UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For the quarterly period ended March 31, 2016 |
OR
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For the transition period of _________ to _________ |
Commission File Number 001-34821
| Jacksonville Bancorp, Inc. |
(Exact name of registrant as specified in its charter)
| Maryland | 36-4670835 |
| (State or other jurisdiction of incorporation) | (I.R.S. Employer Identification Number) |
| 1211 West Morton Avenue | ||
| Jacksonville, Illinois | 62650 | |
| (Address of principal executive office) | (Zip Code) |
Registrant’s telephone number, including area code: (217) 245-4111
Indicate by check whether issuer (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
x Yes ¨ No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period the registrant was required to submit and post such filings).
x Yes ¨ No
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “accelerated filer, large accelerated filer, and smaller reporting company” in Rule 12b-2 of the Exchange Act.
| ¨ Large Accelerated Filer | ¨ Accelerated Filer |
| ¨ Non-Accelerated Filer | x Smaller Reporting Company |
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
¨ Yes x No
As of May 1, 2016, there were 1,796,323 shares of the Registrant’s common stock issued and outstanding.
JACKSONVILLE BANCORP, INC.
FORM 10-Q
March 31, 2016
| TABLE OF CONTENTS |
PART I – FINANCIAL INFORMATION
| JACKSONVILLE BANCORP, INC. | ||
| CONDENSED CONSOLIDATED BALANCE SHEETS |
| March 31, | December 31, | |||||||
| 2016 | 2015 | |||||||
| ASSETS | (Unaudited) | |||||||
| Cash and cash equivalents | $ | 7,442,323 | $ | 4,103,432 | ||||
| Interest-earning time deposits in banks | 2,724,000 | 2,724,000 | ||||||
| Investment securities - available for sale | 61,724,702 | 64,294,937 | ||||||
| Mortgage-backed securities - available for sale | 20,673,085 | 23,178,395 | ||||||
| Federal Home Loan Bank stock | 1,113,800 | 1,113,800 | ||||||
| Other investment securities | 60,007 | 62,223 | ||||||
| Loans held for sale - net | 112,449 | 539,000 | ||||||
| Loans receivable - net of allowance for loan losses of $2,934,691 and $2,919,594 as of March 31, 2016 and December 31, 2015 | 188,691,035 | 193,039,879 | ||||||
| Premises and equipment - net | 4,645,944 | 4,728,157 | ||||||
| Cash surrender value of life insurance | 7,138,566 | 7,093,640 | ||||||
| Accrued interest receivable | 1,851,308 | 1,715,676 | ||||||
| Goodwill | 2,726,567 | 2,726,567 | ||||||
| Capitalized mortgage servicing rights, net of valuation allowance of $44,028 and $47,354 as of March 31, 2016 and December 31, 2015 | 591,590 | 597,713 | ||||||
| Real estate owned | 304,280 | 330,981 | ||||||
| Deferred income taxes | 1,503,983 | 1,583,067 | ||||||
| Other assets | 773,019 | 811,007 | ||||||
| Total Assets | $ | 302,076,658 | $ | 308,642,474 | ||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| Deposits | $ | 243,908,970 | $ | 239,281,930 | ||||
| Other borrowings | 3,946,947 | 15,131,710 | ||||||
| Advance payments by borrowers for taxes and insurance | 1,511,505 | 990,917 | ||||||
| Accrued interest payable | 106,747 | 118,335 | ||||||
| Deferred compensation payable | 4,543,138 | 4,492,594 | ||||||
| Income taxes payable | 28,001 | 49,291 | ||||||
| Dividends payable | 179,201 | 1,934,834 | ||||||
| Other liabilities | 1,325,779 | 1,076,363 | ||||||
| Total liabilities | 255,550,288 | 263,075,974 | ||||||
| Commitments and contingencies | - | - | ||||||
| Preferred stock, $0.01 par value - authorized 10,000,000 shares; none issued and outstanding | - | - | ||||||
| Common stock, $0.01 par value - authorized 25,000,000 shares; issued 1,792,013 shares as of March 31, 2016 and 1,791,513 as of December 31, 2015 | 17,920 | 17,915 | ||||||
| Additional paid-in-capital | 13,704,026 | 13,664,914 | ||||||
| Retained earnings | 31,980,207 | 31,305,040 | ||||||
| Less: Unallocated ESOP shares | (205,730 | ) | (211,710 | ) | ||||
| Accumulated other comprehensive income | 1,029,947 | 790,341 | ||||||
| Total stockholders' equity | 46,526,370 | 45,566,500 | ||||||
| Total Liabilities and Stockholders' Equity | $ | 302,076,658 | $ | 308,642,474 | ||||
See accompanying notes to the condensed consolidated financial statements.
| 1 |
| JACKSONVILLE BANCORP, INC. | ||
| CONDENSED CONSOLIDATED STATEMENTS OF INCOME |
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2016 | 2015 | |||||||
| (Unaudited) | ||||||||
| INTEREST INCOME: | ||||||||
| Loans | $ | 2,328,778 | $ | 2,343,354 | ||||
| Investment securities | 435,831 | 380,823 | ||||||
| Mortgage-backed securities | 130,303 | 172,367 | ||||||
| Other | 14,223 | 4,948 | ||||||
| Total interest income | 2,909,135 | 2,901,492 | ||||||
| INTEREST EXPENSE: | ||||||||
| Deposits | 241,850 | 308,927 | ||||||
| Other borrowings | 7,059 | 5,123 | ||||||
| Total interest expense | 248,909 | 314,050 | ||||||
| NET INTEREST INCOME | 2,660,226 | 2,587,442 | ||||||
| PROVISION FOR LOAN LOSSES | 30,000 | 30,000 | ||||||
| NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES | 2,630,226 | 2,557,442 | ||||||
| NON-INTEREST INCOME: | ||||||||
| Fiduciary activities | 80,004 | 78,626 | ||||||
| Commission income | 348,565 | 308,113 | ||||||
| Service charges on deposit accounts | 167,187 | 156,436 | ||||||
| Mortgage banking operations, net | 25,272 | 42,940 | ||||||
| Net realized gains on sales of available-for-sale securities | 101,561 | 133,216 | ||||||
| Loan servicing fees | 84,526 | 87,480 | ||||||
| ATM and bank card interchange income | 160,646 | 152,739 | ||||||
| Other | 71,314 | 104,380 | ||||||
| Total non-interest income | 1,039,075 | 1,063,930 | ||||||
| NON-INTEREST EXPENSE: | ||||||||
| Salaries and employee benefits | 1,702,139 | 1,638,242 | ||||||
| Occupancy and equipment | 256,941 | 255,393 | ||||||
| Data processing and telecommunications | 136,613 | 147,647 | ||||||
| Professional | 55,836 | 45,736 | ||||||
| Postage and office supplies | 64,635 | 55,110 | ||||||
| Deposit insurance premium | 37,267 | 38,547 | ||||||
| ATM and bank card expense | 87,649 | 85,058 | ||||||
| Other | 191,482 | 278,528 | ||||||
| Total non-interest expense | 2,532,562 | 2,544,261 | ||||||
| INCOME BEFORE INCOME TAXES | 1,136,739 | 1,077,111 | ||||||
| INCOME TAXES | 309,361 | 290,854 | ||||||
| NET INCOME | $ | 827,378 | $ | 786,257 | ||||
| NET INCOME PER COMMON SHARE - BASIC | $ | 0.47 | $ | 0.44 | ||||
| NET INCOME PER COMMON SHARE - DILUTED | $ | 0.46 | $ | 0.44 | ||||
See accompanying notes to the condensed consolidated financial statements.
| 2 |
| JACKSONVILLE BANCORP, INC. | ||
| CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | ||
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2016 | 2015 | |||||||
| (Unaudited) | ||||||||
| Net Income | $ | 827,378 | $ | 786,257 | ||||
| Other Comprehensive Income | ||||||||
| Unrealized appreciation on available-for-sale securities, net of taxes of $157,965 and $298,922 for 2016 and 2015, respectively. | 306,636 | 580,261 | ||||||
| Less: reclassification adjustment for realized gains included in net income, net of taxes of $34,531 and $45,293, for 2016 and 2015, respectively. | 67,030 | 87,923 | ||||||
| 239,606 | 492,338 | |||||||
| Comprehensive Income | $ | 1,066,984 | $ | 1,278,595 | ||||
See accompanying notes to condensed consolidated financial statements.
| 3 |
| JACKSONVILLE BANCORP, INC. | ||||||
| CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY | ||||||
| Accumulated | ||||||||||||||||||||||||
| Additional | Other | Total | ||||||||||||||||||||||
| Common | Paid-in | Retained | Unallocated | Comprehensive | Stockholders' | |||||||||||||||||||
| (Unaudited) | Stock | Capital | Earnings | ESOP Shares | Income | Equity | ||||||||||||||||||
| BALANCE, DECEMBER 31, 2015 | $ | 17,915 | $ | 13,664,914 | $ | 31,305,040 | $ | (211,710 | ) | $ | 790,341 | $ | 45,566,500 | |||||||||||
| Net Income | - | - | 827,378 | - | - | 827,378 | ||||||||||||||||||
| Other comprehensive income | - | - | - | - | 239,606 | 239,606 | ||||||||||||||||||
| Exercise of stock options | 5 | 7,820 | - | - | - | 7,825 | ||||||||||||||||||
| Stock-based compensation expense | - | 22,232 | - | - | - | 22,232 | ||||||||||||||||||
| Shares held by ESOP, commited to be released | - | 9,060 | - | 5,980 | - | 15,040 | ||||||||||||||||||
| Dividends ($0.10 per share) | - | - | (152,211 | ) | - | - | (152,211 | ) | ||||||||||||||||
| BALANCE, MARCH 31, 2016 | $ | 17,920 | $ | 13,704,026 | $ | 31,980,207 | $ | (205,730 | ) | $ | 1,029,947 | $ | 46,526,370 | |||||||||||
See accompanying notes to condensed consolidated financial statements.
| 4 |
| JACKSONVILLE BANCORP, INC. | ||
| CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | ||
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2016 | 2015 | |||||||
| (Unaudited) | ||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net income | $ | 827,378 | $ | 786,257 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Depreciation, amortization and accretion: | ||||||||
| Premises and equipment | 96,152 | 97,750 | ||||||
| Amortization of investment and loan premiums and discounts, net | 102,572 | 169,629 | ||||||
| Net realized gains on sales of available-for-sale securities | (101,561 | ) | (133,216 | ) | ||||
| Provision for loan losses | 30,000 | 30,000 | ||||||
| Mortgage banking operations, net | (25,272 | ) | (42,940 | ) | ||||
| Shares held by ESOP committed to be released | 15,040 | 13,047 | ||||||
| Stock-based compensation expense | 22,232 | 22,232 | ||||||
| Changes in income taxes payable | (21,290 | ) | 41,641 | |||||
| Changes in assets and liabilities | 60,922 | (170,838 | ) | |||||
| Net cash provided by operations before loan sales | 1,006,173 | 813,562 | ||||||
| Origination of loans for sale to secondary market | (2,239,822 | ) | (4,300,964 | ) | ||||
| Proceeds from sales of loans to secondary market | 2,697,768 | 3,701,856 | ||||||
| Net cash provided by operating activities | 1,464,119 | 214,454 | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchases of investment and mortgage-backed securities | (10,323,462 | ) | (9,188,892 | ) | ||||
| Purchases of interest-earning time deposits in banks | - | (1,233,000 | ) | |||||
| Maturity or call of investment securities available-for-sale | 500,000 | 1,000,000 | ||||||
| Sale of investment securities available-for-sale | 13,864,755 | 14,482,743 | ||||||
| Principal payments on mortgage-backed and investment securities | 1,398,367 | 1,531,221 | ||||||
| Proceeds from sales of real estate owned | 29,633 | 47,085 | ||||||
| Net change in loans | 4,356,573 | (83,890 | ) | |||||
| Additions to premises and equipment | (13,939 | ) | (25,935 | ) | ||||
| Net cash provided by investing activities | 9,811,927 | 6,529,332 | ||||||
(Continued)
| 5 |
| JACKSONVILLE BANCORP, INC. | ||
| CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW |
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2016 | 2015 | |||||||
| (Unaudited) | ||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Net increase (decrease) in deposits | $ | 4,627,040 | $ | (1,984,414 | ) | |||
| Net decrease in other borrowings | (11,184,764 | ) | (4,993,607 | ) | ||||
| Increase in advance payments by borrowers for taxes and insurance | 520,588 | 393,868 | ||||||
| Exercise of stock options | 7,825 | 31,300 | ||||||
| Stock repurchase | - | (31,280 | ) | |||||
| Dividends paid - common stock | (1,907,844 | ) | (141,709 | ) | ||||
| Net cash used in financing activities | (7,937,155 | ) | (6,725,842 | ) | ||||
| NET INCREASE IN CASH AND CASH EQUIVALENTS | 3,338,891 | 17,944 | ||||||
| CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | 4,103,432 | 9,611,638 | ||||||
| CASH AND CASH EQUIVALENTS, END OF PERIOD | $ | 7,442,323 | $ | 9,629,582 | ||||
| ADDITIONAL DISCLOSURES OF CASH FLOW INFORMATION: | ||||||||
| Cash paid during the period for: | ||||||||
| Interest on deposits | $ | 251,948 | $ | 321,722 | ||||
| Interest on other borrowings | 8,549 | 5,140 | ||||||
| Income taxes paid | 375,000 | 250,000 | ||||||
| NONCASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
| Real estate acquired in settlement of loans | $ | 42,400 | $ | - | ||||
| Loans to facilitate sales of real estate owned | 80,000 | - | ||||||
See accompanying notes to condensed consolidated financial statements
| 6 |
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| 1. | FINANCIAL STATEMENTS |
The accompanying interim condensed consolidated financial statements include the accounts of Jacksonville Bancorp, Inc. and its wholly-owned subsidiary, Jacksonville Savings Bank (the “Bank”) and its wholly-owned subsidiary, Financial Resources Group, Inc. collectively (the “Company”). All significant intercompany accounts and transactions have been eliminated.
In the opinion of management, the preceding unaudited consolidated financial statements contain all adjustments (consisting only of normal recurring accruals) necessary 1) for a fair presentation and 2) to make the financial statements not misleading as to the financial condition of the Company as of March 31, 2016, and the results of its operations for the three month periods ended March 31, 2016 and 2015. The results of operations for the three month periods are not necessarily indicative of the results which may be expected for the entire year. The condensed consolidated balance sheet of the Company as of December 31, 2015 has been derived from the audited consolidated balance sheet of the Company as of that date. Certain information and note disclosures normally included in the Company’s annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements of the Company for the year ended December 31, 2015 filed as an exhibit to the Company’s Form 10-K filed in March, 2016. The accounting and reporting policies of the Company conform to accounting principles generally accepted in the United States of America (GAAP), the requirements of Form 10-Q, and to prevailing practices within the industry.
