, as well as to entities controlled by such persons, is governed by the requirements of Sections 22(g) and 22(h) of the Federal Reserve Act and Regulation O promulgated by the Board of Governors of the Federal Reserve System. Among other things, these provisions require that extensions of credit to insiders:
(i) | be made on terms that are substantially the same as, and follow credit underwriting procedures that are not less stringent than, those prevailing for comparable transactions with unaffiliated persons and that do not involve more than the normal risk of repayment or present other unfavorable features, and |
(ii) | not exceed certain limitations on the amount of credit extended to such persons, individually and in the aggregate, which limits are based, in part, on the amount of Jacksonville Savings Bank’s capital. |
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In addition, extensions of credit in excess of certain limits must be approved in advance by Jacksonville Savings Bank’s board of directors. Extensions of credit to executive officers of Jacksonville Savings Bank are subject to additional restrictions based on the type of loan.
Capital Maintenance. The federal banking agencies, including the FDIC, have adopted new regulations that implement the Basel III regulatory capital reforms and changes required by the Dodd-Frank Act.
Effective January 1, 2015 (with some changes transitioned into full effectiveness over two to four years), Jacksonville Savings Bank became subject to new capital requirements adopted by the FDIC. These new requirements created a new required ratio for common equity Tier 1 ("CETI") capital, increased the leverage and Tier 1 capital ratios, changed the risk weight of certain assets for purposes of the risk-based capital ratios, created an additional capital conservation buffer over the required capital ratios and changed what qualifies as capital for purposes of meeting these various capital requirements. Beginning in 2016, failure to maintain the required capital conservation buffer will limit the ability of Jacksonville Savings Bank to pay dividends or pay discretionary bonuses. The Company is exempt from consolidated capital requirements as those requirements do not apply to certain small bank holding companies with assets under $1 billion.
Under the new capital regulations, the minimum capital ratios are: (1) CETI capital ratio of 4.5% of risk-weighted assets; (2) a Tier 1 capital ratio of 6.0% of risk-weighted assets: (3) a total capital ratio of 8.0% of risk-weighted assets; and (4) a leverage ratio of 4.0%. CETI generally consists of common stock and retained earnings, subject to applicable regulatory adjustments and deductions.
There are a number of changes in what constitutes regulatory capital, some of which are subject to transition periods. These changes include the phasing-out of certain instruments as qualifying capital. Jacksonville Savings Bank does not use any of these instruments. Under the new requirements for total capital, Tier 2 capital is no longer limited to the amount of Tier 1 capital included in total capital. Mortgage servicing rights, certain deferred tax assets and investments in unconsolidated subsidiaries over designated percentages of CETI will be deducted from capital. Jacksonville Savings Bank has elected to permanently opt-out of the inclusion of accumulated other comprehensive income in its capital calculations, as permitted by the regulations. This opt-out will reduce the impact of market volatility on our regulatory capital levels.
The new requirements also include changes in the risk-weights of assets to better reflect credit risk and other risk exposures. These include a 150% risk weight (increased from 100%) for certain high volatility commercial real estate acquisition, development and construction loans and for non-residential mortgage loans that are 90 days past due or otherwise in non-accrual status; a 20% (increased from 0%) credit conversion factor for the unused portion of a commitment with an original maturity of one year or less that is not unconditionally cancellable; a 250% risk weight (increased from 100%) for mortgage servicing and deferred tax assets that are not deducted from capital; and increased risk weights (0% to 600%) for equity exposures.
In addition to the minimum CETI, Tier 1 and total capital ratios, Jacksonville Savings Bank will have to maintain a capital conservation buffer consisting of additional CETI capital greater than 2.5% of risk-weighted assets above the required minimum levels in order to avoid limitations on paying dividends or paying discretionary bonuses based on percentages of eligible retained income that could be utilized for such actions. This new capital conservation buffer requirement will be phased in beginning in January 2016 at 0.625% of risk-weighted assets and increasing each year until fully implemented in January 2019.
Prompt Corrective Regulatory Action. The Federal Deposit Insurance Corporation Improvement Act requires, among other things, that federal bank regulatory authorities take “prompt corrective action” with respect to institutions that do not meet minimum capital requirements. For these purposes, the statute establishes five capital tiers: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized.
The Federal Deposit Insurance Corporation may order savings banks which have insufficient capital to take corrective actions. For example, a savings bank that is categorized as “undercapitalized” would be subject to growth limitations, dividend restrictions and would be required to submit a capital restoration plan for regulator approval. A holding company that controls such a savings bank must guarantee that the savings bank complies with the restoration plan subject to certain limits. A “significantly undercapitalized” savings bank would be subject to additional restrictions. Savings banks deemed by the Federal Deposit Insurance Corporation to be “critically undercapitalized” would be subject to the appointment of a receiver or conservator within certain time frames.
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The previously mentioned final regulatory capital rule that increases regulatory capital requirements adjusted the prompt corrective action categories accordingly effective January 1, 2015. Under the revised requirements, an institution must meet the following in order to be classified as “well capitalized”: (1) a common equity Tier 1 risk-based ratio of 6.5% (new standard); (2) a Tier 1 risk-based capital ratio of 8% (increased from 6%); (3) a total risk-based ratio of 10% (unchanged) and (4) a Tier 1 leverage ratio of 5% (unchanged).
At December 31, 2015, Jacksonville Savings Bank is “well capitalized” under the prompt corrective action rules.
Insurance of Deposit Accounts. Jacksonville Savings Bank is a member of the Deposit Insurance Fund, which is administered by the Federal Deposit Insurance Corporation. Deposit accounts in Jacksonville Savings Bank are insured up to a maximum of $250,000 for each separately insured depositor.
The Federal Deposit Insurance Corporation imposes an assessment for deposit insurance on all depository institutions. Under the Federal Deposit Insurance Corporation’s risk-based assessment system, insured institutions are assigned to risk categories based on supervisory evaluations, regulatory capital levels and certain other factors. An institution’s assessment rate depends upon the category to which it is assigned and certain adjustments specified by Federal Deposit Insurance Corporation regulations, with institutions deemed less risky paying lower rates. Assessment rates (inclusive of possible adjustments) currently range from 2 ½ to 45 basis points of each institution’s total assets less tangible capital. The Federal Deposit Insurance Corporation may increase or decrease the scale uniformly, except that no adjustment can deviate more than two basis points from the base scale without notice and comment rulemaking. The Federal Deposit Insurance Corporation’s current system represents a change, required by the Dodd-Frank Act, from its prior practice of basing the assessment on an institution’s volume of deposits.
The Dodd-Frank Act increased the minimum target Deposit Insurance Fund ratio from 1.15% of estimated insured deposits to 1.35% of estimated insured deposits. The Federal Deposit Insurance Corporation must seek to achieve the 1.35% ratio by September 30, 2020. Insured institutions with assets of $10 billion or more are supposed to fund the increase. The Dodd-Frank Act eliminated the 1.5% maximum fund ratio, instead leaving it to the discretion of the Federal Deposit Insurance Corporation and the Federal Deposit Insurance Corporation has exercised that discretion by establishing a long term fund ratio of 2%.
The Federal Deposit Insurance Corporation has authority to increase insurance assessments. Any significant increases would have an adverse effect on the operating expenses and results of operations of Jacksonville Savings Bank. Management cannot predict what assessment rates will be in the future.
In addition to the Federal Deposit Insurance Corporation assessments, the Financing Corporation is authorized to impose and collect, through the Federal Deposit Insurance Corporation, assessments for anticipated payments, issuance costs and custodial fees on bonds issued in the 1980s to recapitalize the former Federal Savings and Loan Insurance Corporation. The bonds issued by the Financing Corporation are due to mature in 2017 through 2019. For the quarter ended December 31, 2015, the annualized Financing Corporation assessment was equal to 0.58 of a basis point of assessable assets less tangible capital.
Insurance of deposits may be terminated by the Federal Deposit Insurance Corporation upon a finding that an institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition imposed by the Federal Deposit Insurance Corporation. Management of Jacksonville Savings Bank does not know of any practice, condition or violation that may lead to termination of our deposit insurance.
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Enforcement
The Federal Deposit Insurance Corporation has primary federal enforcement responsibility over state savings banks. The Federal Deposit Insurance Corporation has authority to bring enforcement actions against such institutions and their “institution-related parties,” including officers, directors, certain shareholders, and attorneys, appraisers and accountants who knowingly or recklessly participate in wrongful action likely to have an adverse effect on an insured institution. Formal enforcement action may range from the issuance of a capital directive or cease and desist order to removal of officers and/or directors of the institution or receivership or conservatorship in certain circumstances. Potential civil money penalties cover a wide range of violations and actions, and range up to $25,000 per day, unless a finding of reckless disregard is made, in which case penalties may be as high as $1.0 million per day.
Community Reinvestment Act. Under the Community Reinvestment Act (“CRA”), as implemented by Federal Deposit Insurance Corporation regulations, a savings institution has a continuing and affirmative obligation consistent with its safe and sound operation to help meet the credit needs of its entire community, including low and moderate income neighborhoods. The CRA does not establish specific lending requirements or programs for financial institutions nor does it limit an institution’s discretion to develop the types of products and services that it believes are best suited to its particular community, consistent with the CRA. The CRA requires the Federal Deposit Insurance Corporation, in connection with its examination of a savings institution, to assess the institution’s record of meeting the credit needs of its community and to take such record into account in its evaluation of certain applications by such institution.
Federal Home Loan Bank System. Jacksonville Savings Bank is a member of the Federal Home Loan Bank System, which consists of 12 regional Federal Home Loan Banks. The Federal Home Loan Bank System provides a central credit facility primarily for member institutions as well as other entities involved in home mortgage lending. As a member of the Federal Home Loan Bank of Chicago, Jacksonville Savings Bank is required to acquire and hold shares of capital stock in the Federal Home Loan Bank. As of December 31, 2015, Jacksonville Savings Bank was in compliance with this requirement.
Federal Reserve System
Federal Reserve Board regulations require savings banks to maintain interest-earning reserves against their transaction accounts, such as negotiable order of withdrawal and regular checking accounts. At December 31, 2015, Jacksonville Savings Bank was in compliance with these reserve requirements.
Other Regulations
Interest and other charges collected or contracted for by Jacksonville Savings Bank are subject to state usury laws and federal laws concerning interest rates. Jacksonville Savings Bank’s operations are also subject to federal and state laws applicable to credit transactions, such as the:
· | Truth-In-Lending Act, governing disclosures of credit terms to consumer borrowers; |
· | Home Mortgage Disclosure Act, requiring financial institutions to provide information to enable the public and public officials to determine whether a financial institution is fulfilling its obligation to help meet the housing needs of the community it serves; |
· | Equal Credit Opportunity Act, prohibiting discrimination on the basis of race, creed or other prohibited factors in extending credit; |
· | Fair Credit Reporting Act, governing the use and provision of information to credit reporting agencies; |
· | Fair Debt Collection Act, governing the manner in which consumer debts may be collected by collection agencies; |
· | Truth in Savings Act; |
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· | Illinois High Risk Home Loan Act, which protects borrowers who enter into high risk home loans; |
· | Illinois Predatory Lending Database Program, which helps provide counseling for homebuyers in connection with certain loans; and |
· | rules and regulations of the various federal and state agencies charged with the responsibility of implementing such laws. |
The operations of Jacksonville Savings Bank also are subject to the:
· | Right to Financial Privacy Act, which imposes a duty to maintain confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records; |
· | Electronic Funds Transfer Act and Regulation E promulgated thereunder, which govern automatic deposits to and withdrawals from deposit accounts and customers’ rights and liabilities arising from the use of automated teller machines and other electronic banking services; |
· | Check Clearing for the 21st Century Act (also known as “Check 21”), which gives “substitute checks,” such as digital check images and copies made from that image, the same legal standing as the original paper check; |
· | The USA PATRIOT Act, which requires savings banks operating to, among other things, establish broadened anti-money laundering compliance programs, due diligence policies and controls to ensure the detection and reporting of money laundering. Such required compliance programs are intended to supplement existing compliance requirements, also applicable to financial institutions, under the Bank Secrecy Act and the Office of Foreign Assets Control regulations; and |
· | The Gramm-Leach-Bliley Act, which places limitations on the sharing of consumer financial information by financial institutions with unaffiliated third parties. Specifically, the Gramm-Leach-Bliley Act requires all financial institutions offering financial products or services to retail customers to provide such customers with the financial institution’s privacy policy and provide such customers the opportunity to “opt out” of the sharing of certain personal financial information with unaffiliated third parties. |
Holding Company Regulation
In June 2013, Jacksonville Bancorp, Inc. changed its status from that of a savings and loan holding company to that of a bank holding company through Jacksonville Savings Bank’s revocation of a previously-made election. By so doing, the previously applicable requirement that Jacksonville Savings Bank comply with the “Qualified Thrift Lender Test,” which limited commercial lending, was eliminated.
Jacksonville Bancorp, Inc. is subject to examination, regulation, and periodic reporting as a bank holding company under the Bank Holding Company Act of 1956, as amended. Jacksonville Bancorp, Inc. will be required to obtain the prior approval of the Federal Reserve Board to acquire all, or substantially all, of the assets of any bank or bank holding company. Prior Federal Reserve Board approval would be required for the Jacksonville Bancorp, Inc. to acquire direct or indirect ownership or control of any voting securities of any bank or bank holding company if, after such acquisition, it would, directly or indirectly, own or control more than 5% of any class of voting shares of the bank or bank holding company. In addition to the approval of the Federal Reserve Board, prior approval may also be necessary from other agencies having supervisory jurisdiction over the bank to be acquired before any bank acquisition can be completed.
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A bank holding company is generally prohibited from engaging in non-banking activities, or acquiring direct or indirect control of more than 5% of the voting securities of any company engaged in non-banking activities. One of the principal exceptions to this prohibition is for activities found by the Federal Reserve Board to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. Some of the principal activities that the Federal Reserve Board has determined by regulation to be so closely related to banking are: (i) making or servicing loans; (ii) performing certain data processing services; (iii) providing discount brokerage services; (iv) acting as fiduciary, investment or financial advisor; (v) leasing personal or real property; (vi) making investments in corporations or projects designed primarily to promote community welfare; and (vii) acquiring a savings and loan association whose direct and indirect activities are limited to those permitted for bank holding companies.
The Gramm-Leach-Bliley Act of 1999 authorized a bank holding company that meets specified conditions, including being “well capitalized” and “well managed,” to opt to become a “financial holding company” and thereby engage in a broader array of financial activities than previously permitted. Such activities can include insurance underwriting and investment banking. The Company has not elected to become a financial holding company.
The Dodd-Frank Act required the Federal Reserve Board to promulgate consolidated capital requirements for bank and savings and loan holding companies that are no less stringent, both quantitatively and in terms of components of capital, than those applicable to their subsidiary depository institutions. Instruments such as cumulative preferred stock and trust-preferred securities, which are currently includable as Tier 1 capital, by bank holding companies within certain limits are no longer includable as Tier 1 capital, subject to certain grandfathering. The previously discussed final rule regarding regulatory capital requirements implements the Dodd-Frank Act’s directives as to holding company capital requirements.
In December 2014, legislation was passed by Congress that requires the Federal Reserve Board to revise its “Small Bank Holding Company Policy Statement” to exempt bank and savings and loan holding companies of less than $1.0 billion of consolidated assets from the consolidated capital requirements, provided that such companies meet certain other conditions such as not engaging in significant nonbanking activities. Regulations adopting this amendment were effective May 15, 2015. Consequently, bank holding companies of under $1 billion in consolidated assets such as the Company remain exempt from consolidated regulatory capital requirements, unless the Federal Reserve Board determines otherwise in particular cases.
A bank holding company is generally required to give the Federal Reserve Board prior written notice of any purchase or redemption of then outstanding equity securities if the gross consideration for the purchase or redemption, when combined with the net consideration paid for all such purchases or redemptions during the preceding 12 months, is equal to 10% or more of the company’s consolidated net worth. The Federal Reserve Board may disapprove such a purchase or redemption if it determines that the proposal would constitute an unsafe and unsound practice, or would violate any law, regulation, Federal Reserve Board order or directive, or any condition imposed by, or written agreement with, the Federal Reserve Board. There is an exception to this approval requirement for well-capitalized bank holding companies that meet certain other conditions.
The Federal Reserve Board’s policies also require that a bank holding company serve as a source of financial strength to its subsidiary banks by standing ready to use available resources to provide adequate capital funds to those banks during periods of financial stress or adversity and by maintaining the financial flexibility and capital-raising capacity to obtain additional resources for assisting its subsidiary banks where necessary. The Dodd-Frank Act codified the source of strength doctrine.
The Federal Reserve Board has issued a policy statement regarding the payment of dividends and the repurchase of shares of common stock by bank holding companies. In general, the policy provides that dividends should be paid only out of current earnings and only if the prospective rate of earnings retention by the holding company appears consistent with the organization’s capital needs, asset quality and overall financial condition. Regulatory guidance provides for prior regulatory consultation with respect to dividends in certain circumstances such as where the company’s net income for the past four quarters, net of dividends’ previously paid over that period, is insufficient to fully fund the dividend or the company’s overall rate of earnings retention is inconsistent with the company’s capital needs and overall financial condition. The ability of a holding company to pay dividends may be restricted if a subsidiary bank becomes undercapitalized. The policy statement also provides for regulatory consultation prior to a holding company redeeming or repurchasing regulatory capital instruments when the holding company is experiencing financial weaknesses or redeeming or repurchasing common stock or perpetual preferred stock that would result in a net reduction as of the end of a quarter in the amount of such equity instruments outstanding compared with the beginning of the quarter in which the redemption or repurchase occurred. These regulatory policies could affect the ability of Jacksonville Bancorp, Inc. to pay dividends, repurchase shares of its stock or otherwise engage in capital distributions.
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The status of Jacksonville Bancorp, Inc. as a registered bank holding company under the Bank Holding Company Act does not exempt it from certain federal and state laws and regulations applicable to corporations generally, including, without limitation, certain provisions of the federal securities laws.
Change in Control Regulations
Under the Change in Bank Control Act, no person may acquire control of a bank holding company such as Jacksonville Bancorp, Inc. unless the Federal Reserve Board has been given 60 days’ prior written notice and has not issued a notice disapproving the proposed acquisition, taking into consideration certain factors, including the financial and managerial resources of the acquirer and the competitive effects of the acquisition. Control, as defined under federal law, means ownership, control of or holding irrevocable proxies representing more than 25% of any class of voting stock, control in any manner of the election of a majority of the company’s directors, or a determination by the regulator that the acquiror has the power to direct, or directly or indirectly to exercise a controlling influence over, the management or policies of the institution. Acquisition of more than 10% of any class of a bank holding company’s voting stock constitutes a rebuttable presumption of control under the regulations under certain circumstances including where, is the case with Jacksonville Bancorp, Inc., the issuer has registered securities under Section 12 of the Securities Exchange Act of 1934.
Sarbanes-Oxley Act of 2002
The Sarbanes-Oxley Act of 2002 addresses, among other issues, corporate governance, auditing and accounting, executive compensation, and enhanced and timely disclosure of corporate information. As directed by the Sarbanes-Oxley Act, our Chief Executive Officer and Chief Financial Officer will be required to certify that our quarterly and annual reports do not contain any untrue statement of a material fact. The rules adopted by the Securities and Exchange Commission under the Sarbanes-Oxley Act have several requirements, including having these officers certify that: they are responsible for establishing, maintaining and regularly evaluating the effectiveness of our internal control over financial reporting; they have made certain disclosures to our auditors and the audit committee of the board of directors about our internal control over financial reporting; and they have included information in our quarterly and annual reports about their evaluation and whether there have been changes in our internal control over financial reporting or in other factors that could materially affect internal control over financial reporting.
TAXATION
Federal Taxation
General. Jacksonville Bancorp, Inc. and Jacksonville Savings Bank are subject to federal income taxation in the same general manner as other corporations, with some exceptions discussed below. The following discussion of federal taxation is intended only to summarize certain pertinent federal income tax matters and is not a comprehensive description of the tax rules applicable to Jacksonville Bancorp, Inc. or Jacksonville Savings Bank.
Method of Accounting. For federal income tax purposes, Jacksonville Bancorp, Inc. currently reports its income and expenses on the accrual method of accounting and uses a tax year ending December 31 for filing its federal and state income tax returns.
Bad Debt Reserves. Historically, Jacksonville Savings Bank has been subject to special provisions in the tax law regarding allowable tax bad debt deductions and related reserves. Tax law changes were enacted in 1996, pursuant to the Small Business Protection Act of 1996 (the “1996 Act”), that repealed the percentage of taxable income method by qualifying savings institutions to determine deductions for bad debts. This change was effective for taxable years beginning after 1995 and required the recapture of “applicable excess reserves” of a savings institution, of which Jacksonville Savings Bank is, into taxable income over a six year period. The applicable excess reserve is generally the excess of its bad debt reserves as of the close of its last taxable year beginning before January 1, 1996 over the balance of such reserves as of the close of its last taxable year beginning before January 1, 1988.
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Currently, Jacksonville Savings Bank utilizes the experience method to account for bad debt deductions for income tax purposes as defined in Internal Revenue Code Section 585. Under this method, the annual deduction is the amount necessary to increase the balance of the reserve at the close of the taxable year to the greater of the amount which bears the same ratio to loans outstanding at the close of the taxable year as the total net charge offs sustained during the current and preceding five taxable years bear to the sum of the loans outstanding at the close of those six years or the lower of (i) the balance in the reserve account at the close of the base year, (the last taxable year beginning before 1988), or (ii) if the amount of outstanding loans at the close of the taxable year is less than the amount of outstanding loans at the close of the base year, the amount which bears the same ratio to outstanding loans at the close of the taxable year as the balance of the reserve at the close of the base year bears to the amount of outstanding loans at the close of the base year.
Taxable Distributions and Recapture. Prior to the 1996 Act, bad debt reserves created prior to January 1, 1988 were subject to recapture into taxable income if Jacksonville Savings Bank failed to meet certain thrift asset and definitional tests.
At December 31, 2015, Jacksonville Savings Bank’s total federal pre-base year reserve was approximately $2.6 million. However, under current law, base-year reserves remain subject to recapture if Jacksonville Savings Bank makes certain non-dividend distributions, repurchases any of its stock, pays dividends in excess of tax earnings and profits, or ceases to maintain a bank charter.
Alternative Minimum Tax. The Internal Revenue Code of 1986, as amended (the “Code”), imposes an alternative minimum tax (“AMT”) at a rate of 20% on a base of regular taxable income plus certain tax preferences (“alternative minimum taxable income” or “AMTI”). The AMT is payable to the extent such AMTI is in excess of an exemption amount and the AMT exceeds the regular income tax. Net operating losses can offset no more than 90% of AMTI. Certain payments of AMT may be used as credits against regular tax liabilities in future years.
Net Operating Loss Carryovers. Generally, a financial institution may carry back net operating losses to the preceding two taxable years and forward to the succeeding 20 taxable years. At December 31, 2015, Jacksonville Bancorp, Inc. had no federal or Illinois tax loss carryforward.
Corporate Dividends-Received Deduction. Jacksonville Bancorp, Inc. may exclude from its federal taxable income 100% of dividends received from Jacksonville Savings Bank as a wholly owned subsidiary. The corporate dividends received deduction is 80% when the dividend is received from a corporation having at least 20% of its stock owned by the recipient corporation. A 70% dividends-received deduction is available for dividends received from corporations owning less than 20% by the recipient corporation.
State Taxation
The State of Illinois imposes a tax on the Illinois taxable income of corporations, including savings banks, at the rate of 7.75%.
Illinois taxable income is generally similar to federal taxable income except that interest from state and municipal obligations is taxable and no deduction is allowed for state income taxes. However, a deduction is allowed for certain U.S. Government and agency obligations. Jacksonville Savings Bank’s state income tax returns have not been audited by Illinois tax authorities during the past five years. As a Maryland business corporation, Jacksonville Bancorp, Inc. is required to file annual returns and pay annual fees to the State of Maryland.
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Personnel
As of December 31, 2015, Jacksonville Savings Bank and its subsidiary had a total of 86 full-time and 15 part-time employees. None of Jacksonville Savings Bank’s employees is represented by a collective bargaining group. Management believes that it has good working relations with its employees.
Availability of Annual Report on Form 10-K
Our Annual Report on Form 10-K is available on our website at www.Jacksonvillesavings.com. Information on the website is not incorporated into, and is not otherwise considered a part of, this Annual Report on Form 10-K.
In addition to risk disclosed elsewhere in this Annual Report, the following are risks associated with our business and operations.
Non-residential loans increase our exposure to credit risks.
Over the last several years, we have increased our non-residential lending in order to improve the average yield of our interest-earning assets and reduce the average maturity of our loan portfolio. At December 31, 2015, our portfolio of agricultural real estate loans totaled $41.2 million, or 21.3% of our total loans, compared to $30.0 million, or 17.5% of our total loans at December 31, 2011. At December 31, 2015, our portfolio of commercial real estate loans totaled $40.4 million, or 20.9% of our total loans, compared to $40.2 million, or 23.5% of our total loans at December 31, 2011. Our portfolio of agricultural business loans totaled $16.1 million, or 8.3% of our total loans at December 31, 2015, compared to $9.6 million, or 5.6% of our total loans at December 31, 2011. Our portfolio of commercial business loans totaled $25.5 million, or 13.2% of our total loans at December 31, 2015, compared to $23.2 million, or 13.6% of our total loans at December 31, 2011. These business loans are typically secured by equipment or inventory. It is difficult to assess the future performance of our non-residential loan portfolio due to the recent origination or purchase of many of these loans. These loans may have delinquency or charge-off rates above our historical experience, which could adversely affect our future performance.
These loans generally have more risk than one- to four-family residential mortgage loans. Because the repayment of commercial and agricultural real estate loans and commercial and agricultural business loans depends on the successful management and operation of the borrower’s properties or related businesses, repayment of these loans can be affected by adverse conditions in the real estate market or the local economy. Loans secured by agricultural real estate and agricultural businesses which rely on the successful operation of a farm can be adversely affected by fluctuations in crop prices and changes in weather conditions. These developments may result in smaller harvests and less income for farmers which may adversely impact such borrower’s ability to repay a loan. Many of our borrowers also have more than one commercial and agricultural real estate loan or commercial and agricultural business loan outstanding with us. Consequently, an adverse development with respect to one loan or one credit relationship can expose us to significantly greater risk of loss compared to an adverse development with respect to a one- to four-family residential mortgage loan. Finally, if we foreclose on a commercial and agricultural real estate or commercial loan, our holding period for the collateral, if any, typically is longer than for one- to four-family residential mortgage loans because there are fewer potential purchasers of the collateral. Because we plan to continue to increase our originations of commercial and agricultural real estate and commercial loans, it may be necessary to increase the level of our allowance for loan losses because of the increased risk characteristics associated with these types of loans. Any such increase to our allowance for loan losses would adversely affect our earnings.
Our loan portfolio has significant concentrations among a small number of borrowers and, as a result, we could be adversely affected by difficulties experienced by a small number of borrowers.
As a result of large loan concentrations among a relatively small number of borrowers, we could incur significant losses if these borrowers are unable to repay their loans. At December 31, 2015, we had 29 borrowers with aggregate loan balances of $82.2 million, which represented 41.9% of our total loan portfolio at that date. These loans are primarily commercial and agricultural real estate loans and commercial and agricultural business loans, including purchased loan participations. Aggregate loan balances to these borrowers ranged from $1.0 million to $7.6 million for our largest borrower. While we seek to control our risk and minimize losses on these large loan concentrations, if one or more of our large borrowers were to default on their loans we could incur significant losses.
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A portion of our loan portfolio consists of loan participations secured by properties outside our market area. Loan participations may have a higher risk of loss than loans we originate because we are not the lead lender and we have limited control over credit monitoring.
We occasionally purchase commercial real estate and commercial business loan participations secured by properties outside our market area in which we are not the lead lender. We have purchased loan participations secured by properties in diverse geographic areas such as in Minnesota, Nebraska, North Dakota, and Georgia. These participations are secured by various types of collateral such as office buildings, hotels, and condominium developments. Loan participations may have a higher risk of loss than loans we originate because we rely on the lead lender to monitor the performance of the loan. Moreover, our decision regarding the classification of a loan participation and loan loss provisions associated with a loan participation are made in part based upon information provided by the lead lender. A lead lender also may not monitor a participation loan in the same manner as we would for loans that we originate. At December 31, 2015, our loan participations totaled $11.7 million, or 6.0% of our loan portfolio. At December 31, 2015, commercial real estate loan participations outside our market area totaled $6.8 million, or 16.9% of the commercial real estate loan portfolio, and commercial business loan participations outside our market area totaled $840,000, or 3.3% of the commercial business loan portfolio. At December 31, 2015, one loan participation located in central Illinois with a balance of $767,000 was delinquent 60 days or more. If our underwriting of these participation loans is not sufficient, our non-performing loans may increase and our earnings may decrease.
If the allowance for loan losses is not sufficient to cover actual loan losses, our earnings could decrease.
Our customers may not repay their loans according to the original terms, and the collateral, if any, securing the payment of these loans may be insufficient to pay any remaining loan balance. We may experience significant loan losses, which may have a material adverse effect on our operating results. We make various assumptions and judgments about the collectability of the loan portfolio, including the creditworthiness of borrowers and the value of the real estate and other assets serving as collateral for the repayment of loans. If our assumptions are incorrect, the allowance for loan losses may not be sufficient to cover losses inherent in our loan portfolio, which would require additions to the allowance. Additions to the allowance would decrease our net income. At December 31, 2015, our allowance for loan losses was $2.9 million, or 1.49% of total loans and 144.45% of non-performing loans, compared to $3.0 million, or 1.57% of total loans and 130.57% of non-performing loans, at December 31, 2014.
In determining the amount of the allowance for loan losses, management reviews delinquent loans for potential impairments in our carrying value. Additionally, we apply a factor to the loan portfolio principally based on historical loss experience applied to the composition of the loan portfolio and integrated with management’s perception of risk in the economy. Since we use assumptions regarding individual loans and the economy, the current allowance for loan losses may not be sufficient to cover actual loan losses, and increases in the allowance may be necessary. Consequently, we may need to significantly increase the provision for losses on loans, particularly if one or more of our larger loans or credit relationships becomes delinquent or if we expand non-residential lending such as commercial and agricultural real estate loans. As we continue to increase our originations of such loans, increased provisions for loan losses may be necessary, which would decrease our earnings.
Bank regulators periodically review our allowance for loan losses and may require an increase to the provision for loan losses or further loan charge-offs. Any increase in our allowance for loan losses or loan charge-offs as required by these regulatory authorities may have a material adverse effect on our financial condition and results of operations.
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If our non-performing assets increase, our earnings will suffer.
At December 31, 2015, our non-performing assets (which consist of non-accrual loans, loans 90 days or more delinquent, and foreclosed real estate assets) totaled $2.4 million, which is a decrease of $89,000 from our non-performing assets at December 31, 2014. Our non-performing assets adversely affect our net income in various ways. We do not record interest income on non-accrual loans or real estate owned. We must reserve for probable losses which results in additional provisions for loan losses. As circumstances warrant, we must write down the value of properties in our other real estate owned portfolio to reflect changing market values. Additionally, we have legal fees associated with the resolution of problem assets as well as additional costs such as taxes, insurance and maintenance related to our other real estate owned. The resolution of non-performing assets also requires the active involvement of management, which can adversely affect the amount of time we devote to the income-producing activities of Jacksonville Savings Bank. If our estimate of the allowance for loan losses is inadequate, we will have to increase the allowance accordingly.
We could experience impairment losses on the value of our mortgage servicing rights.
A significant aspect of our business is the origination of one- to four-family residential mortgage loans for sale on a servicing retained basis. The fees we receive for servicing such loans are referred to as mortgage servicing rights. At December 31, 2015, the unpaid principal balance of mortgage loans serviced for others was $131.4 million. Mortgage servicing rights fair values are 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. If the fair value of our mortgage servicing rights is less than the carrying value of such rights, we may be required to recognize an impairment loss. Such impairment can occur due to changes in interest rates, loan performance or prepayment of the underlying mortgage. We did not recognize any impairment during 2015.
Changes in interest rates could adversely affect our financial condition and results of operations.
Our financial condition and results of operations are significantly affected by changes in interest rates. Our results of operations depend substantially on our net interest income, which is the difference between the interest income we earn on our interest-earning assets, such as loans and securities, and the interest expense we pay on our interest-bearing liabilities, such as deposits and borrowings. Because our interest-bearing liabilities generally reprice or mature more quickly than our interest-earning assets, an increase in interest rates generally would tend to result in a decrease in net interest income.
Changes in interest rates may also affect the average life of loans and mortgage-related securities. Increases in interest rates may decrease loan demand and make it more difficult for borrowers to repay adjustable rate loans. Also, increases in interest rates may extend the life of fixed-rate assets, which would restrict our ability to reinvest in higher yielding alternatives, and may result in customers withdrawing certificates of deposit early so long as the early withdrawal penalty is less than the interest they could receive from higher interest rates. Decreases in interest rates can result in increased prepayments of loans and mortgage-related securities, as borrowers refinance to reduce their borrowing costs. Under these circumstances, we are subject to reinvestment risk to the extent that we are unable to reinvest the cash received from such prepayments at rates that are comparable to the rates on existing loans and securities.
Changes in interest rates also affect the current fair value of our interest-earning securities portfolio. Generally, the value of securities moves inversely with changes in interest rates. At December 31, 2015, the fair value of our portfolio of investment securities and mortgage-backed securities totaled $87.5 million. Gross unrealized losses on these securities totaled $366,000 at December 31, 2015.
Any rise in market interest rates may result in increased payments for borrowers who have adjustable rate mortgage loans, thereby increasing the possibility of default.
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If we are unable to borrow funds, we may not be able to meet the cash flow requirements of our depositors, creditors, and borrowers, or the operating cash needed to fund corporate expansion and other corporate activities.
Liquidity is the ability to meet cash flow needs on a timely basis at a reasonable cost. Our liquidity is used to make loans and to repay deposit liabilities as they become due or are demanded by customers. Liquidity policies and procedures are established by the board, with operating limits set based upon the ratio of loans to deposits and percentage of assets funded with non-core or wholesale funding. We regularly monitor our overall liquidity position to ensure various alternative strategies exist to cover unanticipated events that could affect liquidity. We also establish policies and monitor guidelines to diversify our wholesale funding sources to avoid concentrations in any one market source. Wholesale funding sources include federal funds purchased, securities sold under repurchase agreements, non-core deposits, and debt. Jacksonville Savings Bank is a member of the Federal Home Loan Bank of Chicago, which provides funding through advances to members that are collateralized with mortgage-related assets.
We maintain a portfolio of available-for-sale securities that can be used as a secondary source of liquidity. There are other sources of liquidity available to us should they be needed. These sources include the sale of loans, the ability to acquire national market, non-core deposits, issuance of additional collateralized borrowings such as Federal Home Loan Bank advances and federal funds purchased, and the issuance of preferred or common securities.
If our stock price is less than our book value, we will continue to evaluate our goodwill balances for impairment quarterly, and if the values of our businesses have declined, we could recognize an impairment charge for our goodwill.
During 2015, management reviewed goodwill for impairment on a quarterly basis. Management’s analysis concluded that our goodwill was not impaired as of December 31, 2015. It is possible that the assumptions and conclusions regarding the valuation of our business could change adversely, which could result in the recognition of impairment for our goodwill, which could have a material adverse effect on our financial condition and results of operations.
Our business may be adversely affected by a decline in the national and local economies.
Our operations are significantly affected by national and local economic conditions. Substantially all of our loans, excluding purchased loan participations, are to businesses and individuals in Cass, Morgan, Macoupin and Montgomery Counties, Illinois and surrounding communities. All of our branches and most of our deposit customers are also located in these counties. A decline in the economy both nationally and in our market area could have a material adverse effect on our business, financial condition, results of operations and prospects. In particular, if these counties have experienced declines in real estate values, increased foreclosures and higher unemployment rates.
A deterioration in economic conditions in our market area could result in the following consequences, any of which could have a material adverse effect on our business, financial condition and results of operations:
· | demand for our products and services may decline; |
· | loan delinquencies, problem assets and foreclosures may increase; |
· | collateral for our loans may continue to decline in value; and |
· | the amount of our low-cost or non-interest bearing deposits may decrease. |
Strong competition may limit growth and profitability.
Competition in the banking and financial services industry is intense. We compete with commercial banks, savings institutions, mortgage brokerage firms, credit unions, finance companies, government sponsored entities, mutual funds, insurance companies, and brokerage and investment banking firms operating locally and elsewhere. Many of these competitors (whether regional or national institutions) have substantially greater resources and lending limits than we have and may offer certain services that we do not or cannot provide. Our profitability depends upon our ability to successfully compete in our market areas.
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We operate in a highly regulated environment and we may be adversely affected by changes in laws and regulations.
We are subject to extensive regulation, supervision and examination by the Illinois Department of Financial and Professional Regulation, the Federal Reserve Board and the Federal Deposit Insurance Corporation. Such regulators govern the activities in which we may engage, primarily for the protection of depositors and the Deposit Insurance Fund. These regulatory authorities have extensive discretion in connection with their supervisory and enforcement activities, including the ability to impose restrictions on a bank’s operations, reclassify assets, determine the adequacy of a bank’s allowance for loan losses and determine the level of deposit insurance premiums assessed. Any change in such regulation and oversight, whether in the form of regulatory policy, new regulations or legislation or additional deposit insurance premiums, could have a material impact on our operations. Because our business is highly regulated, the laws and applicable regulations are subject to frequent change. Any new laws, rules and regulations could make compliance more difficult or expensive or otherwise adversely affect our business, financial condition or prospects.
Changes in laws and regulations and the cost of regulatory compliance with new laws and regulations may adversely affect our operations and/or increase our costs of operations.
Jacksonville Savings Bank and Jacksonville Bancorp, Inc. are subject to extensive regulation, supervision and examination by the Illinois Department of Financial and Professional Regulation, the Federal Deposit Insurance Corporation and the Federal Reserve Board. Such regulation and supervision governs the activities in which an institution and its holding company may engage and are intended primarily for the protection of federal deposit insurance funds and the depositors and borrowers of Jacksonville Savings Bank, rather than for our stockholders. Regulatory authorities have extensive discretion in their supervisory and enforcement activities, including the imposition of restrictions on our operations, the classification of our assets and determination of the level of our allowance for loan losses. These regulations, along with existing tax, accounting, securities, insurance and monetary laws, rules, standards, policies, and interpretations control the methods by which financial institutions conduct business, implement strategic initiatives and tax compliance, and govern financial reporting and disclosures. Any change in such regulation and oversight, whether in the form of regulatory policy, regulations, legislation or supervisory action, may have a material impact on our operations. Further, changes in accounting standards can be both difficult to predict and involve judgment and discretion in their interpretation by us and our independent accounting firms. These changes could materially impact, potentially even retroactively, how we report our financial condition and results of operations, as could our interpretation of those changes.
The Dodd-Frank Act has significantly changed the bank regulatory structure and affects the lending, deposit, investment, trading and operating activities of financial institutions and their holding companies. The Dodd-Frank Act requires various federal agencies to adopt a broad range of new implementing rules and regulations, and to prepare numerous studies and reports for Congress. The federal agencies have been given significant discretion in drafting the implementing rules and regulations, many of which are not in final form. Consequently, the full impact of the Dodd-Frank Act may not be known for years.
The Dodd-Frank Act created a new Consumer Financial Protection Bureau with broad powers to supervise and enforce consumer protection laws. The Consumer Financial Protection Bureau has broad rule-making authority for a wide range of consumer protection laws that apply to all banks and savings institutions, including the authority to prohibit “unfair, deceptive or abusive” acts and practices. The Consumer Financial Protection Bureau has examination and enforcement authority over all banks with more than $10 billion in assets. Banks with $10 billion or less in assets continue to be examined for compliance with the consumer laws by their primary bank regulators. The Dodd-Frank Act also weakened the federal preemption rules that have been applicable for national banks and federal savings associations, and gives state attorneys general the ability to enforce federal consumer protection laws.
The full impact of the Dodd-Frank Act on our business will not be known until all regulations implementing the statute are implemented. As a result, we cannot at this time predict the extent to which the Dodd-Frank Act will impact our business, operations or financial condition. However, compliance with the Dodd-Frank Act and its implementing regulations and policies has already resulted in changes to our business and operations, as well as additional costs, and diverted management’s time from other business activities, which adversely affects our financial condition and results of operations.
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System failure or breaches of our network security could subject us to increased operating costs as well as litigation and other liabilities.
The computer systems and network infrastructure we use could be vulnerable to unforeseen problems. Our operations are dependent upon our ability to protect our computer equipment against damage from physical theft, fire, power loss, telecommunications failure or a similar catastrophic event, as well as from security breaches, denial of service attacks, viruses, worms and other disruptive problems caused by hackers. Any damage or failure that causes an interruption in our operations could have a material adverse effect on our financial condition and results of operations. Computer break-ins, phishing and other disruptions could also jeopardize the security of information stored in and transmitted through our computer systems and network infrastructure, which may result in significant liability to us and may cause existing and potential customers to refrain from doing business with us. Although we, with the help of third-party service providers, intend to continue to implement security technology and establish operational procedures to prevent such damage, there can be no assurance that these security measures will be successful. In addition, advances in computer capabilities, new discoveries in the field of cryptography or other developments could result in a compromise or breach of the algorithms we and our third-party service providers use to encrypt and protect customer transaction data. A failure of such security measures could have a material adverse effect on our financial condition and results of operations.
We have become subject to more stringent capital requirements, which may adversely impact our return on equity, require us to raise additional capital, or constrain us from paying dividends or repurchasing shares.
Effective January 1, 2015, the FDIC implemented a new rule that substantially amended the regulatory risk-based capital rules applicable to Jacksonville Savings Bank. The new rule implemented the “Basel III” regulatory capital reforms and changes required by the Dodd-Frank Act.
The rule includes new minimum risk-based capital and leverage ratios, and revised the definition of what constitutes “capital” for purposes of calculating these ratios. The new minimum capital requirements are: (i) a new common equity Tier 1 capital ratio of 4.5%; (ii) a Tier 1 to risk-based assets capital ratio of 6% (increased from 4%); (iii) a total capital ratio of 8% (unchanged from prior rules); and (iv) a Tier 1 leverage ratio of 4%. The new rule also establishes a “capital conservation buffer” of 2.5% above the new regulatory minimum capital ratios, and results in the following minimum ratios: (i) a common equity Tier 1 capital ratio of 7.0%, (ii) a Tier 1 to risk-based assets capital ratio of 8.5%, and (iii) a total capital ratio of 10.5%. The new capital conservation buffer requirement will be phased in beginning in January 2016 at 0.625% of risk-weighted assets and would increase each year until fully implemented in January 2019. An institution will be subject to limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses if its capital level falls below the buffer amount. These limitations will establish a maximum percentage of eligible retained income that can be utilized for such actions.
The application of more stringent capital requirements for Jacksonville Savings Bank could, among other things, result in lower returns on equity, require the raising of additional capital, and result in regulatory actions such as the inability to pay dividends or repurchase shares if we were to be unable to comply with such requirements.
Income from secondary mortgage market operations is volatile, and we may incur losses with respect to our secondary mortgage market operations that could negatively affect our earnings.
A key component of our strategy is to sell in the secondary market the longer term, conforming fixed-rate residential mortgage loans that we originate, earning non-interest income in the form of gains on sale. When interest rates rise, the demand for mortgage loans tend to fall and may reduce the number of loans we can originate for sale. Weak or deteriorating economic conditions also tend to reduce loan demand. Although we sell, and intend to continue selling, most loans in the secondary market with limited or no recourse, we are required, and will continue to be required, to give customary representations and warranties to the buyers relating to compliance with applicable law. If we breach those representations and warranties, the buyers will be able to require us to repurchase the loans and we may incur a loss on the repurchase.
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New regulations could restrict our ability to originate and sell mortgage loans.
The Consumer Financial Protection Bureau has issued a rule which became effective in January, 2014 designed to clarify for lenders how they can avoid monetary damages under the Dodd-Frank Act, which would hold lenders accountable for ensuring a borrower’s ability to repay a mortgage. Loans that meet this “qualified mortgage” definition will be presumed to have complied with the new ability-to-repay standard. Under the Consumer Financial Protection Bureau’s rule, a “qualified mortgage” loan must not contain certain specified features, including:
· | excessive upfront points and fees (those exceeding 3% of the total loan amount, less “bona fide discount points” for prime loans); |
· | interest-only payments; |
· | negative-amortization; and |
· | terms longer than 30 years. |
Also, to qualify as a “qualified mortgage,” a borrower’s total monthly debt-to-income ratio may not exceed 43%. Lenders must also verify and document the income and financial resources relied upon to qualify the borrower for the loan and underwrite the loan based on a fully amortizing payment schedule and maximum interest rate during the first five years, taking into account all applicable taxes, insurance and assessments. The Consumer Financial Protection Bureau’s rule on qualified mortgages could limit our ability or desire to make certain types of loans or loans to certain borrowers, or could make it more expensive/and or time consuming to make these loans, which could limit our growth or profitability.
Our stock price may be volatile due to limited trading volume.
Our common stock is traded on the NASDAQ Capital Market. However, the average daily trading volume in Jacksonville Bancorp, Inc.’s common stock has been relatively small, averaging less than 1,000 shares per day during 2015. As a result, trades involving a relatively small number of shares may have a significant effect on the market price of the common stock, and it may be difficult for investors to acquire or dispose of large blocks of stock without significantly affecting the market price.
ITEM 1B. Unresolved Staff Comments
Not applicable.
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We conduct our business through our main office and two branch offices located in Jacksonville, and branch offices located in Virden, Litchfield, and Chapin, Illinois. The following table sets forth certain information concerning the main office and each branch office at December 31, 2015. At December 31, 2015, our premises and equipment had an aggregate net book value of approximately $4.7 million. We believe that our branch facilities are adequate to meet the present and immediately foreseeable needs. All facilities are owned.
Net | ||||||||
Book Value | ||||||||
Year | at December 31, | |||||||
Location | Occupied | 2015 | ||||||
(In Thousands) | ||||||||
Main Office | ||||||||
1211 West Morton Avenue | ||||||||
Jacksonville, Illinois | 1994 | $ | 3,303 | |||||
Branch Office (1) | ||||||||
225 West State Street | ||||||||
Jacksonville, Illinois | 1961 | 225 | ||||||
Branch Office (1) | ||||||||
903 South Main | ||||||||
Jacksonville, Illinois | 1989 | 118 | ||||||
Branch Office | ||||||||
501 North State Street | ||||||||
Litchfield, Illinois | 1997 | 463 | ||||||
Branch Office | ||||||||
100 North Dye | ||||||||
Virden, Illinois | 1986 | 174 | ||||||
Branch Office | ||||||||
510 Superior | ||||||||
Chapin, Illinois | 2000 | 445 |
(1) | Transaction facilities only. |
At December 31, 2015, we were not involved in any pending legal proceedings other than routine legal proceedings occurring in the ordinary course of business which, in the aggregate, involve amounts which management believes are immaterial to our financial condition, our results of operations and our cash flows.
ITEM 4. Mine Safety Disclosures.
None.
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PART II
ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
The “Stockholder Information” section of our annual report to stockholders for the fiscal year ended December 31, 2015 (the “2015 Annual Report to Stockholders”) is filed as an exhibit to this Form 10-K and is incorporated herein by reference.
During the fourth quarter of 2015, the Company repurchased shares of its common stock as follows:
Period | Number of shares purchased | Average purchase price paid per share | Total shares purchased | Maximum number of shares that may be purchased under the repurchase program (1) | ||||||||||||
Oct 1 – Oct 31 | — | — | — | 23,758 | ||||||||||||
Nov 1 – Nov 30 | 5,000 | 24.50 | 5,000 | 18,758 | ||||||||||||
Dec 1 – Dec 31 | — | — | — | 18,758 | ||||||||||||
Total | 5,000 | 24.50 | 5,000 | 18,758 |
(1) | On October 16, 2013, the Company announced the adoption of a stock repurchase program under which the Company could repurchase up to 92,018 shares of its common stock, or approximately 5% of the then current outstanding shares. The program provided 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 purchase of 73,260 shares permitted under the program. |
Set forth below is information as of December 31, 2015 regarding equity compensation plans. The plan that has been approved by the stockholders is the 2012 Stock Option Plan. Other than our Employee Stock Ownership Plan, we do not have any equity compensation plans that were not approved by our stockholders.
Plan | Number of securities to be issued upon exercise of outstanding options and rights | Weighted average exercise price | Number of securities remaining available for issuance under plan | |||||||||
Equity compensation plans approved by stockholders | 61,120 | 15.65 | 1,785 | |||||||||
Equity compensation plans not approved by stockholders | — | — | — | |||||||||
Total | 61,120 | 15.65 | 1,785 |
ITEM 6. Selected Financial Data
The “Selected Consolidated Financial Information” section of the 2015 Annual Report to Stockholders is filed as an exhibit to this Form 10-K and is incorporated herein by reference.
ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of the 2015 Annual Report to Stockholders is filed as an exhibit to this Form 10-K and is incorporated herein by reference.
ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk
The “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of the 2015 Annual Report to Stockholders is filed as an exhibit to this Form 10-K and is incorporated herein by reference.
46 |
ITEM 8. Financial Statements and Supplementary Data
The material identified in Item 15(a)(1) hereof is incorporated herein by reference.
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
ITEM 9A. Controls and Procedures
(a) | Evaluation of disclosure controls and procedures. |
Our Chief Executive Officer and Chief Financial Officer have concluded, based on their evaluation as of the end of the period covered by this report, that our disclosure controls and procedures (as defined by the Securities Exchange Act Rules 13a-15(e) and 15d-15(e)) are effective to ensure that information required to be disclosed in the reports that the Company files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms.
(b) | Management’s Report on Internal Control over Financial Reporting |
The management of Jacksonville Bancorp, Inc. (the “Company”) is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the financial statements for external purposes in accordance with generally accepted accounting principles. The Company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. All internal control systems, no matter how well designed, have inherent limitations, including the possibility of human error and the circumvention of overriding controls. Accordingly, even an effective system of internal control over financial reporting can provide only reasonable assurance with respect to financial statement preparation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that degree of compliance with the policies or procedures may deteriorate.
Management has assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2015, based on the framework set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework (2013). Based on that assessment, management concludes that, as of December 31, 2015, the Company’s internal control over financial reporting is effective.
This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in the annual report.
47 |
(c) | Changes in internal controls. |
There were no significant changes made in our internal control over financial reporting during the quarter ended December 31, 2015 that has materially affected or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
None.
PART III
ITEM 10. Directors, Executive Officers and Corporate Governance
Information concerning our directors and certain officers is incorporated by reference hereunder in the Proxy Statement for the 2016 Annual Meeting.
ITEM 11. Executive Compensation
Information with respect to management compensation required under this item is incorporated by reference hereunder in the Proxy Statement for the 2016 Annual Meeting.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Information required under this item is incorporated by reference to the Proxy Statement for the 2016 Annual Meeting.
ITEM 13. Certain Relationships and Related Transactions and Director Independence
Information required under this item is incorporated by reference to the Proxy Statement for the 2016 Annual Meeting.
ITEM 14. Principal Accountant Fees and Services
Information required under this item is incorporated by reference to the Proxy Statement for the 2016 Annual Meeting.
PART IV
ITEM 15. Exhibits and Financial Statement Schedules
(a)(1) | Financial Statements |
The documents filed as a part of this Form 10-K are:
(A) | Report of Independent Registered Public Accounting Firm; |
(B) | Consolidated Balance Sheets - December 31, 2015 and 2014; |
(C) | Consolidated Statements of Income - years ended December 31, 2015 and 2014; |
(D) | Consolidated Statements of Comprehensive Income – years ended December 31, 2015 and 2014; |
48 |
(E) | Consolidated Statements of Stockholders’ Equity - years ended December 31, 2015 and 2014; |
(F) | Consolidated Statements of Cash Flows - years ended December 31, 2015 and 2014; and |
(G) | Notes to Consolidated Financial Statements. |
(a)(2) | Financial Statement Schedules |
All financial statement schedules have been omitted as the required information is inapplicable or has been included in the Notes to Consolidated Financial Statements.
(a)(3) | Exhibits |
3.1 | Articles of Incorporation(1) |
3.2 | Bylaws(2) |
4 | Stock Certificate of Jacksonville Bancorp, Inc.(3) |
10.1 | Employment Agreement between Jacksonville Savings Bank and Andrew F. Applebee(4) |
10.2 | Employment Agreement between Jacksonville Savings Bank and Richard A. Foss(5) |
10.3 | Employment Agreement between Jacksonville Savings Bank and John Williams(6) |
10.4 | Change in Control Agreement between Jacksonville Savings Bank and Diana S. Tone(7) |
10.5 | Amendments to the Jacksonville Savings Bank and Jacksonville Bancorp, MHC Stock Option Plans(8) |
10.6 | Jacksonville Savings Bank Supplemental Life Insurance Plan(9) |
10.7 | Amended and Restated Jacksonville Savings Bank Salary Continuation Plan 1(10) |
10.8 | Jacksonville Savings Bank Long-Term Deferred Compensation Plan, as amended(11) |
10.9 | Deferred Compensation Agreement between Chapin State Bank and John C. Williams(12) |
10.10 | Director’s Compensation Agreement between Chapin State Bank and John C. Williams(13) |
10.11 | Deferred Compensation Agreement between Chapin State Bank and Dean H. Hess(14) |
10.12 | Director’s Compensation Agreement between Chapin State Bank and Dean H. Hess(15) |
10.13 | Jacksonville Bancorp 2012 Stock Option Plan(16) |
13 | 2015 Annual Report to Stockholders |
14 | Code of Ethics(17) |
21 | Subsidiaries |
23 | Consent of BKD LLP to incorporate financial statements into Registration Statements on Form S-8 |
31.1 | Certification required pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
31.2 | Certification required pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
32.1 | Certification of Chief Executive Officer and Chief Financial Officer 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 to Exhibit 3.1 to the Registration Statement on Form S-1 filed with the Securities and Exchange Commission on March 12, 2010 (File No. 333-165466). |
(2) | Incorporated by reference to Exhibit 3.2 to the Registration Statement on Form S-1 filed with the Securities and Exchange Commission on March 12, 2010 (File No. 333-165466). |
49 |
(3) | Incorporated by reference to Exhibit 4 to the Registration Statement on Form S-1 filed with the Securities and Exchange Commission on March 12, 2010 (File No. 333-165466). |
(4) | Incorporated by reference to Exhibit 10.1 to the Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 20, 2009 (File No. 000-49792). |
(5) | Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on September 4, 2008 (File No. 000-49792). |
(6) | Incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on September 4, 2008 (File No. 000-49792). |
(7) | Incorporated by reference to Exhibit 10.7 to the Registration Statement on Form S-1 filed with the Securities and Exchange Commission on March 12, 2010 (File No. 333-165466). |
(8) | Incorporated by reference to Exhibit 10.6 to the Registration Statement on Form S-1 filed with the Securities and Exchange Commission on March 12, 2010 (File No. 333-165466). |
(9) | Incorporated by reference to Exhibit 10.8 to the Registration Statement on Form S-1 filed with the Securities and Exchange Commission on March 12, 2010 (File No. 333-165466). |
(10) | Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on April 26, 2012 (File No. 001-34821). |
(11) | Incorporated by reference to Exhibit 10.10 to the Registration Statement on Form S-1 filed with the Securities and Exchange Commission on March 12, 2010 (File No. 333-165466). |
(12) | Incorporated by reference to Exhibit 10.11 to the Registration Statement on Form S-1 filed with the Securities and Exchange Commission on March 12, 2010 (File No. 333-165466). |
(13) | Incorporated by reference to Exhibit 10.12 to the Registration Statement on Form S-1 filed with the Securities and Exchange Commission on March 12, 2010 (File No. 333-165466). |
(14) | Incorporated by reference to Exhibit 10.13 to the Registration Statement on Form S-1 filed with the Securities and Exchange Commission on March 12, 2010 (File No. 333-165466). |
(15) | Incorporated by reference to Exhibit 10.14 to the Registration Statement on Form S-1 filed with the Securities and Exchange Commission on March 12, 2010 (File No. 333-165466). |
(16) Incorporated by reference to Exhibit 10 to the Registration Statement on Form S-8 filed with the Securities and Exchange Commission on February 20, 2013 (File No. 333-186754).
(17) | Incorporated by reference to Exhibit 14 to the Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 29, 2004 (File No. 000-49792). |
50 |
Signatures
Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Jacksonville Bancorp, Inc. | ||
Date: March 10, 2016 | By: | /s/ Richard A. Foss |
Richard A. Foss, President | ||
and Chief Executive Officer |
Pursuant to the requirements of the Securities Exchange of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
By: | /s/ Richard A. Foss | By: | /s/ Andrew F. Applebee | |
Richard A. Foss, President, | Andrew F. Applebee, Chairman of the Board | |||
Chief Executive Officer and Director | ||||
Date: March 10, 2016 | Date: March 10, 2016 | |||
By: | /s/ Diana S. Tone | By: | /s/ Dean H. Hess | |
Diana S. Tone | Dean H. Hess, Director | |||
Chief Financial Officer | ||||
Date: March 10, 2016 | Date: March 10, 2016 | |||
By: | /s/ John L. Eyth | By: | /s/ Peggy S. Davidsmeyer | |
John L. Eyth, Director | Peggy S. Davidsmeyer, Director | |||
Date: March 10, 2016 | Date: March 10, 2016 | |||
By: | /s/ Harmon B. Deal, III | By: | /s/ John C. Williams | |
Harmon B. Deal, III, Director | John C. Williams, Director | |||
Senior Vice President and Trust Officer | ||||
Date: March 10, 2016 | Date: March 10, 2016 | |||
By: | /s/ John M. Buchanan | |||
John M. Buchanan, Director |
Date: March 10, 2016
51 |
EXHIBIT INDEX
3.1 | Articles of Incorporation(1) |
3.2 | Bylaws(2) |
4 | Stock Certificate of Jacksonville Bancorp, Inc.(3) |
10.1 | Employment Agreement between Jacksonville Savings Bank and Andrew F. Applebee(4) |
10.2 | Employment Agreement between Jacksonville Savings Bank and Richard A. Foss(5) |
10.3 | Employment Agreement between Jacksonville Savings Bank and John Williams(6) |
10.4 | Change in Control Agreement between Jacksonville Savings Bank and Diana S. Tone(7) |
10.5 | Amendments to the Jacksonville Savings Bank and Jacksonville Bancorp, MHC Stock Option Plans(8) |
10.6 | Jacksonville Savings Bank Supplemental Life Insurance Plan(9) |
10.7 | Amended and Restated Jacksonville Savings Bank Salary Continuation Plan 1(10) |
10.8 | Jacksonville Savings Bank Long-Term Deferred Compensation Plan, as amended(11) |
10.9 | Deferred Compensation Agreement between Chapin State Bank and John C. Williams(12) |
10.10 | Director’s Compensation Agreement between Chapin State Bank and John C. Williams(13) |
10.11 | Deferred Compensation Agreement between Chapin State Bank and Dean H. Hess(14) |
10.12 | Director’s Compensation Agreement between Chapin State Bank and Dean H. Hess(15) |
10.13 | Jacksonville Bancorp 2012 Stock Option Plan(16) |
13 | 2015 Annual Report to Stockholders |
14 | Code of Ethics(17) |
21 | Subsidiaries |
23 | Consent of BKD LLP to incorporate financial statements into Registration Statements on Form S-8 |
31.1 | Certification required pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
31.2 | Certification required pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
32.1 | Certification of Chief Executive Officer and Chief Financial Officer 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 to Exhibit 3.1 to the Registration Statement on Form S-1 filed with the Securities and Exchange Commission on March 12, 2010 (File No. 333-165466). |
(2) | Incorporated by reference to Exhibit 3.2 to the Registration Statement on Form S-1 filed with the Securities and Exchange Commission on March 12, 2010 (File No. 333-165466). |
(3) | Incorporated by reference to Exhibit 4 to the Registration Statement on Form S-1 filed with the Securities and Exchange Commission on March 12, 2010 (File No. 333-165466). |
(4) | Incorporated by reference to Exhibit 10.1 to the Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 20, 2009 (File No. 000-49792). |
(5) | Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on September 4, 2008 (File No. 000-49792). |
(6) | Incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on September 4, 2008 (File No. 000-49792). |
(7) | Incorporated by reference to Exhibit 10.7 to the Registration Statement on Form S-1 filed with the Securities and Exchange Commission on March 12, 2010 (File No. 333-165466). |
(8) | Incorporated by reference to Exhibit 10.6 to the Registration Statement on Form S-1 filed with the Securities and Exchange Commission on March 12, 2010 (File No. 333-165466). |
(9) | Incorporated by reference to Exhibit 10.8 to the Registration Statement on Form S-1 filed with the Securities and Exchange Commission on March 12, 2010 (File No. 333-165466). |
52 |
(10) | Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on April 26, 2012 (File No. 001-34821). |
(11) | Incorporated by reference to Exhibit 10.10 to the Registration Statement on Form S-1 filed with the Securities and Exchange Commission on March 12, 2010 (File No. 333-165466). |
(12) | Incorporated by reference to Exhibit 10.11 to the Registration Statement on Form S-1 filed with the Securities and Exchange Commission on March 12, 2010 (File No. 333-165466). |
(13) | Incorporated by reference to Exhibit 10.12 to the Registration Statement on Form S-1 filed with the Securities and Exchange Commission on March 12, 2010 (File No. 333-165466). |
(14) | Incorporated by reference to Exhibit 10.13 to the Registration Statement on Form S-1 filed with the Securities and Exchange Commission on March 12, 2010 (File No. 333-165466). |
(15) | Incorporated by reference to Exhibit 10.14 to the Registration Statement on Form S-1 filed with the Securities and Exchange Commission on March 12, 2010 (File No. 333-165466). |
(16) | Incorporated by reference to Exhibit 10 to the Registration Statement on Form S-8 filed with the Securities and Exchange Commission on February 20, 2013 (File No. 333-186754). |
(17) | Incorporated by reference to Exhibit 14 to the Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 29, 2004 (File No. 000-49792). |
53 |
Exhibit 13
Jacksonville Bancorp, Inc.
2015 Annual Report
|
To Our Shareholders:
We are pleased to report that 2015 was yet another successful year for Jacksonville Bancorp, Inc. The company’s solid operating results included earning net income of $3 million, a return on average assets of 0.99%, and finishing the year with total assets of approximately $308 million. Net income exceeded 2014 by over $53,000 and earnings per share rose to $1.71. In December, these results, coupled with the bank’s strong capital position, enabled our board of directors to declare a special January 2016, dividend of $1.00 per share.
While many factors contributed to 2015’s strong financial performance, loan growth and asset quality were at the top of the list. Net loans increased $8.3 million or 4.5%. Our total portfolio which remains well diversified among residential mortgage, commercial, consumer, and agriculture credits, ended the year at $193.0 million. The bank’s nonperforming assets to total assets ratio declined to 0.76% at December 31, 2015, and loan loss expense was reduced by $100,000. Both measures are a clear indication of our lending department’s continued emphasis on quality loan production and high underwriting standards.
Developing and maintaining local core deposits to fund bank operations is an organization wide priority and one of the keys to maintaining a profitable interest rate margin. In 2015, Jacksonville Bancorp, Inc. adopted a strategy of allowing high priced certificates of deposit to roll off the books, while at the same time attempting to attract and retain less expensive sources of funds. As a result, the bank’s low-cost transaction accounts (checking and money markets) increased by $8.7 million in 2015 while its relatively more expensive time deposits fell $15.5 million. At year end, although total deposits declined by 2.7% to $239.3 million, the bank’s interest rate spread increased to 3.54%.
Another contributing factor to the company’s financial success is the non-interest income generated by our mortgage banking operation, our securities brokerage service, Financial Resources Group, Inc., and our trust department. As a result of the good work of the staff members in these departments, Jacksonville Bancorp’s non-interest income again substantially exceeded that of our peers.
In 2015, we continued to invest in new technology in order to create operational efficiencies, enhance security, and provide improved financial products. In the third quarter, the bank completed a conversion to EMV MasterCard. All existing debit card customers were issued new chip replacement cards. Industrywide, the goal of switching to chip cards is to both reduce fraudulent transactions and minimize the expense and inconvenience to cardholders.
We look forward to celebrating our centennial year in 2016. One hundred years ago, in October of 1916, Jacksonville Savings and Loan Association was organized for the purpose of financing local home ownership and promoting thrift. We are proud of this tradition and pledge to continue to deliver the finest financial services to the depositors and borrowers in the markets we serve.
We appreciate the loyalty and support of our shareholders and look forward to continued success in the future.
Sincerely, | |
Andrew F. Applebee | Richard A. Foss |
Chairman of the Board | President and CEO |
Table of Contents |
Page | |
Business of the Company | 1 |
Selected Consolidated Financial Information | 2 |
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 4 |
Report of Independent Registered Public Accounting Firm | 20 |
Consolidated Financial Statements | 21 |
Notes to Consolidated Financial Statements | 29 |
Common Stock Information | 84 |
Directors and Executive Officers | 85 |
Corporate Information | 86 |
Annual Meeting | 86 |
Business of the Company
Jacksonville Bancorp, Inc. (the “Company”) is a Maryland corporation. On July 14, 2010, Jacksonville Bancorp, Inc. completed its conversion from the mutual holding company structure and the related public offering and is now a stock holding company that is fully owned by the public. The Company owns 100% of Jacksonville Savings Bank.
Jacksonville Savings Bank is an Illinois-chartered savings bank headquartered in Jacksonville, Illinois. We conduct our business from our main office and five branches, two of which are located in Jacksonville and one of which is located in each of the following Illinois communities: Virden, Litchfield, and Chapin. We were originally chartered in 1916 as an Illinois-chartered mutual savings and loan association and converted to a mutual savings bank in 1992. In 1995, Jacksonville Savings Bank converted to an Illinois-chartered stock savings bank and reorganized into the mutual holding company form of organization. We have been a member of the Federal Home Loan Bank System since 1932. Our deposits are insured by the Federal Deposit Insurance Corporation.
We are a community-oriented savings bank engaged primarily in the business of attracting retail deposits from the general public in our market area and using such funds, together with borrowings and funds from other sources, to originate mortgage loans secured by one-to-four family residential real estate, commercial and agricultural real estate and home equity loans. We also originate commercial and agricultural business loans and consumer loans. Additionally, we invest in United States Government agency securities, bank-qualified, general obligation municipal issues, and mortgage-backed securities issued or guaranteed by the United States Government or enterprises thereof. We maintain a portion of our assets in liquid investments, such as overnight funds at the Federal Home Loan Bank.
Our principal sources of funds are customer deposits, proceeds from the sale of loans, short-term borrowings, funds received from the repayment and prepayment of loans and mortgage-backed securities, and the sale, call, or maturity of investment securities. Principal sources of income are interest income on loans and investments, sales of loans and securities, service charges, commissions, card interchange income and other fees. Our principal expenses are interest paid on deposits, employee compensation and benefits, occupancy and equipment expense, and data processing and telecommunications expense.
We operate a full service trust department and an investment center. The investment center is operated through Financial Resources Group, Inc., Jacksonville Savings Bank’s wholly-owned subsidiary.
1 |
Selected Consolidated Financial Information
The following tables set forth certain information concerning the consolidated financial position, consolidated data from operations and performance ratios of the Company at the dates and for the years indicated. Selected quarterly financial data for each of the last two years is set forth at Note 20 to the Consolidated Financial Statements.
At December 31, | ||||||||||||||||||||
2015 | 2014 | 2013 | 2012 | 2011 | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
Selected Financial Condition Data: | ||||||||||||||||||||
Total assets | $ | 308,642 | $ | 311,925 | $ | 318,419 | $ | 321,446 | $ | 307,289 | ||||||||||
Cash and cash equivalents | 4,103 | 9,612 | 6,099 | 7,294 | 11,388 | |||||||||||||||
Investment securities | 64,295 | 55,265 | 60,639 | 63,431 | 62,258 | |||||||||||||||
Mortgage-backed securities | 23,178 | 41,420 | 48,346 | 51,956 | 40,364 | |||||||||||||||
Loans, net(1) | 193,579 | 184,954 | 180,902 | 174,465 | 171,312 | |||||||||||||||
Federal Home Loan Bank of Chicago stock, at cost | 1,114 | 1,114 | 1,114 | 1,114 | 1,114 | |||||||||||||||
Foreclosed assets, net | 331 | 177 | 282 | 137 | 435 | |||||||||||||||
Bank owned life insurance | 7,094 | 6,913 | 6,815 | 6,613 | 4,403 | |||||||||||||||
Deposits | 239,282 | 245,942 | 251,738 | 258,521 | 254,240 | |||||||||||||||
Federal Home Loan Bank of Chicago advances | 8,500 | 5,000 | 10,800 | 700 | — | |||||||||||||||
Short-term borrowings | 6,632 | 8,822 | 8,810 | 12,041 | 6,518 | |||||||||||||||
Stockholders’ equity | 45,567 | 45,016 | 41,139 | 44,120 | 41,165 |
For the Years Ended December 31, | ||||||||||||||||||||
2015 | 2014 | 2013 | 2012 | 2011 | ||||||||||||||||
(In thousands, except per share amounts) | ||||||||||||||||||||
Selected Operating Data: | ||||||||||||||||||||
Interest income | $ | 11,514 | $ | 11,892 | $ | 12,078 | $ | 12,791 | $ | 13,867 | ||||||||||
Interest expense | 1,127 | 1,451 | 1,782 | 2,303 | 2,879 | |||||||||||||||
Net interest income | 10,387 | 10,441 | 10,296 | 10,488 | 10,988 | |||||||||||||||
Provision for loan losses | 140 | 240 | 170 | 490 | 625 | |||||||||||||||
Net interest income after provision for loan losses | 10,247 | 10,201 | 10,126 | 9,998 | 10,363 | |||||||||||||||
Noninterest income | 4,187 | 3,919 | 4,443 | 4,882 | 3,996 | |||||||||||||||
Noninterest expense | 10,341 | 10,213 | 10,167 | 9,976 | 9,814 | |||||||||||||||
Income before income tax | 4,093 | 3,907 | 4,402 | 4,904 | 4,545 | |||||||||||||||
Provision for income taxes | 1,067 | 934 | 1,188 | 1,337 | 1,259 | |||||||||||||||
Net income | $ | 3,026 | $ | 2,973 | $ | 3,214 | $ | 3,567 | $ | 3,286 | ||||||||||
Earnings per share: | ||||||||||||||||||||
Basic | $ | 1.71 | $ | 1.66 | $ | 1.73 | $ | 1.89 | $ | 1.74 | ||||||||||
Diluted | $ | 1.70 | $ | 1.65 | $ | 1.73 | $ | 1.89 | $ | 1.74 | ||||||||||
Dividends per share | $ | 1.32 | $ | 0.32 | $ | 0.31 | $ | 0.40 | $ | 0.30 |
(1) | Includes loans held for sale of $539,000, $236,000, $262,000, $712,000, and $447,000, at December 31, 2015, 2014, 2013, 2012, and 2011, respectively. |
2 |
At or For the Years Ended December 31, | ||||||||||||||||||||
2015 | 2014 | 2013 | 2012 | 2011 | ||||||||||||||||
Selected Financial Ratios and Other Data: | ||||||||||||||||||||
Performance Ratios: | ||||||||||||||||||||
Return on average assets (ratio of net income to average total assets) | 0.99 | % | 0.96 | % | 1.02 | % | 1.14 | % | 1.08 | % | ||||||||||
Return on average equity (ratio of net income to average equity) | 6.57 | % | 6.80 | % | 7.51 | % | 8.25 | % | 8.57 | % | ||||||||||
Interest rate spread(1) | 3.54 | % | 3.48 | % | 3.38 | % | 3.46 | % | 3.68 | % | ||||||||||
Net interest margin(2) | 3.65 | % | 3.61 | % | 3.51 | % | 3.62 | % | 3.87 | % | ||||||||||
Efficiency ratio(3) | 70.95 | % | 71.12 | % | 68.98 | % | 64.90 | % | 65.50 | % | ||||||||||
Dividend pay-out ratio | 77.88 | % | 19.20 | % | 17.60 | % | 21.00 | % | 17.14 | % | ||||||||||
Non-interest expense to average total assets | 3.39 | % | 3.29 | % | 3.23 | % | 3.20 | % | 3.23 | % | ||||||||||
Average interest-earning assets to average interest-bearing liabilities | 127.68 | % | 124.52 | % | 121.63 | % | 119.76 | % | 118.84 | % | ||||||||||
Average equity to average total assets | 15.11 | % | 14.08 | % | 13.58 | % | 13.86 | % | 12.60 | % | ||||||||||
Asset Quality Ratios: | ||||||||||||||||||||
Nonperforming assets to total assets | 0.76 | % | 0.78 | % | 0.65 | % | 0.73 | % | 0.92 | % | ||||||||||
Nonperforming loans to total loans | 1.03 | % | 1.21 | % | 0.97 | % | 1.25 | % | 1.38 | % | ||||||||||
Allowance for loan losses to nonperforming loans | 144.45 | % | 130.57 | % | 191.14 | % | 150.85 | % | 137.33 | % | ||||||||||
Allowance for loan losses to gross loans(4) | 1.49 | % | 1.57 | % | 1.85 | % | 1.88 | % | 1.89 | % | ||||||||||
Capital Ratios (Bank): | ||||||||||||||||||||
Total capital (to risk-weighted assets) | 19.15 | % | 18.81 | % | 18.15 | % | 17.72 | % | 16.67 | % | ||||||||||
Tier I capital (to risk-weighted assets) | 17.90 | % | 17.56 | % | 16.89 | % | 16.46 | % | 15.42 | % | ||||||||||
Common equity Tier I capital (to risk-weighted assets) | 17.90 | % | — | — | — | — | ||||||||||||||
Tier I capital (to total assets) | 12.82 | % | 12.25 | % | 11.51 | % | 10.89 | % | 10.35 | % | ||||||||||
Other Data: | ||||||||||||||||||||
Number of offices | 6 | 6 | 6 | 7 | 7 | |||||||||||||||
Full time equivalent employees | 93 | 96 | 98 | 104 | 104 |
(1) | The interest rate spread represents the difference between the weighted-average yield on interest-earning assets and the weighted- average cost of interest-bearing liabilities for the year. |
(2) | The net interest margin represents net interest income as a percent of average interest-earning assets for the year. |
(3) | The efficiency ratio represents noninterest expense divided by the sum of net interest income and noninterest income. |
(4) | Gross loans include loans held for sale. |
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Management’s Discussion and Analysis of
Financial Condition and Results of Operations
General
Management’s discussion and analysis of financial condition and results of operations is intended to assist in understanding our financial condition and results of operations. The information contained in this section should be read in conjunction with our consolidated financial statements and the accompanying notes.
Certain statements in this annual report and throughout Management’s Discussion and Analysis of Financial Condition and Results of Operations are “forward looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 and involve known and unknown risk, uncertainties and other factors that may cause the Company’s actual results, performance or achievements to be materially different from the results, performance or achievements expressed or implied by the forward looking statement. Forward-looking statements, which are based on certain assumptions and describe future plans, strategies, and experiences of the Company, are generally identified by use of the words “believe”, “expect”, “intend”, “anticipate”, “estimate”, “project”, or similar expressions. Factors that impact such forward looking statements include, among others, changes in general economic conditions, changes in interest rates and competition. We decline any obligation to publicly announce future events or developments that may affect the forward-looking statements herein.
Operating Strategy – Overview
Our business consists principally of attracting deposits from the general public and using deposits and borrowings to originate mortgage loans secured by one-to-four family residences, commercial real estate and agricultural real estate. In addition, we originate commercial and agricultural business loans and consumer loans. Our net income, like other financial institutions, is primarily dependent on our net interest income, which is the difference between the income earned on our interest-earning assets, such as loans and investments, and the cost of our interest-bearing liabilities, primarily deposits and borrowings. Our net income is also affected by provisions for loan losses and other noninterest income and expenses. General economic conditions, particularly changes in market interest rates, government legislation, monetary policies, and attendant actions of the regulatory authorities are the external influences affecting many of the factors of our net income.
Management has implemented various strategies designed to enhance our profitability. These strategies include reducing our exposure to interest rate risk by selling fixed-rate loans, offering other fee-based services to our customers, and improving operating efficiencies. We recognize the need to establish and adhere to strict loan underwriting criteria and guidelines. We generally limit our investment portfolio to securities issued by the United States Government and Government sponsored enterprises, mortgage-backed securities collateralized by United States Government sponsored enterprises, and bank-qualified general obligation municipal issues.
We continue to service our existing borrowers and originate new loans to credit-worthy borrowers in an effort to meet the credit needs of our community. We intend to remain a community-oriented financial institution dedicated to meeting the credit and financial services needs of our customers in our market area.
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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 and require management’s most difficult, subjective and complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.
Allowance for Loan Losses. We believe 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 judgment, deserve current recognition in estimating loan losses. The evaluation includes a review of all loans on which full collectability may not be reasonably assured. Other factors considered by management include the size and character 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 uses 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 our 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.
Foreclosed Assets. Foreclosed assets, consisting of 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 foreclosed asset could differ from the original estimate. If it is determined that the fair value has declined subsequent to foreclosure, the asset is written down through a charge to noninterest expense. Operating costs associated with the assets after acquisition are also recorded as noninterest expense. Gains and losses on the disposition of foreclosed assets are netted and posted to noninterest 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. During 2015, goodwill was evaluated quarterly due to market conditions.
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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. We estimate 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, we estimate fair value. Other factors such as model assumptions and market dislocations can affect estimates of fair value.
Recent 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. For public entities, the guidance is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period, and must be applied either retrospectively or using the modified retrospective approach. 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. Management is evaluating the new guidance, but does not expect the adoption of this guidance to have a material impact on the Company’s consolidated financial statements. Early adoption would be permitted, but not before the original public entity effective date.