Certain amounts included in the 2015 consolidated statements have been reclassified to conform to the 2016 presentation.
| 2. | NEW ACCOUNTING PRONOUNCEMENTS |
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). The update provides a five-step revenue recognition model for all revenue arising from contracts with customers and affects all entities that enter into contracts to provide goods or services to their customers (unless the contracts are included in the scope of other standards). The guidance requires an entity to recognize the revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. 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.
| 7 |
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 did not 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.
| 3. | EARNINGS PER SHARE |
Earnings Per Share - Basic earnings per share is determined by dividing net income for the period by the weighted average number of common shares. Diluted earnings per share considers the potential effects of the exercise of outstanding stock options under the Company’s stock option plans.
The following reflects earnings per share calculations for basic and diluted methods:
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2016 | 2015 | |||||||
| Net income | $ | 827,378 | $ | 786,257 | ||||
| Basic average shares outstanding | 1,770,917 | 1,775,287 | ||||||
| Diluted potential common shares: | ||||||||
| Stock option equivalents | 18,055 | 17,080 | ||||||
| Diluted average shares outstanding | 1,788,972 | 1,792,367 | ||||||
| Basic earnings per share | $ | 0.47 | $ | 0.44 | ||||
| Diluted earnings per share | $ | 0.46 | $ | 0.44 | ||||
| 4. | STOCK BASED COMPENSATION |
In connection with the 2010 second-step conversion and related stock offering, the ESOP purchased an additional 41,614 shares for the exclusive benefit of eligible employees. The ESOP borrowed funds from the Company in an amount sufficient to purchase the 41,614 shares (approximately 4% of the common stock issued in the offering). The loan is secured by the shares purchased and will be repaid by the ESOP with funds from contributions made by the Bank and dividends received by the ESOP, with funds from any contributions on ESOP assets. Contributions will be applied to repay interest on the loan first, and the remainder will be applied to principal. The loan is expected to be repaid over a period of up to 20 years. Shares purchased with the loan proceeds are held in a suspense account for allocation among participants as the loan is repaid. Contributions to the ESOP and shares released from the suspense account are allocated among participants in proportion to their compensation, relative to total compensation of all active participants. Participants will vest on a pro-rata basis and reach 100% vesting in the accrued benefits under the ESOP after six years. Vesting is accelerated upon retirement, death, or disability of the participant or a change in control of the Bank. Forfeitures will be reallocated to remaining plan participants. Benefits may be payable upon retirement, death, disability, separation from service, or termination of the ESOP. Since the Bank’s annual contributions are discretionary, benefits payable under the ESOP cannot be estimated.
| 8 |
In the event a terminated ESOP participant desires to sell his or her shares of the Company’s stock, the ESOP includes a put option, which is a right to demand that the Company buy any shares of its stock distributed to participants at fair value.
The Company is accounting for its ESOP in accordance with ASC Topic 718, “Employers Accounting for Employee Stock Ownership Plans.” Accordingly, the debt of the ESOP is eliminated in consolidation and the shares pledged as collateral are reported as unearned ESOP shares in the consolidated balance sheet. Contributions to the ESOP shall be sufficient to pay principal and interest currently due under the loan agreement. As shares are committed to be released from the collateral, the Company reports compensation expense equal to the average market price of the shares for the respective period, and the shares become outstanding for earnings per share computations. Dividends, if any, on unallocated shares are recorded as a reduction of debt and accrued interest.
A summary of ESOP shares at March 31, 2016 and 2015 is shown below.
| March 31, 2016 | March 31, 2015 | |||||||
| Unearned shares | 20,573 | 23,845 | ||||||
| Shares committed for release | 598 | 573 | ||||||
| Allocated shares | 61,455 | 58,863 | ||||||
| Total ESOP shares | 82,626 | 83,281 | ||||||
| Fair value of unearned shares | $ | 534,898 | $ | 586,032 | ||||
On April 24, 2012, the compensation committee of the board of directors approved the awards of 104,035 options to purchase Company common stock. The stock options vest over a five-year period and expire ten years after the date of the grant. Apart from the vesting schedule, there are no performance-based conditions or any other material conditions applicable to the options issued.
| 9 |
The following table summarizes stock option activity for the three months ended March 31, 2016.
| Weighted | ||||||||||||||||
| Weighted | Average | |||||||||||||||
| Average | Remaining | Aggregate | ||||||||||||||
| Exercise | Contractual | Instrinsic | ||||||||||||||
| Options | Price/Share | Life (in years) | Value | |||||||||||||
| Outstanding, December 31, 2015 | 61,120 | $ | 15.65 | |||||||||||||
| Granted | - | |||||||||||||||
| Exercised | (500 | ) | 15.65 | |||||||||||||
| Forfeited | - | - | ||||||||||||||
| Outstanding, March 31, 2016 | 60,620 | $ | 15.65 | 6.00 | $ | 632,592 | ||||||||||
| Exercisable, March 31, 2016 | 18,535 | $ | 15.65 | 6.00 | $ | 197,012 | ||||||||||
Intrinsic value for stock options is defined as the difference between the current market value and the exercise price. The value is based upon a closing price of $26.00 per share on March 31, 2016.
| 5. | LOAN PORTFOLIO COMPOSITION |
At March 31, 2016 and December 31, 2015, the composition of the Company’s loan portfolio is shown below.
| March 31, 2016 | December 31, 2015 | |||||||||||||||
| Amount | Percent | Amount | Percent | |||||||||||||
| Real estate loans: | ||||||||||||||||
| One-to-four family residential | $ | 47,145,148 | 25.0 | % | $ | 47,395,344 | 24.6 | % | ||||||||
| Commercial | 42,066,787 | 22.3 | 40,381,680 | 20.9 | ||||||||||||
| Agricultural | 41,214,973 | 21.9 | 41,223,190 | 21.3 | ||||||||||||
| Home equity | 11,197,637 | 5.9 | 11,691,545 | 6.1 | ||||||||||||
| Total real estate loans | 141,624,545 | 75.1 | 140,691,759 | 72.9 | ||||||||||||
| Commercial loans | 22,032,482 | 11.7 | 25,453,058 | 13.2 | ||||||||||||
| Agricultural loans | 14,611,902 | 7.7 | 16,102,856 | 8.3 | ||||||||||||
| Consumer loans | 13,383,278 | 7.1 | 13,741,093 | 7.1 | ||||||||||||
| Total loans receivable | 191,652,207 | 101.6 | 195,988,766 | 101.5 | ||||||||||||
| Less: | ||||||||||||||||
| Net deferred loan fees | 26,481 | 0.0 | 29,293 | 0.0 | ||||||||||||
| Allowance for loan losses | 2,934,691 | 1.6 | 2,919,594 | 1.5 | ||||||||||||
| Total loans receivable, net | $ | 188,691,035 | 100.0 | % | $ | 193,039,879 | 100.0 | % | ||||||||
| 10 |
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 Bank’s primary lending origination activity has been one-to-four family, owner-occupied, residential mortgage loans secured by property located in the Company’s market area. The Company generates loans through marketing efforts, existing customers and referrals, real estate brokers, builders and local businesses. Generally, one-to-four family loan originations are limited to the financing of loans secured by properties located within the Company’s market area.
Fixed rate one-to-four family residential mortgage loans are generally conforming loans, underwritten according to secondary market guidelines. The Company generally originates both fixed and adjustable rate mortgage loans in amounts up to the maximum conforming loan limits established by the Federal Housing Finance Agency.
The Company originates for resale to Freddie Mac and the Federal Home Loan Bank fixed-rate one-to-four family residential mortgage loans with terms of 15 years or more. The fixed-rate mortgage loans amortize monthly with principal and interest due each month. Residential real estate loans often remain outstanding for significantly shorter periods than their contractual terms because borrowers may refinance or prepay loans at their option. The Company offers fixed-rate one-to-four family residential mortgage loans with terms of up to 30 years without prepayment penalty.
| 11 |
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 five years, the adjustable-rate portfolio has repriced downward resulting in lower interest income from this portion of the loan portfolio. In addition, during this period borrowers have shown a preference for fixed-rate loans. The Company has used different interest indices for adjustable-rate mortgage loans in the past such as the average yield on U.S. Treasury securities, adjusted to a constant maturity of one-year, three-years or five-years. The origination of fixed-rate mortgage loans versus adjustable-rate mortgage loans is monitored on an ongoing basis and is affected significantly by the level of market interest rates, customer preference, interest rate risk position and competitors’ loan products.
Adjustable-rate mortgage loans make the loan portfolio more interest rate sensitive and provide an alternative for those borrowers who meet the underwriting criteria, but are unable to qualify for a fixed-rate mortgage. However, as the interest income earned on adjustable-rate mortgage loans varies with prevailing interest rates, such loans do not offer predictable cash flows in the same manner as long-term, fixed-rate loans. Adjustable-rate mortgage loans carry increased credit risk associated with potentially higher monthly payments by borrowers as general market interest rates increase. 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 that, among other things, the borrower sells or otherwise disposes of the underlying real property serving as collateral for the loan. Due-on-sale clauses are a means of imposing assumption fees and increasing the interest rate on 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, generally should not 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 Real Estate Loans - The Company originates and purchases commercial real estate loans. Commercial real estate loans are secured primarily by improved properties such as multi-family residential, retail facilities and office buildings, restaurants and other non-residential buildings. The maximum loan-to-value ratio for commercial real estate loans originated is generally 80%. Commercial real estate loans are generally written up to terms of five years with adjustable interest rates. The rates are generally tied to the prime rate and generally have a specified floor. Many of the fixed-rate commercial real estate loans are not fully amortizing and therefore require a “balloon” payment at maturity. The Company purchases from time to time commercial real estate loan participations primarily from outside the Company’s market area. All participation loans are approved following a review to ensure that the loan satisfies the underwriting standards.
| 12 |
Underwriting standards for commercial real estate loans include a determination of the applicant’s credit history and an assessment of the applicant’s ability to meet existing obligations and payments on the proposed loan. The income approach is primarily utilized to determine whether income generated from the applicant’s business or real estate offered as collateral is adequate to repay the loan. There is an emphasis on the ratio of the property’s projected net cash flow to the loan’s debt service requirement (generally requiring a minimum ratio of 120%). In underwriting a loan, the value of the real estate offered as collateral in relation to the proposed loan amount is considered. Generally, the loan amount cannot be greater than 80% of the value of the real estate. Written appraisals are usually obtained from either licensed or certified appraisers on all commercial real estate loans in excess of $250,000. Creditworthiness of the applicant is assessed by reviewing a credit report, financial statements and tax returns of the applicant, as well as obtaining other public records regarding the applicant.
Loans secured by commercial real estate generally involve a greater degree of credit risk than one-to-four family residential mortgage loans and carry larger loan balances. This increased credit risk is a result of several factors, including the effects of general economic conditions on income producing properties and the successful operation or management of the properties securing the loans. Furthermore, the repayment of loans secured by commercial real estate is typically dependent upon the successful operation of the related business and real estate property. If the cash flow from the project is reduced, the borrower’s ability to repay the loan may be impaired.
Agricultural Real Estate Loans - The Company originates and purchases agricultural real estate loans. The maximum loan-to-value ratio for agricultural real estate loans we originate is generally 75%. Our agricultural real estate loans are generally written up to terms of five years with adjustable interest rates. The rates are generally tied to the average yield on U.S. Treasury securities, adjusted to a constant maturity of one-year, three-years, or five-years and generally have a specified floor. Many of our fixed-rate agricultural real estate loans are not fully amortizing and therefore require a “balloon” payment at maturity. We purchase from time to time agricultural real estate loan participations primarily from other local institutions within our market area. All participation loans are approved following a review to ensure that the loan satisfies our underwriting standards.
Underwriting standards for agricultural real estate include a determination of the applicant’s credit history and an assessment of the applicant’s ability to meet existing obligations and payments on the proposed loan. The income approach is primarily utilized to determine whether income generated from the applicant’s farm operation or real estate offered as collateral is adequate to repay the loan. We emphasize the ratio of the property’s projected cash flow to the loan’s debt service requirement (generally requiring a minimum ratio of 120%). In underwriting a loan, we consider the value of the real estate offered as collateral in relation to the proposed loan amount. Generally, the loan amount cannot be greater than 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 than one-to-four family residential mortgage loans and carry larger loan balances. This increased credit risk is a result of several factors, including the effects of general economic and market conditions on farm operations and the successful operation or management of the properties securing the loans. The repayment of loans secured by agricultural estate is typically dependent upon the successful operation of the farm and real estate property. If the cash flow is reduced, the borrower’s ability to repay the loan may be impaired.
| 13 |
Home Equity Loans – The Company originates home equity loans and lines of credit, which are generally secured by the borrower’s principal residence. The maximum amount of a home equity loan or line of credit is generally 95% of the appraised value of a borrower’s real estate collateral less the amount of any existing mortgages or related liabilities. Home equity loans and lines of credit are approved with both fixed and adjustable interest rates which we determine based upon market conditions. Such loans may be fully amortized over the life of the loan or have a balloon feature. Generally, the maximum term for home equity loans is 10 years.
Underwriting standards for home equity loans include a determination of the applicant’s credit history and an assessment of the applicant’s ability to meet existing obligations and payments on the proposed loan. The stability of the applicant’s monthly income may be determined by verification of gross monthly income from primary employment, and additionally from any verifiable secondary income. We also consider the length of employment with the borrower’s present employer as well as the amount of time the borrower has lived in the local area. Creditworthiness of the applicant is of primary consideration; however, the underwriting process also includes a comparison of the value of the collateral in relation to the proposed loan amount.
Home equity loans entail greater risks than one-to-four family residential mortgage loans, which are secured by first lien mortgages. 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 - The Company originates commercial business loans to borrowers located in the Company’s market area which are secured by collateral other than real estate or which can be unsecured. Commercial business loan participations are also purchased from other lenders, which may be made to borrowers outside the Company’s market area. Commercial business loans are generally secured by equipment and inventory and generally are offered with adjustable rates tied to the prime rate or the average yield on U.S. Treasury securities, adjusted to a constant maturity of either one-year, three-years or five-years and various terms of maturity generally from three years to five years. Unsecured business loans are originated on a limited basis in those instances where the applicant’s financial strength and creditworthiness has been established. Commercial business loans generally bear higher interest rates than residential loans, but they also may involve a higher risk of default since their repayment is generally dependent on the successful operation of the borrower’s business. Personal guarantees are generally obtained from the borrower or a third party as a condition to originating its business loans.