In June 2014, the FASB issued ASU No. 2014-11, Transfers and Servicing (Topic 860) – Repurchase to Maturity Transactions, Repurchase Financings, and Disclosures. ASU No. 2014-11 aligns the accounting for repurchase to maturity transactions and repurchase agreements executed as a repurchase financing with the accounting for other typical repurchase agreements. Going forward, these transactions would all be accounted for as secured borrowings. ASU 2014-11 was effective for the first interim or annual period beginning after December 15, 2014. In addition, the disclosure of certain transactions accounted for as a sale was effective for the first interim or annual period beginning on or after December 15, 2014, and the disclosure for transactions accounted for as secured borrowings is required for annual periods beginning after December 15, 2014, and interim periods beginning after March 15, 2015. The Company adopted ASU 2014-11 and included additional disclosures.
In April 2015, the FASB issued ASU No. 2015-05, Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement. This ASU provides guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing agreement includes a software license, the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. The new guidance does not change the accounting for a customer’s accounting for service contracts. ASU No. 2015-05 is effective for interim and annual reporting periods beginning after December 15, 2015. The Company’s current method of accounting for fees paid in a cloud computing arrangement is consistent with the accounting guidance provided by ASU No. 2015-05. Therefore, the adoption of ASU No. 2015-05 is not expected to have a material impact on the Company’s consolidated financial statements.
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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. Adoption by the Company is not expected to have a material impact on the consolidated financial statements and related disclosures.
Recent Developments
On July 2, 2013, the Board of Governors of the Federal Reserve System announced its approval of the final rule to implement the Basel III regulatory capital reforms, among other changes required by the Dodd-Frank Wall Street Reform and Consumer Protection Act. The Federal Deposit Insurance Corporation adopted the new rule on July 9, 2013. The new rule became applicable to Jacksonville Savings Bank beginning in January 2015. The new rule includes a new minimum ratio of common equity Tier 1 capital to risk-weighted assets of 4.5%, as well as a capital conservation buffer of 2.5% of risk-weighted assets. The rule also raises the minimum ratio of Tier 1 capital to risk-weighted assets from 4% to 6% and includes a minimum leverage ratio of 4% for all banking institutions. The capital conservation buffer will be phased in beginning in the first quarter of 2016 at 0.625% and will be fully phased in beginning in the first quarter of 2019.
Financial Condition
Total assets at December 31, 2015 were $308.6 million, a decrease of $3.3 million, or 1.1%, from $311.9 million at December 31, 2014. The decrease in total assets was primarily due to an $18.2 million decrease in mortgage-backed securities, partially offset by increases of $9.0 million in investment securities and $8.3 million in net loans.
Available-for-sale mortgage-backed securities decreased $18.2 million, or 44.0%, to $23.2 million at December 31, 2015 from $41.4 million at December 31, 2014. Available-for-sale investment securities increased $9.0 million, or 16.3%, to $64.3 million at December 31, 2015 from $55.3 million at December 31, 2014. The net decrease in investment and mortgage-backed securities was primarily used to fund new loan originations and deposit withdrawals. Cash and cash equivalents decreased $5.5 million, or 57.3%, to $4.1 million at December 31, 2015, reflecting a $3.7 million decrease in federal funds sold. The decrease in cash and cash equivalents was partially offset by an increase of $2.7 million in interest-earning time deposits in banks.
Net loans increased $8.3 million, or 4.5%, to $193.0 million at December 31, 2015 from $184.7 million at December 31, 2014. The increase in loans was primarily due to increases of $4.3 million in agricultural business loans, which reflected both delays in grain sales and prepayments of 2016 crop inputs, $2.8 million in residential real estate loans and $1.1 million in agricultural real estate loans.
At December 31, 2015 and 2014, we had $2.7 million recorded in goodwill. At these dates our goodwill was not impaired. At December 31, 2015, we also had $598,000 in mortgage servicing rights, net of the valuation allowance. Our mortgage servicing rights asset represented approximately 45 basis points of the $131.4 million in loans that we serviced. We obtain an independent valuation of the mortgage servicing rights at least annually. Our most recent valuation was obtained as of December 31, 2015, which reported a market value of approximately $871,000.
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Total deposits decreased $6.7 million, or 2.7%, to $239.3 million at December 31, 2015. The decrease was primarily due to a $15.5 million decrease in time deposits, reflecting an industry-wide trend as customers have withdrawn funds or shown a preference for shorter-term deposits. The decrease in time deposits was partially offset by an increase of $8.8 million in low-cost transaction accounts (consisting of checking, savings and money market accounts). Borrowings, which consisted of $8.5 million in overnight FHLB advances and $6.6 million in overnight repurchase agreements, increased a total of $1.3 million during 2015. The FHLB advances have been used as a low-cost, short-term source of funding. The repurchase agreements are a cash management service provided to our commercial deposit customers.
Stockholders’ equity increased $550,000, or 1.2%, to $45.6 million at December 31, 2015. The increase in stockholders’ equity was primarily the result of net income of $3.0 million and $383,000 from the exercise of stock options, partially offset by $2.4 million in cash dividends paid and $765,000 in stock repurchases. Stockholders’ equity also benefitted from an increase of $79,000 in accumulated other comprehensive income during 2015. Other comprehensive income consisted of the increase in net unrealized gains, net of tax, on available-for-sale securities reflecting changes in market prices for securities in our portfolio. Other comprehensive income does not include changes in the fair value of other financial instruments included on the balance sheet. Our tangible book value per share increased to $23.91 as of December 31, 2015 from $23.50 at December 31, 2014.
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014
General
Net income for the year ended December 31, 2015 totaled $3.03 million, or $1.71 per basic common share and $1.70 per diluted common share, compared to net income for the year ended December 31, 2014 of $2.97 million, or $1.66 per basic common share and $1.65 per diluted common share. Net income increased $53,000 during 2015, which reflected an increase of $158,000 in noninterest income and a decrease of $100,000 in the provision for loan losses, partially offset by a decrease of $53,000 in net interest income and increases of $19,000 in noninterest expense and $133,000 in income taxes.
Interest Income
Interest income decreased $377,000, or 3.2%, to $11.5 million for the year ended December 31, 2015 from $11.9 million for the year ended December 31, 2014. The $377,000 decrease in interest income resulted from decreased income of $108,000 on investment securities and $439,000 on mortgage-backed securities, partially offset by increases in interest income of $137,000 on loans and $33,000 on other interest-earning assets.
Interest income on loans increased $137,000 to $9.3 million for the year ended December 31, 2015 from $9.2 million for the year ended December 31, 2014 primarily due to an increase in the average balance of loans. The average balance of the loan portfolio increased $8.7 million to $189.7 million during 2015. The increase in the average balance of loans was primarily due to growth in the average balance of agricultural real estate and commercial real estate loans. The increase in the average balance was partially offset by a decrease of 16 basis points in the average yield on loans to 4.90% during 2015 from 5.06% during 2014. The decrease in the average yield reflected lower market rates of interest and the competitive lending environment.
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Interest income on investment securities decreased $108,000 to $1.6 million for the year ended December 31, 2015. The decrease resulted primarily from decreases in both the average balance and average yield of the investment portfolio. The average balance of the investment portfolio decreased $2.0 million to $56.9 million during 2015. The decrease in the average balance of investment securities reflected the use of investment proceeds to fund loan growth and the decrease in deposits during this same time frame. The average yield of investment securities decreased to 2.89% during 2015 compared to 2.97% during 2014. The majority of our investment portfolio consists of municipal bonds which are exempt from federal taxation, resulting in a reduction in income tax expense. Adjusting for this benefit, the tax equivalent yield of the investment portfolio equaled 4.12% for 2015 compared to 4.31% for 2014.
Interest income on mortgage-backed securities decreased $439,000 to $542,000 for the year ended December 31, 2015 from $981,000 for the year ended December 31, 2014. The decrease was primarily due to a decrease of $15.7 million in the average balance of mortgage-backed securities to $31.2 million during 2015. The decrease in the average balance reflected the use of sales and repayment proceeds to fund new loan originations and deposit withdrawals during this same time frame. The decrease in interest income on mortgage-backed securities also reflected a 35 basis points decrease in the average yield of mortgage-backed securities to 1.74% during 2015 from 2.09% during 2014. The average yield continues to be affected by low long-term rates and national prepayment speeds which affect the amortization of premiums on mortgage-backed securities.
Interest income from other interest-earning assets, which consisted of interest-earning demand and time deposits and federal funds sold, increased to $35,000 during the year ended December 31, 2015, from $2,000 for the year ended December 31, 2014. The $33,000 increase was due to increases in the average yield and average balance of these investments. The average yield on these investments increased to 0.54% during 2015 from 0.06% during 2014, reflecting an increase in higher-yielding time deposit accounts with other banks during 2015. The average balance of other interest-earning assets increased $3.7 million to $6.5 million during 2015, reflecting the increase in the average balance of time deposit accounts with other banks.
Interest Expense
Total interest expense decreased $324,000, or 22.3%, to $1.1 million during the year ended December 31, 2015 from $1.4 million during the year ended December 31, 2014. The decrease in interest expense was due to a decrease of $335,000 in the cost of deposits, partially offset by an increase of $11,000 in the cost of borrowings.
Interest expense on deposits decreased $335,000 to $1.1 million during the year ended December 31, 2015 from $1.4 million during the year ended December 31, 2014. The decrease in interest expense on deposits was primarily due to decreases in the both the average rate and average balance of deposits. The average rate paid on deposits decreased 12 basis points to 0.53% during 2015 from 0.65% during 2014. The decrease reflected the low rate environment, as well as a change in the composition of our deposits to lower-cost transaction accounts from higher-cost time deposits. The decrease in interest expense on deposits was also impacted by a decrease of $13.0 million in the average balance of deposits to $208.7 million during 2015 from $221.7 million during 2014. The decrease in the average balance of deposits was primarily due to a $16.3 million decrease in the average balance of time deposits, partially offset by a $3.3 million increase in the average balance of lower-cost transaction accounts.
Interest paid on borrowed funds increased $11,000 to $26,000 during 2015 from $15,000 during 2014. Borrowed funds consisted of overnight repurchase agreements and advances from the FHLB. The average balance of borrowed funds increased $3.1 million to $13.9 million during 2015, reflecting the increased use of advances from the FHLB. The average rate paid on borrowed funds increased to 0.19% during 2015 from 0.14% during 2014.
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Net Interest Income
As a result of the changes in interest income and interest expense noted above, net interest income decreased by $53,000, or 0.5%, to $10.4 million in 2015. The decrease in net interest income reflected the impact of the decrease in interest income on mortgage-backed securities during 2015, compared to 2014. However, due to changes in average assets and a greater reduction in the average rate of interest-bearing liabilities, our interest rate spread and interest rate margin showed small increases during 2015. Our interest rate spread increased by 6 basis points to 3.54% during 2015 from 3.48% during 2014. Our net interest margin increased 4 basis points to 3.65% during 2015 from 3.61% during 2014. Our ratio of average interest earning assets to average interest bearing liabilities for the years ended December 31, 2015 and 2014 was 1.28x and 1.25x, 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 known and probable losses in the loan portfolio, in accordance with accounting principles generally accepted in the United States of America.
The allowance for loan losses decreased $37,000 during 2015 to $3.0 million as of December 31, 2015. The decrease was the result of net charge-offs exceeding the provision for loan losses. We recorded a provision for loan losses of $140,000 for the year ended December 31, 2015, compared to $240,000 during 2014. The $100,000 decrease in the provision reflected the lower level of charge-offs and nonperforming loans. Net charge-offs decreased $514,000 to $177,000 during 2015 from $690,000 during 2014.
The provisions in 2015 and 2014 were 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 loan identified by management. The review also considered the local economy and the level of bankruptcies and foreclosures in our market area.
The following table sets forth the composition of our non-performing assets at December 31, 2015 and 2014, respectively.
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December 31, 2015 | December 31, 2014 | |||||||
(Dollars in thousands) | ||||||||
Nonaccrual loans: | ||||||||
Real estate loans: | ||||||||
One- to four-family residential | $ | 911 | $ | 995 | ||||
Commercial | 840 | 932 | ||||||
Agricultural | — | 123 | ||||||
Home equity | 119 | 121 | ||||||
Commercial business loans | 9 | 22 | ||||||
Agricultural business loans | — | — | ||||||
Consumer loans | 142 | 71 | ||||||
Total nonaccrual loans | 2,021 | 2,264 | ||||||
Loans delinquent 90 days or greater and still accruing: | ||||||||
Real estate loans: | ||||||||
One- to four-family residential | — | — | ||||||
Commercial | — | — | ||||||
Agricultural | — | — | ||||||
Home equity | — | — | ||||||
Commercial business loans | — | — | ||||||
Agricultural business loans | — | — | ||||||
Consumer loans | — | — | ||||||
Total loans delinquent 90 days or greater and still accruing | — | — | ||||||
Total nonperforming loans | 2,021 | 2,264 | ||||||
Other real estate owned and foreclosed assets: | ||||||||
Real estate loans: | ||||||||
One- to four-family residential | 217 | 40 | ||||||
Commercial | 114 | 137 | ||||||
Agricultural | — | — | ||||||
Home equity | — | — | ||||||
Commercial business loans | — | — | ||||||
Agricultural business loans | — | — | ||||||
Consumer loans | ||||||||
Total other real estate owned and foreclosed assets | 331 | 177 | ||||||
Total nonperforming assets | $ | 2,352 | $ | 2,441 | ||||
Ratios: | ||||||||
Nonperforming loans to total loans | 1.03 | % | 1.21 | % | ||||
Nonperforming assets to total assets | 0.76 | 0.78 |
Management monitors all past due loans and nonperforming assets. Such loans are placed under close supervision with consideration given to the need for additions to the allowance for loan losses and (if appropriate) partial or full charge-off. At December 31, 2015, we had no loans 90 days or more delinquent which were still accruing interest. Nonperforming assets decreased by $89,000 to $2.4 million at December 31, 2015. The decrease in the level of nonperforming assets reflected a decrease of $243,000 in nonperforming loans, partially offset by an increase of $154,000 in foreclosed assets. The decrease in nonperforming loans primarily reflected the payoff of an agricultural real estate loan and the foreclosure of several one- to four-family residential properties.
The allowance for loan losses as a percentage of nonperforming loans increased to 144.45% at December 31, 2015, as compared to 130.57% at December 31, 2014. The increase in this coverage ratio was primarily due to a decrease in nonperforming loans during 2015. The allowance for loan losses at $3.0 million represented 1.49% of total loans at December 31, 2015. On this same date, nonperforming loans totaled 1.03% of total loans. We have an experienced chief lending officer, collections, and independent loan review program which monitor the loan portfolio and seek to prevent any deterioration of asset quality.
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The following table shows the principal amount of special mention and classified loans at December 31, 2015 and December 31, 2014.
December 31, 2015 | December 31, 2014 | |||||||
(In thousands) | ||||||||
Special Mention loans | $ | 3,781 | $ | 2,096 | ||||
Substandard loans | 5,020 | 5,454 | ||||||
Total Special Mention and Substandard loans | $ | 8,801 | $ | 7,550 |
The total amount of classified and special mention loans increased $1.3 million to $8.8 million at December 31, 2015 from $7.5 million at December 31, 2014. The increase in classified and special mention loans during 2015 was due to an increase of $1.7 million in special mention loans, partially offset by a decrease of $434,000 in substandard loans. The increase in special mention loans reflected $2.1 million in additional loans listed as special mention, partially offset by $80,000 in principal reductions and $176,000 in loans that were upgraded to a pass rating during 2015. The decrease in substandard loans was primarily related to $1.0 million in principal reductions, $164,000 in charge-offs, and $213,000 transferred to foreclosed assets, partially offset by $945,000 in additional loans classified as substandard during 2015.
Noninterest Income
Noninterest income increased $158,000, or 3.9%, to $4.2 million for the year ended December 31, 2015, compared to $4.0 million for the year ended December 31, 2014. The increase in noninterest income resulted primarily from increases of $213,000 in commission income and $56,000 in net income from mortgage-banking operations, partially offset by decreases of $88,000 in gains on the sale of available-for-sale securities and $34,000 from service charges on deposits.
The increase in commission income reflected the improved market conditions and growth in assets under management during 2015. The increase in mortgage banking income was due to a higher volume of loan sales, as we sold $16.8 million of loans in the secondary market during 2015, compared to $12.5 million during 2014. The higher volume of sales reflected an increased volume of mortgage originations, which are affected by market interest rates. The decrease in gains on the sale of securities reflected changing market conditions. Securities totaling $30.7 million were sold during 2015, compared to $31.3 million during 2014. The sales during 2015 and 2014 were primarily made to reduce the volatility to interest rate changes in municipal bonds and to eliminate faster-paying mortgage-backed securities. The lower yielding bonds sold during 2015 generated smaller gains compared to those bonds sold during 2014. The decrease in service charges on deposits reflected a decrease in fees related to nonsufficient funds.
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Noninterest Expense
Total noninterest expense increased $19,000, or 0.2%, to $10.3 million for the year ended December 31, 2015, compared to the year ended December 31, 2014. The increase in noninterest expense was primarily due to increases of $244,000 in compensation and benefits expense, $78,000 in data processing and telecommunications expense, and $22,000 in occupancy expense, partially offset by a decrease of $340,000 in professional fees. The increase in compensation and benefits expense reflected normal cost increases and higher commissions. Data processing fees were impacted by non-recurring expenses related to the redesign of our company website and our conversion to a new loan documentation program. The increase in occupancy expense primarily reflected higher service contracts on equipment. The decrease in professional fees reflected non-recurring legal and consulting expenses incurred during 2014.
Income Taxes
The provision for income taxes increased $133,000 to $1.1 million during 2015 compared to 2014. The increase in the income tax provision reflected an increase in taxable income. Our effective tax rate was 26.1% for 2015 and 23.9% for 2014, reflecting the impact of tax-exempt income.
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Average Balances and Yields
The following table sets forth, for the years indicated, information regarding average balances of assets and liabilities as well as the total dollar amounts of interest income from average interest-earning assets and interest expense on average interest-bearing liabilities, resultant yields, interest rate spread, net interest margin, and ratio of average interest-earning assets to average interest-bearing liabilities.
For the Years Ended December 31, | ||||||||||||||||||||||||||||||||||||
2015 | 2014 | 2013 | ||||||||||||||||||||||||||||||||||
Average Outstanding Balance | Interest | Yield/ Rate | Average Outstanding Balance | Interest | Yield/ Rate | Average Outstanding Balance |
Interest | Yield/ Rate | ||||||||||||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||||||||||||||
Interest-earning assets: | ||||||||||||||||||||||||||||||||||||
Loans (1) | $ | 189,667 | $ | 9,294 | 4.90 | % | $ | 180,936 | $ | 9,158 | 5.06 | % | $ | 174,685 | $ | 9,371 | 5.36 | % | ||||||||||||||||||
Investment securities (2) | 56,859 | 1,643 | 2.89 | 58,883 | 1,751 | 2.97 | 60,389 | 1,793 | 2.97 | |||||||||||||||||||||||||||
Mortgage-backed securities | 31,248 | 542 | 1.74 | 46,939 | 981 | 2.09 | 50,762 | 877 | 1.73 | |||||||||||||||||||||||||||
Cash and cash equivalents | 6,478 | 35 | 0.54 | 2,792 | 2 | 0.06 | 7,499 | 37 | 0.49 | |||||||||||||||||||||||||||
Total interest-earning assets | 284,252 | 11,514 | 4.05 | % | 289,550 | 11,892 | 4.10 | % | 293,335 | 12,078 | 4.12 | % | ||||||||||||||||||||||||
Non-interest-earning assets | 20,702 | 21,029 | 21,649 | |||||||||||||||||||||||||||||||||
Total assets | $ | 304,954 | $ | 310,579 | $ | 314,984 | ||||||||||||||||||||||||||||||
Interest-bearing liabilities: | ||||||||||||||||||||||||||||||||||||
Interest bearing checking | $ | 39,270 | $ | 57 | 0.14 | % | $ | 38,080 | $ | 54 | 0.14 | % | $ | 37,595 | $ | 53 | 0.14 | % | ||||||||||||||||||
Savings accounts | 39,954 | 80 | 0.20 | 37,323 | 80 | 0.21 | 34,860 | 76 | 0.22 | |||||||||||||||||||||||||||
Certificates of deposit | 86,614 | 852 | 0.98 | 102,890 | 1,180 | 1.15 | 116,036 | 1,512 | 1.30 | |||||||||||||||||||||||||||
Money market savings | 34,947 | 101 | 0.29 | 35,408 | 110 | 0.31 | 33,554 | 112 | 0.34 | |||||||||||||||||||||||||||
Money market deposits | 7,957 | 11 | 0.15 | 8,026 | 12 | 0.15 | 8,441 | 14 | 0.16 | |||||||||||||||||||||||||||
Total interest-bearing deposits | 208,742 | 1,101 | 0.53 | 221,727 | 1,436 | 0.65 | 230,486 | 1,767 | 0.77 | |||||||||||||||||||||||||||
Federal Home Loan Bank advances | 7,877 | 19 | 0.24 | 4,803 | 10 | 0.20 | 4,481 | 7 | 0.14 | |||||||||||||||||||||||||||
Short-term borrowings | 6,009 | 7 | 0.12 | 5,996 | 5 | 0.08 | 6,196 | 8 | 0.13 | |||||||||||||||||||||||||||
Total borrowings | 13,886 | 26 | 0.19 | 10,799 | 15 | 0.14 | 10,677 | 15 | 0.14 | |||||||||||||||||||||||||||
Total interest-bearing liabilities | 222,628 | 1,127 | 0.51 | % | 232,526 | 1,451 | 0.62 | % | 241,163 | 1,782 | 0.74 | % | ||||||||||||||||||||||||
Non-interest-bearing liabilities | 36,238 | 34,320 | 31,043 | |||||||||||||||||||||||||||||||||
Total liabilities | 258,866 | 266,846 | 272,206 | |||||||||||||||||||||||||||||||||
Stockholders’ equity | 46,088 | 43,733 | 42,778 | |||||||||||||||||||||||||||||||||
Total liabilities and stockholders’ equity | $ | 304,954 | $ | 310,579 | $ | 314,984 | ||||||||||||||||||||||||||||||
Net interest income | $ | 10,387 | $ | 10,441 | $ | 10,296 | ||||||||||||||||||||||||||||||
Net interest rate spread (3) | 3.54 | % | 3.48 | % | 3.38 | % | ||||||||||||||||||||||||||||||
Net interest-earning assets (4) | $ | 61,624 | $ | 57,024 | $ | 52,172 | ||||||||||||||||||||||||||||||
Net interest margin (5) | 3.65 | % | 3.61 | % | 3.51 | % | ||||||||||||||||||||||||||||||
Average interest-earning assets to average interest-bearing liabilities | 127.68 | % | 124.52 | % | 121.63 | % |
(1) | Includes non-accrual loans and loans held for sale and fees of $104,000 for 2015, $92,000 for 2014, and $97,000 for 2013. |
(2) | Includes Federal Home Loan Bank stock and U.S. Agency securities. |
(3) | Net interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities. |
(4) | Net interest-earning assets represents total interest-earning assets less total interest-bearing liabilities. |
(5) | Net interest margin represents net interest income divided by average total interest-earning assets. |
14 |
Rate/volume analysis
The following table presents the effects of changing rates and volumes on our net interest income for the fiscal years indicated. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The net column represents the sum of the prior columns. For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately, based on the changes due to rate and the changes due to volume.
Years Ended December 31, 2015 vs. 2014 | Years Ended December 31, 2014 vs. 2013 | |||||||||||||||||||||||
Increase
(Decrease) Due to | Total Increase | Increase
(Decrease) Due to | Total Increase | |||||||||||||||||||||
Rate | Volume | (Decrease) | Rate | Volume | (Decrease) | |||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||
Interest-earning assets: | ||||||||||||||||||||||||
Loans | $ | (296 | ) | $ | 433 | $ | 137 | $ | (541 | ) | $ | 328 | $ | (213 | ) | |||||||||
Investment securities | (49 | ) | (59 | ) | (108 | ) | 3 | (45 | ) | (42 | ) | |||||||||||||
Mortgage-backed securities | (148 | ) | (291 | ) | (439 | ) | 173 | (69 | ) | 104 | ||||||||||||||
Cash and cash equivalents | 28 | 5 | 33 | (20 | ) | (15 | ) | (35 | ) | |||||||||||||||
Total interest-earning assets | $ | (465 | ) | $ | 88 | $ | (377 | ) | $ | (385 | ) | $ | 199 | $ | (186 | ) | ||||||||
Interest-bearing liabilities: | ||||||||||||||||||||||||
Interest bearing checking | $ | 1 | $ | 2 | $ | 3 | $ | — | $ | 1 | $ | 1 | ||||||||||||
Savings accounts | (5 | ) | 5 | — | (1 | ) | 5 | 4 | ||||||||||||||||
Certificates of deposit | (155 | ) | (173 | ) | (328 | ) | (170 | ) | (161 | ) | (331 | ) | ||||||||||||
Money market savings | (8 | ) | (1 | ) | (9 | ) | (8 | ) | 6 | (2 | ) | |||||||||||||
Money market deposits | (1 | ) | — | (1 | ) | (1 | ) | (1 | ) | (2 | ) | |||||||||||||
Total interest-bearing deposits | (168 | ) | (167 | ) | (335 | ) | (180 | ) | (150 | ) | (330 | ) | ||||||||||||
Federal Home Loan Bank advances | 2 | 7 | 9 | 3 | — | 3 | ||||||||||||||||||
Short-term borrowings | 2 | — | 2 | (3 | ) | — | (3 | ) | ||||||||||||||||
4 | 7 | 11 | — | — | — | |||||||||||||||||||
Total interest-bearing liabilities | (164 | ) | (160 | ) | (324 | ) | (180 | ) | (150 | ) | (330 | ) | ||||||||||||
Change in net interest income | $ | (301 | ) | $ | 248 | $ | (53 | ) | $ | (205 | ) | $ | 349 | $ | 144 |
15 |
Asset and Liability Management
As a financial institution, we face risk from interest rate volatility. Fluctuations in interest rates affect both our level of income and expense on a large portion of our assets and liabilities. Fluctuations in interest rates also affect the market value of all interest-earning assets.
The primary goal of our interest rate risk management strategy is to maximize net interest income while maintaining an acceptable interest rate risk profile. We seek to coordinate asset and liability decisions so that, under changing interest rate scenarios, net interest income remains within an acceptable range.
Our policy in recent years has been to reduce our interest rate risk by better matching the maturities of our interest rate sensitive assets and liabilities, selling our long-term fixed-rate residential mortgage loans with terms of 15 years or more to the secondary market, originating adjustable rate loans, 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 mortgage loans. Our portfolio of mortgage-backed securities also provides monthly cash flow. The remaining investment portfolio has been structured to better match the maturities and rates of our interest-bearing liabilities. With respect to liabilities, we have attempted to increase our savings and transaction deposit accounts, which management believes are more resistant to changes in interest rates than time deposit accounts. The board of directors appoints the Asset-Liability Management Committee (“ALCO”), which is responsible for reviewing our asset and liability management policies. The ALCO meets quarterly to review interest rate risk and trends, as well as liquidity and capital requirements.
We use comprehensive asset/liability software provided by a third-party vendor to perform interest rate sensitivity analysis for all product categories. The primary focus of our analysis is 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 our interest 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 or minus 300 basis points in 100 basis point increments. As a result of the historically low interest rate environment, the table below only shows the change in our assets and liabilities based upon a 100 basis point decrease in interest rates.
The following table shows projected results at December 31, 2015 and 2014, 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 | ||||||||||||||||||||
December 31, 2015 | December 31, 2014 | ALCO | ||||||||||||||||||
Rate Shock | $ Change | % Change | $ Change | % Change | Benchmark | |||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
+300 basis points | (344 | ) | (3.00 | )% | (167 | ) | (1.47 | )% | >(20.00 | )% | ||||||||||
+200 basis points | (242 | ) | (2.10 | ) | (116 | ) | (1.02 | ) | >(20.00 | )% | ||||||||||
+100 basis points | (119 | ) | (1.04 | ) | (46 | ) | (0.40 | ) | >(12.50 | )% | ||||||||||
(100) basis points | (88 | ) | (0.76 | ) | (180 | ) | (1.59 | ) | >(12.50 | )% |
The table above indicates that at December 31, 2015, in the event of a 200 basis point increase in interest rates, we would experience a 2.10% decrease in net interest income. In the event of a 100 basis point decrease in interest rates, we would experience a 0.76% decrease in net interest income.
16 |
The effects of interest rates on net interest income are not predictable. Computations of prospective effects of hypothetical interest rate changes are based on numerous assumptions, including relative levels of market interest rates, prepayments, and deposit run-offs, and should not be relied upon as indicative of actual results. Certain shortcomings are inherent in these computations. Although some assets and liabilities may have similar maturity or periods of repricing, they may react at different times and in different degrees to changes in market interest rates. Rates on other types of assets and liabilities may lag behind changes in market interest rates. Assets, such as adjustable rate mortgage loans, generally have features that restrict changes in interest rates on a short-term basis and over the life of the asset. After a change in interest rates, prepayments and early withdrawal levels could deviate significantly from those assumed in making the calculations set forth above. Additionally, increased credit risk may result if our borrowers are unable to meet their repayment obligations as interest rates increase.
Liquidity and Capital Resources
Liquidity is the ability to meet current and future short-term financial obligations. Our ALCO Committee is responsible for establishing and monitoring our liquidity targets and strategies in order to ensure that sufficient liquidity exists for meeting the borrowing needs of our customers as well as unanticipated contingencies. At December 31, 2015, we had access to immediately available funds of an additional $79.4 million from the Federal Home Loan Bank of Chicago and approximately $45.4 million in overnight federal funds purchased.
We regularly adjust our investments in liquid assets based upon our assessment of expected loan demand, expected deposit flows, yields available on interest-earning deposits and securities, and the objectives of our asset/liability management program. Excess liquid assets are invested generally in interest-earning deposits and short- and intermediate-term securities.
Our most liquid assets are cash and cash equivalents. The levels of these assets are dependent on our operating, financing, and investing activities. At December 31, 2015 and 2014, cash and cash equivalents totaled $4.1 million and $9.6 million, respectively. Our primary sources of funds include customer deposits, proceeds from sales of loans, maturities and sales of investments, and principal repayments from loans and mortgage-backed securities (both scheduled and prepayments). During the years ended December 31, 2015 and 2014, the most significant sources of funds have been loan sales, investment sales and principal payments, and short-term borrowings.
Our cash and cash equivalents decreased $5.5 million during the year ended December 31, 2015, compared to an increase of $3.5 million during the year ended December 31, 2014. Net cash provided by operating activities decreased to $3.2 million during 2015 from $5.5 million during 2014. Net cash used in investing activities increased to $2.4 million during 2015 from the $10.8 million in cash provided during 2014. Cash provided by sales and maturities of investment and mortgage-backed securities, net of purchases, decreased to $9.0 million during 2015 from the $15.2 million cash provided during 2014. Cash used in net loan originations and payments increased to $8.7 million during 2015 from $4.4 million during 2014. Cash used in financing activities decreased to $6.3 million during 2015 from the $12.8 million in cash used during 2014. The decrease was primarily due to an increase in short-term borrowings during 2015.
While loan sales and principal repayments on mortgage-backed securities are relatively predictable, deposit flows and early prepayments are more influenced by interest rates, general economic conditions, and competition. We attempt to price our deposits to meet asset/liability objectives and stay competitive with local market conditions.
17 |
Liquidity management is both a short- and long-term responsibility of management. We adjust our investments in liquid assets based upon management’s assessment of expected loan demand, projected purchases of investment and mortgage-backed securities, expected deposit flows, yields available on interest-earning deposits, and liquidity of its asset/liability management program. Excess liquidity is generally invested in interest-earning overnight deposits, federal funds sold, and other short-term U.S. agency obligations. We use securities sold under agreements to repurchase as an additional funding source. The agreements represent our obligations to third parties and are secured by investments which we pledge as collateral. At December 31, 2015, we had $6.6 million in outstanding repurchase agreements, which were utilized for overnight funding.
If we require funds beyond our ability to generate them internally, we have the ability to borrow funds from the Federal Home Loan Bank. We may borrow from the Federal Home Loan Bank under a blanket agreement which assigns all investments in Federal Home Loan Bank stock as well as qualifying loans as collateral to secure the amounts borrowed. This borrowing arrangement is limited to the lesser of 35% of our total assets, the balance of qualifying loans, or twenty times the balance of Federal Home Loan Bank stock held by us. At December 31, 2015, we had $8.5 million in outstanding advances and a remaining borrowing capacity of approximately $79.4 million.
We maintain levels of liquid assets as established by the board of directors. Our liquidity ratio, adjusted for pledged assets, at December 31, 2015 and 2014 was 32.0% and 37.6%, respectively. This ratio represents the volume of short-term liquid assets as a percentage of net deposits and borrowings due within one year.
We must also maintain adequate levels of liquidity to ensure the availability of funds to satisfy loan commitments. We anticipate that we will have sufficient funds available to meet our current commitments principally through the use of current liquid assets and through our borrowing capacity discussed above. The following table summarizes our outstanding loan commitments at December 31, 2015 and 2014.
December 31, 2015 | December 31, 2014 | |||||||
(In thousands) | ||||||||
Commitments to fund loans | $ | 36,997 | $ | 34,734 | ||||
Standby letters of credit | 110 | 255 |
Quantitative measures established by regulation to ensure capital adequacy require Jacksonville Savings Bank to maintain minimum amounts and ratios (set forth in the table below) of total, Tier I, and common equity Tier 1 capital to risk-weighted assets and Tier I capital to average assets. At December 31, 2015, Jacksonville Savings Bank met all capital adequacy requirements to which it is subject.
The Director of the Illinois Department of Financial and Professional Regulation is authorized to require a savings bank to maintain a minimum capital level based upon the savings bank’s financial condition or history, management or earnings. If a savings bank’s core capital ratio falls below the required level, the Director may direct the savings bank to adhere to a specific written plan established by the Director 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 December 31, 2015, Jacksonville Savings Bank’s core capital ratio was 12.82% of total adjusted average assets, which exceeded the required ratio of 4.00%.
18 |
As of December 31, 2015, the Federal Deposit Insurance Corporation categorized Jacksonville Savings Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, Jacksonville Savings Bank must maintain minimum total risk-based, Tier 1 risk-based, common equity Tier 1 risk-based, and Tier 1 leverage ratios as set forth in the table below. There are no conditions or events since that notification that management believes have changed Jacksonville Savings Bank’s category. Jacksonville Savings Bank’s actual capital ratios at December 31, 2015 and 2014 are presented in the table below.
Well Capitalized | December 31, 2015 Actual | December 31, 2014 Actual | ||||||||||
Tier 1 Capital to Average Assets | 5.00 | % | 12.82 | % | 12.25 | % | ||||||
Common Equity Tier 1 Capital to Risk-Weighted Assets | 6.50 | % | 17.90 | % | — | |||||||
Tier 1 Capital to Risk-Weighted Assets | 8.00 | % | 17.90 | % | 17.56 | % | ||||||
Total Capital to Risk-Weighted Assets | 10.00 | % | 19.15 | % | 18.81 | % |
Effect of Inflation and Changing Prices
The consolidated financial statements and related notes of Jacksonville Bancorp, Inc. have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”). GAAP generally requires the measurement of financial position and operating results in terms of historical dollars without consideration of changes in the relative purchasing power of money over time due to inflation. The impact of inflation is reflected in the increased cost of our operations. Unlike industrial companies, our assets and liabilities are primarily monetary in nature. As a result, changes in market interest rates have a greater impact on performance than the effects of inflation.
* * * * * *
19 |
Report of Independent Registered Public Accounting Firm
Audit Committee, Board of Directors, and Stockholders
Jacksonville Bancorp, Inc.
Jacksonville, Illinois
We have audited the accompanying consolidated balance sheets of Jacksonville Bancorp, Inc. (Company) as of December 31, 2015 and 2014, and the related consolidated statements of income, comprehensive income, stockholders’ equity and cash flows for the years then ended. The Company’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing auditing procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits also include examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Jacksonville Bancorp, Inc. as of December 31, 2015 and 2014, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
/s/ BKD, LLP
Decatur, Illinois
March 10, 2016
20 |
Consolidated Balance Sheets
December 31, 2015 and 2014
Assets
2015 | 2014 | |||||||
Cash and due from banks | $ | 2,385,846 | $ | 6,427,536 | ||||
Interest-earning demand deposits in banks | 1,717,586 | 3,184,102 | ||||||
Cash and cash equivalents | 4,103,432 | 9,611,638 | ||||||
Interest-earning time deposits in banks | 2,724,000 | — | ||||||
Available-for-sale securities: | ||||||||
Investment securities | 64,294,937 | 55,264,976 | ||||||
Mortgage-backed securities | 23,178,395 | 41,419,921 | ||||||
Other investments | 62,223 | 73,766 | ||||||
Loans held for sale | 539,000 | 235,600 | ||||||
Loans, net of allowance for loan losses of $2,919,594 and $2,956,264 at December 31, 2015 and 2014 | 193,039,879 | 184,718,612 | ||||||
Premises and equipment, net of accumulated depreciation of $6,126,823 and $5,742,785 at December 31, 2015 and 2014 | 4,728,157 | 4,945,983 | ||||||
Federal Home Loan Bank stock | 1,113,800 | 1,113,800 | ||||||
Foreclosed assets held for sale, net | 330,981 | 176,671 | ||||||
Cash surrender value of life insurance | 7,093,640 | 6,912,917 | ||||||
Interest receivable | 1,715,676 | 1,713,243 | ||||||
Deferred income taxes | 1,583,067 | 1,486,206 | ||||||
Mortgage servicing rights, net of valuation allowance of $47,354 and $56,969 as of December 31, 2015 and 2014 | 597,713 | 632,634 | ||||||
Goodwill | 2,726,567 | 2,726,567 | ||||||
Other assets | 811,007 | 892,118 | ||||||
Total assets | $ | 308,642,474 | $ | 311,924,652 |
See Notes to Consolidated Financial Statements
21 |
Jacksonville Bancorp, Inc.
Consolidated Balance Sheets
December 31, 2015 and 2014
Liabilities and Stockholders’ Equity
2015 | 2014 | |||||||
Liabilities | ||||||||
Deposits | ||||||||
Demand | $ | 31,426,710 | $ | 30,976,025 | ||||
Savings, NOW and money market | 128,800,696 | 120,365,974 | ||||||
Time | 79,054,524 | 94,599,563 | ||||||
Total deposits | 239,281,930 | 245,941,562 | ||||||
Short-term borrowings | 15,131,710 | 13,821,730 | ||||||
Deferred compensation | 4,492,594 | 4,252,720 | ||||||
Advances from borrowers for taxes and insurance | 990,917 | 962,762 | ||||||
Interest payable | 118,335 | 166,052 | ||||||
Income taxes payable | 49,291 | 200,781 | ||||||
Dividends Payable | 1,934,834 | 143,959 | ||||||
Other liabilities | 1,076,363 | 1,418,988 | ||||||
Total liabilities | 263,075,974 | 266,908,554 | ||||||
Stockholders’ Equity | ||||||||
Preferred stock, $.01 par value, authorized 10,000,000 shares; none issued and outstanding | — | — | ||||||
Common stock, $.01 par value; authorized 25,000,000 shares; issued 1,791,513 – December 31, 2015 and 1,799,483 – December 31, 2014 | 17,915 | 17,995 | ||||||
Additional paid-in capital | 13,664,914 | 13,900,743 | ||||||
Retained earnings | 31,305,040 | 30,635,787 | ||||||
Accumulated other comprehensive income | 790,341 | 711,483 | ||||||
Unallocated ESOP shares | (211,710 | ) | (249,910 | ) | ||||
Total stockholders’ equity | 45,566,500 | 45,016,098 | ||||||
Total liabilities and stockholders’ equity | $ | 308,642,474 | $ | 311,924,652 |
See Notes to Consolidated Financial Statements
22 |
Consolidated Statements of Income
Years Ended December 31, 2015 and 2014
2015 | 2014 | |||||||
Interest and Fee Income | ||||||||
Loans, including fees | $ | 9,294,256 | $ | 9,157,672 | ||||
Debt securities | ||||||||
Taxable | 287,066 | 225,722 | ||||||
Tax-exempt | 1,356,056 | 1,525,723 | ||||||
Mortgage-backed securities | 542,453 | 981,032 | ||||||
Other | 35,033 | 1,759 | ||||||
Total interest income | 11,514,864 | 11,891,908 | ||||||
Interest Expense | ||||||||
Deposits | 1,101,262 | 1,436,803 | ||||||
Short-term borrowings | 7,130 | 5,085 | ||||||
Federal Home Loan Bank advances | 18,981 | 9,570 | ||||||
Total interest expense | 1,127,373 | 1,451,458 | ||||||
Net Interest Income | 10,387,491 | 10,440,450 | ||||||
Provision for Loan Losses | 140,000 | 240,000 | ||||||
Net Interest Income After Provision for Loan Losses | 10,247,491 | 10,200,450 | ||||||
Noninterest Income | ||||||||
Fiduciary activities | 289,153 | 290,681 | ||||||
Commission income | 1,414,840 | 1,201,869 | ||||||
Service charges on deposit accounts | 680,022 | 714,425 | ||||||
Mortgage banking operations, net | 180,872 | 124,564 | ||||||
Net realized gains on sales of available-for-sale securities | 320,585 | 408,753 | ||||||
Loan servicing fees | 344,019 | 361,586 | ||||||
Increase in cash surrender value of life insurance | 175,428 | 185,986 | ||||||
ATM and bank card interchange income | 628,882 | 604,037 | ||||||
Other | 153,089 | 136,875 | ||||||
Total noninterest income | 4,186,890 | 4,028,776 |
See Notes to Consolidated Financial Statements
23 |
Jacksonville Bancorp, Inc.
Consolidated Statements of Income
Years Ended December 31, 2015 and 2014
2015 | 2014 | |||||||
Noninterest Expense | ||||||||
Salaries and employee benefits | $ | 6,724,334 | $ | 6,480,468 | ||||
Occupancy and equipment | 996,460 | 974,361 | ||||||
Data processing and telecommunications | 609,835 | 531,554 | ||||||
Professional | 191,969 | 532,096 | ||||||
Marketing | 116,568 | 112,713 | ||||||
Postage and office supplies | 229,438 | 235,090 | ||||||
Deposit insurance premium | 149,366 | 153,137 | ||||||
ATM and bank card expense | 408,148 | 392,251 | ||||||
Other | 915,115 | 910,756 | ||||||
Total noninterest expense | 10,341,233 | 10,322,426 | ||||||
Income Before Income Taxes | 4,093,148 | 3,906,800 | ||||||
Provision for Income Taxes | 1,067,025 | 934,046 | ||||||
Net Income | $ | 3,026,123 | $ | 2,972,754 | ||||
Basic Earnings Per Share | $ | 1.71 | $ | 1.66 | ||||
Diluted Earnings Per Share | $ | 1.70 | $ | 1.65 | ||||
Cash Dividends Per Share | $ | 1.32 | $ | 0.32 |
Consolidated Statements of Comprehensive Income
Years Ended December 31, 2015 and 2014
2015 | 2014 | |||||||
Net Income | $ | 3,026,123 | $ | 2,972,754 | ||||
Other Comprehensive Income | ||||||||
Unrealized appreciation on available-for-sale securities, net of taxes of $149,623 and $1,219,994 for 2015 and 2014, respectively | 290,444 | 2,368,224 | ||||||
Less: reclassification adjustment for realized gains included in net income, net of taxes of $108,999 and $138,976 for 2015 and 2014, respectively | 211,586 | 269,777 | ||||||
78,858 | 2,098,447 | |||||||
Comprehensive Income | $ | 3,104,981 | $ | 5,071,201 |
See Notes to Consolidated Financial Statements
24 |
Consolidated Statements of Stockholders’ Equity
Years Ended December 31, 2015 and 2014
Additional | ||||||||||||||||
Issued Common Stock | Paid-in | Retained | ||||||||||||||
Shares | Amount | Capital | Earnings | |||||||||||||
Balance, January 1, 2014 | 1,832,860 | 18,329 | 14,561,085 | 28,233,876 | ||||||||||||
Net income | — | — | — | 2,972,754 | ||||||||||||
Other comprehensive income | — | — | — | — | ||||||||||||
Stock repurchases | (48,478 | ) | (485 | ) | (1,028,203 | ) | — | |||||||||
Exercise of stock options | 15,101 | 151 | 230,827 | — | ||||||||||||
Tax benefit of nonqualified options | — | — | 3,513 | — | ||||||||||||
Stock-based compensation expense | — | — | 90,163 | — | ||||||||||||
Common shares held by ESOP, committed to be released | — | — | 43,358 | — | ||||||||||||
Dividends on common stock, $0.32 per share | — | — | — | (570,843 | ) | |||||||||||
Balance, December 31, 2014 | 1,799,483 | 17,995 | 13,900,743 | 30,635,787 | ||||||||||||
Net income | — | — | — | 3,026,123 | ||||||||||||
Other comprehensive income | — | — | — | — | ||||||||||||
Stock repurchases | (32,685 | ) | (327 | ) | (764,984 | ) | — | |||||||||
Exercise of stock options | 24,715 | 247 | 382,374 | — | ||||||||||||
Tax benefit of nonqualified options | — | — | 4,169 | — | ||||||||||||
Stock-based compensation expense | — | — | 90,163 | — | ||||||||||||
Common shares held by ESOP, committed to be released | — | — | 52,449 | — | ||||||||||||
Dividends on common stock, $1.32 per share | — | — | — | (2,356,870 | ) | |||||||||||
Balance, December 31, 2015 | 1,791,513 | $ | 17,915 | $ | 13,664,914 | $ | 31,305,040 |
See Notes to Consolidated Financial Statements
25 |
Jacksonville Bancorp, Inc.
Consolidated Statements of Stockholders’ Equity
Years Ended December 31, 2015 and 2014
Accumulated | ||||||||||||
Other | ||||||||||||
Comprehensive | Unallocated | |||||||||||
Income (Loss) | ESOP | Total | ||||||||||
Balance, January 1, 2014 | (1,386,964 | ) | (287,530 | ) | 41,138,796 | |||||||
Net income | — | — | 2,972,754 | |||||||||
Other comprehensive income | 2,098,447 | — | 2,098,447 | |||||||||
Stock repurchases | — | — | (1,028,688 | ) | ||||||||
Exercise of stock options | — | — | 230,978 | |||||||||
Tax benefit of nonqualified options | — | — | 3,513 | |||||||||
Stock-based compensation expense | — | — | 90,163 | |||||||||
Common shares held by ESOP, committed to be released | — | 37,620 | 80,978 | |||||||||
Dividends on common stock, $0.32 per share | — | — | (570,843 | ) | ||||||||
Balance, December 31, 2014 | 711,483 | (249,910 | ) | 45,016,098 | ||||||||
Net income | — | — | 3,026,123 | |||||||||
Other comprehensive income | 78,858 | — | 78,858 | |||||||||
Stock repurchases | — | — | (765,311 | ) | ||||||||
Exercise of stock options | — | — | 382,621 | |||||||||
Tax benefit of nonqualified options | — | — | 4,169 | |||||||||
Stock-based compensation expense | — | — | 90,163 | |||||||||
Common shares held by ESOP, committed to be released | — | 38,200 | 90,649 | |||||||||
Dividends on common stock, $1.32 per share | — | — | (2,356,870 | ) | ||||||||
Balance, December 31, 2015 | $ | 790,341 | $ | (211,710 | ) | $ | 45,566,500 |
See Notes to Consolidated Financial Statements
26 |
Consolidated Statements of Cash Flows
Years Ended December 31, 2015 and 2014
2015 | 2014 | |||||||
Operating Activities | ||||||||
Net income | $ | 3,026,123 | $ | 2,972,754 | ||||
Items not requiring (providing) cash | ||||||||
Depreciation and amortization | 386,063 | 385,385 | ||||||
Provision for loan losses | 140,000 | 240,000 | ||||||
Amortization of premiums and discounts on securities and loans | 652,730 | 724,332 | ||||||
Deferred income taxes | (137,484 | ) | 135,886 | |||||
Net realized gains on available-for-sale securities | (320,585 | ) | (408,753 | ) | ||||
Amortization of mortgage servicing rights | 127,800 | 127,647 | ||||||
Increase in cash surrender value of life insurance, net | (180,723 | ) | (97,858 | ) | ||||
Gains on sales of foreclosed assets | (49,975 | ) | (9,122 | ) | ||||
Shares held by ESOP committed to be released | 90,649 | 80,978 | ||||||
Stock-based compensation expense | 90,163 | 90,163 | ||||||
Changes in | ||||||||
Interest receivable | (2,433 | ) | 104,172 | |||||
Other assets | (216,149 | ) | (89,576 | ) | ||||
Interest payable | (47,717 | ) | (44,174 | ) | ||||
Other liabilities | (254,242 | ) | 1,153,196 | |||||
Origination of loans held for sale | (16,942,428 | ) | (12,358,997 | ) | ||||
Proceeds from sales of loans held for sale | 16,845,646 | 12,543,780 | ||||||
Net cash provided by operating activities | 3,207,438 | 5,549,813 | ||||||
Investing Activities | ||||||||
Net change in interest-earning time deposits | (2,724,000 | ) | — | |||||
Purchases of available-for-sale securities | (29,989,452 | ) | (23,850,584 | ) | ||||
Proceeds from maturities and payments of available-for-sale securities | 8,303,432 | 7,764,734 | ||||||
Proceeds from the sales of available-for-sale investments and other investments | 30,695,946 | 31,257,071 | ||||||
Net change in loans | (8,749,699 | ) | (4,387,125 | ) | ||||
Purchase of premises and equipment | (168,237 | ) | (152,390 | ) | ||||
Proceeds from the sale of foreclosed assets | 182,378 | 176,737 | ||||||
Net cash provided by (used in) investing activities | (2,449,632 | ) | 10,808,443 |
See Notes to Consolidated Financial Statements
27 |
Jacksonville Bancorp, Inc.
Consolidated Statements of Cash Flows
Years Ended December 31, 2015 and 2014
2015 | 2014 | |||||||
Financing Activities | ||||||||
Net increase in demand deposits, money market, NOW and savings accounts | $ | 8,885,407 | $ | 7,755,177 | ||||
Net decrease in certificates of deposit | (15,545,039 | ) | (13,552,006 | ) | ||||
Net increase (decrease) in short-term borrowings | 1,309,981 | (5,788,567 | ) | |||||
Net increase in advances from borrowers for taxes and insurance | 28,155 | 104,948 | ||||||
Stock repurchase | (765,311 | ) | (1,028,688 | ) | ||||
Proceeds from stock options exercised | 386,790 | 234,491 | ||||||
Dividends paid | (565,995 | ) | (570,843 | ) | ||||
Net cash used in financing activities | (6,266,012 | ) | (12,845,488 | ) | ||||
Increase (Decrease) in Cash and Cash Equivalents | (5,508,206 | ) | 3,512,768 | |||||
Cash and Cash Equivalents, Beginning of Year | 9,611,638 | 6,098,870 | ||||||
Cash and Cash Equivalents, End of Year | $ | 4,103,432 | $ | 9,611,638 | ||||
Supplemental Cash Flows Information | ||||||||
Interest paid | $ | 1,175,090 | $ | 1,495,632 | ||||
Income taxes paid | $ | 1,356,000 | $ | 632,000 | ||||
Sale and financing of foreclosed assets | $ | 81,700 | $ | 298,000 | ||||
Real estate acquired in settlement of loans | $ | 379,825 | $ | 374,116 | ||||
Dividends declared not paid | $ | 1,934,834 | $ | 143,959 | ||||
Exercise and retirement of shares in stock option plan | $ | 153,271 | $ | 101,130 |
See Notes to Consolidated Financial Statements
28 |
Notes to Consolidated Financial Statements
December 31, 2015 and 2014
Note 1: Nature of Operations and Summary of Significant Accounting Policies
Nature of Operations
Jacksonville Bancorp, Inc. (the “Company”) is a Maryland corporation. The Company owns 100% of Jacksonville Savings Bank (the “Bank”). The Bank was founded in 1916 as an Illinois-chartered savings and loan association and converted to an Illinois-chartered savings bank in 1992. The Bank is headquartered in Jacksonville, Illinois and operates five branches in addition to its main office. The Bank’s deposits have been federally insured since 1945 by the Federal Deposit Insurance Corporation (“FDIC”). The Bank has been a member of the Federal Home Loan Bank (“FHLB”) System since 1932.
The Bank is a community-oriented savings bank engaged primarily in the business of attracting retail deposits from the general public in the Bank’s market area and using such funds together with borrowings and funds from other sources to originate consumer loans and mortgage loans secured by one-to-four family residential real estate. The Bank also originates commercial real estate loans, multi-family real estate loans, commercial business loans, and agricultural loans. When possible, the Bank emphasizes the origination of mortgage loans with adjustable interest rates (“ARM”), as well as fixed-rate balloon loans with terms ranging from three to five years, consumer loans, which are primarily home equity loans secured by second mortgages, commercial business loans, and agricultural loans. The Bank also offers trust and investment services. The investment center, Berthel Fisher and Company Financial Services, Inc., is operated through the Bank’s wholly-owned subsidiary, Financial Resources Group, Inc.
The Company is subject to competition from other financial institutions and nonfinancial institutions providing financial products. Additionally, the Company is subject to the regulations of certain regulatory agencies and undergoes periodic examinations by those regulatory agencies.
The significant accounting and reporting policies of the Company and its subsidiary follow:
Principles of Consolidation and Financial Statement Presentation
The consolidated financial statements include the accounts of the Company, the Bank and the Bank’s wholly owned subsidiary, Financial Resources Group, Inc. Significant intercompany accounts and transactions have been eliminated in consolidation. Based on the Company’s approach to decision making, it has decided that its business is comprised of a single segment.
The consolidated financial statements of the Company have been prepared in conformity with accounting principles generally accepted in the United States of America and conform to predominate practice within the banking industry.
29 |
Jacksonville Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015 and 2014
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for loan losses, fair value of securities, valuation of real estate acquired in connection with foreclosures or in satisfaction of loans, valuation of loan servicing rights, valuation of deferred tax assets and goodwill impairment.
Cash Equivalents
The Company considers all liquid investments with original maturities of three months or less to be cash equivalents. At December 31, 2015 and 2014, cash equivalents consisted primarily of federal funds sold and interest-earning demand deposits in banks.
At December 31, 2015, the Company’s cash accounts did not exceed federally insured limits.
Interest-earning Time Deposits in Banks
Interest-earning time deposits in banks are generally short-term and are carried at cost.
Securities
Available-for-sale securities, which include any security for which the Company has no immediate plan to sell but which may be sold in the future, are carried at fair value, with unrealized gains and losses excluded from earnings and reported in other comprehensive income. Purchase premiums and discounts are recognized in interest income using the interest method over the terms of the securities. Gains and losses on the sale of securities are recorded on the settlement date and are determined using the specific identification method.
For debt securities with fair value below amortized cost when the Company does not intend to sell a debt security, and it is more likely than not the Company will not have to sell the security before recovery of its cost basis, it recognizes the credit component of an other-than-temporary impairment of a debt security in earnings and the remaining portion in other comprehensive income.
30 |
Jacksonville Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015 and 2014
Other Investments
Other investments at December 31, 2015 and 2014 include local municipal bonds and equity investments in local community development organizations. The municipal bonds mature ratably through the year 2020. These securities have no readily ascertainable market value and are carried at cost.
Loans Held for Sale
Mortgage loans originated and intended for sale in the secondary market are carried at the lower of cost or fair value in the aggregate. Net unrealized losses, if any, are recognized through a valuation allowance by charges to noninterest income. Gains and losses on loan sales are recorded in noninterest income, and direct loan origination costs and fees are deferred at origination of the loan and are recognized in noninterest income upon sale of the loan.
Loans
Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoffs are reported at their outstanding principal balances adjusted for unearned income, charge-offs, the allowance for loan losses, any unamortized deferred fees or costs on originated loans.
For loans amortized at cost, interest income is accrued based on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, as well as premiums and discounts, are deferred and amortized as a level yield adjustment over the respective term of the loan.
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 nonaccrual or charged off at an earlier date if collection of principal or interest is considered doubtful.
All interest accrued but not collected for loans that are placed on nonaccrual 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 the principal and interest amounts contractually due are brought current and future payments are reasonably assured.
Allowance for Loan Losses
The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to income. Loan losses are charged against the allowance when management believes collectibility of the principal is unlikely. Subsequent recoveries, if any, are credited to the allowance.
31 |
Jacksonville Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015 and 2014
The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectibility of the loans in light of historical experience, the nature and volume 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. The general component covers nonclassified loans and is based on historical charge-off experience and expected loss given default derived from the Company’s internal risk rating process. Other adjustments may be made to the allowance for pools of loans after an assessment of internal or external influences on credit quality that are not fully reflected in the historical loss or risk rating data.
A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the 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 construction 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, the Company does not separately identify individual consumer and residential loans for impairment measurements, unless such loans are the subject of a restructuring agreement due to financial difficulties of the borrower.
Premises and Equipment
Depreciable assets are stated at cost less accumulated depreciation. Depreciation is charged to expense using the straight-line method over the estimated useful lives of the assets.
The estimated useful lives for each major depreciable classification of premises and equipment are as follows:
Buildings and improvements | 35-40 years |
Equipment | 3-5 years |
32 |
Jacksonville Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015 and 2014
Federal Home Loan Bank Stock
Federal Home Loan Bank stock is a required investment for institutions that are members of the Federal Home Loan Bank system. The required investment in the common stock is based on a predetermined formula, carried at cost and evaluated for impairment.
Foreclosed Assets Held for Sale
Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at fair value at the date of foreclosure, establishing a new cost basis. Subsequent to foreclosure, valuations are periodically performed by management and the assets are carried at the lower of carrying amount or fair value less cost to sell. Revenue and expenses from operations and changes in the valuation allowance are included in income or expense from foreclosed assets.
Bank-owned Life Insurance
Bank-owned life insurance policies are reflected on the consolidated balance sheets at the estimated cash surrender value. Changes in the cash surrender value are reflected in noninterest income in the consolidated statements of income.
Goodwill
Goodwill is evaluated annually for impairment or more frequently if impairment indicators are present. A qualitative assessment is performed to determine whether the existence of events or circumstances leads to a determination that it is more likely than not the fair value is less than the carrying amount, including goodwill. If, based on the evaluation, it is determined to be more likely than not that the fair value is less than the carrying value, then goodwill is tested further for impairment. If the implied fair value of goodwill is lower than its carrying amount, a goodwill impairment is indicated and goodwill is written down to its implied fair value. Subsequent increases in goodwill value are not recognized in the financial statements. The goodwill was not deemed impaired as of December 31, 2015 or 2014.
Mortgage Servicing Rights
Mortgage servicing assets are recognized separately when rights are acquired through purchase or through sale of financial assets. Under the servicing assets and liabilities accounting guidance (ASC 860-50), servicing rights resulting from the sale or securitization of loans originated by the Company are initially measured at fair value at the date of transfer. Fair value is based on market prices for comparable mortgage servicing contracts, when available, or alternatively, is based on a valuation model that calculates the present value of estimated future net servicing income. The valuation model incorporates assumptions that market participants would use in estimating future net servicing income, such as the cost to service, the discount rate, the custodial earnings rate, an inflation rate, ancillary income, prepayment speeds and default rates and losses. These variables change from quarter to quarter as market conditions and projected interest rates change.
33 |
Jacksonville Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015 and 2014
The Company subsequently measures each class of servicing asset using either the fair value or the amortization method. The Company has elected to subsequently measure the mortgage servicing rights under the amortization method. Under the amortization method, servicing rights are amortized in proportion to and over the period of estimated net servicing income. The amortized assets are assessed for impairment or increased obligation based on fair value at each reporting date. Each class of separately recognized servicing assets subsequently measured using the amortization method are evaluated and measured for impairment. Impairment is determined by stratifying rights into tranches based on predominant characteristics, such as interest rate, loan type and investor type. Impairment is recognized through a valuation allowance for an individual tranche, to the extent that fair value is less than the carrying amount of the servicing assets for that tranche. The valuation allowance is adjusted to reflect changes in the measurement of impairment after the initial measurement of impairment. Changes in valuation allowances are reported as a separate line item in noninterest expense on the consolidated income statement. Fair value in excess of the carrying amount of servicing assets for that stratum is not recognized.
Servicing fee income is recorded for fees earned for servicing loans. The fees are based on a contractual percentage of the outstanding principal and are recorded as income when earned in loan servicing fees in non-interest income. The amortization of mortgage servicing rights is netted from the gains on sale of loans, both cash gains as well as the capitalized gains, and is included in mortgage banking operations, net in non-interest income.
Stock Options
At December 31, 2015 and 2014, the Company recognizes the fair value (calculated value) of stock-based awards to employees as compensation cost over the requisite service period. The stock-based employee compensation plan is described more fully in Note 15.
Transfers of Financial Assets
Transfers of financial assets are accounted for as sales, when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company — put presumptively beyond the reach of the transferor and its creditors, even in bankruptcy or other receivership, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity or the ability to unilaterally cause the holder to return specific assets.
34 |
Jacksonville Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015 and 2014
Income Taxes
The Company accounts for income taxes in accordance with income tax accounting guidance (ASC 740, Income Taxes). The income tax accounting guidance results in two components of income tax expense: current and deferred. Current income tax expense reflects taxes to be paid or refunded for the current period by applying the provisions of the enacted tax law to the taxable income or excess of deductions over revenues. The Company determines deferred income taxes using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is based on the tax effects of the differences between the book and tax bases of assets and liabilities, and enacted changes in tax rates and laws are recognized in the period in which they occur.
Deferred income tax expense results from changes in deferred tax assets and liabilities between periods. Deferred tax assets are reduced by a valuation allowance if, based on the weight of evidence available, it is more likely than not that some portion or all of a deferred tax asset will not be realized.
Tax positions are recognized if it is more likely than not, based on the technical merits, that the tax position will be realized or sustained upon examination. The term more likely than not means a likelihood of more than 50 percent; the terms examined and upon examination also include resolution of the related appeals or litigation processes, if any. A tax position that meets the more-likely-than-not recognition threshold is initially and subsequently measured as the largest amount of tax benefit that has a greater than 50 percent likelihood of being realized upon settlement with a taxing authority that has full knowledge of all relevant information. The determination of whether or not a tax position has met the more-likely-than-not recognition threshold considers the facts, circumstances and information available at the reporting date and is subject to the management’s judgment. With a few exceptions, the Company is no longer subject to U.S. federal and state income tax examinations by tax authorities for years before 2012.
The Company recognizes interest and penalties on income taxes as a component of income tax expense.
The Company files consolidated income tax returns with its subsidiary.
Earnings Per Share
Basic earnings per share represents income available to common stockholders divided by the weighted-average number of common shares outstanding during each period. Diluted earnings per share reflects additional potential common shares that would have been outstanding if dilutive potential common shares had been issued. Potential common shares that may be issued by the Company relate solely to outstanding stock options and are determined using the treasury stock method.
35 |
Jacksonville Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015 and 2014
Comprehensive Income
Comprehensive income consists of net income and other comprehensive income, net of applicable income taxes. Other comprehensive income includes unrealized appreciation on available-for-sale securities.
Trust Assets
Assets held in fiduciary or agency capacities are not included in the consolidated balance sheets since such items are not assets of the Company. Fees from trust activities are recorded as revenue over the period in which the service is provided. Fees are a function of the market value of assets managed and administered, the volume of transactions, and fees for other services rendered, as set forth in the underlying client agreement with the Trust Department. This revenue recognition involves the use of estimates and assumptions, including components that are calculated based on estimated asset valuations and transaction volumes. Generally, the actual trust fee is charged to each account on a monthly basis. Any out of pocket expenses or services not typically covered by the fee schedule for trust activities are charged directly to the trust account on a gross basis as trust revenue is incurred. The Company managed or administered approximately 124 and 114 trust accounts with assets totaling approximately $90.7 million and $78.6 million at December 31, 2015 and 2014, respectively.
Reclassifications
Certain amounts included in the 2014 consolidated statements have been reclassified to conform to the 2015 presentation.
Recent and Future Accounting Requirements
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. For public entities, the guidance is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period, and must be applied either retrospectively or using the modified retrospective approach. 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. Management is evaluating the new guidance, but does not expect the adoption of this guidance to have a material impact on the Company’s consolidated financial statements. Early adoption would be permitted, but not before the original public entity effective date.
36 |
Jacksonville Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015 and 2014
In June 2014, the FASB issued ASU No. 2014-11, Transfers and Servicing (Topic 860) – Repurchase to Maturity Transactions, Repurchase Financings, and Disclosures. ASU No. 2014-11 aligns the accounting for repurchase to maturity transactions and repurchase agreements executed as a repurchase financing with the accounting for other typical repurchase agreements. Going forward, these transactions would all be accounted for as secured borrowings. ASU 2014-11 was effective for the first interim or annual period beginning after December 15, 2014. In addition, the disclosure of certain transactions accounted for as a sale was effective for the first interim or annual period beginning on or after December 15, 2014, and the disclosure for transactions accounted for as secured borrowings is required for annual periods beginning after December 15, 2014, and interim periods beginning after March 15, 2015. The Company adopted ASU 2014-11 and included additional disclosures.
In April 2015, the FASB issued ASU No. 2015-05, Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement. This ASU provides guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing agreement includes a software license, the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. The new guidance does not change the accounting for a customer’s accounting for service contracts. ASU No. 2015-05 is effective for interim and annual reporting periods beginning after December 15, 2015. The Company’s current method of accounting for fees paid in a cloud computing arrangement is consistent with the accounting guidance provided by ASU No. 2015-05. Therefore, the adoption of ASU No. 2015-05 is not expected to have a material impact on the Company’s consolidated financial statements.
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. Adoption by the Company is not expected to have a material impact on the consolidated financial statements and related disclosures.
37 |
Jacksonville Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015 and 2014
Note 2: Restriction on Cash and Due From Banks
The Company is required to maintain reserve funds in cash and/or on deposit with the Federal Reserve Bank. The reserve required at December 31, 2015 and 2014, was $1,524,000 and $1,402,000, respectively.
Note 3: Securities
The amortized cost and approximate fair values, together with gross unrealized gains and losses, of securities are as follows:
Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | |||||||||||||
Available-for-sale Securities | ||||||||||||||||
December 31, 2015: | ||||||||||||||||
U.S. Government and federal agencies | $ | 15,979,475 | $ | 44,972 | $ | (85,750 | ) | $ | 15,938,697 | |||||||
Mortgage-backed securities (Government-sponsored enterprises - residential) | 23,067,200 | 211,987 | (100,792 | ) | 23,178,395 | |||||||||||
Municipal bonds | 47,229,171 | 1,306,328 | (179,259 | ) | 48,356,240 | |||||||||||
$ | 86,275,846 | $ | 1,563,287 | $ | (365,801 | ) | $ | 87,473,332 | ||||||||
December 31, 2014: | ||||||||||||||||
U.S. Government and federal agencies | $ | 10,031,683 | $ | 65,328 | $ | (138,738 | ) | $ | 9,958,273 | |||||||
Mortgage-backed securities (Government-sponsored enterprises - residential) | 41,196,695 | 433,757 | (210,531 | ) | 41,419,921 | |||||||||||
Municipal bonds | 44,378,515 | 1,457,977 | (529,789 | ) | 45,306,703 | |||||||||||
$ | 95,606,893 | $ | 1,957,062 | $ | (879,058 | ) | $ | 96,684,897 |
38 |
Jacksonville Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015 and 2014
The amortized cost and fair value of available-for-sale securities at December 31, 2015, 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.
Available-for-sale | ||||||||
Amortized Cost | Fair Value | |||||||
Within one year | $ | 1,526,439 | $ | 1,528,936 | ||||
One to five years | 11,435,457 | 11,703,893 | ||||||
Five to ten years | 34,788,426 | 35,343,736 | ||||||
After ten years | 15,458,324 | 15,718,372 | ||||||
63,208,646 | 64,294,937 | |||||||
Mortgage-backed securities | 23,067,200 | 23,178,395 | ||||||
Totals | $ | 86,275,846 | $ | 87,473,332 |
The carrying value of securities pledged as collateral, to secure public deposits and for other purposes, was $25,681,115 at December 31, 2015 and $21,121,613 at December 31, 2014.
The carrying value of securities sold under agreement to repurchase amounted to $7,591,475 at December 31, 2015 and $9,165,462 at December 31, 2014.
Gross gains of $352,983 and $429,105 and gross losses of $(32,398) and $(20,352) resulting from sales of available-for-sale securities were realized for 2015 and 2014, respectively. The tax provision applicable to these net realized gains amounted to $108,999 and $138,976, respectively.
Certain investments in debt securities are reported in the consolidated financial statements at an amount less than their historical cost. Total fair value of these investments at December 31, 2015 and 2014, was $30,676,768 and $40,587,408, which is approximately 35% and 42%, respectively, of the Company’s available-for-sale investment portfolio. The declines primarily resulted from recent changes in market interest rates.
Management believes the declines in fair value for these securities are temporary.
39 |
Jacksonville Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015 and 2014
The following table shows the Company’s investments’ gross unrealized losses and fair value of the Company’s investments with unrealized losses that are not deemed to be other-than-temporarily impaired, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at December 31, 2015 and 2014:
December 31, 2015 | ||||||||||||||||||||||||
Less than 12 Months | 12 Months or More | Total | ||||||||||||||||||||||
Description of Securities | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | ||||||||||||||||||
Available-for-sale Securities | ||||||||||||||||||||||||
U.S. Government agencies | $ | 8,591,014 | $ | (49,205 | ) | $ | 1,809,745 | $ | (36,545 | ) | $ | 10,400,759 | $ | (85,750 | ) | |||||||||
Mortgage-backed securities (Government-sponsored enterprises - residential) | 5,843,754 | (45,886 | ) | 2,257,674 | (54,906 | ) | 8,101,428 | (100,792 | ) | |||||||||||||||
Municipal bonds | 5,440,291 | (48,383 | ) | 6,734,290 | (130,876 | ) | 12,174,581 | (179,259 | ) | |||||||||||||||
Total temporarily impaired securities | $ | 19,875,059 | $ | (143,474 | ) | $ | 10,801,709 | $ | (222,327 | ) | $ | 30,676,768 | $ | (365,801 | ) |
December 31, 2014 | ||||||||||||||||||||||||
Less than 12 Months | 12 Months or More | Total | ||||||||||||||||||||||
Description of Securities | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | ||||||||||||||||||
Available-for-sale Securities | ||||||||||||||||||||||||
U.S. Government agencies | $ | 2,955,829 | $ | (28,208 | ) | $ | 3,949,940 | $ | (110,530 | ) | $ | 6,905,769 | $ | (138,738 | ) | |||||||||
Mortgage-backed securities (Government-sponsored enterprises - residential) | 2,061,203 | (13,358 | ) | 13,725,099 | (197,173 | ) | 15,786,302 | (210,531 | ) | |||||||||||||||
Municipal bonds | 3,953,168 | (44,654 | ) | 13,942,169 | (485,135 | ) | 17,895,337 | (529,789 | ) | |||||||||||||||
Total temporarily impaired securities | $ | 8,970,200 | $ | (86,220 | ) | $ | 31,617,208 | $ | (792,838 | ) | $ | 40,587,408 | $ | (879,058 | ) |
U.S. Government Agencies
The unrealized losses on the Company’s investments in direct obligations of U.S. government agencies were caused by interest rate increases. The contractual terms of those 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 those investments to be other-than-temporarily impaired at December 31, 2015.
40 |
Jacksonville Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015 and 2014
Residential Mortgage-backed Securities
The unrealized losses on the Company’s investment in residential mortgage-backed securities were caused by interest rate increases. The Company expects to recover the amortized cost basis over the term of the securities. Because the decline in market value is attributable to changes in interest rates and not credit quality, and 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 those investments to be other-than-temporarily impaired at December 31, 2015.
Municipal Bonds
The unrealized losses on the Company’s investments in securities of municipal bonds were caused by interest rate increases. The contractual terms of those 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 those investments to be other-than-temporarily impaired at December 31, 2015.
Note 4: | Loans and Allowance for Loan Losses |
Classes of loans at December 31, include:
2015 | 2014 | |||||||
Mortgage loans on real estate | ||||||||
Residential 1-4 family | $ | 47,395,344 | $ | 44,561,089 | ||||
Commercial | 40,381,680 | 40,474,855 | ||||||
Agricultural | 41,223,190 | 40,119,130 | ||||||
Home equity | 11,691,545 | 11,283,264 | ||||||
Total mortgage loans on real estate | 140,691,759 | 136,438,338 | ||||||
Commercial loans | 25,453,058 | 26,813,880 | ||||||
Agricultural | 16,102,856 | 11,844,973 | ||||||
Consumer | 13,741,093 | 12,587,101 | ||||||
195,988,766 | 187,684,292 | |||||||
Less | ||||||||
Net deferred loan fees | 29,293 | 9,416 | ||||||
Allowance for loan losses | 2,919,594 | 2,956,264 | ||||||
Net loans | $ | 193,039,879 | $ | 184,718,612 |
41 |
Jacksonville Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015 and 2014
The Company’s loan portfolio includes loan participations purchased from other institutions. The outstanding balance of these purchased loans totaled $11,696,320 and $14,064,902 as of December 31, 2015 and 2014, respectively. Participations purchased during the years ended December 31, 2015 and 2014 totaled $2,609,280 and $2,677,750, respectively.
The Company believes that sound loans are 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 seek to develop and make sound, profitable loans that resources permit and that opportunity affords. The Company maintains lending policies and procedures in place 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 Morgan, Macoupin and Montgomery. 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 in the loan department 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. All residential real estate loans are then verified by our loan risk management department prior to closing. 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 45 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 is generally required on loans secured by real property.
42 |
Jacksonville Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015 and 2014
One-to-Four Family Mortgage Loans - Historically, the 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 for the secondary market.
The Company originates for resale to the secondary market 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 the net interest income. In the low interest rate environment that has existed over the past two years, the adjustable-rate portfolio has repriced downward resulting in lower interest income from this portion of the loan portfolio. 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 either 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 provides 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. It is possible that during periods of rising interest rates that the risk of delinquencies and defaults on adjustable-rate mortgage loans may increase due to the upward adjustment of interest costs to the borrower, resulting 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, among other things, that 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 mortgage portfolio during periods of rising interest rates.
43 |
Jacksonville Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015 and 2014
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 30% of the applicant’s total monthly income. In addition, total monthly obligations of the applicant, including mortgage payments, should not generally exceed 43% 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 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 and Agricultural Real Estate Loans - The Company originates and purchases commercial and agricultural real estate loans. Commercial and agricultural real estate loans are secured primarily by improved properties such as farms, retail facilities and office buildings, churches and other non-residential buildings. The maximum loan-to-value ratio for commercial and agricultural real estate loans originated is generally 75%. The commercial and agricultural 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 adjustable-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 and agricultural 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 75% of the value of the real estate. Written appraisals are usually obtained from either licensed or certified appraisers on all commercial and agricultural 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.
44 |
Jacksonville Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015 and 2014
Loans secured by commercial and 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 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 and agricultural real estate is typically dependent upon the successful operation of the related business and real estate property. If the cash flow from the project is reduced, the borrower’s ability to repay the loan may be impaired.
Commercial and Agricultural Business Loans - The Company originates commercial and agricultural 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 and agricultural business loans are generally secured by accounts receivable, 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 and agricultural 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 and 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. 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.
Home Equity and Consumer Loans – The Company originates home equity and other consumer loans. Home equity loans and lines of credit 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 including the amount of any prior mortgages or related liabilities. Home equity loans and lines of credit are approved with both fixed and adjustable interest rates which are determined 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.
45 |
Jacksonville Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015 and 2014
The principal types of other consumer loans offered are loans secured by automobiles, deposit accounts, and mobile homes. Unsecured consumer loans are also generated. Consumer loans are generally offered on a fixed-rate basis. Automobile loans with maturities of up to 60 months are offered for new automobiles. Loans secured by used automobiles will have maximum terms which vary depending upon the age of the automobile. Automobile loans with a loan-to-value ratio below the greater of 80% of the purchase price or 100% of NADA loan value are generally originated, although 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 the Company.
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. The length of employment with the borrower’s present employer is also considered, 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 the 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.