Underwriting standards for commercial 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. The financial strength of each applicant is assessed through the review of financial statements and tax returns provided by the applicant. The creditworthiness of an applicant is derived from a review of credit reports as well as a search of public records. Business loans are periodically reviewed following origination. Financial statements are requested at least annually and review them 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.
| 14 |
Agricultural Business Loans - The Company originates agricultural business loans to borrowers located in our market area which are secured by collateral other than real estate or which can be unsecured. Agricultural business loans are generally secured by equipment and blanket security agreements on all farm assets. These loans are generally offered with fixed rates with terms up to five years. Agricultural business loans generally bear lower interest rates than residential loans due to competitive market pressures. The repayment of agricultural business loans is generally dependent on the successful operation of the farm operation. Personal guarantees are generally obtained from the borrower as a condition to originating agricultural business loans.
Underwriting standards for agricultural business loans include a determination of the applicant’s ability to meet existing obligations and payments on the proposed loan from normal cash flows generated in the applicant’s business. The financial strength of each applicant is assessed through the review of financial statements, pro-forma cash flow statements, and tax returns provided by the applicant. The creditworthiness of an applicant is derived from a review of credit reports as well as a search of public records. Financial statements are requested at least annually and reviewed for substantial deviations or changes that might affect repayment of the loan. Loan officers may also visit the premises of borrowers to observe the operation, facilities, equipment, and personnel and to inspect the pledged collateral. Underwriting standards for agricultural business loans are different for each type of loan depending on the financial strength of the applicant and the value of collateral offered as security.
The repayment of agricultural business loans generally is dependent on the successful operation of a farm and can be adversely affected by fluctuations in crop prices, increase in interest rates, and changes in weather conditions. These developments may result in smaller harvests and less income for farmers which may adversely affect such borrower’s ability to repay a loan, and potentially result in an increase in the level of problem loans and loan losses in our agricultural portfolio. While not required, the majority of our agricultural business loans are covered by crop insurance, which provides protection against loss due to lower crop yields as a result of unfavorable weather conditions.
Consumer Loans – The Company originates consumer loans, including automobile loans, loans secured by deposit accounts, unsecured loans and mobile home loans. Consumer loans are generally offered on a fixed-rate basis. Automobile loans are offered with maturities of up to 60 months for new automobiles. Loans secured by used automobiles will have maximum terms which vary depending upon the age of the automobile. Automobile loans are generally originated with a loan-to-value ratio below the greater of 80% of the purchase price or 100% of NADA loan value. The loan-to-value ratio may be greater or less depending on the borrower’s credit history, debt to income ratio, home ownership and other banking relationships with us.
Underwriting standards for consumer loans include a determination of the applicant’s credit history and an assessment of the applicant’s ability to meet existing obligations and payments on the proposed loan. The stability of the applicant’s monthly income may be determined by verification of gross monthly income from primary employment, and additionally from any verifiable secondary income. We also consider the length of employment with the borrower’s present employer as well as the amount of time the borrower has lived in the local area. Creditworthiness of the applicant is of primary consideration; however, the underwriting process also includes a comparison of the value of the collateral in relation to the proposed loan amount.
Consumer loans entail greater risks than one-to-four family residential mortgage loans, particularly consumer loans secured by rapidly depreciating assets such as automobiles or loans that are unsecured. In such cases, collateral repossessed after a default may not provide an adequate source of repayment of the outstanding loan balance because of damage, loss or depreciation. Further, consumer loan payments are dependent on the borrower’s continuing financial stability, and therefore are more likely to be adversely affected by job loss, divorce, illness or personal bankruptcy. Such events would increase our risk of loss on unsecured loans. Finally, the application of various Federal and state laws, including Federal and state bankruptcy and insolvency laws, may limit the amount which can be recovered on such loans in the event of a default.
| 15 |
The following tables present the balance in the allowance for loan losses and the recorded investment in loans based on portfolio segment and impairment method as of and for the periods ended March 31, 2016, March 31, 2015, and December 31, 2015.
| March 31, 2016 | ||||||||||||||||||||||||||||||||||||
| Commercial | Agricultural | |||||||||||||||||||||||||||||||||||
| 1-4 Family | Real Estate | Real Estate | Home Equity | Commercial | Agricultural | Consumer | Unallocated | Total | ||||||||||||||||||||||||||||
| Allowance for Loan Losses: | ||||||||||||||||||||||||||||||||||||
| Beginning Balance, December 31, 2015 | $ | 829,604 | $ | 917,526 | $ | 201,918 | $ | 149,253 | $ | 386,620 | $ | 163,346 | $ | 169,381 | $ | 101,946 | $ | 2,919,594 | ||||||||||||||||||
| Provision charged to expense | 31,178 | 3,332 | 86 | 51,759 | (40,645 | ) | (2,976 | ) | (8,834 | ) | (3,900 | ) | 30,000 | |||||||||||||||||||||||
| Losses charged off | - | (20,465 | ) | - | - | - | - | - | - | (20,465 | ) | |||||||||||||||||||||||||
| Recoveries | 4,081 | 29 | - | 525 | - | - | 927 | - | 5,562 | |||||||||||||||||||||||||||
| Ending balance, March 31, 2016 | $ | 864,863 | $ | 900,422 | $ | 202,004 | $ | 201,537 | $ | 345,975 | $ | 160,370 | $ | 161,474 | $ | 98,046 | $ | 2,934,691 | ||||||||||||||||||
| Ending balance: | ||||||||||||||||||||||||||||||||||||
| individually evaluated for impairment | $ | 234,439 | $ | 500,459 | $ | - | $ | 9,742 | $ | 121,866 | $ | - | $ | - | $ | - | $ | 866,506 | ||||||||||||||||||
| Ending balance: | ||||||||||||||||||||||||||||||||||||
| collectively evaluated for impairment | $ | 630,424 | $ | 399,963 | $ | 202,004 | $ | 191,795 | $ | 224,109 | $ | 160,370 | $ | 161,474 | $ | 98,046 | $ | 2,068,185 | ||||||||||||||||||
| Loans: | ||||||||||||||||||||||||||||||||||||
| Ending balance | $ | 47,145,148 | $ | 42,066,787 | $ | 41,214,973 | $ | 11,197,637 | $ | 22,032,482 | $ | 14,611,902 | $ | 13,383,278 | $ | - | $ | 191,652,207 | ||||||||||||||||||
| Ending balance: | ||||||||||||||||||||||||||||||||||||
| individually evaluated for impairment | $ | 656,330 | $ | 1,875,577 | $ | 814,272 | $ | 63,682 | $ | 265,869 | $ | 406,950 | $ | - | $ | - | $ | 4,082,680 | ||||||||||||||||||
| Ending balance: | ||||||||||||||||||||||||||||||||||||
| collectively evaluated for impairment | $ | 46,488,818 | $ | 40,191,210 | $ | 40,400,701 | $ | 11,133,955 | $ | 21,766,613 | $ | 14,204,952 | $ | 13,383,278 | $ | - | $ | 187,569,527 | ||||||||||||||||||
| 16 |
| March 31, 2015 | ||||||||||||||||||||||||||||||||||||
| Commercial | Agricultural | |||||||||||||||||||||||||||||||||||
| 1-4 Family | Real Estate | Real Estate | Home Equity | Commercial | Agricultural | Consumer | Unallocated | Total | ||||||||||||||||||||||||||||
| Allowance for Loan Losses: | ||||||||||||||||||||||||||||||||||||
| Beginning Balance, December 31, 2014 | $ | 999,260 | $ | 855,463 | $ | 195,546 | $ | 205,577 | $ | 421,809 | $ | 57,934 | $ | 167,319 | $ | 53,356 | $ | 2,956,264 | ||||||||||||||||||
| Provision charged to expense | 32,739 | (37,210 | ) | 16,505 | (52,423 | ) | (20,663 | ) | 58,595 | (1,669 | ) | 34,126 | 30,000 | |||||||||||||||||||||||
| Losses charged off | - | (27,464 | ) | - | - | - | - | (6,430 | ) | - | (33,894 | ) | ||||||||||||||||||||||||
| Recoveries | 300 | 8,745 | - | 9,013 | 85 | - | 483 | - | 18,626 | |||||||||||||||||||||||||||
| Ending balance, March 31, 2015 | $ | 1,032,299 | $ | 799,534 | $ | 212,051 | $ | 162,167 | $ | 401,231 | $ | 116,529 | $ | 159,703 | $ | 87,482 | $ | 2,970,996 | ||||||||||||||||||
| Ending balance: | ||||||||||||||||||||||||||||||||||||
| individually evaluated for impairment | $ | 207,554 | $ | 359,054 | $ | - | $ | 9,982 | $ | 165,190 | $ | - | $ | - | $ | - | $ | 741,780 | ||||||||||||||||||
| Ending balance: | ||||||||||||||||||||||||||||||||||||
| collectively evaluated for impairment | $ | 824,745 | $ | 440,480 | $ | 212,051 | $ | 152,185 | $ | 236,041 | $ | 116,529 | $ | 159,703 | $ | 87,482 | $ | 2,229,216 | ||||||||||||||||||
| Loans: | ||||||||||||||||||||||||||||||||||||
| Ending balance | $ | 44,129,552 | $ | 41,494,647 | $ | 43,395,717 | $ | 11,478,191 | $ | 23,945,542 | $ | 10,854,507 | $ | 12,465,317 | $ | - | $ | 187,763,473 | ||||||||||||||||||
| Ending balance: | ||||||||||||||||||||||||||||||||||||
| individually evaluated for impairment | $ | 698,555 | $ | 1,975,380 | $ | 985,606 | $ | 57,163 | $ | 469,036 | $ | 272,021 | $ | 8,124 | $ | - | $ | 4,465,885 | ||||||||||||||||||
| Ending balance: | ||||||||||||||||||||||||||||||||||||
| collectively evaluated for impairment | $ | 43,430,997 | $ | 39,519,267 | $ | 42,410,111 | $ | 11,421,028 | $ | 23,476,506 | $ | 10,582,486 | $ | 12,457,193 | $ | - | $ | 183,297,588 | ||||||||||||||||||
| 17 |
| December 31, 2015 | ||||||||||||||||||||||||||||||||||||
| Commercial | Agricultural | |||||||||||||||||||||||||||||||||||
| 1-4 Family | Real Estate | Real Estate | Home Equity | Commercial | Agricultural | Consumer | Unallocated | Total | ||||||||||||||||||||||||||||
| Allowance for Loan Losses: | ||||||||||||||||||||||||||||||||||||
| Beginning Balance, December 31, 2014 | $ | 999,260 | $ | 855,463 | $ | 195,546 | $ | 205,577 | $ | 421,809 | $ | 57,934 | $ | 167,319 | $ | 53,356 | $ | 2,956,264 | ||||||||||||||||||
| Provision charged to expense | (10,386 | ) | 29,238 | 6,372 | (53,188 | ) | (35,327 | ) | 105,412 | 49,289 | 48,590 | 140,000 | ||||||||||||||||||||||||
| Losses charged off | (199,392 | ) | (27,464 | ) | - | (13,724 | ) | - | - | (53,249 | ) | - | (293,829 | ) | ||||||||||||||||||||||
| Recoveries | 40,122 | 60,289 | - | 10,588 | 138 | - | 6,022 | - | 117,159 | |||||||||||||||||||||||||||
| Ending balance, December 31, 2015 | $ | 829,604 | $ | 917,526 | $ | 201,918 | $ | 149,253 | $ | 386,620 | $ | 163,346 | $ | 169,381 | $ | 101,946 | $ | 2,919,594 | ||||||||||||||||||
| Ending balance: | ||||||||||||||||||||||||||||||||||||
| individually evaluated for impairment | $ | 176,079 | $ | 487,205 | $ | - | $ | 9,922 | $ | 127,458 | $ | - | $ | - | $ | - | $ | 800,664 | ||||||||||||||||||
| Ending balance: | ||||||||||||||||||||||||||||||||||||
| collectively evaluated for impairment | $ | 653,525 | $ | 430,321 | $ | 201,918 | $ | 139,331 | $ | 259,162 | $ | 163,346 | $ | 169,381 | $ | 101,946 | $ | 2,118,930 | ||||||||||||||||||
| Loans: | ||||||||||||||||||||||||||||||||||||
| Ending balance | $ | 47,395,344 | $ | 40,381,680 | $ | 41,223,190 | $ | 11,691,545 | $ | 25,453,058 | $ | 16,102,856 | $ | 13,741,093 | $ | - | $ | 195,988,766 | ||||||||||||||||||
| Ending balance: | ||||||||||||||||||||||||||||||||||||
| individually evaluated for impairment | $ | 658,734 | $ | 1,598,530 | $ | 839,546 | $ | 58,340 | $ | 277,628 | $ | 406,950 | $ | 428 | $ | - | $ | 3,840,156 | ||||||||||||||||||
| Ending balance: | ||||||||||||||||||||||||||||||||||||
| collectively evaluated for impairment | $ | 46,736,610 | $ | 38,783,150 | $ | 40,383,644 | $ | 11,633,205 | $ | 25,175,430 | $ | 15,695,906 | $ | 13,740,665 | $ | - | $ | 192,148,610 | ||||||||||||||||||
Management’s opinion as to the ultimate collectability of loans is subject to estimates regarding future cash flows from operations and the value of property, real and personal, pledged as collateral. These estimates are affected by changing economic conditions and the economic prospects of borrowers.
The allowance for loan losses is maintained at a level that, in management’s judgment, is adequate to cover probable credit losses inherent in the loan portfolio at the balance sheet date. The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to earnings. Loan losses are charged against the allowance when management believes the uncollectability of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.
The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectability of the loans in light of historical experience, the 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.
| 18 |
A loan is considered impaired when, based on current information and events, it is probable that the scheduled payments of principal or interest will not be able to be collected when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan-by-loan basis for commercial and agricultural loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price or the fair value of the collateral if the loan is collateral dependent.
Groups of loans with similar risk characteristics are collectively evaluated for impairment based on the group’s historical loss experience adjusted for changes in trends, conditions and other relevant factors that affect repayment of the loans. Accordingly, individual consumer and residential loans are not separately identified for impairment measurements, unless such loans are the subject of a restructuring agreement due to financial difficulties of the borrower.
The general component covers non-classified loans and is based on historical charge-off experience and expected loss given the internal risk rating process. The loan portfolio is stratified into homogeneous groups of loans that possess similar loss characteristics and an appropriate loss ratio adjusted for other qualitative factors is applied to the homogeneous pools of loans to estimate the incurred losses in the loan portfolio.
There have been no changes to the Company’s accounting policies or methodology from the prior periods.
Credit Quality Indicators
The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis is performed on all loans at origination. In addition, lending relationships over $750,000, new commercial and commercial real estate loans, and watch list credits are reviewed annually by our loan review department in order to verify risk ratings. All watch list credits are reviewed by management and reported to the Board monthly. 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.
| 19 |
Loans not meeting the criteria above that are analyzed individually as part of the foregoing are considered to be Pass rated loans.
The following tables present the credit risk profile of the Company’s loan portfolio based on rating category and payment activity as of March 31, 2016 and December 31, 2015.
| 1-4 Family | Commercial Real Estate | Agricultural Real Estate | Home Equity | |||||||||||||||||||||||||||||
| March 31, | December 31, | March 31, | December 31, | March 31, | December 31, | March 31, | December 31, | |||||||||||||||||||||||||
| 2016 | 2015 | 2016 | 2015 | 2016 | 2015 | 2016 | 2015 | |||||||||||||||||||||||||
| Rating: | ||||||||||||||||||||||||||||||||
| Pass | $ | 44,124,037 | $ | 44,120,334 | $ | 39,050,733 | $ | 37,628,385 | $ | 40,400,701 | $ | 40,383,644 | $ | 10,383,533 | $ | 11,324,889 | ||||||||||||||||
| Special Mention | 1,271,744 | 1,323,266 | 448,547 | 454,194 | 814,272 | 839,546 | 581,065 | 68,044 | ||||||||||||||||||||||||
| Substandard | 1,749,367 | 1,951,744 | 2,567,507 | 2,299,101 | - | - | 233,039 | 298,612 | ||||||||||||||||||||||||
| Total | $ | 47,145,148 | $ | 47,395,344 | $ | 42,066,787 | $ | 40,381,680 | $ | 41,214,973 | $ | 41,223,190 | $ | 11,197,637 | $ | 11,691,545 | ||||||||||||||||
| Commercial | Agricultural | Consumer | Total | |||||||||||||||||||||||||||||
| March 31, | December 31, | March 31, | December 31, | March 31, | December 31, | March 31, | December 31, | |||||||||||||||||||||||||
| 2016 | 2015 | 2016 | 2015 | 2016 | 2015 | 2016 | 2015 | |||||||||||||||||||||||||
| Rating: | ||||||||||||||||||||||||||||||||
| Pass | $ | 21,714,472 | $ | 25,117,982 | $ | 13,622,473 | $ | 15,110,606 | $ | 13,152,401 | $ | 13,501,477 | $ | 182,448,350 | $ | 187,187,317 | ||||||||||||||||
| Special Mention | 46,638 | 51,196 | 989,429 | 992,250 | 36,684 | 52,656 | 4,188,379 | 3,781,152 | ||||||||||||||||||||||||
| Substandard | 271,372 | 283,880 | - | - | 194,193 | 186,960 | 5,015,478 | 5,020,297 | ||||||||||||||||||||||||
| Total | $ | 22,032,482 | $ | 25,453,058 | $ | 14,611,902 | $ | 16,102,856 | $ | 13,383,278 | $ | 13,741,093 | $ | 191,652,207 | $ | 195,988,766 | ||||||||||||||||
The following tables present the Company’s loan portfolio aging analysis as of March 31, 2016 and December 31, 2015.
| March 31, 2016 | ||||||||||||||||||||||||||||
| 30-59 Days | 60-89 Days | Greater than 90 | Total | Total Loans >90 | ||||||||||||||||||||||||
| Past Due | Past Due | Days Past Due | Past Due | Current | Total Loans | Days & Accruing | ||||||||||||||||||||||
| One-to-four family residential | $ | 212,544 | $ | 35,846 | $ | 531,643 | $ | 780,033 | $ | 46,365,115 | $ | 47,145,148 | $ | - | ||||||||||||||
| Commercial real estate | - | - | 749,281 | 749,281 | 41,317,506 | 42,066,787 | - | |||||||||||||||||||||
| Agricultural real estate | - | - | - | - | 41,214,973 | 41,214,973 | - | |||||||||||||||||||||
| Home equity | 25,427 | 36,443 | 9,742 | 71,612 | 11,126,025 | 11,197,637 | - | |||||||||||||||||||||
| Commercial | 41,734 | - | - | 41,734 | 21,990,748 | 22,032,482 | - | |||||||||||||||||||||
| Agricultural | - | - | - | - | 14,611,902 | 14,611,902 | - | |||||||||||||||||||||
| Consumer | 86,109 | 21,359 | 26,922 | 134,390 | 13,248,888 | 13,383,278 | - | |||||||||||||||||||||
| Total | $ | 365,814 | $ | 93,648 | $ | 1,317,588 | $ | 1,777,050 | $ | 189,875,157 | $ | 191,652,207 | $ | - | ||||||||||||||
| 20 |
| December 31, 2015 | ||||||||||||||||||||||||||||
| 30-59 Days | 60-89 Days | Greater than 90 | Total | Total Loans >90 | ||||||||||||||||||||||||
| Past Due | Past Due | Days Past Due | Past Due | Current | Total Loans | Days & Accruing | ||||||||||||||||||||||
| One-to-four family residential | $ | 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 | - | |||||||||||||||||||||
| Home equity | 22,122 | 66,305 | 69,515 | 157,942 | 11,533,603 | 11,691,545 | - | |||||||||||||||||||||
| Commercial | - | - | - | - | 25,453,058 | 25,453,058 | - | |||||||||||||||||||||
| Agricultural | - | - | - | - | 16,102,856 | 16,102,856 | - | |||||||||||||||||||||
| 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 | $ | - | ||||||||||||||
The accrual of interest on loans is discontinued at the time the loan is 90 days past due unless the credit is well-secured and in process of collection. Past due status is based on contractual terms of the loan. In all cases, loans are placed on non-accrual or charged-off at an earlier date if collection of principal and interest is considered doubtful.
All interest accrued but not collected for loans that are placed on non-accrual or charged-off are reversed against interest income. The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all principal and interest amounts contractually due are brought current and future payments are reasonably assured.
The Company actively seeks to reduce its investment in impaired loans. The primary tools to work through impaired loans are settlement with the borrowers or guarantors, foreclosure of the underlying collateral, or restructuring.
The Company will restructure loans when the borrower demonstrates the inability to comply with the terms of the loan, but can demonstrate the ability to meet acceptable restructured terms. Restructurings generally include one or more of the following restructuring options; reduction in the interest rate on the loan, payment extensions, forgiveness of principal, forbearance, or other actions intended to maximize collection. Restructured loans in compliance with modified terms are classified as impaired.
| 21 |
The following tables present impaired loans at or for the three months ended March 31, 2016 and 2015 and for the year ended December 31, 2015.
| Three Months Ended March 31, 2016 | ||||||||||||||||||||||||
| Average | Interest | |||||||||||||||||||||||
| Unpaid | Impairment in | Interest | Income | |||||||||||||||||||||
| Recorded | Principal | Specific | Impaired | Income | Recognized | |||||||||||||||||||
| Balance | Balance | Allowance | Loans | Recognized | Cash Basis | |||||||||||||||||||
| Loans without a specific allowance: | ||||||||||||||||||||||||
| One-to-four family residential | $ | 106,506 | $ | 106,506 | $ | - | $ | 205,469 | $ | 2,952 | $ | 2,981 | ||||||||||||
| Commercial real estate | 815,495 | 815,495 | - | 773,399 | 9,795 | 6,887 | ||||||||||||||||||
| Agricultural real estate | 814,272 | 814,272 | - | 824,530 | 10,292 | 29,411 | ||||||||||||||||||
| Commercial | 80,258 | 80,258 | - | 80,258 | 1,001 | - | ||||||||||||||||||
| Agricultural | 406,950 | 406,950 | - | 406,950 | 4,899 | 13,802 | ||||||||||||||||||
| Home equity | 53,940 | 53,940 | - | 51,701 | 902 | 902 | ||||||||||||||||||
| Loans with a specific allowance: | ||||||||||||||||||||||||
| One-to-four family residential | 549,824 | 549,824 | 234,439 | 567,106 | 8,056 | 5,753 | ||||||||||||||||||
| Commercial real estate | 1,060,082 | 1,060,082 | 500,459 | 1,108,109 | 16,666 | 22,558 | ||||||||||||||||||
| Commercial | 185,611 | 185,611 | 121,866 | 245,832 | 3,659 | 3,626 | ||||||||||||||||||
| Home equity | 9,742 | 9,742 | 9,742 | 9,982 | 252 | 181 | ||||||||||||||||||
| Total: | ||||||||||||||||||||||||
| One-to-four family residential | 656,330 | 656,330 | 234,439 | 772,575 | 11,008 | 8,734 | ||||||||||||||||||
| Commercial real estate | 1,875,577 | 1,875,577 | 500,459 | 1,881,508 | 26,461 | 29,445 | ||||||||||||||||||
| Agricultural real estate | 814,272 | 814,272 | - | 824,530 | 10,292 | 29,411 | ||||||||||||||||||
| Commercial | 265,869 | 265,869 | 121,866 | 326,090 | 4,660 | 3,626 | ||||||||||||||||||
| Agricultural | 406,950 | 406,950 | - | 406,950 | 4,899 | 13,802 | ||||||||||||||||||
| Home equity | 63,682 | 63,682 | 9,742 | 61,683 | 1,154 | 1,083 | ||||||||||||||||||
| Total | $ | 4,082,680 | $ | 4,082,680 | $ | 866,506 | $ | 4,273,336 | $ | 58,474 | $ | 86,101 | ||||||||||||
| 22 |
| Three Months Ended March 31, 2015 | ||||||||||||||||||||||||
| Average | Interest | |||||||||||||||||||||||
| Unpaid | Impairment in | Interest | Income | |||||||||||||||||||||
| Recorded | Principal | Specific | Impaired | Income | Recognized | |||||||||||||||||||
| Balance | Balance | Allowance | Loans | Recognized | Cash Basis | |||||||||||||||||||
| Loans without a specific allowance: | ||||||||||||||||||||||||
| One-to-four family residential | $ | 125,019 | $ | 125,019 | $ | - | $ | 214,838 | $ | 3,105 | $ | 2,863 | ||||||||||||
| Commercial real estate | 854,026 | 854,026 | - | 887,087 | 10,983 | 7,531 | ||||||||||||||||||
| Agricultural real estate | 985,606 | 985,606 | - | 998,835 | 13,875 | 30,345 | ||||||||||||||||||
| Commercial | 237,590 | 237,590 | - | 289,166 | 3,209 | - | ||||||||||||||||||
| Agricultural | 272,021 | 272,021 | - | 311,499 | 2,762 | 14,573 | ||||||||||||||||||
| Home equity | 47,181 | 47,181 | - | 38,916 | 795 | 793 | ||||||||||||||||||
| Consumer | 8,124 | 8,124 | - | 8,858 | 170 | 30 | ||||||||||||||||||
| Loans with a specific allowance: | ||||||||||||||||||||||||
| One-to-four family residential | 573,536 | 573,536 | 207,554 | 582,275 | 10,868 | 9,060 | ||||||||||||||||||
| Commercial real estate | 1,121,354 | 1,121,354 | 359,054 | 1,123,872 | 16,764 | 5,040 | ||||||||||||||||||
| Commercial | 231,446 | 231,446 | 165,190 | 283,538 | 3,207 | 12,667 | ||||||||||||||||||
| Home equity | 9,982 | 9,982 | 9,982 | 9,982 | 175 | 181 | ||||||||||||||||||
| Total: | ||||||||||||||||||||||||
| One-to-four family residential | 698,555 | 698,555 | 207,554 | 797,113 | 13,973 | 11,923 | ||||||||||||||||||
| Commercial real estate | 1,975,380 | 1,975,380 | 359,054 | 2,010,959 | 27,747 | 12,571 | ||||||||||||||||||
| Agricultural real estate | 985,606 | 985,606 | - | 998,835 | 13,875 | 30,345 | ||||||||||||||||||
| Commercial | 469,036 | 469,036 | 165,190 | 572,704 | 6,416 | 12,667 | ||||||||||||||||||
| Agricultural | 272,021 | 272,021 | - | 311,499 | 2,762 | 14,573 | ||||||||||||||||||
| Home equity | 57,163 | 57,163 | 9,982 | 48,898 | 970 | 974 | ||||||||||||||||||
| Consumer | 8,124 | 8,124 | - | 8,858 | 170 | 30 | ||||||||||||||||||
| Total | $ | 4,465,885 | $ | 4,465,885 | $ | 741,780 | $ | 4,748,866 | $ | 65,913 | $ | 83,083 | ||||||||||||
| 23 |
| Year Ended December 31, 2015 | ||||||||||||||||||||||||
| Average | Interest | |||||||||||||||||||||||
| Unpaid | Impairment in | Interest | Income | |||||||||||||||||||||
| Recorded | Principal | Specific | Impaired | Income | Recognized | |||||||||||||||||||
| Balance | Balance | Allowance | Loans | Recognized | Cash Basis | |||||||||||||||||||
| Loans without a specific allowance: | ||||||||||||||||||||||||
| One-to-four family residential | $ | 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 allowance: | ||||||||||||||||||||||||
| One-to-four family residential | 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: | ||||||||||||||||||||||||
| One-to-four family residential | 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 | ||||||||||||
| 24 |
Included in certain loan categories in the impaired loans are troubled debt restructurings (TDRs), where economic concessions have been granted to borrowers who have experienced financial difficulties, that were classified as impaired. These concessions typically include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance or other actions. TDRs are considered impaired at the time of restructuring and typically are returned to accrual status after considering the borrower’s sustained repayment performance for a reasonable period of time, usually at least six months.
When loans are modified into a TDR, the Company evaluates any possible impairment similar to other impaired loans based on the present value of expected cash flows, discounted at the contractual interest rate of the original loan agreement, or based upon on the current fair value of the collateral, less selling costs for collateral dependent loans. If the Company determined that the value of the modified loan is less than the recorded investment in the loan (net of previous charge-offs, deferred loan fees or costs and unamortized premium or discount), impairment is recognized through an allowance estimate or a charge-off to the allowance. In periods subsequent to modification, the Company evaluates all TDRs, including those that have payment defaults, for possible impairment and recognizes impairment through the allowance.