46 |
Jacksonville Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015 and 2014
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 December 31, 2015 and 2014:
December 31, 2015 | ||||||||||||||||||||||||||||||||||||
1-4 Family | Commercial Real Estate | Agricultural Real Estate | Commercial | Agricultural | Home Equity | Consumer | Unallocated | Total | ||||||||||||||||||||||||||||
Allowance for loan losses: | ||||||||||||||||||||||||||||||||||||
Balance, beginning of year | $ | 999,260 | $ | 855,463 | $ | 195,546 | $ | 421,809 | $ | 57,934 | $ | 205,577 | $ | 167,319 | $ | 53,356 | $ | 2,956,264 | ||||||||||||||||||
Provision charged to expense | (10,386 | ) | 29,238 | 6,372 | (35,327 | ) | 105,412 | (53,188 | ) | 49,289 | 48,590 | 140,000 | ||||||||||||||||||||||||
Losses charged off | (199,392 | ) | (27,464 | ) | — | — | — | (13,724 | ) | (53,249 | ) | — | (293,829 | ) | ||||||||||||||||||||||
Recoveries | 40,122 | 60,289 | — | 138 | — | 10,588 | 6,022 | — | 117,159 | |||||||||||||||||||||||||||
Balance, end of year | $ | 829,604 | $ | 917,526 | $ | 201,918 | $ | 386,620 | $ | 163,346 | $ | 149,253 | $ | 169,381 | $ | 101,946 | $ | 2,919,594 | ||||||||||||||||||
Ending balance: individually evaluated for impairment | $ | 176,079 | $ | 487,205 | $ | — | $ | 127,458 | $ | — | $ | 9,922 | $ | — | $ | — | $ | 800,664 | ||||||||||||||||||
Ending balance: collectively evaluated for impairment | $ | 653,525 | $ | 430,321 | $ | 201,918 | $ | 259,162 | $ | 163,346 | $ | 139,331 | $ | 169,381 | $ | 101,946 | $ | 2,118,930 | ||||||||||||||||||
Loans: | ||||||||||||||||||||||||||||||||||||
Ending balance | $ | 47,395,344 | $ | 40,381,680 | $ | 41,223,190 | $ | 25,453,058 | $ | 16,102,856 | $ | 11,691,545 | $ | 13,741,093 | $ | — | $ | 195,988,766 | ||||||||||||||||||
Ending balance: individually evaluated for impairment | $ | 658,734 | $ | 1,598,530 | $ | 839,546 | $ | 277,628 | $ | 406,950 | $ | 58,340 | $ | 428 | $ | — | $ | 3,840,156 | ||||||||||||||||||
Ending balance: collectively evaluated for impairment | $ | 46,736,610 | $ | 38,783,150 | $ | 40,383,644 | $ | 25,175,430 | $ | 15,695,906 | $ | 11,633,205 | $ | 13,740,665 | $ | — | $ | 192,148,610 |
December 31, 2014 | ||||||||||||||||||||||||||||||||||||
1-4 Family | Commercial
Real Estate | Agricultural
Real Estate | Commercial | Agricultural | Home Equity | Consumer | Unallocated | Total | ||||||||||||||||||||||||||||
Allowance for loan losses: | ||||||||||||||||||||||||||||||||||||
Balance, beginning of year | $ | 856,144 | $ | 745,760 | $ | 175,028 | $ | 1,034,189 | $ | 52,798 | $ | 201,993 | $ | 184,848 | $ | 155,674 | $ | 3,406,434 | ||||||||||||||||||
Provision charged to expense | 241,875 | 392,009 | 20,518 | (327,057 | ) | 5,136 | 5,887 | 3,950 | (102,318 | ) | 240,000 | |||||||||||||||||||||||||
Losses charged off | (100,319 | ) | (287,474 | ) | — | (285,411 | ) | — | (5,403 | ) | (25,781 | ) | — | (704,388 | ) | |||||||||||||||||||||
Recoveries | 1,560 | 5,168 | — | 88 | — | 3,100 | 4,302 | — | 14,218 | |||||||||||||||||||||||||||
Balance, end of year | $ | 999,260 | $ | 855,463 | $ | 195,546 | $ | 421,809 | $ | 57,934 | $ | 205,577 | $ | 167,319 | $ | 53,356 | $ | 2,956,264 | ||||||||||||||||||
Ending balance: individually evaluated for impairment | $ | 183,196 | $ | 348,240 | $ | — | $ | 154,089 | $ | — | $ | 9,982 | $ | — | $ | — | $ | 695,507 | ||||||||||||||||||
Ending balance: collectively evaluated for impairment | $ | 816,064 | $ | 507,223 | $ | 195,546 | $ | 267,720 | $ | 57,934 | $ | 195,595 | $ | 167,319 | $ | 53,356 | $ | 2,260,757 | ||||||||||||||||||
Loans: | ||||||||||||||||||||||||||||||||||||
Ending balance | $ | 44,561,089 | $ | 40,474,855 | $ | 40,119,130 | $ | 26,813,880 | $ | 11,844,973 | $ | 11,283,264 | $ | 12,587,101 | $ | — | $ | 187,684,292 | ||||||||||||||||||
Ending balance: individually evaluated for impairment | $ | 713,962 | $ | 1,690,251 | $ | 1,009,889 | $ | 240,805 | $ | 258,140 | $ | 37,531 | $ | 8,469 | $ | — | $ | 3,959,047 | ||||||||||||||||||
Ending balance: collectively evaluated for impairment | $ | 43,847,127 | $ | 38,784,604 | $ | 39,109,241 | $ | 26,573,075 | $ | 11,586,833 | $ | 11,245,733 | $ | 12,578,632 | $ | — | $ | 183,725,245 |
47 |
Jacksonville Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015 and 2014
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 over $75,000 are reviewed annually by our independent loan review 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. During the periods presented, none of our loans were classified as Doubtful.
48 |
Jacksonville Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015 and 2014
The following tables present the credit risk profile of the Company’s loan portfolio based on rating category and payment activity as of December 31, 2015 and 2014:
1-4 Family | Commercial Real Estate | Agricultural Real Estate | Commercial | |||||||||||||||||||||||||||||
2015 | 2014 | 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | |||||||||||||||||||||||||
Pass | $ | 44,120,334 | $ | 41,530,699 | $ | 37,628,385 | $ | 38,122,972 | $ | 40,383,644 | $ | 39,109,241 | $ | 25,117,982 | $ | 26,563,823 | ||||||||||||||||
Special Mention | 1,323,266 | 655,049 | 454,194 | 53,750 | 839,546 | 887,048 | 51,196 | — | ||||||||||||||||||||||||
Substandard | 1,951,744 | 2,375,341 | 2,299,101 | 2,298,133 | — | 122,841 | 283,880 | 250,057 | ||||||||||||||||||||||||
Total | $ | 47,395,344 | $ | 44,561,089 | $ | 40,381,680 | $ | 40,474,855 | $ | 41,223,190 | $ | 40,119,130 | $ | 25,453,058 | $ | 26,813,880 |
Agricultural Business | Home Equity | Consumer | ||||||||||||||||||||||
2015 | 2014 | 2015 | 2014 | 2015 | 2014 | |||||||||||||||||||
Pass | $ | 15,110,606 | $ | 11,586,833 | $ | 11,324,889 | $ | 10,833,853 | $ | 13,501,477 | $ | 12,386,412 | ||||||||||||
Special Mention | 992,250 | 258,140 | 68,044 | 162,103 | 52,656 | 80,544 | ||||||||||||||||||
Substandard | — | — | 298,612 | 287,308 | 186,960 | 120,145 | ||||||||||||||||||
Total | $ | 16,102,856 | $ | 11,844,973 | $ | 11,691,545 | $ | 11,283,264 | $ | 13,741,093 | $ | 12,587,101 |
The following tables present the Company’s loan portfolio aging analysis as of December 31, 2015 and 2014:
December 31, 2015 | ||||||||||||||||||||||||||||
30-59 Days Past Due | 60-89 Days Past Due | Greater Than 90 Days | Total Past Due | Current | Total Loans Receivable | Total Loans > 90 Days & Accruing | ||||||||||||||||||||||
1-4 Family | $ | 345,169 | $ | 77,588 | $ | 623,055 | $ | 1,045,812 | $ | 46,349,532 | $ | 47,395,344 | $ | — | ||||||||||||||
Commercial real estate | — | — | 766,840 | 766,840 | 39,614,840 | 40,381,680 | — | |||||||||||||||||||||
Agricultural real estate | — | — | — | — | 41,223,190 | 41,223,190 | — | |||||||||||||||||||||
Commercial | — | — | — | — | 25,453,058 | 25,453,058 | — | |||||||||||||||||||||
Agricultural business | — | — | — | — | 16,102,856 | 16,102,856 | — | |||||||||||||||||||||
Home equity | 22,122 | 66,305 | 69,515 | 157,942 | 11,533,603 | 11,691,545 | — | |||||||||||||||||||||
Consumer | 183,526 | 5,972 | 6,031 | 195,529 | 13,545,564 | 13,741,093 | — | |||||||||||||||||||||
Total | $ | 550,817 | $ | 149,865 | $ | 1,465,441 | $ | 2,166,123 | $ | 193,822,643 | $ | 195,988,766 | $ | — |
December 31, 2014 | ||||||||||||||||||||||||||||
30-59 Days Past Due | 60-89 Days Past Due | Greater Than 90 Days | Total Past Due | Current | Total Loans Receivable | Total Loans > 90 Days & Accruing | ||||||||||||||||||||||
1-4 Family | $ | 420,086 | $ | 286,622 | $ | 613,534 | $ | 1,320,242 | $ | 43,240,847 | $ | 44,561,089 | $ | — | ||||||||||||||
Commercial real estate | — | 794,110 | 39,023 | 833,133 | 39,641,722 | 40,474,855 | — | |||||||||||||||||||||
Agricultural real estate | — | — | 122,841 | 122,841 | 39,996,289 | 40,119,130 | — | |||||||||||||||||||||
Commercial | — | — | — | — | 26,813,880 | 26,813,880 | — | |||||||||||||||||||||
Agricultural business | — | — | — | — | 11,844,973 | 11,844,973 | — | |||||||||||||||||||||
Home equity | 96,971 | 11,561 | 58,360 | 166,892 | 11,116,372 | 11,283,264 | — | |||||||||||||||||||||
Consumer | 90,558 | 5,531 | 16,560 | 112,649 | 12,474,452 | 12,587,101 | — | |||||||||||||||||||||
Total | $ | 607,615 | $ | 1,097,824 | $ | 850,318 | $ | 2,555,757 | $ | 185,128,535 | $ | 187,684,292 | $ | — |
49 |
Jacksonville Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015 and 2014
A loan is considered impaired, in accordance with the impairment accounting guidance (ASC 310-10-35-16), when based on current information and events, it is probable the Company will be unable to collect all amounts due from the borrower in accordance with the contractual terms of the loan. Impaired loans include nonperforming commercial loans but also include loans modified in troubled debt restructurings where concessions have been granted to borrowers experiencing financial difficulties. These concessions could include a reduction in the interest rate on the loan, payment extensions, forgiveness of principal, forbearance or other actions intended to maximize collection.
Impairment is measured on a loan-by-loan basis by either the present value of the expected future cash flows, the loan’s observable market value, or, for collateral-dependent loans, the fair value of the collateral adjusted for market conditions and selling expenses. Significant restructured loans are considered impaired in determining the adequacy of the allowance for loan losses.
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.
50 |
Jacksonville Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015 and 2014
The following tables present impaired loans for the years ended December 31, 2015 and 2014:
December 31, 2015 | ||||||||||||||||||||||||
Recorded Balance | Unpaid Principal Balance | Specific Allowance | Average Investment in Impaired Loans | Interest Income Recognized | Interest Income Recognized Cash Basis | |||||||||||||||||||
Loans without a specific valuation allowance | ||||||||||||||||||||||||
1-4 Family | $ | 111,166 | $ | 111,166 | $ | — | $ | 211,346 | $ | 12,248 | $ | 12,042 | ||||||||||||
Commercial real estate | 516,560 | 516,560 | — | 663,640 | 34,155 | 34,586 | ||||||||||||||||||
Agricultural real estate | 839,546 | 839,546 | — | 864,705 | 43,335 | 44,885 | ||||||||||||||||||
Commercial | 80,172 | 80,172 | — | 83,509 | 634 | 150 | ||||||||||||||||||
Agricultural business | 406,950 | 406,950 | — | 307,729 | 11,403 | 808 | ||||||||||||||||||
Home equity | 48,418 | 48,418 | — | 43,342 | 3,333 | 3,331 | ||||||||||||||||||
Consumer | 428 | 428 | — | 1,160 | 78 | 82 | ||||||||||||||||||
Loans with a specific valuation allowance | ||||||||||||||||||||||||
1-4 Family | 547,568 | 547,568 | 176,079 | 568,790 | 32,908 | 25,352 | ||||||||||||||||||
Commercial real estate | 1,081,970 | 1,081,970 | 487,205 | 1,118,044 | 67,505 | 47,864 | ||||||||||||||||||
Commercial | 197,456 | 197,456 | 127,458 | 269,496 | 11,517 | 11,139 | ||||||||||||||||||
Home equity | 9,922 | 9,922 | 9,922 | 9,982 | 810 | 722 | ||||||||||||||||||
Total: | ||||||||||||||||||||||||
1-4 family | 658,734 | 658,734 | 176,079 | 780,136 | 45,156 | 37,394 | ||||||||||||||||||
Commercial real estate | 1,598,530 | 1,598,530 | 487,205 | 1,781,684 | 101,660 | 82,450 | ||||||||||||||||||
Agricultural real estate | 839,546 | 839,546 | — | 864,705 | 43,335 | 44,885 | ||||||||||||||||||
Commercial | 277,628 | 277,628 | 127,458 | 353,005 | 12,151 | 11,289 | ||||||||||||||||||
Agricultural business | 406,950 | 406,950 | — | 307,729 | 11,403 | 808 | ||||||||||||||||||
Home equity | 58,340 | 58,340 | 9,922 | 53,324 | 4,143 | 4,053 | ||||||||||||||||||
Consumer | 428 | 428 | — | 1,160 | 78 | 82 | ||||||||||||||||||
Total | $ | 3,840,156 | $ | 3,840,156 | $ | 800,664 | $ | 4,141,743 | $ | 217,926 | $ | 180,961 |
51 |
Jacksonville Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015 and 2014
December 31, 2014 | ||||||||||||||||||||||||
Recorded Balance | Unpaid Principal Balance | Specific Allowance | Average Investment in Impaired Loans | Interest Income Recognized | Interest Income Recognized Cash Basis | |||||||||||||||||||
Loans without a specific valuation allowance | ||||||||||||||||||||||||
1-4 Family | $ | 129,272 | $ | 129,272 | $ | — | $ | 220,541 | $ | 12,818 | $ | 13,076 | ||||||||||||
Commercial real estate | 564,610 | 564,610 | — | 757,616 | 19,826 | 18,816 | ||||||||||||||||||
Agricultural real estate | 1,009,889 | 1,009,889 | — | 1,037,661 | 58,253 | 49,159 | ||||||||||||||||||
Agricultural business | 258,140 | 258,140 | — | 358,529 | 13,723 | 1,046 | ||||||||||||||||||
Home equity | 27,549 | 27,549 | — | 29,505 | 2,881 | 2,939 | ||||||||||||||||||
Consumer | 8,469 | 8,469 | — | 12,285 | 951 | 964 | ||||||||||||||||||
Loans with a specific valuation allowance | ||||||||||||||||||||||||
1-4 Family | 584,690 | 584,690 | 183,196 | 604,031 | 28,722 | 26,783 | ||||||||||||||||||
Commercial real estate | 1,125,641 | 1,125,641 | 348,240 | 1,134,401 | 66,864 | 60,012 | ||||||||||||||||||
Commercial | 240,805 | 240,805 | 154,089 | 319,812 | 14,425 | 16,554 | ||||||||||||||||||
Home equity | 9,982 | 9,982 | 9,982 | 9,993 | 247 | 187 | ||||||||||||||||||
Total: | ||||||||||||||||||||||||
1-4 family | 713,962 | 713,962 | 183,196 | 824,572 | 41,540 | 39,859 | ||||||||||||||||||
Commercial real estate | 1,690,251 | 1,690,251 | 348,240 | 1,892,017 | 86,690 | 78,828 | ||||||||||||||||||
Agricultural real estate | 1,009,889 | 1,009,889 | — | 1,037,661 | 58,253 | 49,159 | ||||||||||||||||||
Commercial | 240,805 | 240,805 | 154,089 | 319,812 | 14,425 | 16,554 | ||||||||||||||||||
Agricultural business | 258,140 | 258,140 | — | 358,529 | 13,723 | 1,046 | ||||||||||||||||||
Home equity | 37,531 | 37,531 | 9,982 | 39,498 | 3,128 | 3,126 | ||||||||||||||||||
Consumer | 8,469 | 8,469 | — | 12,285 | 951 | 964 | ||||||||||||||||||
Total | $ | 3,959,047 | $ | 3,959,047 | $ | 695,507 | $ | 4,484,374 | $ | 218,710 | $ | 189,536 |
The following table presents the Company’s nonaccrual loans at December 31, 2015 and 2014. This table excludes performing troubled debt restructurings.
2015 | 2014 | |||||||
1-4 family | $ | 911,283 | $ | 994,855 | ||||
Commercial real estate | 840,449 | 932,578 | ||||||
Agricultural real estate | — | 122,841 | ||||||
Commercial | 9,314 | 22,438 | ||||||
Agricultural business | — | — | ||||||
Home equity | 118,502 | 120,698 | ||||||
Consumer | 141,605 | 70,643 | ||||||
Total | $ | 2,021,153 | $ | 2,264,053 |
52 |
Jacksonville Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015 and 2014
At December 31, 2015 and 2014, the Company had a number of loans that were modified in troubled debt restructurings (TDR’s) and impaired. The modification of terms of such loans included one or a combination of the following: an extension of maturity, a reduction of the stated interest rate or a permanent reduction of the recorded investment in the loan.
The following table presents the recorded balance, at original cost, of troubled debt restructurings, as of December 31, 2015 and 2014.
2015 | 2014 | |||||||
1-4 family | $ | 723,421 | $ | 747,470 | ||||
Commercial real estate | 1,708,013 | 1,265,079 | ||||||
Agricultural real estate | — | — | ||||||
Commercial | 57,783 | 212,579 | ||||||
Agricultural business | — | — | ||||||
Home equity | 10,897 | 15,379 | ||||||
Consumer | 109,340 | 42,786 | ||||||
Total | $ | 2,609,454 | $ | 2,283,293 |
The following table presents the recorded balance, at original cost, of troubled debt restructurings, which were performing according to the terms of the restructuring, as of December 31, 2015 and 2014.
2015 | 2014 | |||||||
1-4 family | $ | 526,004 | $ | 567,931 | ||||
Commercial real estate | 941,173 | 470,969 | ||||||
Agricultural real estate | — | — | ||||||
Commercial | 57,783 | 212,579 | ||||||
Agricultural business | — | — | ||||||
Home equity | 10,897 | 12,074 | ||||||
Consumer | 86,255 | 42,786 | ||||||
Total | $ | 1,622,112 | $ | 1,306,339 |
53 |
Jacksonville Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015 and 2014
The following table presents loans modified as troubled debt restructurings during the years ended December 31, 2015 and 2014.
Year Ended December 31, 2015 | Year Ended December 31, 2014 | |||||||||||||||
Number of Modifications | Recorded Investment | Number of Modifications | Recorded Investment | |||||||||||||
1-4 family | 1 | $ | 98,246 | 3 | $ | 201,879 | ||||||||||
Commercial real estate | 2 | 524,432 | 1 | 386,355 | ||||||||||||
Agricultural real estate | — | — | — | — | ||||||||||||
Commercial | — | — | — | — | ||||||||||||
Agricultural business | — | — | — | — | ||||||||||||
Home equity | 1 | 1,431 | — | — | ||||||||||||
Consumer | 5 | 76,691 | 1 | 15,953 | ||||||||||||
Total | 9 | $ | 700,800 | 5 | $ | 604,187 |
2015 Modifications
The Company modified one one-to-four family residential real estate loan, with a recorded investment of $98,246, which was deemed a TDR. The loan was a restructure of delinquent loans into a workout. The modification did not result in a reduced interest rate or a write-off of the principal balance.
The Company modified two commercial real estate loans with a total recorded balance of $524,432, which were deemed TDRs. One loan was restructured to capitalize force placed insurance. The other loan was restructured to increase the amortization period of the loan. The modifications did not result in a reduced interest rate or a write-off of the principal balance.
The Company modified one home equity loan with a recorded investment of $1,431, which was deemed a TDR. The modification was made to extend the term and lower the payment amount. The modification did not result in a reduced interest rate or a write-off of the principal balance.
The Company modified five consumer loans with a recorded investment of $76,691, which were deemed TDRs. The modifications were made to extend the payment schedules between two and four months. The modifications did not result in a reduced interest rate or a write-off of the principal balance.
2014 Modifications
The Company modified three one-to-four family residential real estate loans, with a recorded investment of $201,879, which were deemed TDRs. Two of the loans were restructured with the interest and real estate taxes capitalized to the balance of the note. One of the loans was extended without the full collection of accrued interest. None of the modifications resulted in a reduced interest rate or a write-off of the principal balance.
54 |
Jacksonville Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015 and 2014
The Company modified one commercial real estate loan with a total recorded balance of $386,355, which was deemed a TDR. The loan was restructured to provide additional funds for cash flow needs of the borrower. The modification did not result in a reduced interest rate or a write-off of the principal balance.
The Company modified one consumer loan with a recorded investment of $15,953, which was deemed a TDR. The modification was made to change the payment schedule to interest-only for a period of time. The modification did not result in a reduced interest rate or a write-off of the principal 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 year ended December 31, 2015, three residential real estate loans of $197,417 and one commercial real estate loan of $766,840 were considered TDRs defaulted as they were more than 90 days past due at December 31, 2015. In addition, three residential real estate loans of $211,262, one commercial real estate loan of $30,021, two commercial loans of $9,314, one home equity loan of $1,431, and one consumer loan of $63,183 were considered TDRs defaulted as they were in a nonaccrual status but are performing in accordance with their modified terms.
During the year ended December 31, 2014, one residential real estate loan of $38,737 and one home equity loan of $3,305 were considered TDRs defaulted as they were more than 90 days past due at December 31, 2014. In addition, three residential real estate loans of $140,549, two commercial real estate loans of $840,115, two commercial loans of $22,437, and one consumer loan of $25,055 were considered TDRs defaulted as they were in a nonaccrual status but are performing in accordance with their modified terms.
At December 31, 2015, the balance of real estate owned includes $217,101 of foreclosed residential real estate properties recorded as a result of obtaining physical possession of the property. At December 31, 2015, the recorded investment of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process is $188,438.
Note 5: | Premises and Equipment |
Major classifications of premises and equipment, stated at cost, are as follows:
2015 | 2014 | |||||||
Land | $ | 773,186 | $ | 773,186 | ||||
Buildings and improvements | 6,697,278 | 6,661,148 | ||||||
Equipment | 3,384,516 | 3,254,434 | ||||||
10,854,980 | 10,688,768 | |||||||
Less accumulated depreciation | (6,126,823 | ) | (5,742,785 | ) | ||||
Net premises and equipment | $ | 4,728,157 | $ | 4,945,983 |
55 |
Jacksonville Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015 and 2014
Note 6: | Loan Servicing |
Mortgage loans serviced for others are not included in the accompanying consolidated balance sheets. The risks inherent in mortgage servicing assets relate primarily to changes in prepayments that result from shifts in mortgage interest rates. The unpaid principal balance of mortgage loans serviced for others was $131,443,738 and $137,877,795 at December 31, 2015 and 2014, respectively.
The following summarized the activity pertaining to mortgage servicing rights measured using the amortization method, along with the aggregate activity in related valuation allowances:
2015 | 2014 | |||||||
Mortgage servicing rights | ||||||||
Balance, beginning of year | $ | 689,603 | $ | 746,968 | ||||
Additions | 73,650 | 53,859 | ||||||
Amortization | (118,186 | ) | (111,224 | ) | ||||
Balance at end of year | 645,067 | 689,603 | ||||||
Valuation allowances | ||||||||
Balance at beginning of year | 56,969 | 73,392 | ||||||
Additions due to decreases in market value | — | — | ||||||
Reduction due to increases in market value | — | — | ||||||
Reduction due to payoff of loans | (9,615 | ) | (16,423 | ) | ||||
Balances at end of year | 47,354 | 56,969 | ||||||
Mortgage servicing assets, net | $ | 597,713 | $ | 632,634 | ||||
Fair value disclosures | ||||||||
Fair value as of the beginning of the period | $ | 979,699 | $ | 1,120,000 | ||||
Fair value as of the end of the period | $ | 870,619 | $ | 979,699 |
The valuation allowance was adjusted during 2014 and 2015 due to payments received on the related loans as well as changes in the estimated market value on the mortgage servicing rights asset.
Comparable market values and a valuation model that calculates the present value of future cash flows were used to estimate fair value. For purposes of measuring impairment, risk characteristics including product type, investor type, and interest rates, were used to stratify the originated mortgage servicing rights.
56 |
Jacksonville Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015 and 2014
Note 7: | Interest-bearing Deposits |
Interest-bearing deposits in denominations of $100,000 or more totaled $90,889,042 at December 31, 2015 and $96,271,806 at December 31, 2014.
The following table represents deposit interest expense by deposit type:
December 31, | ||||||||
2015 | 2014 | |||||||
Savings, NOW and Money Market | $ | 249,077 | $ | 257,214 | ||||
Certificates of deposit | 852,185 | 1,179,589 | ||||||
Total deposit interest expense | $ | 1,101,262 | $ | 1,436,803 |
At December 31, 2015, the scheduled maturities of time deposits are as follows:
2016 | $ | 41,313,282 | ||
2017 | 18,208,957 | |||
2018 | 7,123,985 | |||
2019 | 6,559,638 | |||
2020 | 5,848,662 | |||
$ | 79,054,524 |
Note 8: | Short-term Borrowings |
Short-term borrowings include securities sold under agreements to repurchase totaling $6,631,710 and $8,821,730 at December 31, 2015 and 2014, respectively.
Securities sold under agreements to repurchase consist of obligations of the Company to other parties. The maximum amount of outstanding agreements at any month end during 2015 and 2014 totaled $9,548,789 and $9,483,795, respectively, and the monthly average of such agreements totaled $6,024,224 and $6,229,604 for 2015 and 2014, respectively. The agreements at December 31, 2015, are all for overnight borrowings.
At December 31, 2015, we had $5,519,148 of repurchase agreements secured by mortgage backed securities, $590,327 in repurchase agreements secured by U.S. government agency bonds, and $1,482,000 in repurchase agreements secured by time deposits in other banks. 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.
57 |
Jacksonville Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015 and 2014
Also included in short-term borrowings are advances with the Federal Home Loan Bank (FHLB) of which $8,500,000 and $5,000,000 had been extended as of December 31, 2015 and 2014, respectively. The advances at a rate of 16 basis points all mature overnight and are secured by mortgage loans totaling $43,561,360 at December 31, 2015.
Note 9: | Income Taxes |
The Company and its subsidiary file income tax returns in the U.S. federal and state of Illinois jurisdictions. During the years ended December 31, 2015 and 2014, the Company did not recognize expense for interest or penalties.
The provision for income taxes includes these components:
2015 | 2014 | |||||||
Taxes currently payable | ||||||||
Federal | $ | 883,916 | $ | 798,160 | ||||
State | 320,593 | — | ||||||
Deferred income taxes | (137,484 | ) | 135,886 | |||||
Income tax expense | $ | 1,067,025 | $ | 934,046 |
A reconciliation of income tax expense at the statutory rate to the Company’s actual income tax expense is shown below:
2015 | 2014 | |||||||
Computed at the statutory rate (34%) | $ | 1,391,670 | $ | 1,328,312 | ||||
Increase (decrease) resulting from | ||||||||
Tax exempt interest | (454,067 | ) | (503,089 | ) | ||||
State income taxes, net | 188,690 | 173,879 | ||||||
Increase in cash surrender value | (59,646 | ) | (63,235 | ) | ||||
Other | 378 | (1,821 | ) | |||||
Actual tax expense | $ | 1,067,025 | $ | 934,046 | ||||
Tax expense as a percentage of pre-tax income | 26.07 | % | 23.91 | % |
58 |
Jacksonville Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015 and 2014
The tax effects of temporary differences related to deferred taxes shown on the consolidated balance sheets were:
2015 | 2014 | |||||||
Deferred tax assets | ||||||||
Allowance for loan losses | $ | 1,015,661 | $ | 1,060,419 | ||||
Deferred compensation | 1,817,124 | 1,712,570 | ||||||
State net operating loss carryforward | — | 4,749 | ||||||
Other | 29,497 | 40,270 | ||||||
2,862,282 | 2,818,008 | |||||||
Deferred tax liabilities | ||||||||
Unrealized gains on available-for-sale securities | (407,145 | ) | (366,521 | ) | ||||
Depreciation | (434,043 | ) | (478,427 | ) | ||||
Federal Home Loan Bank stock dividends | (147,858 | ) | (152,224 | ) | ||||
Prepaid expenses | (56,374 | ) | (79,868 | ) | ||||
Mortgage servicing rights | (233,795 | ) | (254,762 | ) | ||||
(1,279,215 | ) | (1,331,802 | ) | |||||
Net deferred tax asset | $ | 1,583,067 | $ | 1,486,206 |
At December 31, 2015 and 2014, the Company had Illinois net operating loss carryforwards totaling approximately $0 and 98,574, respectively.
Retained earnings at December 31, 2015 and 2014, include approximately $2,600,000, for which no deferred federal income tax liability has been recognized. These amounts represent an allocation of income to bad debt deductions for tax purposes only. Reduction of amounts so allocated for purposes other than tax bad debt losses or adjustments arising from carryback of net operating losses would create income for tax purposes only, which would be subject to the then-current corporate income tax rate. The deferred income tax liabilities on the preceding amounts that would have been recorded if they were expected to reverse into taxable income in the foreseeable future were approximately $1,000,000 at December 31, 2015 and 2014.
59 |
Jacksonville Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015 and 2014
Note 10: | Accumulated Other Comprehensive Income |
The components of accumulated other comprehensive income, included in stockholders’ equity, are as follows:
2015 | 2014 | |||||||
Net unrealized gain on securities available-for-sale | $ | 1,197,486 | $ | 1,078,004 | ||||
Tax effect | (407,145 | ) | (366,521 | ) | ||||
Net-of-tax amount | $ | 790,341 | $ | 711,483 |
Note 11: | 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 years ended December 31, 2015 and 2014, were as follows:
Amounts Reclassified from AOCI | Affected Line Item in the | |||||||||
2015 | 2014 | Statements of Income | ||||||||
Unrealized gains on available-for-sale securities | $ | 320,585 | $ | 408,753 | Realized gain on sale of securities | |||||
Total reclassified amount before tax | ||||||||||
(108,999 | ) | (138,976 | ) | Tax expense | ||||||
$ | 211,586 | $ | 269,777 | Net reclassified amount |
Note 12: | Regulatory Matters |
The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities and certain off-balance-sheet items as calculated under U.S. GAAP, regulatory reporting requirements and regulatory capital standards. The Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Furthermore, the Bank’s regulators could require adjustments to regulatory capital not reflected in these consolidated financial statements.
60 |
Jacksonville Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015 and 2014
Quantitative measures established by regulatory reporting standards to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier I capital (as defined) to risk-weighted assets (as defined), common equity Tier 1 capital (as defined) to total risk-weighted assets (as defined) and of Tier I capital (as defined) to average assets (as defined). Management believes, as of December 31, 2015 and 2014, that the Bank meets all capital adequacy requirements to which it is subject.
As of December 31, 2015, the most recent notification from the FDIC categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Bank must maintain minimum total risk-based capital, Tier I risk-based capital, common equity Tier 1 risk-based capital, and Tier I leverage ratios as set forth in the table. There are no conditions or events since that notification that management believes have changed the Bank’s category.
The Bank’s actual capital amounts (in thousands) and ratios are also presented in the table.
Actual | Minimum Capital Requirement | Minimum to Be Well Capitalized Under Prompt Corrective Action Provisions | ||||||||||||||||||||||
Amount | Ratio | Amount | Ratio | Amount | Ratio | |||||||||||||||||||
As of December 31, 2015 | ||||||||||||||||||||||||
Total risk-based capital (to risk-weighted assets) | $ | 41,631 | 19.15 | % | $ | 17,387 | 8.0 | % | $ | 21,734 | 10.0 | % | ||||||||||||
Tier I capital (to risk-weighted assets) | 38,912 | 17.90 | 13,040 | 6.0 | 17,387 | 8.0 | ||||||||||||||||||
Common equity Tier I (to risk-weighted assets) | 38,912 | 17.90 | 9,780 | 4.5 | 14,127 | 6.5 | ||||||||||||||||||
Tier I capital (to average assets) | 38,912 | 12.82 | 12,139 | 4.0 | 15,174 | 5.0 | ||||||||||||||||||
Tangible capital (to adjusted tangible assets) | 38,912 | 12.82 | 4,552 | 1.5 | — | N/A | ||||||||||||||||||
As of December 31, 2014 | ||||||||||||||||||||||||
Total risk-based capital (to risk-weighted assets) | $ | 40,252 | 18.81 | % | $ | 17,119 | 8.0 | % | $ | 21,399 | 10.0 | % | ||||||||||||
Tier I capital (to risk-weighted assets) | 37,574 | 17.56 | 8,560 | 4.0 | 12,839 | 6.0 | ||||||||||||||||||
Tier I capital (to average assets) | 37,574 | 12.25 | 12,269 | 4.0 | 15,336 | 5.0 | ||||||||||||||||||
Tangible capital (to adjusted tangible assets) | 37,574 | 12.25 | 4,601 | 1.5 | — | N/A |
61 |
Jacksonville Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015 and 2014
Basel III Capital Rules
In 2013, the Board of Governors of the Federal Reserve System approved a final rule implementing changes intended to strengthen the regulatory capital framework for all banking organizations (Basel III) which became effective January 1, 2015, subject to a phase-in period for certain provisions. Basel III establishes and defines quantitative measures to ensure capital adequacy which require First Financial to maintain minimum amounts and ratios of Common Equity tier 1 capital, total and tier 1 capital to risk-weighted assets and tier 1 capital to average assets (leverage ratio).
The rule includes a new minimum ratio of common equity tier 1 capital to risk-weighted assets of 4.5% and a new capital conservation buffer of 2.5% of risk-weighted assets that will begin on January 1, 2016 at 0.625% and be phased-in over a four-year period, increasing by the same amount on each subsequent January 1, until fully phased-in on January 1, 2019. Further, the minimum ratio of tier 1 capital to risk-weighted assets increased from 4.0% to 6.0% and all banks are now subject to a 4.0% minimum leverage ratio. The required total risk-based capital ratio was unchanged. Failure to maintain the required common equity Tier 1 capital conservation buffer will result in potential restrictions on a bank’s ability to pay dividends, repurchase stock and/or pay discretionary compensation to its employees. The revised capital requirements also provide strict eligibility criteria for regulatory capital instruments and change the method for calculating risk-weighted assets in an effort to better identify riskier assets, such as highly volatile commercial real estate and nonaccrual loans, requiring higher capital allocations.
Under Basel III Capital Rules, the initial minimum capital ratios as of January 1, 2015, are as follows:
4.5% CET1 to risk-weighted assets
6.0% Tier 1 capital to risk-weighted assets
8.0% Total capital to risk-weighted assets
4.0% Minimum leverage ratio
Implementation of the deductions and other adjustments to CET1 began on January 1, 2015, and will phase in over a four-year period (beginning at 40% on January 1, 2015, and an additional 20% per year thereafter). Under the new rule, in order to avoid limitations on capital distributions, including dividend payments and certain discretionary bonus payments to executive officers, a banking organization must hold a capital conservation buffer composed of CET1 capital above its minimum risk-based capital requirements. The implementation of the capital conservation buffer begins on January 1, 2016, at the 0.625% level and will phase in over a four-year period (increasing by that amount on each subsequent January 1 until reaches 2.5% on January 1, 2019).
62 |
Jacksonville Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015 and 2014
The following is a reconciliation of the Bank equity amount included in the consolidated balance sheets to the amounts (in thousands) reflected above for regulatory capital purposes as of December 31:
2015 | 2014 | |||||||
Bank equity | $ | 42,429 | $ | 41,012 | ||||
Less net unrealized gain | 790 | 711 | ||||||
Less disallowed goodwill | 2,727 | 2,727 | ||||||
Tier 1 and common equity Tier 1 capital | 38,912 | 37,574 | ||||||
Plus allowance for loan losses | 2,719 | 2,678 | ||||||
Total risked-based capital | $ | 41,631 | $ | 40,252 |
The Bank is subject to certain restrictions on the amount of dividends that it may declare without prior regulatory approval. As of December 31, 2015, the Bank has $1,238,685 available for the payment of dividends without prior regulatory approval.
On January 19, 2010, the Boards of Directors of the Company, Jacksonville Bancorp, MHC and the Bank each unanimously adopted a Plan of Conversion and Reorganization of Jacksonville Bancorp, MHC (the “Plan”) pursuant to which Jacksonville Bancorp, MHC undertook a “second-step” conversion and ceased to exist. Jacksonville Bancorp, MHC reorganized from a two-tier mutual holding company structure to a fully public stock holding company structure effective July14, 2010.
In accordance with Board of Governors of the Federal Reserve System regulations, at the time of the reorganization, the Company substantially restricted retained earnings by establishing a liquidation account. The liquidation account will be maintained for the benefit of eligible account holders who continue to maintain their accounts at the Bank after conversion. The Bank will establish a parallel liquidation account to support the Company’s liquidation account in the event the Company does not have sufficient assets to fund its obligations under its liquidation account. The liquidation accounts will be reduced annually to the extent that eligible account holders have reduced their qualifying deposits. Subsequent increases will not restore an eligible account holder’s interest in the liquidation accounts. In the event of a complete liquidation of the Bank or the Company, each account holder will be entitled to receive a distribution in an amount proportionate to the adjusted qualifying account balances then held. The Bank may not pay dividends if those dividends would reduce equity capital below the required liquidation account amount.
63 |
Jacksonville Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015 and 2014
Note 13: | Related Party Transactions |
At December 31, 2015 and 2014, the Company had loans outstanding to executive officers, directors, significant shareholders and their affiliates (related parties) in the amount of $3,193,470 and $3,523,047, respectively.
Annual activity consisted of the following:
2015 | 2014 | |||||||
Balance beginning of year | $ | 3,523,047 | $ | 3,852,658 | ||||
Additions | 1,138,338 | 1,876,445 | ||||||
Repayments | (1,467,915 | ) | (2,206,056 | ) | ||||
Balance, end of year | $ | 3,193,470 | $ | 3,523,047 |
Deposits from related parties held by the Company at December 31, 2015 and 2014 totaled approximately $2,581,000 and $3,112,000, respectively.
In management’s opinion, such loans and other extensions of credit and deposits were made in the ordinary course of business and were made on substantially the same terms (including interest rates and collateral) as those prevailing at the time for comparable transactions with other persons. Further, in management’s opinion, these loans did not involve more than normal risk of collectibility or present other unfavorable features.
Note 14: | Employee Benefits |
401(k) Plan — The Company maintains a 401(k) savings plan for eligible employees. The Company’s contributions to this plan were $216,508 and $232,567 for the years ended December 31, 2015 and 2014, respectively. The plan invests some of its assets in deposit accounts at the Company which earned interest at a rate of 1.85% for the years ended December 31, 2015 and 2014.
Deferred Compensation Plan — The Company maintains a deferred compensation plan for certain key officers and employees. Contributions are determined annually by the Company’s Board of Directors. Effective in 2005, the Company froze this plan and no contributions to this plan were made for the years ended December 31, 2015 or 2014. The plan accrues interest at a variable rate which fluctuates based on Moody’s Corporate Bond Average Index. The amount recorded on the consolidated balance sheets as deferred compensation was $2,521,997 and $2,451,200 as of December 31, 2015 and 2014, respectively. Compensation expense related to the plan was $137,731 and $140,714 for the years ended December 31, 2015 and 2014, respectively.
The Company has also entered into deferred compensation agreements with certain key officers and employees. The agreements provide for monthly payments at retirement or death. The charge to expense for this plan reflects the accrual using the principal and interest method over the vesting period of the present value of benefits due each participant on the full eligibility date using a 4.75% discount rate. The amount recorded on the consolidated balance sheets as deferred compensation was $1,970,597 and $1,801,520 as of December 31, 2015 and 2014, respectively. Compensation expense related to the plans was $233,731 and $241,745 for the years ended December 31, 2015 and 2014, respectively.
64 |
Jacksonville Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015 and 2014
Employee Stock Ownership Plan (ESOP) — The ESOP is a noncontributory defined contribution plan which covers substantially all employees. The Company may contribute to the Plan, at its discretion, an amount determined by the Board of Directors.
As part of the second step conversion, in July 2010 the Company acquired 41,614 additional shares of Company common stock at $10 per share in the conversion with funds provided by a loan from the Company. Accordingly, $416,140 of common stock acquired by the ESOP was shown as a reduction of stockholders’ equity. Shares are released to participants proportionately as the loan is repaid. Dividends on allocated shares are recorded as dividends and charged to retained earnings. Dividends on unallocated shares are used to repay the loan and are treated as compensation expense. Compensation expense is recorded equal to the fair market value of the stock when contributions, which are determined annually by the Board of Directors of the Company, are made to the ESOP.
ESOP expense for the years ended December 31, 2015 and 2014 was $90,649 and $80,978, respectively.
2015 | 2014 | |||||||
Allocated shares | $ | 57,420 | $ | 54,519 | ||||
Shares committed for allocation | 3,820 | 3,767 | ||||||
Unearned shares | 21,171 | 24,991 | ||||||
Total ESOP shares | 82,411 | 83,277 | ||||||
Fair value of unearned shares at December 31 | $ | 556,374 | $ | 574,793 |
Note 15: | Stock Option Plans |
The Jacksonville Bancorp, Inc. 2012 Stock Option Plan, which is shareholder approved, permits the grant of share options and shares to its employees for up to 104,035 shares of common stock. The Company believes that such awards better align the interests of its employees with those of its shareholders. All shares were awarded as of the approval date, expire ten years after the grant date, and are exercisable at a price of $15.65 per share.
The fair value of each option award is estimated on the date of grant using a Black-Scholes option valuation model that uses the assumptions noted in the following table. Expected volatility is based on historical volatility of the Company’s stock and other factors. The Company uses historical data to estimate option exercise and employee termination within the valuation model; separate groups of employees that have similar historical exercise behavior are considered separately for valuation purposes. The expected term of options granted represents the period of time that options are expected to be outstanding; the range given below results from certain groups of employees exhibiting different behavior. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The discount rate for post-vesting restrictions is estimated based on the Company’s credit-adjusted risk-free rate of return.
65 |
Jacksonville Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015 and 2014
A summary of option activity under the Plans as of December 31, 2015 and 2014, and changes during the years then ended, is presented below:
2015 | ||||||||||||||||
Shares | Weighted- Average Exercise Price | Weighted- Average Remaining Contractual Term | Aggregate Intrinsic Value | |||||||||||||
Outstanding, beginning of year | 85,835 | $ | 15.65 | |||||||||||||
Granted | — | — | ||||||||||||||
Exercised | (24,715 | ) | 15.65 | |||||||||||||
Forfeited or expired | — | — | ||||||||||||||
Outstanding, end of year | 61,120 | $ | 15.65 | 6.25 | $ | 649,706 | ||||||||||
Exercisable, end of year | 19,035 | $ | 15.65 | 6.25 | $ | 202,342 |
66 |
Jacksonville Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015 and 2014
2014 | ||||||||||||||||
Shares | Weighted- Average Exercise Price | Weighted- Average Remaining Contractual Term | Aggregate Intrinsic Value | |||||||||||||
Outstanding, beginning of year | 101,336 | $ | 15.63 | |||||||||||||
Granted | — | — | ||||||||||||||
Exercised | (15,101 | ) | 15.53 | |||||||||||||
Forfeited or expired | (400 | ) | 15.65 | |||||||||||||
Outstanding, end of year | 85,835 | $ | 15.65 | 7.25 | $ | 630,887 | ||||||||||
Exercisable, end of year | 23,600 | $ | 15.65 | 7.25 | $ | 173,460 |
The total intrinsic value of options exercised during the years ended December 31, 2015 and 2014 was $200,192 and $90,606, respectively.
As of December 31, 2015, there was $112,395 of total unrecognized compensation cost related to nonvested share-based compensation arrangements granted under the 2012 Plan. That cost is expected to be recognized over a weighted-average period of 2 years. The total fair value of shares vested during the years ended December 31, 2015 and 2014 was $90,163. The recognized tax benefit related thereto was $35,267 and $34,622 for the years ended December 31, 2015 and 2014, respectively.
A summary of the status of the Company’s nonvested shares as of December 31, 2015 and 2014, and changes during the year then ended, is presented below:
December 31, 2015 | ||||||||
Shares | Weighted- Average Grant- Date Fair Value | |||||||
Nonvested, beginning of year | 62,235 | $ | 4.34 | |||||
Granted | — | — | ||||||
Vested | (20,150 | ) | 4.34 | |||||
Forfeited | — | — | ||||||
Nonvested, end of year | 42,085 | $ | 4.34 |
67 |
Jacksonville Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015 and 2014
December 31, 2014 | ||||||||
Shares | Weighted- Average Grant- Date Fair Value | |||||||
Nonvested, beginning of year | 83,185 | $ | 4.34 | |||||
Granted | — | — | ||||||
Vested | (20,550 | ) | 4.34 | |||||
Forfeited | (400 | ) | — | |||||
Nonvested, end of year | 62,235 | $ | 4.34 |
Note 16: | Earnings Per Share |
Earnings per share (EPS) were computed as follows:
Year Ended December 31, 2015 | ||||||||||||
Income | Weighted- Average Shares | Per Share Amount | ||||||||||
Net income | $ | 3,026,123 | ||||||||||
Basic earnings per share | ||||||||||||
Income available to common stockholders | 1,770,546 | $ | 1.71 | |||||||||
Effect of dilutive securities | ||||||||||||
Stock options | 13,469 | |||||||||||
Diluted earnings per share | ||||||||||||
Income available to common stockholders | $ | 3,026,123 | 1,784,015 | $ | 1.70 |
68 |
Jacksonville Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015 and 2014
Year Ended December 31, 2014 | ||||||||||||
Income | Weighted- Average Shares | Per Share Amount | ||||||||||
Net income | $ | 2,972,754 | ||||||||||
Basic earnings per share | ||||||||||||
Income available to common stockholders | 1,791,888 | $ | 1.66 | |||||||||
Effect of dilutive securities | ||||||||||||
Stock options | 11,173 | |||||||||||
Diluted earnings per share | ||||||||||||
Income available to common stockholders | $ | 2,972,754 | 1,803,061 | $ | 1.65 |
Note 17: | Disclosures about Fair Value of Assets |
Fair value is the price that would be received to sell an asset 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 |
Level 2 | Observable inputs other than Level 1 prices, such as quoted prices for similar assets; 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 |
Level 3 | Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets |
69 |
Jacksonville Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015 and 2014
Recurring Measurements
The following table presents the fair value measurements of assets recognized in the accompanying 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 December 31, 2015 and 2014:
December 31, 2015 | ||||||||||||||||
Fair Value Measurements Using | ||||||||||||||||
Fair Value | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||
U.S. Government agencies | $ | 15,938,697 | $ | — | $ | 15,938,697 | $ | — | ||||||||
Mortgage-backed securities (Government-sponsored enterprises - residential) | 23,178,395 | — | 23,178,395 | — | ||||||||||||
Municipal bonds | 48,356,240 | — | 48,356,240 | — |
December 31, 2014 | ||||||||||||||||
Fair Value Measurements Using | ||||||||||||||||
Fair Value | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||
U.S. Government agencies | $ | 9,958,273 | $ | — | $ | 9,958,273 | $ | — | ||||||||
Mortgage-backed securities (Government-sponsored enterprises - residential) | 41,419,921 | — | 41,419,921 | — | ||||||||||||
Municipal bonds | 45,306,703 | — | 45,306,703 | — |
70 |
Jacksonville Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015 and 2014
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 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 year ended December 31, 2015.
Available-for-Sale Securities
Where quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. The Company has no Level 1 securities. 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. 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. The Company did not have securities considered Level 3 as of December 31, 2015 or December 31, 2014.
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 December 31, 2015 and 2014:
December 31, 2015 | ||||||||||||||||
Fair Value Measurements Using | ||||||||||||||||
Fair Value | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||
Impaired loans (collateral dependent) | $ | 899,981 | $ | — | $ | — | $ | 899,981 |
71 |
Jacksonville Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015 and 2014
December 31, 2014 | ||||||||||||||||
Fair Value Measurements Using | ||||||||||||||||
Fair Value | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||
Impaired loans (collateral dependent) | $ | 1,147,400 | $ | — | $ | — | $ | 1,147,400 |
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 consolidated balance sheets, as well as the general classification of such assets and liabilities 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. Fair value adjustments on impaired loans were $(156,069) and $265,687 at December 31, 2015 and 2014.
72 |
Jacksonville Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015 and 2014
Unobservable (Level 3) Inputs
The following table presents quantitative information about unobservable inputs used in nonrecurring Level 3 fair value measurements.
Fair Value at December 31, 2015 | Valuation Technique | Unobservable Inputs | Range (Weighted Average) | |||||||
Collateral-dependent impaired loans | $ | 899,981 | Market comparable properties | Marketability discount | 20% – 30% (25%) |
Fair Value at December 31, 2014 | Valuation Technique | Unobservable Inputs | Range (Weighted Average) | |||||||
Collateral-dependent impaired loans | $ | 1,147,400 | Market comparable properties | Marketability discount | 20% – 30% (25%) |
73 |
Jacksonville Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015 and 2014
Fair Value of Other 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 December 31, 2015 and 2014:
December 31, 2015 | ||||||||||||||||
Fair Value Measurements Using | ||||||||||||||||
Carrying Amount | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||
Financial assets | ||||||||||||||||
Cash and cash equivalents | $ | 4,103,432 | $ | 4,103,432 | $ | — | $ | — | ||||||||
Interest-earning time deposits | 2,724,000 | 2,724,000 | — | — | ||||||||||||
Other investments | 62,223 | — | 62,223 | — | ||||||||||||
Loans held for sale | 539,000 | — | 539,000 | — | ||||||||||||
Loans, net of allowance for loan losses | 193,039,879 | — | — | 193,006,301 | ||||||||||||
Federal Home Loan Bank stock | 1,113,800 | — | 1,113,800 | — | ||||||||||||
Interest receivable | 1,715,676 | — | 1,715,676 | — | ||||||||||||
Financial liabilities | ||||||||||||||||
Deposits | 239,281,930 | — | 160,227,406 | 80,300,060 | ||||||||||||
Short-term borrowings | 15,131,710 | — | 6,631,710 | 8,500,000 | ||||||||||||
Advances from borrowers for taxes and insurance | 990,917 | — | 990,917 | — | ||||||||||||
Interest payable | 118,335 | — | 118,335 | — | ||||||||||||
Unrecognized financial instruments (net of contract amount) | ||||||||||||||||
Commitments to originate loans | — | — | — | — | ||||||||||||
Letters of credit | — | — | — | — | ||||||||||||
Lines of credit | — | — | — | — |
74 |
Jacksonville Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015 and 2014
December 31, 2014 | ||||||||||||||||
Fair Value Measurements Using | ||||||||||||||||
Carrying Amount | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||
Financial assets | ||||||||||||||||
Cash and cash equivalents | $ | 9,611,638 | $ | 9,611,638 | $ | — | $ | — | ||||||||
Other investments | 73,766 | — | 73,766 | — | ||||||||||||
Loans held for sale | 235,600 | — | 235,600 | — | ||||||||||||
Loans, net of allowance for loan losses | 184,718,612 | — | — | 184,573,401 | ||||||||||||
Federal Home Loan Bank stock | 1,113,800 | — | 1,113,800 | — | ||||||||||||
Interest receivable | 1,713,243 | — | 1,713,243 | — | ||||||||||||
Financial liabilities | ||||||||||||||||
Deposits | 245,941,562 | — | 151,341,999 | 96,956,400 | ||||||||||||
Short-term borrowings | 13,821,730 | — | 8,821,730 | 4,996,109 | ||||||||||||
Advances from borrowers for taxes and insurance | 962,762 | — | 962,762 | — | ||||||||||||
Interest payable | 166,052 | — | 166,052 | — | ||||||||||||
Unrecognized financial instruments (net of contract amount) | ||||||||||||||||
Commitments to originate loans | — | — | — | — | ||||||||||||
Letters of credit | — | — | — | — | ||||||||||||
Lines of credit | — | — | — | — |
75 |
Jacksonville Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015 and 2014
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 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.
76 |
Jacksonville Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015 and 2014
Note 18: | Significant Estimates and Concentrations |
Accounting principles generally accepted in the United States of America require disclosure of certain significant estimates and current vulnerabilities due to certain concentrations. Estimates related to the allowance for loan losses are reflected in the note regarding loans. Current vulnerabilities due to certain concentrations of credit risk are discussed in the note on commitments and credit risk. Other significant estimates not discussed in those notes include:
General Litigation
The Company is subject to claims and lawsuits that arise primarily in the ordinary course of business. It is the opinion of management that the disposition or ultimate resolution of such claims and lawsuits will not have a material adverse effect on the consolidated financial position, results of operations and cash flows of the Company.
Goodwill
As discussed in Note 1, the Company annually tests its goodwill for impairment. At the most recent testing date, the fair value of the banking reporting unit exceeded its carrying value. Estimated fair value was based principally on forecasts of future income. Management believes it has applied reasonable judgment in developing its estimates; however, unforeseen negative changes in the national, state or local economic environment may negatively impact those estimates in the near term.
Note 19: | Commitments and Credit Risk |
The Company grants agribusiness, commercial and residential loans to customers in Cass, Morgan, Macoupin, Montgomery and surrounding counties in Illinois. The Company’s loans are generally secured by specific items of collateral including real property, consumer assets and business assets. Although the Company has a diversified loan portfolio, a substantial portion of its debtors’ ability to honor their contracts is dependent upon economic conditions and the agricultural economy in these counties. The Company also purchases participation loans from out of territory areas.
Commitments to Originate Loans
Commitments to originate loans 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 a portion of the commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Each customer’s creditworthiness is evaluated on a case-by-case basis. The amount of collateral obtained, if deemed necessary, is based on management’s credit evaluation of the counterparty. Collateral held varies, but may include accounts receivable, inventory, property, plant and equipment, commercial real estate and residential real estate.
77 |
Jacksonville Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015 and 2014
At December 31, 2015and 2014, the Company had outstanding commitments to originate loans aggregating approximately $4,457,514 and $3,493,500, respectively. The commitments extended over varying periods of time with the majority being disbursed within a one-year period. Loan commitments at fixed rates of interest amounted to $3,744,574 and $2,702,000 at December 31, 2015 and 2014, respectively, with the remainder at floating market rates. The range of fixed rates was 2.875% to 6.25% as of December 31, 2015.
Standby Letters of Credit
Standby letters of credit are irrevocable conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Financial standby letters of credit are primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing and similar transactions. Performance standby letters of credit are issued to guarantee performance of certain customers under non-financial contractual obligations. The credit risk involved in issuing standby letters of credit is essentially the same as that involved in extending loans to customers. Should the Company be obliged to perform under the standby letters of credit, the Company may seek recourse from the customer for reimbursement of amounts paid.
The Company had total outstanding standby letters of credit amounting to $110,000 and $255,340 at December 31, 2015 and 2014, respectively, with terms of one year or less. At December 31, 2015 and 2014, the Company’s deferred revenue under standby letters of credit agreements was nominal.
Lines of Credit
Lines of credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Lines of credit generally have fixed expiration dates. Since a portion of the line may expire without being drawn upon, the total unused lines do not necessarily represent future cash requirements. Each customer’s creditworthiness is evaluated on a case-by-case basis. The amount of collateral obtained, if deemed necessary, is based on management’s credit evaluation of the counterparty. Collateral held varies but may include accounts receivable, inventory, property, plant and equipment, commercial real estate and residential real estate. Management uses the same credit policies in granting lines of credit as it does for on-balance-sheet instruments.
At December 31, 2015, the Company had unused lines of credit to borrowers aggregating approximately $21,753,180 and $10,785,989 for commercial lines and open-ended consumer lines, respectively. At December 31, 2014, unused lines of credit to borrowers aggregated approximately $21,498,070 for commercial lines and $9,742,393 for open-ended consumer lines.
78 |
Jacksonville Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015 and 2014
Note 20: | Quarterly Results of Operations (Unaudited) |
Year Ended December 31, 2015 | ||||||||||||||||
Three Months Ended | ||||||||||||||||
December 31 | September 30 | June 30 | March 31 | |||||||||||||
Interest income | $ | 2,923,681 | $ | 2,830,112 | $ | 2,859,579 | $ | 2,901,492 | ||||||||
Interest expense | 252,749 | 267,433 | 293,141 | 314,050 | ||||||||||||
Net interest income | 2,670,932 | 2,562,679 | 2,566,438 | 2,587,442 | ||||||||||||
Provision for loan losses | 30,000 | 45,000 | 35,000 | 30,000 | ||||||||||||
Net interest income after provision for loan losses | 2,640,932 | 2,517,679 | 2,531,438 | 2,557,442 | ||||||||||||
Noninterest income | 1,096,519 | 991,626 | 1,063,287 | 1,035,458 | ||||||||||||
Noninterest expense | 2,814,601 | 2,579,660 | 2,431,183 | 2,515,789 | ||||||||||||
Income before income taxes | 922,850 | 929,645 | 1,163,542 | 1,077,111 | ||||||||||||
Income tax expense | 218,785 | 230,247 | 327,139 | 290,854 | ||||||||||||
Net income | $ | 704,065 | $ | 699,398 | $ | 836,403 | $ | 786,257 | ||||||||
Basic earnings per share | $ | 0.40 | $ | 0.40 | $ | 0.47 | $ | 0.44 | ||||||||
Diluted earnings per share | $ | 0.39 | $ | 0.39 | $ | 0.47 | $ | 0.44 |
79 |
Jacksonville Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015 and 2014
Year Ended December 31, 2014 | ||||||||||||||||
Three Months Ended | ||||||||||||||||
December 31 | September 30 | June 30 | March 31 | |||||||||||||
Interest income | $ | 2,921,442 | $ | 2,946,212 | $ | 2,978,484 | $ | 3,045,770 | ||||||||
Interest expense | 337,222 | 353,542 | 371,036 | 389,658 | ||||||||||||
Net interest income | 2,584,220 | 2,592,670 | 2,607,448 | 2,656,112 | ||||||||||||
Provision for loan losses | 150,000 | 30,000 | 30,000 | 30,000 | ||||||||||||
Net interest income after provision for loan losses | 2,434,220 | 2,562,670 | 2,577,448 | 2,626,112 | ||||||||||||
Noninterest income | 1,059,478 | 1,024,088 | 947,678 | 997,532 | ||||||||||||
Noninterest expense | 2,658,085 | 2,470,123 | 2,723,872 | 2,470,346 | ||||||||||||
Income before income taxes | 835,613 | 1,116,635 | 801,254 | 1,153,298 | ||||||||||||
Income tax expense | 183,641 | 260,619 | 176,277 | 313,509 | ||||||||||||
Net income | $ | 651,972 | $ | 856,016 | $ | 624,977 | $ | 839,789 | ||||||||
Basic earnings per share | $ | 0.37 | $ | 0.48 | $ | 0.35 | $ | 0.47 | ||||||||
Diluted earnings per share | $ | 0.36 | $ | 0.47 | $ | 0.35 | $ | 0.47 |
80 |
Jacksonville Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015 and 2014
Note 21: | Condensed Financial Information (Parent Company Only) |
Presented below is condensed financial information as to financial position, results of operations and cash flows of the Company:
Condensed Balance Sheets
December 31, | ||||||||
2015 | 2014 | |||||||
Assets | ||||||||
Cash and due from banks | $ | 4,800,526 | $ | 3,847,179 | ||||
Investment in common stock of subsidiary | 42,428,601 | 41,012,112 | ||||||
Loan receivable from subsidiary | 216,506 | 254,385 | ||||||
Other assets | 106,960 | 96,993 | ||||||
Total assets | $ | 47,552,593 | $ | 45,210,669 | ||||
Liabilities | ||||||||
Other liabilities | $ | 1,986,093 | $ | 194,571 | ||||
Stockholders' Equity | 45,566,500 | 45,016,098 | ||||||
Total liabilities and stockholders' equity | $ | 47,552,593 | $ | 45,210,669 |
81 |
Jacksonville Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015 and 2014
Condensed Statements of Income and Comprehensive Income
Year Ending December 31, | ||||||||
2015 | 2014 | |||||||
Income | ||||||||
Dividends from subsidiary | $ | 2,000,000 | $ | 2,000,000 | ||||
Other income | 11,712 | 12,245 | ||||||
Total income | 2,011,712 | 2,012,245 | ||||||
Expenses | ||||||||
Other expenses | 361,694 | 707,692 | ||||||
Income Before Income Tax and Equity in Undistributed Income of Subsidiary | 1,650,018 | 1,304,553 | ||||||
Income Tax Benefit | (137,420 | ) | (271,357 | ) | ||||
Income Before Equity in Undistributed Income of Subsidiary | 1,787,438 | 1,575,910 | ||||||
Equity in Undistributed Income of Subsidiary | 1,238,685 | 1,396,844 | ||||||
Net Income | $ | 3,026,123 | $ | 2,972,754 | ||||
Comprehensive Income | $ | 3,104,981 | $ | 5,071,201 |
82 |
Jacksonville Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015 and 2014
Condensed Statements of Cash Flows
Year Ending December 31, | ||||||||
2015 | 2014 | |||||||
Operating Activities | ||||||||
Net income | $ | 3,026,123 | $ | 2,972,754 | ||||
Items not providing cash, net | (1,238,685 | ) | (1,396,844 | ) | ||||
Stock-based compensation expense | 90,163 | 90,163 | ||||||
Change in other assets and liabilities, net | 1,773,258 | 29,599 | ||||||
Net cash provided by operating activities | 3,650,859 | 1,695,672 | ||||||
Investing Activity | ||||||||
Loan payment from subsidiary | 37,879 | 36,652 | ||||||
Net cash provided by investing activities | 37,879 | 36,652 | ||||||
Financing Activities | ||||||||
Dividends paid | (2,356,870 | ) | (570,843 | ) | ||||
Stock repurchase | (765,311 | ) | (1,028,688 | ) | ||||
Exercise of stock options | 386,790 | 234,491 | ||||||
Net cash used in financing activities | (2,735,391 | ) | (1,365,040 | ) | ||||
Net Change in Cash and Cash Equivalents | 953,347 | 367,284 | ||||||
Cash and Cash Equivalents at Beginning of Year | 3,847,179 | 3,479,895 | ||||||
Cash and Cash Equivalents at End of Year | $ | 4,800,526 | $ | 3,847,179 |
83 |
Common Stock Information
Our common stock is traded on the Nasdaq Capital Market under the symbol “JXSB”. As of December 31, 2015, we had approximately 710 stockholders of record, including brokers, who held 1,791,513 shares of our outstanding common stock.
The following table sets forth market price and dividend information for our common stock for the two years ended December 31, 2015.
Price Per Share | Cash | |||||||||||
High | Low | Dividend Declared | ||||||||||
2015 | ||||||||||||
Fourth quarter | $ | 27.84 | $ | 23.77 | $ | 1.080 | ||||||
Third quarter | 24.30 | 23.14 | 0.080 | |||||||||
Second quarter | 24.58 | 21.97 | 0.080 | |||||||||
First quarter | 24.00 | 21.86 | 0.080 | |||||||||
2014 | ||||||||||||
Fourth quarter | $ | 24.00 | $ | 21.75 | $ | 0.080 | ||||||
Third quarter | 23.90 | 21.14 | 0.080 | |||||||||
Second quarter | 22.95 | 20.00 | 0.080 | |||||||||
First quarter | 21.90 | 19.40 | 0.080 |
For a discussion of the restrictions on the Company’s ability to pay dividends, see Note 12 to the Consolidated Financial Statements.
84 |
Directors and Executive Officers
Directors | Executive Officers |
Andrew F. Applebee Chairman of the Board |
Andrew F. Applebee Chairman of the Board |
Richard A. Foss President and Chief Executive Officer |
Richard A. Foss President and Chief Executive Officer |
John C. Williams Senior Vice President and Trust Officer |
Diana S. Tone Chief Financial Officer |
Dean H. Hess Self-employed farmer |
John C. Williams Senior Vice President and Trust Officer |
Harmon B. Deal, III Investment Advisor L.A. Burton & Associates |
Chris A. Royal Senior Vice President and Chief Lending Officer |
John L. Eyth Retired Certified Public Accountant |
Laura A. Marks Senior Vice President – Retail Banking |
John M. Buchanan Certified Funeral Service Practitioner Buchanan & Cody Funeral Home and Crematory, Inc. |
John D. Eilering Vice President – Operations / Corporate Secretary |
Peggy S. Davidsmeyer Retired Administrator |
|
85 |
Corporate Information
Corporate Headquarters | Transfer Agent |
1211 West Morton | Hickory Point Bank & Trust, fsb |
Jacksonville, Illinois 62650 | P.O. Box 2557 |
(217) 245-4111 | Decatur, Illinois 62525-2557 |
Website: www.jacksonvillesavings.com | (217) 872-6373 |
E-mail: info@jacksonvillesavings.com |
Special Counsel | Independent Registered Public Accounting Firm |
Luse Gorman, P.C. | BKD, LLP |
5335 Wisconsin Ave., N.W., Suite 780 | 225 North Water Street, Suite 400 |
Washington, D.C. 20015 | Decatur, Illinois 62523-2326 |
(202) 274-2000 | (217) 429-2411 |
Annual Meeting
The Annual Meeting of the Stockholders will be held April 26, 2016 at 1:30 p.m., central time, at our main office at 1211 West Morton, Jacksonville, Illinois.
General Inquiries
A copy of our Annual Report to the SEC on Form 10-K may be obtained without charge by written request of stockholders to Diana Tone or by calling us at (217) 245-4111. The Form 10-K is also available on our website at ww.jacksonvillesavings.com. Our Code of Ethics, Audit Committee Charter, Nominating and Corporate Governance Committee Charter, Compensation Committee Charter, and Beneficial Ownership reports of our directors and executive officers are also available on our website.
FDIC Disclaimer
This Annual Report has not been reviewed or confirmed for accuracy or relevance by the FDIC.
86 |
Exhibit 21
Subsidiaries
Jacksonville Savings Bank | 100% owned by Jacksonville Bancorp, Inc. | |
Financial Resources Group, Inc. | 100% ownership by Jacksonville Savings Bank |
Exhibit 23
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 333-168355) and the Registration Statement on Form S-8 (No. 333-186754) of our report dated March 10, 2016, included in the Annual Report on Form 10-K of Jacksonville Bancorp, Inc. for the year ended December 31, 2015.
/s/ BKD, LLP
Decatur, Illinois
March 10, 2016
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 annual report on Form 10-K of Jacksonville Bancorp, Inc.; |
2. | Based on my knowledge, this 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 report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this 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 report; |
4. | The registrant’s other certifying officers 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 13-a-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 control over financial reporting, or caused such internal control 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 principles; and |
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 end 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 officers 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 control over financial reporting. |
March 10, 2016 | /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 annual report on Form 10-K of Jacksonville Bancorp, Inc.; |
2. | Based on my knowledge, this 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 report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this 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 report; |
4. | The registrant’s other certifying officers 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 13-a-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 control over financial reporting, or caused such internal control 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 principles; and |
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 end 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 officers 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 control over financial reporting. |
March 10, 2016 | /s/ Diana S. Tone |
Date | Diana S. Tone |
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 Annual Report of Jacksonville Bancorp, Inc. (“Company”) on Form 10-K for the period ending December 31, 2015 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, 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. |
March 10, 2016 | /s/ Richard A. Foss |
Date | Richard A. Foss |
President and Chief Executive Officer | |
March 10, 2016 | /s/ Diana S. Tone |
Date | Diana S. Tone |
Chief Financial Officer |
Document and Entity Information - USD ($) |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2015 |
Mar. 01, 2016 |
Jun. 30, 2015 |
|
Document And Entity Information Abstract | |||
Entity Registrant Name | Jacksonville Bancorp, Inc. | ||
Entity Central Index Key | 0001484949 | ||
Trading Symbol | jxsb | ||
Entity Current Reporting Status | Yes | ||
Entity Voluntary Filers | No | ||
Current Fiscal Year End Date | --12-31 | ||
Entity Filer Category | Smaller Reporting Company | ||
Entity Well Known Seasoned Issuer | No | ||
Entity Common Stock Shares Outstanding | 0 | ||
Entity Public Float | $ 0 | ||
Document Type | 10-K | ||
Document Period End Date | Dec. 31, 2015 | ||
Amendment Flag | false | ||
Document Fiscal Year Focus | 2015 | ||
Document Fiscal Period Focus | FY |
Consolidated Balance Sheets (Parentheticals) - USD ($) |
Dec. 31, 2015 |
Dec. 31, 2014 |
---|---|---|
Statement Of Financial Position [Abstract] | ||
Allowance for loan losses of loans receivable (in dollars) | $ 2,919,594 | $ 2,956,264 |
Accumulated depreciation on premises and equipment (in dollars) | 6,126,823 | 5,742,785 |
Valuation allowance on mortgage servicing rights (in dollars) | $ 47,354 | $ 56,969 |
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 | 1,791,513 | 1,799,483 |
Consolidated Statements of Comprehensive Income (Loss) - USD ($) |
12 Months Ended | |
---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Statement Of Income And Comprehensive Income [Abstract] | ||
Net Income | $ 3,026,123 | $ 2,972,754 |
Other Comprehensive Income | ||
Unrealized appreciation on available-for-sale securities, net of taxes of $149,623 and $1,219,994 for 2015 and 2014, respectively | 290,444 | 2,368,224 |
Less: reclassification adjustment for realized gains included in net income, net of taxes of $108,999 and $138,976 for 2015 and 2014, respectively | 211,586 | 269,777 |
Total other comprehensive income (loss) | 78,858 | 2,098,447 |
Comprehensive Income | $ 3,104,981 | $ 5,071,201 |
Consolidated Statements of Comprehensive Income (Loss) (Parentheticals) - USD ($) |
12 Months Ended | |
---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Statement Of Income And Comprehensive Income [Abstract] | ||
Taxes on unrealized appreciation (depreciation) on available-for-sale securities | $ 149,623 | $ 1,219,994 |
Taxes on reclassification adjustment for realized gains included in net income | $ 108,999 | $ 138,976 |
Consolidated Statements of Stockholders' Equity (Parentheticals) - $ / shares |
12 Months Ended | |
---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Statement Of Stockholders Equity [Abstract] | ||
Dividends on common stock (in dollars per share) | $ 1.32 | $ 0.32 |
Nature of Operations and Summary of Significant Accounting Policies |
12 Months Ended | ||||
---|---|---|---|---|---|
Dec. 31, 2015 | |||||
Accounting Policies [Abstract] | |||||
Nature of Operations and Summary of Significant Accounting Policies | Note 1: Nature of Operations and Summary of Significant Accounting Policies
Nature of Operations
Jacksonville Bancorp, Inc. (the “Company”) is a Maryland corporation. The Company owns 100% of Jacksonville Savings Bank (the “Bank”). The Bank was founded in 1916 as an Illinois-chartered savings and loan association and converted to an Illinois-chartered savings bank in 1992. The Bank is headquartered in Jacksonville, Illinois and operates five branches in addition to its main office. The Bank’s deposits have been federally insured since 1945 by the Federal Deposit Insurance Corporation (“FDIC”). The Bank has been a member of the Federal Home Loan Bank (“FHLB”) System since 1932.
The Bank is a community-oriented savings bank engaged primarily in the business of attracting retail deposits from the general public in the Bank’s market area and using such funds together with borrowings and funds from other sources to originate consumer loans and mortgage loans secured by one-to-four family residential real estate. The Bank also originates commercial real estate loans, multi-family real estate loans, commercial business loans, and agricultural loans. When possible, the Bank emphasizes the origination of mortgage loans with adjustable interest rates (“ARM”), as well as fixed-rate balloon loans with terms ranging from three to five years, consumer loans, which are primarily home equity loans secured by second mortgages, commercial business loans, and agricultural loans. The Bank also offers trust and investment services. The investment center, Berthel Fisher and Company Financial Services, Inc., is operated through the Bank’s wholly-owned subsidiary, Financial Resources Group, Inc.
The Company is subject to competition from other financial institutions and nonfinancial institutions providing financial products. Additionally, the Company is subject to the regulations of certain regulatory agencies and undergoes periodic examinations by those regulatory agencies.
The significant accounting and reporting policies of the Company and its subsidiary follow:
Principles of Consolidation and Financial Statement Presentation
The consolidated financial statements include the accounts of the Company, the Bank and the Bank’s wholly owned subsidiary, Financial Resources Group, Inc. Significant intercompany accounts and transactions have been eliminated in consolidation. Based on the Company’s approach to decision making, it has decided that its business is comprised of a single segment.
The consolidated financial statements of the Company have been prepared in conformity with accounting principles generally accepted in the United States of America and conform to predominate practice within the banking industry.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for loan losses, fair value of securities, valuation of real estate acquired in connection with foreclosures or in satisfaction of loans, valuation of loan servicing rights, valuation of deferred tax assets and goodwill impairment.
Cash Equivalents
The Company considers all liquid investments with original maturities of three months or less to be cash equivalents. At December 31, 2015 and 2014, cash equivalents consisted primarily of federal funds sold and interest-earning demand deposits in banks.
At December 31, 2015, the Company’s cash accounts did not exceed federally insured limits.
Interest-earning Time Deposits in Banks
Interest-earning time deposits in banks are generally short-term and are carried at cost.
Securities
Available-for-sale securities, which include any security for which the Company has no immediate plan to sell but which may be sold in the future, are carried at fair value, with unrealized gains and losses excluded from earnings and reported in other comprehensive income. Purchase premiums and discounts are recognized in interest income using the interest method over the terms of the securities. Gains and losses on the sale of securities are recorded on the settlement date and are determined using the specific identification method.
For debt securities with fair value below amortized cost when the Company does not intend to sell a debt security, and it is more likely than not the Company will not have to sell the security before recovery of its cost basis, it recognizes the credit component of an other-than-temporary impairment of a debt security in earnings and the remaining portion in other comprehensive income.
Other Investments
Other investments at December 31, 2015 and 2014 include local municipal bonds and equity investments in local community development organizations. The municipal bonds mature ratably through the year 2020. These securities have no readily ascertainable market value and are carried at cost.
Loans Held for Sale
Mortgage loans originated and intended for sale in the secondary market are carried at the lower of cost or fair value in the aggregate. Net unrealized losses, if any, are recognized through a valuation allowance by charges to noninterest income. Gains and losses on loan sales are recorded in noninterest income, and direct loan origination costs and fees are deferred at origination of the loan and are recognized in noninterest income upon sale of the loan.
Loans
Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoffs are reported at their outstanding principal balances adjusted for unearned income, charge-offs, the allowance for loan losses, any unamortized deferred fees or costs on originated loans.
For loans amortized at cost, interest income is accrued based on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, as well as premiums and discounts, are deferred and amortized as a level yield adjustment over the respective term of the loan.
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 nonaccrual or charged off at an earlier date if collection of principal or interest is considered doubtful.
All interest accrued but not collected for loans that are placed on nonaccrual 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 the principal and interest amounts contractually due are brought current and future payments are reasonably assured.
Allowance for Loan Losses
The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to income. Loan losses are charged against the allowance when management believes collectibility of the principal is unlikely. 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 collectibility of the loans in light of historical experience, the nature and volume 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. The general component covers nonclassified loans and is based on historical charge-off experience and expected loss given default derived from the Company’s internal risk rating process. Other adjustments may be made to the allowance for pools of loans after an assessment of internal or external influences on credit quality that are not fully reflected in the historical loss or risk rating data.
A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the 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 construction 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, the Company does not separately identify individual consumer and residential loans for impairment measurements, unless such loans are the subject of a restructuring agreement due to financial difficulties of the borrower.
Premises and Equipment
Depreciable assets are stated at cost less accumulated depreciation. Depreciation is charged to expense using the straight-line method over the estimated useful lives of the assets.
The estimated useful lives for each major depreciable classification of premises and equipment are as follows:
Federal Home Loan Bank Stock
Federal Home Loan Bank stock is a required investment for institutions that are members of the Federal Home Loan Bank system. The required investment in the common stock is based on a predetermined formula, carried at cost and evaluated for impairment.
Foreclosed Assets Held for Sale
Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at fair value at the date of foreclosure, establishing a new cost basis. Subsequent to foreclosure, valuations are periodically performed by management and the assets are carried at the lower of carrying amount or fair value less cost to sell. Revenue and expenses from operations and changes in the valuation allowance are included in income or expense from foreclosed assets.
Bank-owned Life Insurance
Bank-owned life insurance policies are reflected on the consolidated balance sheets at the estimated cash surrender value. Changes in the cash surrender value are reflected in noninterest income in the consolidated statements of income.
Goodwill
Goodwill is evaluated annually for impairment or more frequently if impairment indicators are present. A qualitative assessment is performed to determine whether the existence of events or circumstances leads to a determination that it is more likely than not the fair value is less than the carrying amount, including goodwill. If, based on the evaluation, it is determined to be more likely than not that the fair value is less than the carrying value, then goodwill is tested further for impairment. If the implied fair value of goodwill is lower than its carrying amount, a goodwill impairment is indicated and goodwill is written down to its implied fair value. Subsequent increases in goodwill value are not recognized in the financial statements. The goodwill was not deemed impaired as of December 31, 2015 or 2014.
Mortgage Servicing Rights
Mortgage servicing assets are recognized separately when rights are acquired through purchase or through sale of financial assets. Under the servicing assets and liabilities accounting guidance (ASC 860-50), servicing rights resulting from the sale or securitization of loans originated by the Company are initially measured at fair value at the date of transfer. Fair value is based on market prices for comparable mortgage servicing contracts, when available, or alternatively, is based on a valuation model that calculates the present value of estimated future net servicing income. The valuation model incorporates assumptions that market participants would use in estimating future net servicing income, such as the cost to service, the discount rate, the custodial earnings rate, an inflation rate, ancillary income, prepayment speeds and default rates and losses. These variables change from quarter to quarter as market conditions and projected interest rates change.
The Company subsequently measures each class of servicing asset using either the fair value or the amortization method. The Company has elected to subsequently measure the mortgage servicing rights under the amortization method. Under the amortization method, servicing rights are amortized in proportion to and over the period of estimated net servicing income. The amortized assets are assessed for impairment or increased obligation based on fair value at each reporting date. Each class of separately recognized servicing assets subsequently measured using the amortization method are evaluated and measured for impairment. Impairment is determined by stratifying rights into tranches based on predominant characteristics, such as interest rate, loan type and investor type. Impairment is recognized through a valuation allowance for an individual tranche, to the extent that fair value is less than the carrying amount of the servicing assets for that tranche. The valuation allowance is adjusted to reflect changes in the measurement of impairment after the initial measurement of impairment. Changes in valuation allowances are reported as a separate line item in noninterest expense on the consolidated income statement. Fair value in excess of the carrying amount of servicing assets for that stratum is not recognized.
Servicing fee income is recorded for fees earned for servicing loans. The fees are based on a contractual percentage of the outstanding principal and are recorded as income when earned in loan servicing fees in non-interest income. The amortization of mortgage servicing rights is netted from the gains on sale of loans, both cash gains as well as the capitalized gains, and is included in mortgage banking operations, net in non-interest income.