The following table presents the recorded balance, at original cost, of TDRs, as of March 31, 2016 and December 31, 2015.
| March 31, 2016 | December 31, 2015 | |||||||
| One-to-four family residential | $ | 778,929 | $ | 723,421 | ||||
| Commercial real estate | 1,675,565 | 1,708,013 | ||||||
| Agricultural real estate | - | - | ||||||
| Home equity | 9,344 | 10,897 | ||||||
| Commercial loans | 48,154 | 57,783 | ||||||
| Agricultural loans | - | - | ||||||
| Consumer loans | 103,931 | 109,340 | ||||||
| Total | $ | 2,615,923 | $ | 2,609,454 | ||||
The following table presents the recorded balance, at original cost, of TDRs, which were performing according to the terms of the restructuring, as of March 31, 2016 and December 31, 2015.
| March 31, 2016 | December 31, 2015 | |||||||
| One-to-four family residential | $ | 587,786 | $ | 526,004 | ||||
| Commercial real estate | 926,284 | 941,173 | ||||||
| Agricultural real estate | - | - | ||||||
| Home equity | 9,344 | 10,897 | ||||||
| Commercial loans | 48,154 | 57,783 | ||||||
| Agricultural loans | - | - | ||||||
| Consumer loans | 82,516 | 86,255 | ||||||
| Total | $ | 1,654,084 | $ | 1,622,112 | ||||
| 25 |
The following table presents loans modified as TDRs during the three months ended March 31, 2016 and 2015.
| Three Months Ended | Three Months Ended | |||||||||||||||
| March 31, 2016 | March 31, 2015 | |||||||||||||||
| Number of | Recorded | Number of | Recorded | |||||||||||||
| Modifications | Investment | Modifications | Investment | |||||||||||||
| One-to-four family residential | 1 | $ | 41,107 | 1 | $ | 107,357 | ||||||||||
| Commercial real estate | - | - | - | - | ||||||||||||
| Agricultural real estate | - | - | - | - | ||||||||||||
| Home equity | - | - | - | - | ||||||||||||
| Commercial loans | - | - | - | - | ||||||||||||
| Agricultural loans | - | - | - | - | ||||||||||||
| Consumer loans | - | - | 1 | 2,469 | ||||||||||||
| Total | 1 | $ | 41,107 | 2 | $ | 109,826 | ||||||||||
First Quarter, 2016 Modifications
The Company modified one residential real estate loan with a recorded investment of $41,107. The modification was made to restructure loan and capitalize delinquent real estate taxes. The modification did not result in a write-off of the principal balance.
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 three month period ended March 31, 2016, three residential real estate loans of $191,144 and one commercial real estate loan of $749,281 that were considered TDRs defaulted as they were more than 90 days past due at March 31, 2016. Default occurs when a loan is 90 days or more past due, transferred to nonaccrual or charged-off, and is within twelve months of restructuring.
First Quarter, 2015 Modifications
The Company modified one residential real estate loan with a recorded investment of $107,357. The modification was made to consolidate and restructure delinquent loans into a workout. The modification did not result in a write-off of the principal balance.
The Company modified one consumer loan with a recorded investment of $2,469. The modification was made to extend the payment schedule three months. The modification did not result in a write-off of the principal balance.
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 three month period ended March 31, 2015, three residential real estate loans of $203,578, one commercial real estate loan of $794,110, and one home equity loan of $3,238 that were considered TDRs defaulted as they were more than 90 days past due at March 31, 2015. Default occurs when a loan is 90 days or more past due, transferred to nonaccrual or charged-off, and is within twelve months of restructuring.
| 26 |
The following table presents the Company’s nonaccrual loans at March 31, 2016 and December 31, 2015. This table excludes performing TDRs.
| March 31, 2016 | December 31, 2015 | |||||||
| One-to-four family residential | $ | 719,195 | $ | 911,283 | ||||
| Commercial real estate | 816,432 | 840,449 | ||||||
| Agricultural real estate | - | - | ||||||
| Home equity | 103,513 | 118,502 | ||||||
| Commercial loans | 5,788 | 9,314 | ||||||
| Agricultural loans | - | - | ||||||
| Consumer loans | 157,090 | 141,605 | ||||||
| Total | $ | 1,802,018 | $ | 2,021,153 | ||||
| 6. | INVESTMENTS |
The amortized cost and approximate fair value of securities, all of which are classified as available-for-sale, are as follows:
| Gross | Gross | |||||||||||||||
| Amortized | Unrealized | Unrealized | ||||||||||||||
| Cost | Gains | Losses | Fair Value | |||||||||||||
| March 31, 2016: | ||||||||||||||||
| U.S. government and agencies | $ | 18,094,872 | $ | 134,043 | $ | (28,855 | ) | $ | 18,200,060 | |||||||
| Mortgage-backed securities (government- sponsored enterprises - residential) | 20,386,254 | 313,560 | (26,729 | ) | 20,673,085 | |||||||||||
| Municipal bonds | 42,356,135 | 1,305,038 | (136,531 | ) | 43,524,642 | |||||||||||
| $ | 80,837,261 | $ | 1,752,641 | $ | (192,115 | ) | $ | 82,397,787 | ||||||||
| December 31, 2015: | ||||||||||||||||
| U.S. government and 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 | ||||||||
| 27 |
The amortized cost and fair value of available-for-sale securities at March 31, 2016, 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.
| Amortized | Fair | |||||||
| Cost | Value | |||||||
| Within one year | $ | 1,283,331 | $ | 1,286,737 | ||||
| More than one to five years | 7,919,604 | 8,203,234 | ||||||
| More than five to ten years | 36,423,253 | 37,138,652 | ||||||
| After ten years | 14,824,819 | 15,096,079 | ||||||
| 60,451,007 | 61,724,702 | |||||||
| Mortgage-backed securities (government- sponsored enterprises - residential) | 20,386,254 | 20,673,085 | ||||||
| $ | 80,837,261 | $ | 82,397,787 | |||||
The carrying value of securities pledged as collateral, to secure public deposits and for other purposes, was $28,173,000 at March 31, 2016 and $25,681,000 at December 31, 2015.
The book value of securities sold under agreement to repurchase amounted to $3,947,000 at March 31, 2016 and $7,591,000 at December 31, 2015. At March 31, 2016, we had $4,687,000 of repurchase agreements secured by mortgage backed securities, $1,482,000 of repurchase agreements secured by time deposits in other banks, and $598,000 in repurchase agreements secured by U.S. government agency bonds. All of our repurchase agreements mature overnight. The right of offset for a repurchase agreement resembles a secured borrowing, whereby the collateral pledged by the Company would be used to settle the fair value of the repurchase agreement should the Company be in default. The collateral is held by the Company in a segregated custodial account. In the event the collateral fair value falls below stipulated levels, the Company will pledge additional securities. The Company closely monitors collateral levels to ensure adequate levels are maintained.
Gross gains of $105,000 and $165,000 and gross losses of $3,000 and $32,000 resulting from sales of available-for-sale securities were realized during the three months ended March 31, 2016 and 2015, respectively.
Certain investments in debt securities are reported in the financial statements at an amount less than their historical cost. Total fair value of these investments at March 31, 2016 and December 31, 2015 were $18,573,000, and $30,677,000, respectively, which were approximately 23% and 35% of the Company’s available-for-sale investment portfolio.
Management believes the declines in fair value for these securities are temporary. Should the impairment of any of these securities become other than temporary, the cost basis of the investment will be reduced and the resulting loss recognized in net income in the period the other-than-temporary impairment is identified.
The following table shows the gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous loss position, at March 31, 2016 and December 31, 2015.
| 28 |
| Less Than Twelve Months | Twelve Months or More | Total | ||||||||||||||||||||||
| Gross | Gross | Gross | ||||||||||||||||||||||
| Unrealized | Fair | Unrealized | Fair | Unrealized | Fair | |||||||||||||||||||
| Losses | Value | Losses | Value | Losses | Value | |||||||||||||||||||
| March 31, 2016 | ||||||||||||||||||||||||
| U.S. government agencies | $ | (21,456 | ) | $ | 4,315,863 | $ | (7,399 | ) | $ | 391,880 | $ | (28,855 | ) | $ | 4,707,743 | |||||||||
| Mortgage-backed securities (government sponsored enterprises - residential) | (10,801 | ) | 2,898,027 | (15,928 | ) | 1,238,174 | (26,729 | ) | 4,136,201 | |||||||||||||||
| Municipal bonds | (60,764 | ) | 6,613,604 | (75,767 | ) | 3,115,831 | (136,531 | ) | 9,729,435 | |||||||||||||||
| Total | $ | (93,021 | ) | $ | 13,827,494 | $ | (99,094 | ) | $ | 4,745,885 | $ | (192,115 | ) | $ | 18,573,379 | |||||||||
| Less Than Twelve Months | Twelve Months or More | Total | ||||||||||||||||||||||
| Gross | Gross | Gross | ||||||||||||||||||||||
| Unrealized | Fair | Unrealized | Fair | Unrealized | Fair | |||||||||||||||||||
| Losses | Value | Losses | Value | Losses | Value | |||||||||||||||||||
| December 31, 2015 | ||||||||||||||||||||||||
| U.S. government agencies | $ | (49,205 | ) | $ | 8,591,014 | $ | (36,545 | ) | $ | 1,809,745 | $ | (85,750 | ) | $ | 10,400,759 | |||||||||
| Mortgage-backed securities (government sponsored enterprises - residential) | (45,886 | ) | 5,843,754 | (54,906 | ) | 2,257,674 | (100,792 | ) | 8,101,428 | |||||||||||||||
| Municipal bonds | (48,383 | ) | 5,440,291 | (130,876 | ) | 6,734,290 | (179,259 | ) | 12,174,581 | |||||||||||||||
| Total | $ | (143,474 | ) | $ | 19,875,059 | $ | (222,327 | ) | $ | 10,801,709 | $ | (365,801 | ) | $ | 30,676,768 | |||||||||
The unrealized losses on the Company’s investments in municipal bonds, U.S. government and agencies, and mortgage-backed securities were caused by interest rate increases. The contractual terms of these investments do not permit the issuer to settle the securities at a price less than the amortized cost bases of the investments. Because the Company does not intend to sell the investments and it is not more likely than not the Company will be required to sell the investments before recovery of their amortized cost bases, which may be maturity, the Company does not consider these investments to be other-than-temporarily impaired at March 31, 2016 and December 31, 2015.
| 7. | ACCUMULATED OTHER COMPREHENSIVE INCOME |
The components of accumulated other comprehensive income, included in stockholders’ equity, are as follows:
| March 31, 2016 | December 31, 2015 | |||||||
| Net unrealized gain on securities available-for-sale | $ | 1,560,526 | $ | 1,197,486 | ||||
| Tax effect | (530,579 | ) | (407,145 | ) | ||||
| Net-of-tax amount | $ | 1,029,947 | $ | 790,341 | ||||
| 29 |
| 8. | CHANGES IN ACCUMULATED OTHER COMPREHENSIVE INCOME (AOCI) BY COMPONENT |
Amounts reclassified from AOCI and the affected line items in the statements of income during the three months ended March 31, 2016 and 2015, were as follows:
| Amounts Reclassified | ||||||||||
| from AOCI | ||||||||||
| Affected Line Item in the | ||||||||||
| March 31, 2016 | March 31, 2015 | Statements of Income | ||||||||
| Unrealized gains on securities available-for-sale securities | $ | 101,561 | $ | 133,216 | Net realized gains on sales of available-for-sale securities | |||||
| 101,561 | 133,216 | |||||||||
| Tax effect | (34,531 | ) | (45,293 | ) | Income taxes | |||||
| Total reclassification out of AOCI | $ | 67,030 | $ | 87,923 | Net reclassified amount | |||||
| 9. | 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.
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Recurring Measurements
The following table presents the fair value measurements of assets recognized in the accompanying condensed consolidated balance sheets measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fall at March 31, 2016 and December 31, 2015:
| March 31, 2016 | ||||||||||||||||
| Fair Value Measurements Using | ||||||||||||||||
| Quoted Prices | ||||||||||||||||
| in Active | Significant | |||||||||||||||
| Markets for | Other | Significant | ||||||||||||||
| Identical | Observable | Unobservable | ||||||||||||||
| Assets | Inputs | Inputs | ||||||||||||||
| Fair Value | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
| U.S. Government and agencies | $ | 18,200,060 | $ | - | $ | 18,200,060 | $ | - | ||||||||
| Mortgage-backed securities (Government sponsored enterprises - residential) | 20,673,085 | - | 20,673,085 | - | ||||||||||||
| Municipal bonds | 43,524,642 | - | 43,524,642 | - | ||||||||||||
| December 31, 2015 | ||||||||||||||||
| Fair Value Measurements Using | ||||||||||||||||
| Quoted Prices | ||||||||||||||||
| in Active | Significant | |||||||||||||||
| Markets for | Other | Significant | ||||||||||||||
| Identical | Observable | Unobservable | ||||||||||||||
| Assets | Inputs | Inputs | ||||||||||||||
| Fair Value | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
| U.S. Government and agencies | $ | 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 | - | ||||||||||||
Following is a description of the valuation methodologies and inputs used for assets measured at fair value on a recurring basis and recognized in the accompanying condensed consolidated balance sheets, as well as the general classification of such assets pursuant to the valuation hierarchy. There have been no significant changes in the valuation techniques during the three months ended March 31, 2016.
Available-for-Sale Securities - Where quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. If quoted market prices are not available, then fair values are estimated by using quoted prices of securities with similar characteristics or independent asset pricing services and pricing models, the inputs of which are market-based on independently sourced market perspectives, including, but not limited to, yield curves, interest rates, volatilities, prepayments, defaults, cumulative loss projections and cash flows. Such securities are classified in Level 2 of the valuation hierarchy. In certain cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy.
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Nonrecurring Measurements
The following table presents the fair value measurement of assets measured at fair value on a nonrecurring basis and the level within the fair value hierarchy in which the fair value measurements fall at March 31, 2016 and December 31, 2015:
| March 31, 2016 | ||||||||||||||||
| Fair Value Measurements Using | ||||||||||||||||
| Quoted Prices | ||||||||||||||||
| in Active | Significant | |||||||||||||||
| Markets for | Other | Significant | ||||||||||||||
| Identical | Observable | Unobservable | ||||||||||||||
| Assets | Inputs | Inputs | ||||||||||||||
| Fair Value | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
| Impaired loans (collateral dependent) | $ | 680,572 | $ | - | $ | - | $ | 680,572 | ||||||||
| Real estate owned | 42,400 | - | - | 42,400 | ||||||||||||
| December 31, 2015 | ||||||||||||||||
| Fair Value Measurements Using | ||||||||||||||||
| Quoted Prices | ||||||||||||||||
| in Active | Significant | |||||||||||||||
| Markets for | Other | Significant | ||||||||||||||
| Identical | Observable | Unobservable | ||||||||||||||
| Assets | Inputs | Inputs | ||||||||||||||
| Fair Value | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
| Impaired loans (collateral dependent) | $ | 899,981 | $ | - | $ | - | $ | 899,981 | ||||||||
Following is a description of the valuation methodologies and inputs used for assets measured at fair value on a nonrecurring basis and recognized in the accompanying condensed consolidated balance sheets, as well as the general classification of such assets pursuant to the valuation hierarchy. For assets classified within Level 3 of the fair value hierarchy, the process used to develop the reported fair value is described below.
Impaired Loans (Collateral Dependent) - The estimated fair value of collateral-dependent impaired loans is based on the appraised fair value of the collateral, less estimated cost to sell. Collateral-dependent impaired loans are classified within Level 3 of the fair value hierarchy.
The Company considers the appraisal or evaluation as the starting point for determining fair value and then considers other factors and events in the environment that may affect the fair value. Appraisals of the collateral underlying collateral-dependent loans are obtained when the loan is determined to be collateral-dependent and subsequently as deemed necessary. Appraisals are reviewed for accuracy and consistency. Appraisers are selected from the list of approved appraisers maintained by management. The appraised values are reduced by discounts to consider lack of marketability and estimated cost to sell if repayment or satisfaction of the loan is dependent on the sale of the collateral.
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Real Estate Owned – Real estate owned is carried at the lower of fair value at acquisition date or current estimated fair value, less estimated cost to sell when the real estate is acquired. Estimated fair value of real estate owned is based on appraisals or evaluations. Real estate owned is classified within Level 3 of the fair value hierarchy.
Appraisals of real estate owned are obtained when the real estate is acquired and subsequently as deemed necessary. Appraisals are reviewed for accuracy and consistency. Appraisers are selected from the list of approved appraisers maintained by management.
Unobservable (Level 3) Inputs
The following table presents quantitative information about unobservable inputs used in recurring and nonrecurring Level 3 fair value measurements.
| Fair Value at 3/31/16 | Valuation Technique | Unobservable Inputs | Range (Weighted Average) | |||||||
| Collateral-dependent impaired loans | 680,572 | Market comparable properties | Marketability discount | 20% – 30% (25%) | ||||||
| Real estate owned | 42,400 | Market comparable Properties | Comparability Adjustment | (6%) | ||||||
| Fair Value at 12/31/15 | Valuation Technique | Unobservable Inputs | Range (Weighted Average) | |||||||
| Collateral-dependent impaired loans | 899,981 | Market comparable properties | Marketability discount | 20% – 30% (25%) | ||||||
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Fair Value of Financial Instruments
The following table presents estimated fair values of the Company’s other financial instruments and the level within the fair value hierarchy in which the fair value measurements fall at March 31, 2016 and December 31, 2015:
| March 31, 2016 | ||||||||||||||||
| Fair Value Measurements Using | ||||||||||||||||
| Quoted Prices | Significant | |||||||||||||||
| in Active | Other | Significant | ||||||||||||||
| Markets for | Observable | Unobservable | ||||||||||||||
| Carrying | Identical Assets | Inputs | Inputs | |||||||||||||
| Amount | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
| Financial Assets | ||||||||||||||||
| Cash and cash equivalents | $ | 7,442,323 | $ | 7,442,323 | $ | - | $ | - | ||||||||
| Interest-earning time deposits in banks | 2,724,000 | 2,724,000 | - | - | ||||||||||||
| Other investments | 60,007 | - | 60,007 | - | ||||||||||||
| Loans held for sale | 112,449 | - | 112,449 | - | ||||||||||||
| Loans, net of allowance for loan losses | 188,691,035 | - | - | 188,555,889 | ||||||||||||
| Federal Home Loan Bank stock | 1,113,800 | - | 1,113,800 | - | ||||||||||||
| Interest receivable | 1,851,308 | - | 1,851,308 | - | ||||||||||||
| Financial Liabilities | ||||||||||||||||
| Deposits | 243,908,970 | - | 166,734,358 | 78,229,853 | ||||||||||||
| Other borrowings | 3,946,947 | - | 3,946,947 | - | ||||||||||||
| Advances from borrowers for taxes and insurance | 1,511,505 | - | 1,511,505 | - | ||||||||||||
| Interest payable | 106,747 | - | 106,747 | - | ||||||||||||
| Unrecognized financial instruments (net of contract amount) | ||||||||||||||||
| Commitments to originate loans | - | - | - | - | ||||||||||||
| Letters of credit | - | - | - | - | ||||||||||||
| Lines of credit | - | - | - | - | ||||||||||||
| 34 |
| December 31, 2015 | ||||||||||||||||
| Fair Value Measurements Using | ||||||||||||||||
| Quoted Prices | Significant | |||||||||||||||
| in Active | Other | Significant | ||||||||||||||
| Markets for | Observable | Unobservable | ||||||||||||||
| Carrying | Identical Assets | Inputs | Inputs | |||||||||||||
| Amount | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
| Financial Assets | ||||||||||||||||
| Cash and cash equivalents | $ | 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 | - | - | - | - | ||||||||||||
The following methods were used to estimate the fair value of all other financial instruments recognized in the accompanying condensed consolidated balance sheets at amounts other than fair value.
Cash and Cash Equivalents, Interest-Earning Time Deposits in Banks, Interest Receivable, Federal Home Loan Bank Stock, and Other Investments - The carrying amount approximates fair value.
Loans Held for Sale - For homogeneous categories of loans, such as mortgage loans held for sale, fair value is estimated using the quoted market prices for securities backed by similar loans, adjusted for differences in loan characteristics.
Loans - The fair value of loans is estimated by discounting the future cash flows using the market rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. Loans with similar characteristics were aggregated for purposes of the calculations.
Deposits - Deposits include demand deposits, savings accounts, NOW accounts and certain money market deposits. The carrying amount approximates fair value. The fair value of fixed-maturity time deposits is estimated using a discounted cash flow calculation that applies the rates currently offered for deposits of similar remaining maturities.
Short-term Borrowings, Interest Payable, and Advances from Borrowers for Taxes and Insurance - The carrying amount approximates fair value.
Commitments to Originate Loans, Letters of Credit, and Lines of Credit - The fair value of commitments to originate loans is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair values of letters of credit and lines of credit are based on fees currently charged for similar agreements or on the estimated cost to terminate or otherwise settle the obligations with the counterparties at the reporting date.
| 35 |
| 10. | MORTGAGE SERVICING RIGHTS |
Activity in the balance of mortgage servicing rights, measured using the amortization method, for the three month period ended March 31, 2016 and the year ended December 31, 2015 was as follows:
| March 31, 2016 | December 31, 2015 | |||||||
| Balance, beginning of period | $ | 597,713 | $ | 632,634 | ||||
| Servicing rights capitalized | 9,671 | 73,650 | ||||||
| Amortization of servicing rights | (19,120 | ) | (118,186 | ) | ||||
| Change in valuation allowance | 3,326 | 9,615 | ||||||
| Balance, end of period | $ | 591,590 | $ | 597,713 | ||||
Activity in the valuation allowance for mortgage servicing rights for the three month period ended March 31, 2016 and the year ended December 31, 2015 was as follows:
| March 31, 2016 | December 31, 2015 | |||||||
| Balance, beginning of period | $ | 47,354 | $ | 56,969 | ||||
| Additions | - | - | ||||||
| Reductions | (3,326 | ) | (9,615 | ) | ||||
| Balance, end of period | $ | 44,028 | $ | 47,354 | ||||
| 11. | INCOME TAXES |
A reconciliation of income tax expense at the statutory rate to the Company’s actual income tax expense for the three months ended March 31, 2016 and 2015 is shown below.
| March 31, 2016 | March 31, 2015 | |||||||
| Computed at the statutory rate (34%) | $ | 386,491 | $ | 366,218 | ||||
| Increase (decrease) resulting from | ||||||||
| Tax exempt interest | (113,550 | ) | (107,610 | ) | ||||
| State income taxes, net | 51,698 | 48,124 | ||||||
| Increase in cash surrender value | (14,817 | ) | (14,937 | ) | ||||
| Other, net | (461 | ) | (941 | ) | ||||
| Actual tax expense | $ | 309,361 | $ | 290,854 | ||||
| 36 |
| 12. | COMMITMENTS AND CONTINGENCIES |
Occasionally, the Company is a defendant in legal actions arising from normal business activities. Management, after consultation with legal counsel, believes that the resolution of these actions will not have any material adverse effect on the Company's consolidated financial statements.
The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers in the way of commitments to extend credit. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer's creditworthiness on a case-by-case basis. Substantially all of the Company's loans are to borrowers located in Cass, Morgan, Macoupin, Montgomery, and surrounding counties in Illinois.
| 37 |
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management’s discussion and analysis of financial condition and results of operations is intended to assist in understanding the financial condition and results of the Company. The information contained in this section should be read in conjunction with the unaudited condensed consolidated financial statements and accompanying notes thereto.
Forward Looking Statements
This Form 10-Q contains certain “forward-looking statements” which may be identified by the use of words such as “believe,” “expect,” “anticipate,” “should,” “planned,” “estimated,” and “potential.” Examples of forward-looking statements include, but are not limited to, estimates with respect to our financial condition, results of operations and business that are subject to various factors that could cause actual results to differ materially from these estimates and most other statements that are not historical in nature. These factors include, but are not limited to, the effect of the current state of the financial markets and the United States government programs introduced to restore stability and liquidity of the financial markets, changes in interest rates, general economic conditions and the weak state of the United States economy, deposit flows, demand for mortgage and other loans, real estate values, and competition; changes in accounting principles, policies, or guidelines; changes in legislation or regulation; and other economic, competitive, governmental, regulatory, and technological factors affecting our operations, pricing of products and services.
Critical Accounting Policies and Use of Significant Estimates
In the ordinary course of business, we have made a number of estimates and assumptions relating to the reporting of results of operations and financial condition in preparing our financial statements in conformity with accounting principles generally accepted in the United States of America. Actual results could differ significantly from those estimates under different assumptions and conditions. Management believes the following discussion addresses our most critical accounting policies and significant estimates, which are those that are most important to the portrayal of our financial condition and results and require management’s most difficult, subjective and complex judgements, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.
Allowance for Loan Losses - The Company believes the allowance for loan losses is the critical accounting policy that requires the most significant judgments and assumptions used in the preparation of the consolidated financial statements. The allowance for loan losses is a material estimate that is particularly susceptible to significant changes in the near term and is established through a provision for loan losses. The allowance is based upon past loan experience and other factors which, in management’s judgement, deserve current recognition in estimating loan losses. The evaluation includes a review of all loans on which full collectibility may not be reasonably assured. Other factors considered by management include the size and 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 obtains independent appraisals for significant properties, which collateralize loans. Management uses the available information to make such determinations. If circumstances differ substantially from the assumptions used in making determinations, future adjustments to the allowance for loan losses may be necessary and results of operations could be affected. While we believe we have established our existing allowance for loan losses in conformity with accounting principles generally accepted in the United States of America, there can be no assurance that regulators, in reviewing the Company’s loan portfolio, will not request an increase in the allowance for loan losses. Because future events affecting borrowers and collateral cannot be predicted with certainty, there can be no assurance that increases to the allowance will not be necessary if loan quality deteriorates.
| 38 |
Other Real Estate Owned - Other real estate owned acquired through loan foreclosures are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. The adjustment at the time of foreclosure is recorded through the allowance for loan losses. Due to the subjective nature of establishing fair value when the asset is acquired, the actual fair value of the other real estate owned could differ from the original estimate. If it is determined that fair value declines subsequent to foreclosure, the asset is written down through a charge to non-interest expense. Operating costs associated with the assets after acquisition are also recorded as non-interest expense. Gains and losses on the disposition of other real estate owned are netted and posted to non-interest expense.
Deferred Income Tax Assets/Liabilities – Our net deferred income tax asset arises from differences in the dates that items of income and expense enter into our reported income and taxable income. Deferred tax assets and liabilities are established for these items as they arise. From an accounting standpoint, deferred tax assets are reviewed to determine that they are realizable based upon the historical level of our taxable income, estimates of our future taxable income and the reversals of deferred tax liabilities. In most cases, the realization of the deferred tax asset is based on our future profitability. If we were to experience net operating losses for tax purposes in a future period, the realization of our deferred tax assets would be evaluated for a potential valuation reserve.
Impairment of Goodwill - Goodwill, an intangible asset with an indefinite life, was recorded on our balance sheet in prior periods as a result of acquisition activity. Goodwill is evaluated for impairment annually, unless there are factors present that indicate a potential impairment, in which case, the goodwill impairment test is performed more frequently.
Mortgage Servicing Rights - Mortgage servicing rights are very sensitive to movements in interest rates as expected future net servicing income depends on the projected outstanding principal balances of the underlying loans, which can be greatly reduced by prepayments. Prepayments usually increase when mortgage interest rates decline and decrease when mortgage interest rates rise.
Fair Value Measurements – The fair value of a financial instrument is defined as the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. The Company estimates the fair value of financial instruments using a variety of valuation methods. Where financial instruments are actively traded and have quoted market prices, quoted market prices are used for fair value. When the financial instruments are not actively traded, other observable market inputs, such as quoted prices of securities with similar characteristics, may be used, if available, to determine fair value. When observable market prices do not exist, the Company estimates fair value. Other factors such as model assumptions and market dislocations can affect estimates of fair value.
The above listing is not intended to be a comprehensive list of all our accounting policies. In many cases, the accounting treatment of a particular transaction is specifically dictated by accounting principles generally accepted in the United States of America, with no need for management’s judgement in their application. There are also areas in which management’s judgement in selecting any available alternative would not produce a materially different result.
Basel III
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 increasing by 0.625% each year until it is fully phased in beginning in the first quarter of 2019.
| 39 |
Financial Condition
March 31, 2016 Compared to December 31, 2015
Total assets at March 31, 2016 were $302.1 million, a decrease of $6.5 million, or 2.1%, from $308.6 million at December 31, 2015. The decrease in total assets was primarily due to a $4.3 million decrease in loans receivable and a $5.1 million decrease in investment and mortgage-backed securities. The decrease was partially offset by an increase of $3.3 million in cash and cash equivalents.