Stock Options
At December 31, 2015 and 2014, the Company recognizes the fair value (calculated value) of stock-based awards to employees as compensation cost over the requisite service period. The stock-based employee compensation plan is described more fully in Note 15.
Transfers of Financial Assets
Transfers of financial assets are accounted for as sales, when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company — put presumptively beyond the reach of the transferor and its creditors, even in bankruptcy or other receivership, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity or the ability to unilaterally cause the holder to return specific assets.
Income Taxes
The Company accounts for income taxes in accordance with income tax accounting guidance (ASC 740, Income Taxes). The income tax accounting guidance results in two components of income tax expense: current and deferred. Current income tax expense reflects taxes to be paid or refunded for the current period by applying the provisions of the enacted tax law to the taxable income or excess of deductions over revenues. The Company determines deferred income taxes using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is based on the tax effects of the differences between the book and tax bases of assets and liabilities, and enacted changes in tax rates and laws are recognized in the period in which they occur.
Deferred income tax expense results from changes in deferred tax assets and liabilities between periods. Deferred tax assets are reduced by a valuation allowance if, based on the weight of evidence available, it is more likely than not that some portion or all of a deferred tax asset will not be realized.
Tax positions are recognized if it is more likely than not, based on the technical merits, that the tax position will be realized or sustained upon examination. The term more likely than not means a likelihood of more than 50 percent; the terms examined and upon examination also include resolution of the related appeals or litigation processes, if any. A tax position that meets the more-likely-than-not recognition threshold is initially and subsequently measured as the largest amount of tax benefit that has a greater than 50 percent likelihood of being realized upon settlement with a taxing authority that has full knowledge of all relevant information. The determination of whether or not a tax position has met the more-likely-than-not recognition threshold considers the facts, circumstances and information available at the reporting date and is subject to the management’s judgment. With a few exceptions, the Company is no longer subject to U.S. federal and state income tax examinations by tax authorities for years before 2012.
The Company recognizes interest and penalties on income taxes as a component of income tax expense.
The Company files consolidated income tax returns with its subsidiary.
Earnings Per Share
Basic earnings per share represents income available to common stockholders divided by the weighted-average number of common shares outstanding during each period. Diluted earnings per share reflects additional potential common shares that would have been outstanding if dilutive potential common shares had been issued. Potential common shares that may be issued by the Company relate solely to outstanding stock options and are determined using the treasury stock method.
Comprehensive Income
Comprehensive income consists of net income and other comprehensive income, net of applicable income taxes. Other comprehensive income includes unrealized appreciation on available-for-sale securities.
Trust Assets
Assets held in fiduciary or agency capacities are not included in the consolidated balance sheets since such items are not assets of the Company. Fees from trust activities are recorded as revenue over the period in which the service is provided. Fees are a function of the market value of assets managed and administered, the volume of transactions, and fees for other services rendered, as set forth in the underlying client agreement with the Trust Department. This revenue recognition involves the use of estimates and assumptions, including components that are calculated based on estimated asset valuations and transaction volumes. Generally, the actual trust fee is charged to each account on a monthly basis. Any out of pocket expenses or services not typically covered by the fee schedule for trust activities are charged directly to the trust account on a gross basis as trust revenue is incurred. The Company managed or administered approximately 124 and 114 trust accounts with assets totaling approximately $90.7 million and $78.6 million at December 31, 2015 and 2014, respectively.
Reclassifications
Certain amounts included in the 2014 consolidated statements have been reclassified to conform to the 2015 presentation.
Recent and Future Accounting Requirements
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. For public entities, the guidance is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period, and must be applied either retrospectively or using the modified retrospective approach. 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. Management is evaluating the new guidance, but does not expect the adoption of this guidance to have a material impact on the Company’s consolidated financial statements. Early adoption would be permitted, but not before the original public entity effective date.
In June 2014, the FASB issued ASU No. 2014-11, Transfers and Servicing (Topic 860) – Repurchase to Maturity Transactions, Repurchase Financings, and Disclosures. ASU No. 2014-11 aligns the accounting for repurchase to maturity transactions and repurchase agreements executed as a repurchase financing with the accounting for other typical repurchase agreements. Going forward, these transactions would all be accounted for as secured borrowings. ASU 2014-11 was effective for the first interim or annual period beginning after December 15, 2014. In addition, the disclosure of certain transactions accounted for as a sale was effective for the first interim or annual period beginning on or after December 15, 2014, and the disclosure for transactions accounted for as secured borrowings is required for annual periods beginning after December 15, 2014, and interim periods beginning after March 15, 2015. The Company adopted ASU 2014-11 and included additional disclosures.
In April 2015, the FASB issued ASU No. 2015-05, Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement. This ASU provides guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing agreement includes a software license, the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. The new guidance does not change the accounting for a customer’s accounting for service contracts. ASU No. 2015-05 is effective for interim and annual reporting periods beginning after December 15, 2015. The Company’s current method of accounting for fees paid in a cloud computing arrangement is consistent with the accounting guidance provided by ASU No. 2015-05. Therefore, the adoption of ASU No. 2015-05 is not expected to have a material impact on the Company’s consolidated financial statements.
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. Adoption by the Company is not expected to have a material impact on the consolidated financial statements and related disclosures. |
Restriction on Cash and Due From Banks |
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Dec. 31, 2015 | |
Restricted Cash and Investments [Abstract] | |
Restriction on Cash and Due From Banks | Note 2: Restriction on Cash and Due From Banks
The Company is required to maintain reserve funds in cash and/or on deposit with the Federal Reserve Bank. The reserve required at December 31, 2015 and 2014, was $1,524,000 and $1,402,000, respectively. |
Securities |
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Investments, Debt and Equity Securities [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Securities | Note 3: Securities
The amortized cost and approximate fair values, together with gross unrealized gains and losses, of securities are as follows:
The amortized cost and fair value of available-for-sale securities at December 31, 2015, 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 $25,681,115 at December 31, 2015 and $21,121,613 at December 31, 2014.
The carrying value of securities sold under agreement to repurchase amounted to $7,591,475 at December 31, 2015 and $9,165,462 at December 31, 2014.
Gross gains of $352,983 and $429,105 and gross losses of $(32,398) and $(20,352) resulting from sales of available-for-sale securities were realized for 2015 and 2014, respectively. The tax provision applicable to these net realized gains amounted to $108,999 and $138,976, respectively.
Certain investments in debt securities are reported in the consolidated financial statements at an amount less than their historical cost. Total fair value of these investments at December 31, 2015 and 2014, was $30,676,768 and $40,587,408, which is approximately 35% and 42%, respectively, of the Company’s available-for-sale investment portfolio. The declines primarily resulted from recent changes in market interest rates.
Management believes the declines in fair value for these securities are temporary.
The following table shows the Company’s investments’ gross unrealized losses and fair value of the Company’s investments with unrealized losses that are not deemed to be other-than-temporarily impaired, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at December 31, 2015 and 2014:
U.S. Government Agencies
The unrealized losses on the Company’s investments in direct obligations of U.S. government agencies were caused by interest rate increases. The contractual terms of those 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 those investments to be other-than-temporarily impaired at December 31, 2015.
Residential Mortgage-backed Securities
The unrealized losses on the Company’s investment in residential mortgage-backed securities were caused by interest rate increases. The Company expects to recover the amortized cost basis over the term of the securities. Because the decline in market value is attributable to changes in interest rates and not credit quality, and 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 those investments to be other-than-temporarily impaired at December 31, 2015.
Municipal Bonds
The unrealized losses on the Company’s investments in securities of municipal bonds were caused by interest rate increases. The contractual terms of those 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 those investments to be other-than-temporarily impaired at December 31, 2015. |
Loans and Allowance for Loan Losses |
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Receivables [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Loans and Allowance for Loan Losses |
Classes of loans at December 31, include:
The Company’s loan portfolio includes loan participations purchased from other institutions. The outstanding balance of these purchased loans totaled $11,696,320 and $14,064,902 as of December 31, 2015 and 2014, respectively. Participations purchased during the years ended December 31, 2015 and 2014 totaled $2,609,280 and $2,677,750, respectively.
The Company believes that sound loans are 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 seek to develop and make sound, profitable loans that resources permit and that opportunity affords. The Company maintains lending policies and procedures in place 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 Morgan, Macoupin and Montgomery. 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 in the loan department 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. All residential real estate loans are then verified by our loan risk management department prior to closing. 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 45 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 is generally required on loans secured by real property.
One-to-Four Family Mortgage Loans - Historically, the 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 for the secondary market.
The Company originates for resale to the secondary market 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 the net interest income. In the low interest rate environment that has existed over the past two years, the adjustable-rate portfolio has repriced downward resulting in lower interest income from this portion of the loan portfolio. 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 either 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 provides 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. It is possible that during periods of rising interest rates that the risk of delinquencies and defaults on adjustable-rate mortgage loans may increase due to the upward adjustment of interest costs to the borrower, resulting 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, among other things, that 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 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 30% of the applicant’s total monthly income. In addition, total monthly obligations of the applicant, including mortgage payments, should not generally exceed 43% 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 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 and Agricultural Real Estate Loans - The Company originates and purchases commercial and agricultural real estate loans. Commercial and agricultural real estate loans are secured primarily by improved properties such as farms, retail facilities and office buildings, churches and other non-residential buildings. The maximum loan-to-value ratio for commercial and agricultural real estate loans originated is generally 75%. The commercial and agricultural 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 adjustable-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 and agricultural 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 75% of the value of the real estate. Written appraisals are usually obtained from either licensed or certified appraisers on all commercial and agricultural 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 and 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 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 and agricultural real estate is typically dependent upon the successful operation of the related business and real estate property. If the cash flow from the project is reduced, the borrower’s ability to repay the loan may be impaired.
Commercial and Agricultural Business Loans - The Company originates commercial and agricultural 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 and agricultural business loans are generally secured by accounts receivable, 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 and agricultural 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 and 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. 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.
Home Equity and Consumer Loans – The Company originates home equity and other consumer loans. Home equity loans and lines of credit 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 including the amount of any prior mortgages or related liabilities. Home equity loans and lines of credit are approved with both fixed and adjustable interest rates which are determined 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.
The principal types of other consumer loans offered are loans secured by automobiles, deposit accounts, and mobile homes. Unsecured consumer loans are also generated. Consumer loans are generally offered on a fixed-rate basis. Automobile loans with maturities of up to 60 months are offered for new automobiles. Loans secured by used automobiles will have maximum terms which vary depending upon the age of the automobile. Automobile loans with a loan-to-value ratio below the greater of 80% of the purchase price or 100% of NADA loan value are generally originated, although 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 the Company.
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. The length of employment with the borrower’s present employer is also considered, 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 the 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 December 31, 2015 and 2014:
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 over $75,000 are reviewed annually by our independent loan review 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. During the periods presented, none of our loans were classified as Doubtful.
The following tables present the credit risk profile of the Company’s loan portfolio based on rating category and payment activity as of December 31, 2015 and 2014:
The following tables present the Company’s loan portfolio aging analysis as of December 31, 2015 and 2014:
A loan is considered impaired, in accordance with the impairment accounting guidance (ASC 310-10-35-16), when based on current information and events, it is probable the Company will be unable to collect all amounts due from the borrower in accordance with the contractual terms of the loan. Impaired loans include nonperforming commercial loans but also include loans modified in troubled debt restructurings where concessions have been granted to borrowers experiencing financial difficulties. These concessions could include a reduction in the interest rate on the loan, payment extensions, forgiveness of principal, forbearance or other actions intended to maximize collection.
Impairment is measured on a loan-by-loan basis by either the present value of the expected future cash flows, the loan’s observable market value, or, for collateral-dependent loans, the fair value of the collateral adjusted for market conditions and selling expenses. Significant restructured loans are considered impaired in determining the adequacy of the allowance for loan losses.
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 for the years ended December 31, 2015 and 2014:
The following table presents the Company’s nonaccrual loans at December 31, 2015 and 2014. This table excludes performing troubled debt restructurings.
At December 31, 2015 and 2014, the Company had a number of loans that were modified in troubled debt restructurings (TDR’s) and impaired. The modification of terms of such loans included one or a combination of the following: an extension of maturity, a reduction of the stated interest rate or a permanent reduction of the recorded investment in the loan.
The following table presents the recorded balance, at original cost, of troubled debt restructurings, as of December 31, 2015 and 2014.
The following table presents the recorded balance, at original cost, of troubled debt restructurings, which were performing according to the terms of the restructuring, as of December 31, 2015 and 2014.
The following table presents loans modified as troubled debt restructurings during the years ended December 31, 2015 and 2014.
2015 Modifications
The Company modified one one-to-four family residential real estate loan, with a recorded investment of $98,246, which was deemed a TDR. The loan was a restructure of delinquent loans into a workout. The modification did not result in a reduced interest rate or a write-off of the principal balance.
The Company modified two commercial real estate loans with a total recorded balance of $524,432, which were deemed TDRs. One loan was restructured to capitalize force placed insurance. The other loan was restructured to increase the amortization period of the loan. The modifications did not result in a reduced interest rate or a write-off of the principal balance.
The Company modified one home equity loan with a recorded investment of $1,431, which was deemed a TDR. The modification was made to extend the term and lower the payment amount. The modification did not result in a reduced interest rate or a write-off of the principal balance.
The Company modified five consumer loans with a recorded investment of $76,691, which were deemed TDRs. The modifications were made to extend the payment schedules between two and four months. The modifications did not result in a reduced interest rate or a write-off of the principal balance.
2014 Modifications
The Company modified three one-to-four family residential real estate loans, with a recorded investment of $201,879, which were deemed TDRs. Two of the loans were restructured with the interest and real estate taxes capitalized to the balance of the note. One of the loans was extended without the full collection of accrued interest. None of the modifications resulted in a reduced interest rate or a write-off of the principal balance.
The Company modified one commercial real estate loan with a total recorded balance of $386,355, which was deemed a TDR. The loan was restructured to provide additional funds for cash flow needs of the borrower. The modification did not result in a reduced interest rate or a write-off of the principal balance.
The Company modified one consumer loan with a recorded investment of $15,953, which was deemed a TDR. The modification was made to change the payment schedule to interest-only for a period of time. The modification did not result in a reduced interest rate or a write-off of the principal 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 year ended December 31, 2015, three residential real estate loans of $197,417 and one commercial real estate loan of $766,840 were considered TDRs defaulted as they were more than 90 days past due at December 31, 2015. In addition, three residential real estate loans of $211,262, one commercial real estate loan of $30,021, two commercial loans of $9,314, one home equity loan of $1,431, and one consumer loan of $63,183 were considered TDRs defaulted as they were in a nonaccrual status but are performing in accordance with their modified terms.
During the year ended December 31, 2014, one residential real estate loan of $38,737 and one home equity loan of $3,305 were considered TDRs defaulted as they were more than 90 days past due at December 31, 2014. In addition, three residential real estate loans of $140,549, two commercial real estate loans of $840,115, two commercial loans of $22,437, and one consumer loan of $25,055 were considered TDRs defaulted as they were in a nonaccrual status but are performing in accordance with their modified terms.
At December 31, 2015, the balance of real estate owned includes $217,101 of foreclosed residential real estate properties recorded as a result of obtaining physical possession of the property. At December 31, 2015, the recorded investment of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process is $188,438. |
Premises and Equipment |
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Property, Plant and Equipment [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Premises and Equipment |
Major classifications of premises and equipment, stated at cost, are as follows:
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Loan Servicing |
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Transfers and Servicing [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Loan Servicing |
Mortgage loans serviced for others are not included in the accompanying consolidated balance sheets. The risks inherent in mortgage servicing assets relate primarily to changes in prepayments that result from shifts in mortgage interest rates. The unpaid principal balance of mortgage loans serviced for others was $131,443,738 and $137,877,795 at December 31, 2015 and 2014, respectively.
The following summarized the activity pertaining to mortgage servicing rights measured using the amortization method, along with the aggregate activity in related valuation allowances:
The valuation allowance was adjusted during 2014 and 2015 due to payments received on the related loans as well as changes in the estimated market value on the mortgage servicing rights asset.
Comparable market values and a valuation model that calculates the present value of future cash flows were used to estimate fair value. For purposes of measuring impairment, risk characteristics including product type, investor type, and interest rates, were used to stratify the originated mortgage servicing rights.
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Interest-bearing Deposits |
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Banking and Thrift [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Interest-bearing Deposits |
Interest-bearing deposits in denominations of $100,000 or more totaled $90,889,042 at December 31, 2015 and $96,271,806 at December 31, 2014.
The following table represents deposit interest expense by deposit type:
At December 31, 2015, the scheduled maturities of time deposits are as follows:
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Short-term Borrowings |
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Dec. 31, 2015 | |||
Debt Disclosure [Abstract] | |||
Short-term Borrowings |
Short-term borrowings include securities sold under agreements to repurchase totaling $6,631,710 and $8,821,730 at December 31, 2015 and 2014, respectively.
Securities sold under agreements to repurchase consist of obligations of the Company to other parties. The maximum amount of outstanding agreements at any month end during 2015 and 2014 totaled $9,548,789 and $9,483,795, respectively, and the monthly average of such agreements totaled $6,024,224 and $6,229,604 for 2015 and 2014, respectively. The agreements at December 31, 2015, are all for overnight borrowings.
At December 31, 2015, we had $5,519,148 of repurchase agreements secured by mortgage backed securities, $590,327 in repurchase agreements secured by U.S. government agency bonds, and $1,482,000 in repurchase agreements secured by time deposits in other banks. 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.
Also included in short-term borrowings are advances with the Federal Home Loan Bank (FHLB) of which $8,500,000 and $5,000,000 had been extended as of December 31, 2015 and 2014, respectively. The advances at a rate of 16 basis points all mature overnight and are secured by mortgage loans totaling $43,561,360 at December 31, 2015.
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Income Taxes |
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Income Tax Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income Taxes |
The Company and its subsidiary file income tax returns in the U.S. federal and state of Illinois jurisdictions. During the years ended December 31, 2015 and 2014, the Company did not recognize expense for interest or penalties.
The provision for income taxes includes these components:
A reconciliation of income tax expense at the statutory rate to the Company’s actual income tax expense is shown below:
The tax effects of temporary differences related to deferred taxes shown on the consolidated balance sheets were:
At December 31, 2015 and 2014, the Company had Illinois net operating loss carryforwards totaling approximately $0 and 98,574, respectively.
Retained earnings at December 31, 2015 and 2014, include approximately $2,600,000, for which no deferred federal income tax liability has been recognized. These amounts represent an allocation of income to bad debt deductions for tax purposes only. Reduction of amounts so allocated for purposes other than tax bad debt losses or adjustments arising from carryback of net operating losses would create income for tax purposes only, which would be subject to the then-current corporate income tax rate. The deferred income tax liabilities on the preceding amounts that would have been recorded if they were expected to reverse into taxable income in the foreseeable future were approximately $1,000,000 at December 31, 2015 and 2014.
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Accumulated Other Comprehensive Income |
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Equity [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accumulated Other Comprehensive Income |
The components of accumulated other comprehensive income, 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 years ended December 31, 2015 and 2014, were as follows:
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Regulatory Matters |
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Regulatory Matters [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Regulatory Matters |
The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities and certain off-balance-sheet items as calculated under U.S. GAAP, regulatory reporting requirements and regulatory capital standards. The Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Furthermore, the Bank’s regulators could require adjustments to regulatory capital not reflected in these consolidated financial statements.
Quantitative measures established by regulatory reporting standards to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier I capital (as defined) to risk-weighted assets (as defined), common equity Tier 1 capital (as defined) to total risk-weighted assets (as defined) and of Tier I capital (as defined) to average assets (as defined). Management believes, as of December 31, 2015 and 2014, that the Bank meets all capital adequacy requirements to which it is subject.
As of December 31, 2015, the most recent notification from the FDIC categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Bank must maintain minimum total risk-based capital, Tier I risk-based capital, common equity Tier 1 risk-based capital, and Tier I leverage ratios as set forth in the table. There are no conditions or events since that notification that management believes have changed the Bank’s category.
The Bank’s actual capital amounts (in thousands) and ratios are also presented in the table.
Basel III Capital Rules
In 2013, the Board of Governors of the Federal Reserve System approved a final rule implementing changes intended to strengthen the regulatory capital framework for all banking organizations (Basel III) which became effective January 1, 2015, subject to a phase-in period for certain provisions. Basel III establishes and defines quantitative measures to ensure capital adequacy which require First Financial to maintain minimum amounts and ratios of Common Equity tier 1 capital, total and tier 1 capital to risk-weighted assets and tier 1 capital to average assets (leverage ratio).
The rule includes a new minimum ratio of common equity tier 1 capital to risk-weighted assets of 4.5% and a new capital conservation buffer of 2.5% of risk-weighted assets that will begin on January 1, 2016 at 0.625% and be phased-in over a four-year period, increasing by the same amount on each subsequent January 1, until fully phased-in on January 1, 2019. Further, the minimum ratio of tier 1 capital to risk-weighted assets increased from 4.0% to 6.0% and all banks are now subject to a 4.0% minimum leverage ratio. The required total risk-based capital ratio was unchanged. Failure to maintain the required common equity Tier 1 capital conservation buffer will result in potential restrictions on a bank’s ability to pay dividends, repurchase stock and/or pay discretionary compensation to its employees. The revised capital requirements also provide strict eligibility criteria for regulatory capital instruments and change the method for calculating risk-weighted assets in an effort to better identify riskier assets, such as highly volatile commercial real estate and nonaccrual loans, requiring higher capital allocations.
Under Basel III Capital Rules, the initial minimum capital ratios as of January 1, 2015, are as follows:
4.5% CET1 to risk-weighted assets
6.0% Tier 1 capital to risk-weighted assets
8.0% Total capital to risk-weighted assets
4.0% Minimum leverage ratio
Implementation of the deductions and other adjustments to CET1 began on January 1, 2015, and will phase in over a four-year period (beginning at 40% on January 1, 2015, and an additional 20% per year thereafter). Under the new rule, in order to avoid limitations on capital distributions, including dividend payments and certain discretionary bonus payments to executive officers, a banking organization must hold a capital conservation buffer composed of CET1 capital above its minimum risk-based capital requirements. The implementation of the capital conservation buffer begins on January 1, 2016, at the 0.625% level and will phase in over a four-year period (increasing by that amount on each subsequent January 1 until reaches 2.5% on January 1, 2019).
The following is a reconciliation of the Bank equity amount included in the consolidated balance sheets to the amounts (in thousands) reflected above for regulatory capital purposes as of December 31:
The Bank is subject to certain restrictions on the amount of dividends that it may declare without prior regulatory approval. As of December 31, 2015, the Bank has $1,238,685 available for the payment of dividends without prior regulatory approval.
On January 19, 2010, the Boards of Directors of the Company, Jacksonville Bancorp, MHC and the Bank each unanimously adopted a Plan of Conversion and Reorganization of Jacksonville Bancorp, MHC (the “Plan”) pursuant to which Jacksonville Bancorp, MHC undertook a “second-step” conversion and ceased to exist. Jacksonville Bancorp, MHC reorganized from a two-tier mutual holding company structure to a fully public stock holding company structure effective July14, 2010.
In accordance with Board of Governors of the Federal Reserve System regulations, at the time of the reorganization, the Company substantially restricted retained earnings by establishing a liquidation account. The liquidation account will be maintained for the benefit of eligible account holders who continue to maintain their accounts at the Bank after conversion. The Bank will establish a parallel liquidation account to support the Company’s liquidation account in the event the Company does not have sufficient assets to fund its obligations under its liquidation account. The liquidation accounts will be reduced annually to the extent that eligible account holders have reduced their qualifying deposits. Subsequent increases will not restore an eligible account holder’s interest in the liquidation accounts. In the event of a complete liquidation of the Bank or the Company, each account holder will be entitled to receive a distribution in an amount proportionate to the adjusted qualifying account balances then held. The Bank may not pay dividends if those dividends would reduce equity capital below the required liquidation account amount. |
Related Party Transactions |
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Related Party Transactions [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Related Party Transactions |
At December 31, 2015 and 2014, the Company had loans outstanding to executive officers, directors, significant shareholders and their affiliates (related parties) in the amount of $3,193,470 and $3,523,047, respectively.
Annual activity consisted of the following:
Deposits from related parties held by the Company at December 31, 2015 and 2014 totaled approximately $2,581,000 and $3,112,000, respectively.
In management’s opinion, such loans and other extensions of credit and deposits were made in the ordinary course of business and were made on substantially the same terms (including interest rates and collateral) as those prevailing at the time for comparable transactions with other persons. Further, in management’s opinion, these loans did not involve more than normal risk of collectibility or present other unfavorable features.
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Employee Benefits |
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Compensation and Retirement Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Employee Benefits |
401(k) Plan — The Company maintains a 401(k) savings plan for eligible employees. The Company’s contributions to this plan were $216,508 and $232,567 for the years ended December 31, 2015 and 2014, respectively. The plan invests some of its assets in deposit accounts at the Company which earned interest at a rate of 1.85% for the years ended December 31, 2015 and 2014.
Deferred Compensation Plan — The Company maintains a deferred compensation plan for certain key officers and employees. Contributions are determined annually by the Company’s Board of Directors. Effective in 2005, the Company froze this plan and no contributions to this plan were made for the years ended December 31, 2015 or 2014. The plan accrues interest at a variable rate which fluctuates based on Moody’s Corporate Bond Average Index. The amount recorded on the consolidated balance sheets as deferred compensation was $2,521,997 and $2,451,200 as of December 31, 2015 and 2014, respectively. Compensation expense related to the plan was $137,731 and $140,714 for the years ended December 31, 2015 and 2014, respectively.
The Company has also entered into deferred compensation agreements with certain key officers and employees. The agreements provide for monthly payments at retirement or death. The charge to expense for this plan reflects the accrual using the principal and interest method over the vesting period of the present value of benefits due each participant on the full eligibility date using a 4.75% discount rate. The amount recorded on the consolidated balance sheets as deferred compensation was $1,970,597 and $1,801,520 as of December 31, 2015 and 2014, respectively. Compensation expense related to the plans was $233,731 and $241,745 for the years ended December 31, 2015 and 2014, respectively. Employee Stock Ownership Plan (ESOP) — The ESOP is a noncontributory defined contribution plan which covers substantially all employees. The Company may contribute to the Plan, at its discretion, an amount determined by the Board of Directors.
As part of the second step conversion, in July 2010 the Company acquired 41,614 additional shares of Company common stock at $10 per share in the conversion with funds provided by a loan from the Company. Accordingly, $416,140 of common stock acquired by the ESOP was shown as a reduction of stockholders’ equity. Shares are released to participants proportionately as the loan is repaid. Dividends on allocated shares are recorded as dividends and charged to retained earnings. Dividends on unallocated shares are used to repay the loan and are treated as compensation expense. Compensation expense is recorded equal to the fair market value of the stock when contributions, which are determined annually by the Board of Directors of the Company, are made to the ESOP.
ESOP expense for the years ended December 31, 2015 and 2014 was $90,649 and $80,978, respectively.
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Stock Option Plans |
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Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock Option Plans |
The Jacksonville Bancorp, Inc. 2012 Stock Option Plan, which is shareholder approved, permits the grant of share options and shares to its employees for up to 104,035 shares of common stock. The Company believes that such awards better align the interests of its employees with those of its shareholders. All shares were awarded as of the approval date, expire ten years after the grant date, and are exercisable at a price of $15.65 per share.
The fair value of each option award is estimated on the date of grant using a Black-Scholes option valuation model that uses the assumptions noted in the following table. Expected volatility is based on historical volatility of the Company’s stock and other factors. The Company uses historical data to estimate option exercise and employee termination within the valuation model; separate groups of employees that have similar historical exercise behavior are considered separately for valuation purposes. The expected term of options granted represents the period of time that options are expected to be outstanding; the range given below results from certain groups of employees exhibiting different behavior. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The discount rate for post-vesting restrictions is estimated based on the Company’s credit-adjusted risk-free rate of return.
A summary of option activity under the Plans as of December 31, 2015 and 2014, and changes during the years then ended, is presented below:
The total intrinsic value of options exercised during the years ended December 31, 2015 and 2014 was $200,192 and $90,606, respectively.
As of December 31, 2015, there was $112,395 of total unrecognized compensation cost related to nonvested share-based compensation arrangements granted under the 2012 Plan. That cost is expected to be recognized over a weighted-average period of 2 years. The total fair value of shares vested during the years ended December 31, 2015 and 2014 was $90,163. The recognized tax benefit related thereto was $35,267 and $34,622 for the years ended December 31, 2015 and 2014, respectively.
A summary of the status of the Company’s nonvested shares as of December 31, 2015 and 2014, and changes during the year then ended, is presented below:
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Earnings Per Share |
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Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Earnings Per Share |
Earnings per share (EPS) were computed as follows:
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Disclosures about Fair Value of Assets |
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Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Disclosures about Fair Value of Assets |
Fair value is the price that would be received to sell an asset 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 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 December 31, 2015 and 2014:
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 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 year ended December 31, 2015.
Available-for-Sale Securities
Where quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. The Company has no Level 1 securities. 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. 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. The Company did not have securities considered Level 3 as of December 31, 2015 or December 31, 2014.
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 December 31, 2015 and 2014:
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 consolidated balance sheets, as well as the general classification of such assets and liabilities 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. Fair value adjustments on impaired loans were $(156,069) and $265,687 at December 31, 2015 and 2014.
Unobservable (Level 3) Inputs
The following table presents quantitative information about unobservable inputs used in nonrecurring Level 3 fair value measurements.
Fair Value of Other 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 December 31, 2015 and 2014:
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 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. |
Significant Estimates and Concentrations |
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Dec. 31, 2015 | |||
Risks and Uncertainties [Abstract] | |||
Significant Estimates and Concentrations |
Accounting principles generally accepted in the United States of America require disclosure of certain significant estimates and current vulnerabilities due to certain concentrations. Estimates related to the allowance for loan losses are reflected in the note regarding loans. Current vulnerabilities due to certain concentrations of credit risk are discussed in the note on commitments and credit risk. Other significant estimates not discussed in those notes include:
General Litigation
The Company is subject to claims and lawsuits that arise primarily in the ordinary course of business. It is the opinion of management that the disposition or ultimate resolution of such claims and lawsuits will not have a material adverse effect on the consolidated financial position, results of operations and cash flows of the Company.
Goodwill
As discussed in Note 1, the Company annually tests its goodwill for impairment. At the most recent testing date, the fair value of the banking reporting unit exceeded its carrying value. Estimated fair value was based principally on forecasts of future income. Management believes it has applied reasonable judgment in developing its estimates; however, unforeseen negative changes in the national, state or local economic environment may negatively impact those estimates in the near term.
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Commitments and Credit Risk |
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Dec. 31, 2015 | |||
Commitments and Contingencies Disclosure [Abstract] | |||
Commitments and Credit Risk |
The Company grants agribusiness, commercial and residential loans to customers in Cass, Morgan, Macoupin, Montgomery and surrounding counties in Illinois. The Company’s loans are generally secured by specific items of collateral including real property, consumer assets and business assets. Although the Company has a diversified loan portfolio, a substantial portion of its debtors’ ability to honor their contracts is dependent upon economic conditions and the agricultural economy in these counties. The Company also purchases participation loans from out of territory areas.
Commitments to Originate Loans
Commitments to originate loans 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 a portion of the commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Each customer’s creditworthiness is evaluated on a case-by-case basis. The amount of collateral obtained, if deemed necessary, is based on management’s credit evaluation of the counterparty. Collateral held varies, but may include accounts receivable, inventory, property, plant and equipment, commercial real estate and residential real estate.
At December 31, 2015and 2014, the Company had outstanding commitments to originate loans aggregating approximately $4,457,514 and $3,493,500, respectively. The commitments extended over varying periods of time with the majority being disbursed within a one-year period. Loan commitments at fixed rates of interest amounted to $3,744,574 and $2,702,000 at December 31, 2015 and 2014, respectively, with the remainder at floating market rates. The range of fixed rates was 2.875% to 6.25% as of December 31, 2015.
Standby Letters of Credit
Standby letters of credit are irrevocable conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Financial standby letters of credit are primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing and similar transactions. Performance standby letters of credit are issued to guarantee performance of certain customers under non-financial contractual obligations. The credit risk involved in issuing standby letters of credit is essentially the same as that involved in extending loans to customers. Should the Company be obliged to perform under the standby letters of credit, the Company may seek recourse from the customer for reimbursement of amounts paid.
The Company had total outstanding standby letters of credit amounting to $110,000 and $255,340 at December 31, 2015 and 2014, respectively, with terms of one year or less. At December 31, 2015 and 2014, the Company’s deferred revenue under standby letters of credit agreements was nominal.
Lines of Credit
Lines of credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Lines of credit generally have fixed expiration dates. Since a portion of the line may expire without being drawn upon, the total unused lines do not necessarily represent future cash requirements. Each customer’s creditworthiness is evaluated on a case-by-case basis. The amount of collateral obtained, if deemed necessary, is based on management’s credit evaluation of the counterparty. Collateral held varies but may include accounts receivable, inventory, property, plant and equipment, commercial real estate and residential real estate. Management uses the same credit policies in granting lines of credit as it does for on-balance-sheet instruments.
At December 31, 2015, the Company had unused lines of credit to borrowers aggregating approximately $21,753,180 and $10,785,989 for commercial lines and open-ended consumer lines, respectively. At December 31, 2014, unused lines of credit to borrowers aggregated approximately $21,498,070 for commercial lines and $9,742,393 for open-ended consumer lines.
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Quarterly Results of Operations (Unaudited) |
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Quarterly Financial Information Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Quarterly Results of Operations (Unaudited) |
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Condensed Financial Information (Parent Company Only) |
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Condensed Financial Information of Parent Company Only Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Condensed Financial Information (Parent Company Only) |
Presented below is condensed financial information as to financial position, results of operations and cash flows of the Company:
Condensed Balance Sheets
Condensed Statements of Income and Comprehensive Income
Condensed Statements of Cash Flows
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Nature of Operations and Summary of Significant Accounting Policies (Policies) |
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Dec. 31, 2015 | |||||
Accounting Policies [Abstract] | |||||
Principles of Consolidation and Financial Statement Presentation | Principles of Consolidation and Financial Statement Presentation
The consolidated financial statements include the accounts of the Company, the Bank and the Bank’s wholly owned subsidiary, Financial Resources Group, Inc. Significant intercompany accounts and transactions have been eliminated in consolidation. Based on the Company’s approach to decision making, it has decided that its business is comprised of a single segment.
The consolidated financial statements of the Company have been prepared in conformity with accounting principles generally accepted in the United States of America and conform to predominate practice within the banking industry. |
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Use of Estimates | Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for loan losses, fair value of securities, valuation of real estate acquired in connection with foreclosures or in satisfaction of loans, valuation of loan servicing rights, valuation of deferred tax assets and goodwill impairment.
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Cash Equivalents | Cash Equivalents
The Company considers all liquid investments with original maturities of three months or less to be cash equivalents. At December 31, 2015 and 2014, cash equivalents consisted primarily of federal funds sold and interest-earning demand deposits in banks.
At December 31, 2015, the Company’s cash accounts did not exceed federally insured limits.
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Interest-earning Time Deposits in Banks | Interest-earning Time Deposits in Banks
Interest-earning time deposits in banks are generally short-term and are carried at cost. |
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Securities | Securities
Available-for-sale securities, which include any security for which the Company has no immediate plan to sell but which may be sold in the future, are carried at fair value, with unrealized gains and losses excluded from earnings and reported in other comprehensive income. Purchase premiums and discounts are recognized in interest income using the interest method over the terms of the securities. Gains and losses on the sale of securities are recorded on the settlement date and are determined using the specific identification method.
For debt securities with fair value below amortized cost when the Company does not intend to sell a debt security, and it is more likely than not the Company will not have to sell the security before recovery of its cost basis, it recognizes the credit component of an other-than-temporary impairment of a debt security in earnings and the remaining portion in other comprehensive income.
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Other Investments | Other Investments
Other investments at December 31, 2015 and 2014 include local municipal bonds and equity investments in local community development organizations. The municipal bonds mature ratably through the year 2020. These securities have no readily ascertainable market value and are carried at cost.
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Loans Held for Sale | Loans Held for Sale
Mortgage loans originated and intended for sale in the secondary market are carried at the lower of cost or fair value in the aggregate. Net unrealized losses, if any, are recognized through a valuation allowance by charges to noninterest income. Gains and losses on loan sales are recorded in noninterest income, and direct loan origination costs and fees are deferred at origination of the loan and are recognized in noninterest income upon sale of the loan.
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Loans | Loans
Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoffs are reported at their outstanding principal balances adjusted for unearned income, charge-offs, the allowance for loan losses, any unamortized deferred fees or costs on originated loans.
For loans amortized at cost, interest income is accrued based on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, as well as premiums and discounts, are deferred and amortized as a level yield adjustment over the respective term of the loan.
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 nonaccrual or charged off at an earlier date if collection of principal or interest is considered doubtful.
All interest accrued but not collected for loans that are placed on nonaccrual 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 the principal and interest amounts contractually due are brought current and future payments are reasonably assured.
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Allowance for Loan Losses | Allowance for Loan Losses
The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to income. Loan losses are charged against the allowance when management believes collectibility of the principal is unlikely. 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 collectibility of the loans in light of historical experience, the nature and volume 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. The general component covers nonclassified loans and is based on historical charge-off experience and expected loss given default derived from the Company’s internal risk rating process. Other adjustments may be made to the allowance for pools of loans after an assessment of internal or external influences on credit quality that are not fully reflected in the historical loss or risk rating data.
A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the 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 construction 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, the Company does not separately identify individual consumer and residential loans for impairment measurements, unless such loans are the subject of a restructuring agreement due to financial difficulties of the borrower.
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Premises and Equipment | Premises and Equipment
Depreciable assets are stated at cost less accumulated depreciation. Depreciation is charged to expense using the straight-line method over the estimated useful lives of the assets.
The estimated useful lives for each major depreciable classification of premises and equipment are as follows:
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Federal Home Loan Bank Stock | Federal Home Loan Bank Stock
Federal Home Loan Bank stock is a required investment for institutions that are members of the Federal Home Loan Bank system. The required investment in the common stock is based on a predetermined formula, carried at cost and evaluated for impairment.
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Foreclosed Assets Held for Sale | Foreclosed Assets Held for Sale
Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at fair value at the date of foreclosure, establishing a new cost basis. Subsequent to foreclosure, valuations are periodically performed by management and the assets are carried at the lower of carrying amount or fair value less cost to sell. Revenue and expenses from operations and changes in the valuation allowance are included in income or expense from foreclosed assets.
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Bank-owned Life Insurance | Bank-owned Life Insurance
Bank-owned life insurance policies are reflected on the consolidated balance sheets at the estimated cash surrender value. Changes in the cash surrender value are reflected in noninterest income in the consolidated statements of income.
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Goodwill | Goodwill
Goodwill is evaluated annually for impairment or more frequently if impairment indicators are present. A qualitative assessment is performed to determine whether the existence of events or circumstances leads to a determination that it is more likely than not the fair value is less than the carrying amount, including goodwill. If, based on the evaluation, it is determined to be more likely than not that the fair value is less than the carrying value, then goodwill is tested further for impairment. If the implied fair value of goodwill is lower than its carrying amount, a goodwill impairment is indicated and goodwill is written down to its implied fair value. Subsequent increases in goodwill value are not recognized in the financial statements. The goodwill was not deemed impaired as of December 31, 2015 or 2014.
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Mortgage Servicing Rights | Mortgage Servicing Rights
Mortgage servicing assets are recognized separately when rights are acquired through purchase or through sale of financial assets. Under the servicing assets and liabilities accounting guidance (ASC 860-50), servicing rights resulting from the sale or securitization of loans originated by the Company are initially measured at fair value at the date of transfer. Fair value is based on market prices for comparable mortgage servicing contracts, when available, or alternatively, is based on a valuation model that calculates the present value of estimated future net servicing income. The valuation model incorporates assumptions that market participants would use in estimating future net servicing income, such as the cost to service, the discount rate, the custodial earnings rate, an inflation rate, ancillary income, prepayment speeds and default rates and losses. These variables change from quarter to quarter as market conditions and projected interest rates change.
The Company subsequently measures each class of servicing asset using either the fair value or the amortization method. The Company has elected to subsequently measure the mortgage servicing rights under the amortization method. Under the amortization method, servicing rights are amortized in proportion to and over the period of estimated net servicing income. The amortized assets are assessed for impairment or increased obligation based on fair value at each reporting date. Each class of separately recognized servicing assets subsequently measured using the amortization method are evaluated and measured for impairment. Impairment is determined by stratifying rights into tranches based on predominant characteristics, such as interest rate, loan type and investor type. Impairment is recognized through a valuation allowance for an individual tranche, to the extent that fair value is less than the carrying amount of the servicing assets for that tranche. The valuation allowance is adjusted to reflect changes in the measurement of impairment after the initial measurement of impairment. Changes in valuation allowances are reported as a separate line item in noninterest expense on the consolidated income statement. Fair value in excess of the carrying amount of servicing assets for that stratum is not recognized.
Servicing fee income is recorded for fees earned for servicing loans. The fees are based on a contractual percentage of the outstanding principal and are recorded as income when earned in loan servicing fees in non-interest income. The amortization of mortgage servicing rights is netted from the gains on sale of loans, both cash gains as well as the capitalized gains, and is included in mortgage banking operations, net in non-interest income.
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Stock Options | Stock Options
At December 31, 2015 and 2014, the Company recognizes the fair value (calculated value) of stock-based awards to employees as compensation cost over the requisite service period. The stock-based employee compensation plan is described more fully in Note 15.
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Transfers of Financial Assets | Transfers of Financial Assets
Transfers of financial assets are accounted for as sales, when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company — put presumptively beyond the reach of the transferor and its creditors, even in bankruptcy or other receivership, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity or the ability to unilaterally cause the holder to return specific assets.
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Income Taxes | Income Taxes
The Company accounts for income taxes in accordance with income tax accounting guidance (ASC 740, Income Taxes). The income tax accounting guidance results in two components of income tax expense: current and deferred. Current income tax expense reflects taxes to be paid or refunded for the current period by applying the provisions of the enacted tax law to the taxable income or excess of deductions over revenues. The Company determines deferred income taxes using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is based on the tax effects of the differences between the book and tax bases of assets and liabilities, and enacted changes in tax rates and laws are recognized in the period in which they occur.
Deferred income tax expense results from changes in deferred tax assets and liabilities between periods. Deferred tax assets are reduced by a valuation allowance if, based on the weight of evidence available, it is more likely than not that some portion or all of a deferred tax asset will not be realized.
Tax positions are recognized if it is more likely than not, based on the technical merits, that the tax position will be realized or sustained upon examination. The term more likely than not means a likelihood of more than 50 percent; the terms examined and upon examination also include resolution of the related appeals or litigation processes, if any. A tax position that meets the more-likely-than-not recognition threshold is initially and subsequently measured as the largest amount of tax benefit that has a greater than 50 percent likelihood of being realized upon settlement with a taxing authority that has full knowledge of all relevant information. The determination of whether or not a tax position has met the more-likely-than-not recognition threshold considers the facts, circumstances and information available at the reporting date and is subject to the management’s judgment. With a few exceptions, the Company is no longer subject to U.S. federal and state income tax examinations by tax authorities for years before 2012.
The Company recognizes interest and penalties on income taxes as a component of income tax expense.
The Company files consolidated income tax returns with its subsidiary.
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Earnings Per Share | Earnings Per Share
Basic earnings per share represents income available to common stockholders divided by the weighted-average number of common shares outstanding during each period. Diluted earnings per share reflects additional potential common shares that would have been outstanding if dilutive potential common shares had been issued. Potential common shares that may be issued by the Company relate solely to outstanding stock options and are determined using the treasury stock method.
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Comprehensive Income | Comprehensive Income
Comprehensive income consists of net income and other comprehensive income, net of applicable income taxes. Other comprehensive income includes unrealized appreciation on available-for-sale securities.
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Trust Assets | Trust Assets
Assets held in fiduciary or agency capacities are not included in the consolidated balance sheets since such items are not assets of the Company. Fees from trust activities are recorded as revenue over the period in which the service is provided. Fees are a function of the market value of assets managed and administered, the volume of transactions, and fees for other services rendered, as set forth in the underlying client agreement with the Trust Department. This revenue recognition involves the use of estimates and assumptions, including components that are calculated based on estimated asset valuations and transaction volumes. Generally, the actual trust fee is charged to each account on a monthly basis. Any out of pocket expenses or services not typically covered by the fee schedule for trust activities are charged directly to the trust account on a gross basis as trust revenue is incurred. The Company managed or administered approximately 124 and 114 trust accounts with assets totaling approximately $90.7 million and $78.6 million at December 31, 2015 and 2014, respectively.
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Reclassifications | Reclassifications
Certain amounts included in the 2014 consolidated statements have been reclassified to conform to the 2015 presentation.
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Recent and Future Accounting Requirements | Recent and Future Accounting Requirements
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. For public entities, the guidance is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period, and must be applied either retrospectively or using the modified retrospective approach. 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. Management is evaluating the new guidance, but does not expect the adoption of this guidance to have a material impact on the Company’s consolidated financial statements. Early adoption would be permitted, but not before the original public entity effective date.
In June 2014, the FASB issued ASU No. 2014-11, Transfers and Servicing (Topic 860) – Repurchase to Maturity Transactions, Repurchase Financings, and Disclosures. ASU No. 2014-11 aligns the accounting for repurchase to maturity transactions and repurchase agreements executed as a repurchase financing with the accounting for other typical repurchase agreements. Going forward, these transactions would all be accounted for as secured borrowings. ASU 2014-11 was effective for the first interim or annual period beginning after December 15, 2014. In addition, the disclosure of certain transactions accounted for as a sale was effective for the first interim or annual period beginning on or after December 15, 2014, and the disclosure for transactions accounted for as secured borrowings is required for annual periods beginning after December 15, 2014, and interim periods beginning after March 15, 2015. The Company adopted ASU 2014-11 and included additional disclosures.
In April 2015, the FASB issued ASU No. 2015-05, Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement. This ASU provides guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing agreement includes a software license, the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. The new guidance does not change the accounting for a customer’s accounting for service contracts. ASU No. 2015-05 is effective for interim and annual reporting periods beginning after December 15, 2015. The Company’s current method of accounting for fees paid in a cloud computing arrangement is consistent with the accounting guidance provided by ASU No. 2015-05. Therefore, the adoption of ASU No. 2015-05 is not expected to have a material impact on the Company’s consolidated financial statements.
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. Adoption by the Company is not expected to have a material impact on the consolidated financial statements and related disclosures.
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Nature of Operations and Summary of Significant Accounting Policies (Tables) |
12 Months Ended | ||||
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Dec. 31, 2015 | |||||
Accounting Policies [Abstract] | |||||
Schedule of estimated useful lives of premises and equipment |
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Securities (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2015 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Investments, Debt and Equity Securities [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of amortized cost and approximate fair values, together with gross unrealized gains and losses, of securities |
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Schedule of amortized cost and fair value of available-for-sale securities by contractual maturity |
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Schedule of gross unrealized losses and fair value in a continuous unrealized loss position |
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Loans and Allowance for Loan Losses (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2015 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Receivables [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of classes of loans |
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Schedule of allowance for loan losses and the recorded investment in loans based on portfolio segment and impairment method |
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Schedule of credit risk profile of the Company's 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 loans |
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Schedule of nonaccrual loans |
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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, which were performing according to the terms of the restructuring |
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Schedule of loans modified as troubled debt restructurings |
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Premises and Equipment (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2015 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Property, Plant and Equipment [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of premises and equipment |
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Loan Servicing (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2015 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Transfers and Servicing [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of mortgage servicing rights measured using amortization method with aggregate activity in related valuation allowances |
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Interest-bearing Deposits (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2015 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Banking and Thrift [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of deposit interest expense by deposit type |
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Schedule of scheduled maturities of time deposits |
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Income Taxes (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2015 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income Tax Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of components of provision for income taxes |
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Schedule of reconciliation of income tax expense at the statutory rate to actual income tax expense |
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Schedule of tax effects of temporary differences related to deferred taxes shown on the consolidated balance sheets |
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Accumulated Other Comprehensive Income (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2015 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Equity [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of components of accumulated other comprehensive income included in stockholders' equity |
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Changes in Accumulated Other Comprehensive Income (AOCI) by Component (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2015 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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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Regulatory Matters (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2015 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Regulatory Matters [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of bank's actual capital amounts and ratios |
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Schedule of reconciliation of bank equity amount for regulatory capital purposes |
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Related Party Transactions (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2015 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Related Party Transactions [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of annual activity of loans outstanding to related parties |
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Employee Benefits (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2015 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Compensation and Retirement Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of summary of ESOP expense |
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Stock Option Plans (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2015 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of summary of option activity |
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Schedule of summary of the status of nonvested shares |
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Earnings Per Share (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2015 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of computation of earnings per share |
|
Disclosures about Fair Value of Assets (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Fair Value Disclosures [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of fair value measurements of assets recognized in balance sheets 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 nonrecurring level 3 fair value measurements |
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Schedule of estimated fair values of other financial instruments |
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Quarterly Results of Operations (Unaudited) (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Quarterly Financial Information Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of quarterly results of operations |
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Condensed Financial Information (Parent Company Only) (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Condensed Financial Information of Parent Company Only Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Condensed Balance Sheets |
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Schedule of Condensed Statements of Income and Comprehensive Income |
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Schedule of Condensed Statements of Cash Flows |
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Nature of Operations and Summary of Significant Accounting Policies - Estimated useful lives for each major depreciable classification of premises and equipment (Details) |
12 Months Ended |
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Dec. 31, 2015 | |
Buildings and improvements | |
Nature Of Operations And Significant Accounting Policies [Line Items] | |
Premises and equipment estimated useful life | 35-40 years |
Equipment | |
Nature Of Operations And Significant Accounting Policies [Line Items] | |
Premises and equipment estimated useful life | 3-5 years |
Nature of Operations and Summary of Significant Accounting Policies (Detail Textuals) $ in Millions |
12 Months Ended | |
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Dec. 31, 2015
USD ($)
Branche
Trust
|
Dec. 31, 2014
USD ($)
Trust
|
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Nature Of Operations And Significant Accounting Policies [Line Items] | ||
Percentage of ownership interests in Jacksonville Savings Bank | 100.00% | |
Number of branches | Branche | 5 | |
Loan past due period | 90 days | |
Number of trust accounts managed or administered | Trust | 124 | 114 |
Assets held in fiduciary or agency capacities | $ | $ 90.7 | $ 78.6 |
Mortgages | Minimum | ||
Nature Of Operations And Significant Accounting Policies [Line Items] | ||
Fixed-rate balloon loans term | 3 years | |
Mortgages | Maximum | ||
Nature Of Operations And Significant Accounting Policies [Line Items] | ||
Fixed-rate balloon loans term | 5 years |
Restriction on Cash and Due from Banks (Detail Textuals) - USD ($) |
Dec. 31, 2015 |
Dec. 31, 2014 |
---|---|---|
Restricted Cash and Investments [Abstract] | ||
Reserve funds in cash and/or on deposit with Federal Reserve Bank | $ 1,524,000 | $ 1,402,000 |
Securities - Amortized cost and fair value of available-for-sale securities by contractual maturity (Details 1) - USD ($) |
Dec. 31, 2015 |
Dec. 31, 2014 |
---|---|---|
Available-for-sale, amortized cost | ||
Within one year | $ 1,526,439 | |
One to five years | 11,435,457 | |
Five to ten years | 34,788,426 | |
After ten years | 15,458,324 | |
Available-for-sale securities, amortized cost, subtotal | 63,208,646 | |
Mortgage-backed securities, amortized cost | 23,067,200 | |
Available-for-sale securities, amortized cost | 86,275,846 | $ 95,606,893 |
Available-for-sale securities, fair value | ||
Within one year | 1,528,936 | |
One to five years | 11,703,893 | |
Five to ten years | 35,343,736 | |
After ten years | 15,718,372 | |
Available-for-sale Securities, fair value | 64,294,937 | 55,264,976 |
Mortgage-backed securities, fair value | 23,178,395 | 41,419,921 |
Available-for-sale securities, fair value | $ 87,473,332 | $ 96,684,897 |
Securities (Detail Textuals) - USD ($) |
12 Months Ended | |
---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
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Investments, Debt and Equity Securities [Abstract] | ||
Securities pledged as collateral | $ 25,681,115 | $ 21,121,613 |
Securities sold under agreements to repurchase | 7,591,475 | 9,165,462 |
Gross realized gains on sales of available-for-sale securities | 352,983 | 429,105 |
Gross realized losses on sales of available-for-sale securities | (32,398) | (20,352) |
Taxes on reclassification adjustment for realized gains included in net income | 108,999 | 138,976 |
Debt securities, fair value | $ 30,676,768 | $ 40,587,408 |
Percentage of available-for-sale investment portfolio | 35.00% | 42.00% |
Premises and Equipment - Major classifications of premises and equipment, stated at cost (Details) - USD ($) |
Dec. 31, 2015 |
Dec. 31, 2014 |
---|---|---|
Property, Plant and Equipment [Line Items] | ||
Premises and equipment, gross | $ 10,854,980 | $ 10,688,768 |
Less accumulated depreciation | (6,126,823) | (5,742,785) |
Net premises and equipment | 4,728,157 | 4,945,983 |
Land | ||
Property, Plant and Equipment [Line Items] | ||
Premises and equipment, gross | 773,186 | 773,186 |
Buildings and improvements | ||
Property, Plant and Equipment [Line Items] | ||
Premises and equipment, gross | 6,697,278 | 6,661,148 |
Equipment | ||
Property, Plant and Equipment [Line Items] | ||
Premises and equipment, gross | $ 3,384,516 | $ 3,254,434 |
Loan Servicing - Mortgage servicing rights measured using Amortization Method with Aggregate activity in related valuation allowances (Details) - USD ($) |
12 Months Ended | |
---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Valuation allowances | ||
Balance at beginning of year | $ 56,969 | $ 73,392 |
Balances at end of year | 47,354 | 56,969 |
Mortgage servicing assets, net | 597,713 | 632,634 |
Mortgage servicing rights | ||
Mortgage servicing rights | ||
Balance, beginning of year | 689,603 | 746,968 |
Additions | 73,650 | 53,859 |
Amortization | (118,186) | (111,224) |
Balance at end of year | 645,067 | 689,603 |
Valuation allowances | ||
Balance at beginning of year | $ 56,969 | $ 73,392 |
Additions due to decreases in market value | ||
Reduction due to increases in market value | ||
Reduction due to payoff of loans | $ (9,615) | $ (16,423) |
Balances at end of year | 47,354 | 56,969 |
Mortgage servicing assets, net | 597,713 | 632,634 |
Fair value disclosures | ||
Fair value as of the beginning of the period | 979,699 | 1,120,000 |
Fair value as of the end of the period | $ 870,619 | $ 979,699 |
Loan Servicing (Detail Textuals) - USD ($) |
Dec. 31, 2015 |
Dec. 31, 2014 |
---|---|---|
Transfers and Servicing [Abstract] | ||
Unpaid principal balance of mortgage loans serviced for others | $ 131,443,738 | $ 137,877,795 |
Interest-bearing Deposits - Deposit interest expense by deposit type (Details) - USD ($) |
12 Months Ended | |
---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
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Banking and Thrift [Abstract] | ||
Savings, NOW and Money Market | $ 249,077 | $ 257,214 |
Certificates of deposit | 852,185 | 1,179,589 |
Total deposit interest expense | $ 1,101,262 | $ 1,436,803 |
Interest-bearing Deposits - Scheduled maturities of time deposits (Details 1) - USD ($) |
Dec. 31, 2015 |
Dec. 31, 2014 |
---|---|---|
Banking and Thrift [Abstract] | ||
2016 | $ 41,313,282 | |
2017 | 18,208,957 | |
2018 | 7,123,985 | |
2019 | 6,559,638 | |
2020 | 5,848,662 | |
Time deposits | $ 79,054,524 | $ 94,599,563 |
Interest-bearing Deposits (Detail Textuals) - USD ($) |
Dec. 31, 2015 |
Dec. 31, 2014 |
---|---|---|
Banking and Thrift [Abstract] | ||
Interest-bearing deposits in denominations of $100,000 or more | $ 90,889,042 | $ 96,271,806 |
Income Taxes - Components of provision for income taxes (Details) - USD ($) |
3 Months Ended | 12 Months Ended | ||||||||
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Dec. 31, 2015 |
Sep. 30, 2015 |
Jun. 30, 2015 |
Mar. 31, 2015 |
Dec. 31, 2014 |
Sep. 30, 2014 |
Jun. 30, 2014 |
Mar. 31, 2014 |
Dec. 31, 2015 |
Dec. 31, 2014 |
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Taxes currently payable | ||||||||||
Federal | $ 883,916 | $ 798,160 | ||||||||
State | 320,593 | |||||||||
Deferred income taxes | (137,484) | 135,886 | ||||||||
Income tax expense | $ 218,785 | $ 230,247 | $ 327,139 | $ 290,854 | $ 183,641 | $ 260,619 | $ 176,277 | $ 313,509 | $ 1,067,025 | $ 934,046 |
Income Taxes - Reconciliation of income tax expense at the statutory rate to actual income tax expense (Details 1) - USD ($) |
3 Months Ended | 12 Months Ended | ||||||||
---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2015 |
Sep. 30, 2015 |
Jun. 30, 2015 |
Mar. 31, 2015 |
Dec. 31, 2014 |
Sep. 30, 2014 |
Jun. 30, 2014 |
Mar. 31, 2014 |
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Income Tax Disclosure [Abstract] | ||||||||||
Computed at the statutory rate (34%) | $ 1,391,670 | $ 1,328,312 | ||||||||
Increase (decrease) resulting from | ||||||||||
Tax exempt interest | (454,067) | (503,089) | ||||||||
State income taxes, net | 188,690 | 173,879 | ||||||||
Increase in cash surrender value | (59,646) | (63,235) | ||||||||
Other | 378 | (1,821) | ||||||||
Actual tax expense | $ 218,785 | $ 230,247 | $ 327,139 | $ 290,854 | $ 183,641 | $ 260,619 | $ 176,277 | $ 313,509 | $ 1,067,025 | $ 934,046 |
Tax expense as a percentage of pre-tax income | 26.07% | 23.91% |
Income Taxes - Reconciliation of income tax expense at the statutory rate to actual income tax expense (Parentheticals) (Details 1) |
12 Months Ended | |
---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Income Tax Disclosure [Abstract] | ||
Statutory rate | 34.00% | 34.00% |
Income Taxes - Tax effects of temporary differences related to deferred taxes shown on balance sheets (Details 2) - USD ($) |
Dec. 31, 2015 |
Dec. 31, 2014 |
---|---|---|
Deferred tax assets | ||
Allowance for loan losses | $ 1,015,661 | $ 1,060,419 |
Deferred compensation | 1,817,124 | 1,712,570 |
State net operating loss carryforward | 4,749 | |
Other | 29,497 | 40,270 |
Deferred tax assets, gross, total | 2,862,282 | 2,818,008 |
Deferred tax liabilities | ||
Unrealized gains on available-for-sale securities | (407,145) | (366,521) |
Depreciation | (434,043) | (478,427) |
Federal Home Loan Bank stock dividends | (147,858) | (152,224) |
Prepaid expenses | (56,374) | (79,868) |
Mortgage servicing rights | (233,795) | (254,762) |
Deferred tax liabilities, gross, total | (1,279,215) | (1,331,802) |
Net deferred tax asset | $ 1,583,067 | $ 1,486,206 |
Income Taxes (Detail Textuals) - USD ($) |
Dec. 31, 2015 |
Dec. 31, 2014 |
---|---|---|
Income Taxes [Line Items] | ||
Retained earnings for which no deferred federal income tax liability has been recognized | $ 2,600,000 | $ 2,600,000 |
Deferred income tax liabilities that would have been recorded if they were expected to reverse into taxable income in the foreseeable future | 1,000,000 | 1,000,000 |
Illinois | ||
Income Taxes [Line Items] | ||
Operating loss carry forwards | $ 0 | $ 98,574 |
Accumulated Other Comprehensive Income - Components of accumulated other comprehensive income included in stockholders' equity (Details) - USD ($) |
Dec. 31, 2015 |
Dec. 31, 2014 |
---|---|---|
Accumulated Other Comprehensive Income (Loss) [Line Items] | ||
Net-of-tax amount | $ 790,341 | $ 711,483 |
Net unrealized gain (loss) on securities available-for-sale | ||
Accumulated Other Comprehensive Income (Loss) [Line Items] | ||
Net unrealized gain on securities available-for-sale | 1,197,486 | 1,078,004 |
Tax effect | (407,145) | (366,521) |
Net-of-tax amount | $ 790,341 | $ 711,483 |
Changes in Accumulated Other Comprehensive Income (AOCI) by Component (Details) - USD ($) |
12 Months Ended | |
---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items] | ||
Tax expense | $ (108,999) | $ (138,976) |
Net reclassified amount | 211,586 | 269,777 |
Amounts Reclassified from AOCI | Net unrealized gain (loss) on securities available-for-sale | ||
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items] | ||
Realized gain on sale of securities, Total reclassified amount before tax | 320,585 | 408,753 |
Tax expense | (108,999) | (138,976) |
Net reclassified amount | $ 211,586 | $ 269,777 |
Regulatory Matters - Reconciliation of bank equity amount for regulatory capital purposes (Details 1) - USD ($) |
Dec. 31, 2015 |
Dec. 31, 2014 |
---|---|---|
Regulatory Matters [Abstract] | ||
Bank equity | $ 42,429 | $ 41,012 |
Less net unrealized gain | 790 | 711 |
Less disallowed goodwill | 2,727 | 2,727 |
Tier 1 and common equity Tier 1 capital | 38,912 | 37,574 |
Plus allowance for loan losses | 2,719 | 2,678 |
Total risked-based capital | $ 41,631 | $ 40,252 |
Regulatory Matters (Detail Textuals) |
Dec. 31, 2015
USD ($)
|
---|---|
Regulatory Matters [Abstract] | |
Dividend payment without prior regulatory approval | $ 1,238,685 |
Related Party Transactions - Annual activity of loans outstanding to related parties (Details) - USD ($) |
12 Months Ended | |
---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Loans and Leases Receivable, Related Parties [Roll Forward] | ||
Balance beginning of year | $ 3,523,047 | $ 3,852,658 |
Additions | 1,138,338 | 1,876,445 |
Repayments | (1,467,915) | (2,206,056) |
Balance, end of year | $ 3,193,470 | $ 3,523,047 |
Related Party Transactions (Detail Textuals) - USD ($) |
Dec. 31, 2015 |
Dec. 31, 2014 |
Dec. 31, 2013 |
---|---|---|---|
Related Party Transactions [Abstract] | |||
Loans outstanding to related parties | $ 3,193,470 | $ 3,523,047 | $ 3,852,658 |
Deposits from related parties | $ 2,581,000 | $ 3,112,000 |
Employee Benefits - Summary of ESOP shares (Details) - USD ($) |
Dec. 31, 2015 |
Dec. 31, 2014 |
---|---|---|
Compensation and Retirement Disclosure [Abstract] | ||
Allocated shares | 57,420 | 54,519 |
Shares committed for allocation | 3,820 | 3,767 |
Unearned shares | 21,171 | 24,991 |
Total ESOP shares | 82,411 | 83,277 |
Fair value of unearned shares at December 31 | $ 556,374 | $ 574,793 |
Employee Benefits (Detail Textuals) - USD ($) |
1 Months Ended | 12 Months Ended | |
---|---|---|---|
Jul. 31, 2010 |
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Employee Benefits Disclosure [Line Items] | |||
Deferred compensation amount | $ 4,492,594 | $ 4,252,720 | |
Purchase of shares for ESOP | 41,614 | ||
Price paid per share | $ 10 | ||
Common stock acquired by the ESOP | $ 416,140 | ||
ESOP compensation expense | 90,649 | 80,978 | |
Deferred Compensation Plan | |||
Employee Benefits Disclosure [Line Items] | |||
Deferred compensation amount | 2,521,997 | 2,451,200 | |
Compensation expense | 137,731 | 140,714 | |
Deferred compensation agreements | |||
Employee Benefits Disclosure [Line Items] | |||
Deferred compensation amount | 1,970,597 | 1,801,520 | |
Compensation expense | $ 233,731 | 241,745 | |
Deferred compensation discount rate | 4.75% | ||
401(k) Plan | |||
Employee Benefits Disclosure [Line Items] | |||
Contribution by employer | $ 216,508 | $ 232,567 | |
Annual interest rate | 1.85% | 1.85% |
Stock Option Plans - Summary of option activity (Details) - Stock Options - USD ($) |
12 Months Ended | |
---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Shares | ||
Outstanding, beginning of year | 85,835 | 101,336 |
Granted | ||
Exercised | (24,715) | (15,101) |
Forfeited or expired | (400) | |
Outstanding, end of year | 61,120 | 85,835 |
Exercisable, end of year | 19,035 | 23,600 |
Weighted Average Exercise price | ||
Outstanding, beginning of year | $ 15.65 | $ 15.63 |
Granted | ||
Exercised | $ 15.65 | $ 15.53 |
Forfeited or expired | 15.65 | |
Outstanding, end of year | 15.65 | 15.65 |
Exercisable, end of year | $ 15.65 | $ 15.65 |
Weighted Average Remaining Contractual Term | ||
Outstanding, end of year | 6 years 3 months | 7 years 3 months |
Exercisable, end of year | 6 years 3 months | 7 years 3 months |
Aggregate Intrinsic Value | ||
Outstanding, end of year | $ 649,706 | $ 630,887 |
Exercisable, end of year | $ 202,342 | $ 173,460 |
Stock Option Plans - Summary of status of nonvested shares (Details 1) - $ / shares |
12 Months Ended | |
---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Shares | ||
Nonvested, beginning of year | 62,235 | 83,185 |
Granted | ||
Vested | (20,150) | (20,550) |
Forfeited | (400) | |
Nonvested, end of year | 42,085 | 62,235 |
Weighted-Average Grant-Date Fair Value | ||
Nonvested, beginning of year | $ 4.34 | $ 4.34 |
Granted | ||
Vested | $ 4.34 | $ 4.34 |
Forfeited | ||
Nonvested, end of year | $ 4.34 | $ 4.34 |
Stock Option Plans (Detail Textuals) - USD ($) |
12 Months Ended | |
---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Method used | Black-Scholes option valuation model | |
Intrinsic value of option exercised | $ 200,192 | $ 90,606 |
Weighted-average period to recognize compensation cost | 2 years | |
Fair value of share vested | $ 90,163 | 90,163 |
Recognized tax benefit | $ 35,267 | $ 34,622 |
2012 Stock Option Plan | ||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Common stock reserved and awarded | 104,035 | |
Award expiration period | 10 years | |
Exercise price per share | $ 15.65 | |
Total unrecognized compensation costs | $ 112,395 |
Earnings Per Share - Computation of earnings per share (Details) - USD ($) |
3 Months Ended | 12 Months Ended | ||||||||
---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2015 |
Sep. 30, 2015 |
Jun. 30, 2015 |
Mar. 31, 2015 |
Dec. 31, 2014 |
Sep. 30, 2014 |
Jun. 30, 2014 |
Mar. 31, 2014 |
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Earnings Per Share [Abstract] | ||||||||||
Income available to common stockholders, basic | $ 3,026,123 | $ 2,972,754 | ||||||||
Income available to common stockholders, diluted | $ 3,026,123 | $ 2,972,754 | ||||||||
Weighted average shares, basic | 1,770,546 | 1,791,888 | ||||||||
Effect of dilutive securities, stock options | 13,469 | 11,173 | ||||||||
Weighted average shares, diluted | 1,784,015 | 1,803,061 | ||||||||
Basic earnings per share | $ 0.40 | $ 0.40 | $ 0.47 | $ 0.44 | $ 0.37 | $ 0.48 | $ 0.35 | $ 0.47 | $ 1.71 | $ 1.66 |
Diluted earnings per share | $ 0.39 | $ 0.39 | $ 0.47 | $ 0.44 | $ 0.36 | $ 0.47 | $ 0.35 | $ 0.47 | $ 1.70 | $ 1.65 |
Disclosures about Fair Value of Assets - Quantitative information about unobservable inputs used in nonrecurring level 3 fair value measurements (Details 2) - Significant Unobservable Inputs (Level 3) - Collateral-dependent impaired loans - USD ($) |
12 Months Ended | |
---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Assets measured at fair value on nonrecurring basis | $ 899,981 | $ 1,147,400 |
Valuation Technique | Market comparable properties | Market comparable properties |
Unobservable Inputs | Marketability discount | Marketability discount |
Marketability discount | 25.00% | 25.00% |
Minimum | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Marketability discount | 20.00% | 20.00% |
Maximum | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Marketability discount | 30.00% | 30.00% |
Disclosures about Fair Value of Assets (Detail Textuals) - USD ($) |
12 Months Ended | |
---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Significant Unobservable Inputs (Level 3) | Impaired loans | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Assets fair value adjustments | $ (156,069) | $ 265,687 |
Quarterly Results of Operations (Unaudited) (Details) - USD ($) |
3 Months Ended | 12 Months Ended | ||||||||
---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2015 |
Sep. 30, 2015 |
Jun. 30, 2015 |
Mar. 31, 2015 |
Dec. 31, 2014 |
Sep. 30, 2014 |
Jun. 30, 2014 |
Mar. 31, 2014 |
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Quarterly Financial Information Disclosure [Abstract] | ||||||||||
Interest income | $ 2,923,681 | $ 2,830,112 | $ 2,859,579 | $ 2,901,492 | $ 2,921,442 | $ 2,946,212 | $ 2,978,484 | $ 3,045,770 | $ 11,514,864 | $ 11,891,908 |
Interest expense | 252,749 | 267,433 | 293,141 | 314,050 | 337,222 | 353,542 | 371,036 | 389,658 | 1,127,373 | 1,451,458 |
Net interest income | 2,670,932 | 2,562,679 | 2,566,438 | 2,587,442 | 2,584,220 | 2,592,670 | 2,607,448 | 2,656,112 | 10,387,491 | 10,440,450 |
Provision for loan losses | 30,000 | 45,000 | 35,000 | 30,000 | 150,000 | 30,000 | 30,000 | 30,000 | 140,000 | 240,000 |
Net interest income after provision for loan losses | 2,640,932 | 2,517,679 | 2,531,438 | 2,557,442 | 2,434,220 | 2,562,670 | 2,577,448 | 2,626,112 | 10,247,491 | 10,200,450 |
Noninterest income | 1,096,519 | 991,626 | 1,063,287 | 1,035,458 | 1,059,478 | 1,024,088 | 947,678 | 997,532 | 4,186,890 | 4,028,776 |
Noninterest expense | 2,814,601 | 2,579,660 | 2,431,183 | 2,515,789 | 2,658,085 | 2,470,123 | 2,723,872 | 2,470,346 | 10,341,233 | 10,322,426 |
Income before income taxes | 922,850 | 929,645 | 1,163,542 | 1,077,111 | 835,613 | 1,116,635 | 801,254 | 1,153,298 | 4,093,148 | 3,906,800 |
Income tax expense | 218,785 | 230,247 | 327,139 | 290,854 | 183,641 | 260,619 | 176,277 | 313,509 | 1,067,025 | 934,046 |
Net income | $ 704,065 | $ 699,398 | $ 836,403 | $ 786,257 | $ 651,972 | $ 856,016 | $ 624,977 | $ 839,789 | $ 3,026,123 | $ 2,972,754 |
Basic earnings per share (in dollars per share) | $ 0.40 | $ 0.40 | $ 0.47 | $ 0.44 | $ 0.37 | $ 0.48 | $ 0.35 | $ 0.47 | $ 1.71 | $ 1.66 |
Diluted earnings per share (in dollars per share) | $ 0.39 | $ 0.39 | $ 0.47 | $ 0.44 | $ 0.36 | $ 0.47 | $ 0.35 | $ 0.47 | $ 1.70 | $ 1.65 |
Condensed Financial Information (Parent Company Only) - Condensed Balance Sheets (Details) - USD ($) |
Dec. 31, 2015 |
Dec. 31, 2014 |
Dec. 31, 2013 |
---|---|---|---|
Assets | |||
Cash and due from banks | $ 2,385,846 | $ 6,427,536 | |
Other assets | 811,007 | 892,118 | |
Total assets | 308,642,474 | 311,924,652 | |
Liabilities | |||
Other liabilities | 1,076,363 | 1,418,988 | |
Stockholders' Equity | 45,566,500 | 45,016,098 | $ 41,138,796 |
Total liabilities and stockholders' equity | 308,642,474 | 311,924,652 | |
Parent Company | |||
Assets | |||
Cash and due from banks | 4,800,526 | 3,847,179 | |
Investment in common stock of subsidiary | 42,428,601 | 41,012,112 | |
Loan receivable from subsidiary | 216,506 | 254,385 | |
Other assets | 106,960 | 96,993 | |
Total assets | 47,552,593 | 45,210,669 | |
Liabilities | |||
Other liabilities | 1,986,093 | 194,571 | |
Stockholders' Equity | 45,566,500 | 45,016,098 | |
Total liabilities and stockholders' equity | $ 47,552,593 | $ 45,210,669 |
Condensed Financial Information (Parent Company Only) - Condensed Statements of Income and Comprehensive Income (Loss) (Details 1) - USD ($) |
3 Months Ended | 12 Months Ended | ||||||||
---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2015 |
Sep. 30, 2015 |
Jun. 30, 2015 |
Mar. 31, 2015 |
Dec. 31, 2014 |
Sep. 30, 2014 |
Jun. 30, 2014 |
Mar. 31, 2014 |
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Income | ||||||||||
Total income | $ 2,923,681 | $ 2,830,112 | $ 2,859,579 | $ 2,901,492 | $ 2,921,442 | $ 2,946,212 | $ 2,978,484 | $ 3,045,770 | $ 11,514,864 | $ 11,891,908 |
Expenses | ||||||||||
Income Tax Benefit | 218,785 | 230,247 | 327,139 | 290,854 | 183,641 | 260,619 | 176,277 | 313,509 | 1,067,025 | 934,046 |
Net Income | $ 704,065 | $ 699,398 | $ 836,403 | $ 786,257 | $ 651,972 | $ 856,016 | $ 624,977 | $ 839,789 | 3,026,123 | 2,972,754 |
Comprehensive Income | 3,104,981 | 5,071,201 | ||||||||
Parent Company | ||||||||||
Income | ||||||||||
Dividends from subsidiary | 2,000,000 | 2,000,000 | ||||||||
Other income | 11,712 | 12,245 | ||||||||
Total income | 2,011,712 | 2,012,245 | ||||||||
Expenses | ||||||||||
Other expenses | 361,694 | 707,692 | ||||||||
Income Before Income Tax and Equity in Undistributed Income of Subsidiary | 1,650,018 | 1,304,553 | ||||||||
Income Tax Benefit | (137,420) | (271,357) | ||||||||
Income Before Equity in Undistributed Income of Subsidiary | 1,787,438 | 1,575,910 | ||||||||
Equity in Undistributed Income of Subsidiary | 1,238,685 | 1,396,844 | ||||||||
Net Income | 3,026,123 | 2,972,754 | ||||||||
Comprehensive Income | $ 3,104,981 | $ 5,071,201 |
Condensed Financial Information (Parent Company Only) - Condensed Statements of Cash Flows (Details 2) - USD ($) |
3 Months Ended | 12 Months Ended | ||||||||
---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2015 |
Sep. 30, 2015 |
Jun. 30, 2015 |
Mar. 31, 2015 |
Dec. 31, 2014 |
Sep. 30, 2014 |
Jun. 30, 2014 |
Mar. 31, 2014 |
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Operating Activities | ||||||||||
Net income | $ 704,065 | $ 699,398 | $ 836,403 | $ 786,257 | $ 651,972 | $ 856,016 | $ 624,977 | $ 839,789 | $ 3,026,123 | $ 2,972,754 |
Stock-based compensation expense | 90,163 | 90,163 | ||||||||
Net cash provided by operating activities | 3,207,438 | 5,549,813 | ||||||||
Investing Activity | ||||||||||
Net cash provided by investing activities | (2,449,632) | 10,808,443 | ||||||||
Financing Activities | ||||||||||
Dividends paid | (565,995) | (570,843) | ||||||||
Stock repurchase | (765,311) | (1,028,688) | ||||||||
Exercise of stock options | 386,790 | 234,491 | ||||||||
Net cash used in financing activities | (6,266,012) | (12,845,488) | ||||||||
Net Change in Cash and Cash Equivalents | (5,508,206) | 3,512,768 | ||||||||
Cash and Cash Equivalents, Beginning of Year | 9,611,638 | 6,098,870 | 9,611,638 | 6,098,870 | ||||||
Cash and Cash Equivalents, End of Year | 4,103,432 | 9,611,638 | 4,103,432 | 9,611,638 | ||||||
Parent Company | ||||||||||
Operating Activities | ||||||||||
Net income | 3,026,123 | 2,972,754 | ||||||||
Items not providing cash, net | (1,238,685) | (1,396,844) | ||||||||
Stock-based compensation expense | 90,163 | 90,163 | ||||||||
Change in other assets and liabilities, net | 1,773,258 | 29,599 | ||||||||
Net cash provided by operating activities | 3,650,859 | 1,695,672 | ||||||||
Investing Activity | ||||||||||
Loan payment from subsidiary | 37,879 | 36,652 | ||||||||
Net cash provided by investing activities | 37,879 | 36,652 | ||||||||
Financing Activities | ||||||||||
Dividends paid | (2,356,870) | (570,843) | ||||||||
Stock repurchase | (765,311) | (1,028,688) | ||||||||
Exercise of stock options | 386,790 | 234,491 | ||||||||
Net cash used in financing activities | (2,735,391) | (1,365,040) | ||||||||
Net Change in Cash and Cash Equivalents | 953,347 | 367,284 | ||||||||
Cash and Cash Equivalents, Beginning of Year | $ 3,847,179 | $ 3,479,895 | 3,847,179 | 3,479,895 | ||||||
Cash and Cash Equivalents, End of Year | $ 4,800,526 | $ 3,847,179 | $ 4,800,526 | $ 3,847,179 |
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