Cash and cash equivalents increased $3.3 million, or 81.4%, to $7.4 million at March 31, 2016, from $4.1 million at December 31, 2015. Investment and mortgage-backed securities were $82.4 million at March 31, 2016, a decrease of $5.1 million, or 5.8%, from $87.5 million at December 31, 2015. The decrease was due to decreases of $2.6 million in investment securities and $2.5 million in mortgage-backed securities. As cash was received from sales and paydowns on investment and mortgage-backed securities, a portion of the funds were used to reduce borrowings.
Net loans receivable (excluding loans held for sale) decreased $4.3 million, or 2.3%, to $188.7 million at March 31, 2016 from $193.0 million at December 31, 2015. The decrease in loans was primarily due to decreases of $3.4 million in commercial business loans and $1.5 million in agricultural business loans, reflecting paydowns on lines of credit.
At March 31, 2016 and December 31, 2015, goodwill totaled $2.7 million. At these dates, our goodwill was not impaired.
Total deposits increased $4.6 million, or 1.9%, to $243.9 million at March 31, 2016 from $239.3 million at December 31, 2015. The increase was primarily due to a $6.4 million increase in transaction accounts, reflecting an increase of $3.5 million in public funds. The increase was partially offset by a $1.8 million decrease in time deposits. Other borrowings, which consisted of $3.9 million in overnight repurchase agreements at March 31, 2016, decreased a total of $11.2 million, or 73.9%, from December 31, 2015. The repurchase agreeements are a cash management service provided to our commercial deposit customers. FHLB advances totaling $8.5 million were paid off during the first quarter of 2016, such that none remained outstanding at March 31, 2016.
Total stockholders’ equity increased $960,000, or 2.1%, to $46.5 million at March 31, 2016, compared to $45.6 million at December 31, 2015. The increase in stockholders’ equity was the result of $827,000 in net income and a $240,000 increase in accumulated other comprehensive income, partially offset by the payment of $152,000 in cash dividends. Accumulated other comprehensive income increased primarily due to an increase in unrealized gains, net of tax, on available-for-sale securities reflecting changes in market prices for securities in our portfolio due to a decrease in market interest rates. Accumulated other comprehensive income does not include changes in the fair value of other financial instruments included in the condensed consolidated balance sheet.
Results of Operations
Comparison of Operating Results for the Three Months Ended March 31, 2016 and 2015
General: Net income for the three months ended March 31, 2016 was $827,000, or $0.47 per common share, basic, and $0.46 per common share, diluted, compared to net income of $786,000, or $0.44 per common share, basic and diluted, for the three months ended March 31, 2015. Net income increased $41,000 during the first quarter of 2016, as compared to the prior year quarter, due to an increase of $73,000 in net interest income and a decrease of $12,000 in noninterest expense, partially offset by a decrease of $25,000 in noninterest income and an increase of $19,000 in income taxes.
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Interest Income: Total interest income for the three months ended March 31, 2016 increased $8,000, or 0.3%, to $2.9 million during the first quarter of 2016, compared to the same period of 2015. The increase in interest income reflected increases of $55,000 in interest income on investment securities and $9,000 in interest income on other interest-earning assets, partially offset by decreases of $42,000 in interest income on mortgage-backed securities and $14,000 in interest income on loans.
Interest income on loans decreased $14,000 to $2.3 million during the first quarter of 2016. The decrease in interest income on loans was primarily due to a decrease in the average yield on loans, partially offset by an increase in the average balance of loans. The average yield of the loan portfolio decreased 20 basis points to 4.85% during the first quarter of 2016, compared to 5.05% during the first quarter of 2015. The decrease in the average yield reflected lower market rates of interest and the competitive lending environment. The average balance of loans increased $6.6 million to $192.1 million during the first quarter of 2016, from $185.5 million during the first quarter of 2015. The increase in the average balance of the loan portfolio reflected increases in the average balance of agricultural business loans and residential real estate loans.
Interest income on investment securities increased $55,000 to $436,000 during the first quarter of 2016 compared to $381,000 during the first quarter of 2015. The increase resulted primarily from an increase in the average balance of investment securities of $9.0 million to $60.8 million during the first quarter of 2016, compared to $51.8 million during the first quarter of 2015. The increase in the average balance reflected an increase in U.S. agency bonds. The average yield of investment securities decreased to 2.86% during the first quarter of 2016 from 2.94% during the first quarter of 2015. The majority of our investment portfolio consists of municipal bonds which are exempt from federal taxation, resulting in a higher tax-equivalent yield.
Interest income on mortgage-backed securities decreased $42,000 to $130,000 during the first quarter of 2016, compared to $172,000 during the first quarter of 2015. The decrease primarily reflected a $16.1 million decrease in the average balance of mortgage-backed securities to $21.2 million during the first quarter of 2016, compared to $37.3 million during the first quarter of 2015. The decrease in the average balance of mortgage-backed securities reflected the use of sales and payment proceeds to fund loan growth and the decrease in deposits during this same time period. The decrease in the average balance of mortgage-backed securities was partially offset by a 61 basis points increase in the average yield of mortgage-backed securities to 2.46% during the first quarter of 2016 from 1.85% during the first quarter of 2015. The average yield benefitted from lower premium amortization resulting from slower national prepayment speeds on mortgage-backed securities. The amortization of premiums on mortgage-backed securities, which reduces the average yield, decreased $83,000 to $44,000 during the first quarter of 2016, compared to $127,000 during the first quarter of 2015.
Interest income on other interest-earning assets, consisting of interest-earning demand and time deposit accounts and federal funds sold, increased $9,000 to $14,000 during the first quarter of 2016, compared to the first quarter of 2015. The average yield on other interest-earning assets increased 87 basis points to 1.06% during the first quarter of 2016 from 0.19% during the first quarter of 2015. The increase in the average yield reflected an increase in the average balance of higher-yielding time deposit accounts. The increase in the average yield was partially offset by a $4.8 million decrease in the average balance of other interest-earning assets to $5.4 million during the three months ended March 31, 2016 compared to $10.2 million for the three months ended March 31, 2015.
Interest Expense: Total interest expense decreased $65,000, or 20.7%, to $249,000 for the three months ended March 31, 2016 compared to $314,000 for the three months ended March 31, 2015. The lower interest expense reflected a $67,000 decrease in interest expense on deposits.
Interest expense on deposits decreased $67,000 to $242,000 during the first quarter of 2016 compared to $309,000 during the first quarter of 2015. The decrease in interest expense on deposits was primarily due to a 12 basis points decrease in the average rate paid on deposits to 0.46% during the first quarter of 2016 from 0.58% during the first quarter of 2015, as a result of the low interest rate environment. The decrease also reflected lower average deposit balances in the first quarter of 2016 as compared to the first quarter of 2015, as well as a change in the composition of our deposits to lower cost deposits. The average balance of deposits decreased $4.9 million to $208.7 million during the first quarter of 2016. The decrease reflected a $14.2 million decrease in the average balance of time deposit accounts, partially offset by a $9.3 million increase in the average balance of lower cost transaction accounts.
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Interest paid on borrowed funds, which consisted of overnight repurchase agreements and FHLB advances, increased $2,000 to $7,000 during the first quarter of 2016. The average rate paid on borrowed funds increased to 0.31% during the first quarter of 2016, compared to 0.23% during the first quarter of 2015. The average balance of borrowed funds equalled $9.0 million and $8.9 million for the first quarters of 2016 and 2015, respectively.
Net Interest Income: As a result of the changes in interest income and interest expense noted above, net interest income increased by $73,000, or 2.8%, to $2.7 million for the three months ended March 31, 2016 compared to the same time period in 2015. Our net interest margin increased 18 basis points to 3.81% during the first quarter of 2016, compared to 3.63% during the first quarter of 2015. Our interest rate spread increased 20 basis points to 3.71% during the first quarter of 2016 from 3.51% during the first quarter of 2015. Our ratio of interest earning assets to interest bearing liabilities remained stable at 1.28x for the three months ended March 31, 2016 and 2015, respectively.
Provision for Loan Losses: The provision for loan losses is determined by management as the amount needed to replenish the allowance for loan losses, after net charge-offs have been deducted, to a level considered adequate to absorb inherent losses in the loan portfolio, in accordance with accounting principles generally accepted in the United States of America. The following table shows the activity in the allowance for loan losses for the three months ended March 31, 2016 and 2015.
| Three Months Ended | ||||||||
| March 31, 2016 | March 31, 2015 | |||||||
| Balance at beginning of period | $ | 2,919,594 | $ | 2,956,264 | ||||
| Charge-offs: | ||||||||
| One-to-four family residential | 20,465 | - | ||||||
| Commercial real estate | - | 27,464 | ||||||
| Consumer | - | 6,430 | ||||||
| Total | 20,465 | 33,894 | ||||||
| Recoveries: | ||||||||
| One-to-four family residential | 4,081 | 300 | ||||||
| Commercial real estate | 29 | 8,745 | ||||||
| Home equity | 525 | 9,013 | ||||||
| Commercial | - | 85 | ||||||
| Consumer | 927 | 483 | ||||||
| Total | 5,562 | 18,626 | ||||||
| Net loan charge-offs | 14,903 | 15,268 | ||||||
| Provisions charged to expense | 30,000 | 30,000 | ||||||
| Balance at end of period | $ | 2,934,691 | $ | 2,970,996 | ||||
The provision for loan losses totaled $30,000 during the first quarters of 2016 and 2015. The allowance for loan losses increased $15,000 to $2.9 million at March 31, 2016 from December 31, 2015. Net charge-offs remained stable at $15,000 during the first quarters of 2016 and 2015, respectively. Loans delinquent 30 days or more decreased $389,000 to $1.8 million, or 0.93% of total loans, as of March 31, 2016, from $2.2 million, or 1.11% of total loans, as of December 31, 2015. Loans delinquent 30 days or more totaled $2.3 million, or 1.25% of total loans at March 31, 2015.
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Provisions for loan losses have been made to bring the allowance for loan losses to a level deemed adequate following management’s evaluation of the repayment capacity and collateral protection afforded by each problem credit. This review also considered the local economy and the level of bankruptcies and foreclosures in our market area. The following table sets forth information regarding nonperforming assets at the dates indicated.
| March 31, 2016 | December 31, 2015 | |||||||
| Nonaccrual loans: | ||||||||
| One-to-four family residential | $ | 719,195 | $ | 911,283 | ||||
| Commercial real estate | 816,432 | 840,449 | ||||||
| Home equity | 103,513 | 118,503 | ||||||
| Commercial business | 5,788 | 9,314 | ||||||
| Consumer | 157,090 | 141,604 | ||||||
| Total | $ | 1,802,018 | $ | 2,021,153 | ||||
| Accruing loans delinquent more than 90 days: | ||||||||
| Total | $ | - | $ | - | ||||
| Foreclosed assets: | ||||||||
| One-to-four family residential | 190,400 | 217,101 | ||||||
| Commercial real estate | 113,880 | 113,880 | ||||||
| Total | $ | 304,280 | $ | 330,981 | ||||
| Total nonperforming assets | $ | 2,106,298 | $ | 2,352,134 | ||||
| Total nonperforming loans as a percentage of total loans | 0.94 | % | 1.03 | % | ||||
| Total nonperforming assets as a percentage of total assets | 0.70 | % | 0.76 | % | ||||
Nonperforming assets decreased $246,000 to $2.1 million, or 0.70% of total assets, as of March 31, 2016, compared to $2.4 million, or 0.76% of total assets, as of December 31, 2015. The decrease in nonperforming assets was due to decreases of $219,000 in nonperforming loans and $27,000 in foreclosed assets. The decrease in nonperforming loans primarily reflected a decrease of $192,000 in nonaccrual loans secured by residential real estate.
The following table shows the aggregate principal amount of potential problem credits on the Company’s watch list at March 31, 2016 and December 31, 2015. All nonaccrual loans are automatically placed on the watch list. The $407,000 increase in special mention credits reflected the addition of a residential real estate borrower.
| March 31, 2016 | December 31, 2015 | |||||||
| Special Mention credits | $ | 4,188,379 | $ | 3,781,152 | ||||
| Substandard credits | 5,015,478 | 5,020,297 | ||||||
| Total watch list credits | $ | 9,203,857 | $ | 8,801,449 | ||||
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Non-Interest Income: Non-interest income decreased $25,000, or 2.3%, to $1.0 million during the first quarter of 2016. The decrease in non-interest income was primarily due to decreases of $32,000 in gains on the sale of available-for-sale securities and $18,000 from net income on mortgage banking operations, partially offset by an increase of $40,000 in commission income. The decrease in gains on the sale of securities reflected a lower volume of securities sales totaling $13.9 million during the first quarter of 2016 compared to $14.5 million during the same period of 2015. Securities sales during 2016 were primarily made to improve yields and reduce the volatility to interest rate changes. Net income on mortgage banking operations decreased due to a lower volume of loan sales during the first quarter of 2016, as we sold $2.7 million of loans to the secondary market during the first quarter of 2016, compared to $3.7 million during the same period of 2015. The lower volume of sales reflected a decreased volume of mortgage originations, which are affected by changes in market interest rates. The increase in commission income reflected changing market conditions and account growth during the first quarter of 2016.
Non-Interest Expense: Total non-interest expense decreased $12,000, or 0.5%, to $2.5 million for the first quarter of 2016 compared to the same period of 2015. The decrease in non-interest expense consisted primarily of decreases of $60,000 in real estate owned expense and $11,000 in data processing and telecommunications expense, partially offset by an increase of $64,000 in compensation and benefits expense. The decrease in real estate owned expense was due to $48,000 of gains on the sale of properties during the first quarter of 2016, compared to $16,000 of losses on the sale of real estate properties during the first quarter of 2015. The decrease in data processing and telecommunications expense was due to nonrecurring costs during the first quarter of 2015 related to the redesign of our company website. The increase in compensation and benefits expense resulted from normal salary and benefit cost increases.
Income Taxes: The provision for income taxes increased $19,000 to $309,000 during the first quarter of 2016 compared to the same period of 2015. The increase in the income tax provision reflected an increase in taxable income during the first quarter of 2016 as compared to the same period of 2015. The effective tax rate was 27.2% and 27.0% during the three months ended March 31, 2016 and 2015, respectively.
Liquidity and Capital Resources
The Company’s most liquid assets are cash and cash equivalents. The levels of these assets are dependent on the Company’s operating, financing, and investing activities. Cash and cash equivalents totaled $7.4 million and $4.1 million at March 31, 2016 and December 31, 2015, respectively. The Company’s primary sources of funds include principal and interest repayments on loans (both scheduled payments and prepayments), maturities of investment securities and principal repayments from mortgage-backed securities (both scheduled payments and prepayments). During the three months ended March 31, 2016, the most significant sources of funds have been deposit growth, sales of investment securities and principal repayments on loans and mortgage-backed securities. These funds have been used primarily for purchases of investment and mortgage-backed securities and the reduction of other borrowings.
While scheduled loan repayments and proceeds from maturing investment securities and principal repayments on mortgage-backed securities are relatively predictable, deposit flows and prepayments are more influenced by interest rates, general economic conditions, and competition. The Company attempts to price its deposits to meet asset-liability objectives and stay competitive with local market conditions.
Liquidity management is both a short- and long-term responsibility of management. The Company adjusts its investments in liquid assets based upon management’s assessment of (i) expected loan demand, (ii) projected purchases of investment and mortgage-backed securities, (iii) expected deposit flows, (iv) yields available on interest-earning deposits, and (v) liquidity of its asset/liability management program. Excess liquidity is generally invested in interest-earning overnight deposits and other short-term U.S. agency obligations. If the Company requires funds beyond its ability to generate them internally, it has the ability to borrow funds from the FHLB. The Company may borrow from the FHLB under a blanket agreement which assigns all investments in FHLB stock as well as qualifying first mortgage loans equal to 150% of the outstanding balance as collateral to secure the amounts borrowed. This borrowing arrangement is limited to a maximum of 30% of the Company’s total assets or twenty times the balance of FHLB stock held by the Company. At March 31, 2016, the Company had no outstanding FHLB advances and approximately $90.5 million available to be accessed under the above-mentioned borrowing arrangement.
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The Company maintains minimum levels of liquid assets as established by the Board of Directors. The Company’s liquidity ratios at March 31, 2016 and December 31, 2015 were 31.2% and 32.0%, respectively. This ratio represents the volume of short-term liquid assets as a percentage of net deposits and borrowings due within one year.
The Company must also maintain adequate levels of liquidity to ensure the availability of funds to satisfy loan commitments. The Company anticipates that it will have sufficient funds available to meet its current commitments principally through the use of current liquid assets and through its borrowing capacity discussed above. The following table summarizes these commitments at March 31, 2016 and December 31, 2015.
| March 31, 2016 | December 31, 2015 | |||||||
| Commitments to fund loans | $ | 44,622,974 | $ | 36,996,683 | ||||
| Standby letters of credit | 110,000 | 110,000 | ||||||
Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the table below) of total, Tier 1 and common equity Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined) and Tier 1 capital (as defined) to average assets (as defined). In addition, the Bank is subject to the new capital conservation buffer which will be phased in beginning in the first quarter of 2016 at 0.625% of risk-weighted assets. The capital conservation buffer will continue to increase 0.625% each year until fully phased in at 2.50% of risk-weighted assets beginning in the first quarter of 2019. Management believes that at March 31, 2016, the Bank met all its capital adequacy requirements.
Under Illinois law, Illinois-chartered savings banks are required to maintain a minimum core capital to total assets ratio of 3%. The Illinois Commissioner of Savings and Residential Finance (the “Commissioner”) is authorized to require a savings bank to maintain a higher minimum capital level if the Commissioner determines that the savings bank’s financial condition or history, management or earnings prospects are not adequate. If a savings bank’s core capital ratio falls below the required level, the Commissioner may direct the savings bank to adhere to a specific written plan established by the Commissioner to correct the savings bank’s capital deficiency, as well as a number of other restrictions on the savings bank’s operations, including a prohibition on the declaration of dividends by the savings bank’s board of directors. At March 31, 2016, the Bank’s core capital ratio was 13.41% of total average assets, which substantially exceeded the required amount.
The Bank is also required to maintain regulatory capital requirements imposed by the Federal Deposit Insurance Corporation. At March 31, 2016, minimum requirements and the Bank's actual ratios are as follows:
| March 31, 2016 | Minimum | Minimum Required | ||||||||||
| Actual | Required | With Capital Buffer | ||||||||||
| Tier 1 Capital to Average Assets | 13.41 | % | 4.00 | % | 4.000 | % | ||||||
| Common Equity Tier 1 | 18.58 | % | 4.50 | % | 5.125 | % | ||||||
| Tier 1 Capital to Risk-Weighted Assets | 18.58 | % | 6.00 | % | 6.625 | % | ||||||
| Total Capital to Risk-Weighted Assets | 19.84 | % | 8.00 | % | 8.625 | % | ||||||
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Effect of Inflation and Changing Prices
The condensed consolidated financial statements and related financial data presented herein have been prepared in accordance with GAAP which require the measurement of financial position and operating results in terms of historical dollars, without considering the change in the relative purchasing power of money over time due to inflation. The impact of inflation is reflected in the increased cost of the Company’s operations. Unlike most industrial companies, virtually all the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates generally have a more significant impact on a financial institution’s performance than do general levels of inflation. Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services.
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The following table sets forth the average balances and interest rates (costs) on the Company’s assets and liabilities during the periods presented.
| Consolidated Average Balance Sheet and Interest Rates | ||||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||
| Three Months Ended March 31, | ||||||||||||||||||||||||
| 2016 | 2015 | |||||||||||||||||||||||
| Average | Average | |||||||||||||||||||||||
| Balance | Interest | Yield/Cost | Balance | Interest | Yield/Cost | |||||||||||||||||||
| Interest-earnings assets: | ||||||||||||||||||||||||
| Loans | $ | 192,072 | $ | 2,329 | 4.85 | % | $ | 185,482 | $ | 2,343 | 5.05 | % | ||||||||||||
| Investment securities | 60,853 | 436 | 2.86 | % | 51,806 | 381 | 2.94 | % | ||||||||||||||||
| Mortgage-backed securities | 21,194 | 130 | 2.46 | % | 37,277 | 172 | 1.85 | % | ||||||||||||||||
| Other | 5,372 | 14 | 1.06 | % | 10,202 | 5 | 0.19 | % | ||||||||||||||||
| Total interest-earning assets | 279,491 | 2,909 | 4.16 | % | 284,767 | 2,901 | 4.08 | % | ||||||||||||||||
| Non-interest earnings assets | 20,435 | 20,131 | ||||||||||||||||||||||
| Total assets | $ | 299,926 | $ | 304,898 | ||||||||||||||||||||
| Interest-bearing liabilities: | ||||||||||||||||||||||||
| Interest-bearing checking | $ | 45,697 | $ | 27 | 0.24 | % | $ | 39,077 | $ | 13 | 0.13 | % | ||||||||||||
| Savings accounts | 42,147 | 21 | 0.20 | % | 38,944 | 20 | 0.21 | % | ||||||||||||||||
| Certificates of deposit | 78,353 | 166 | 0.85 | % | 92,550 | 248 | 1.07 | % | ||||||||||||||||
| Money market savings | 35,184 | 25 | 0.29 | % | 35,333 | 25 | 0.28 | % | ||||||||||||||||
| Money market deposits | 7,272 | 3 | 0.15 | % | 7,639 | 3 | 0.14 | % | ||||||||||||||||
| Total interest-bearing deposits | 208,653 | 242 | 0.46 | % | 213,543 | 309 | 0.58 | % | ||||||||||||||||
| Federal Home Loan Bank advances | 4,943 | 4 | 0.29 | % | 5,000 | 4 | 0.33 | % | ||||||||||||||||
| Short-term borrowings | 4,051 | 3 | 0.34 | % | 3,909 | 1 | 0.10 | % | ||||||||||||||||
| Total borrowings | 8,994 | 7 | 0.31 | % | 8,909 | 5 | 0.23 | % | ||||||||||||||||
| Total interest-bearing liabilities | 217,647 | 249 | 0.46 | % | 222,452 | 314 | 0.56 | % | ||||||||||||||||
| Non-interest bearing liabilities | 36,092 | 36,890 | ||||||||||||||||||||||
| Stockholders' equity | 46,187 | 45,556 | ||||||||||||||||||||||
| Total liabilities/stockholders' equity | $ | 299,926 | $ | 304,898 | ||||||||||||||||||||
| Net interest income | $ | 2,660 | $ | 2,587 | ||||||||||||||||||||
| Interest rate spread (average yield earned minus average rate paid) | 3.71 | % | 3.51 | % | ||||||||||||||||||||
| Net interest margin (net interest income divided by average interest-earning assets) | 3.81 | % | 3.63 | % | ||||||||||||||||||||
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The following table sets forth the changes in rate and changes in volume of the Company’s interest earning assets and liabilities.
| Analysis of Volume and Rate Changes | ||||||||||||
| (In thousands) | ||||||||||||
| Three Months Ended March 31, | ||||||||||||
| 2016 Compared to 2015 | ||||||||||||
| Increase(Decrease) Due to | ||||||||||||
| Rate | Volume | Net | ||||||||||
| Interest-earnings assets: | ||||||||||||
| Loans | $ | (96 | ) | $ | 81 | $ | (15 | ) | ||||
| Investment securities | (10 | ) | 65 | 55 | ||||||||
| Mortgage-backed securities | 46 | (88 | ) | (42 | ) | |||||||
| Other | 13 | (3 | ) | 10 | ||||||||
| Total net change in income on interest-earning assets | (47 | ) | 55 | 8 | ||||||||
| Interest-bearing liabilities: | ||||||||||||
| Interest-bearing checking | 12 | 2 | 14 | |||||||||
| Savings accounts | (1 | ) | 2 | 1 | ||||||||
| Certificates of deposit | (47 | ) | (35 | ) | (82 | ) | ||||||
| Money market savings | - | - | - | |||||||||
| Money market deposits | - | - | - | |||||||||
| Total interest-bearing deposits | (36 | ) | (31 | ) | (67 | ) | ||||||
| Federal Home Loan Bank advances | - | - | - | |||||||||
| Short-term borrowings | 2 | - | 2 | |||||||||
| Total borrowings | 2 | - | 2 | |||||||||
| Total net change in expense on interest-bearing liabilities | (34 | ) | (31 | ) | (65 | ) | ||||||
| Net change in net interest income | $ | (13 | ) | $ | 86 | $ | 73 | |||||
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Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company’s policy in recent years has been to reduce its interest rate risk by better matching the maturities of its interest rate sensitive assets and liabilities, selling its long-term fixed-rate residential mortgage loans with terms of 15 years or more to the secondary market, originating adjustable rate loans and balloon loans with terms ranging from three to five years and originating consumer and commercial business loans, which typically are for a shorter duration and at higher rates of interest than one-to-four family residential loans. Our portfolio of mortgage-backed securities also provides monthly cash flow. The remaining investment portfolio has been structured to better match the maturities and rates of its interest-bearing liabilities. With respect to liabilities, the Company has attempted to increase its savings and transaction deposit accounts, which management believes are more resistant to changes in interest rates than time deposits. The Board of Directors appoints the Asset-Liability Management Committee (ALCO), which is responsible for reviewing the Company’s asset and liability policies. The ALCO meets quarterly to review interest rate risk and trends, as well as liquidity and capital ratio requirements.
The Company uses a comprehensive asset/liability software package provided by a third-party vendor to perform interest rate sensitivity analysis for all product categories. The primary focus of the Company’s analysis is on the effect of interest rate increases and decreases on net interest income. Management believes that this analysis reflects the potential effects on current earnings of interest rate changes. Call criteria and prepayment assumptions are taken into consideration for investment securities and loans. All of the Company’s interest rate sensitive assets and liabilities are analyzed by product type and repriced based upon current offering rates. The software performs interest rate sensitivity analysis by performing rate shocks of plus or minus 300 basis points in 100 basis point increments.
The following table shows projected results at March 31, 2016 and December 31, 2015 of the impact on net interest income from an immediate change in interest rates, as well as the benchmarks established by the ALCO. The results are shown as a dollar and percentage change in net interest income over the next twelve months.
| Change in Net Interest Income | ||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||
| March 31, 2016 | December 31, 2015 | ALCO | ||||||||||||||||||
| Rate Shock: | $ Change | % Change | $ Change | % Change | Benchmark | |||||||||||||||
| + 300 basis points | (154 | ) | -1.38 | % | (344 | ) | -3.00 | % | >(20.00) | % | ||||||||||
| + 200 basis points | (118 | ) | -1.06 | % | (242 | ) | -2.10 | % | >(20.00) | % | ||||||||||
| + 100 basis points | (61 | ) | -0.55 | % | (119 | ) | -1.04 | % | >(12.50) | % | ||||||||||
| - 100 basis points | (117 | ) | -1.06 | % | (88 | ) | -0.76 | % | >(12.50) | % | ||||||||||
The table above indicates that as of March 31, 2016, in the event of a 200 basis point increase in interest rates, we would experience a 1.06% decrease in net interest income. In the event of a 100 basis point decrease in interest rates, we would experience a 1.06% decrease in net interest income.
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The foregoing computations are based upon numerous assumptions, including relative levels of market interest rates, prepayments, and deposit mix. The computed estimates should not be relied upon as a projection of actual results. Despite the limitations on precision inherent in these computations, management believes that the information provided is reasonably indicative of the effect of changes in interest rate levels on the net earning capacity of the Company’s current mix of interest earning assets and interest bearing liabilities. Management continues to use the results of these computations, along with the results of its computer model projections, in order to maximize current earnings while positioning the Company to minimize the effect of a prolonged shift in interest rates that would adversely affect future results of operations.
At the present time, the most significant market risk affecting the Company is interest rate risk. Other market risks such as foreign currency exchange risk and commodity price risk do not occur in the normal business of the Company. The Company also is not currently using trading activities or derivative instruments to control interest rate risk.
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Item 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Company’s management, including the Company’s principal executive officer and principal financial officer, have evaluated the effectiveness of the Company’s “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based upon their evaluation, the principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective for the purpose of ensuring that the information required to be disclosed in the reports that the Company files or submits under the Exchange Act with the Securities and Exchange Commission (the “SEC”) (1) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (2) is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Controls
There have been no changes in the Company’s internal control over financial reporting identified in connection with the evaluation required by Rule 13(a)-15(e) that occurred during the Company’s last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
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| Item 1. | Legal Proceedings |
At March 31, 2016, the Company is not involved in any pending legal proceedings other than non-material legal proceedings undertaken in the normal course of business.
| Item 1.A. | Risk Factors |
There have been no material changes in the Company’s risk factors from those disclosed in its annual report on Form 10-K.
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
The following table sets forth the issuer purchases of equity securities during the prior three months.
| Total number of shares purchased |
Average price paid per share |
Total number of shares purchased under publicly announced plan |
Maximum number of shares that may be purchased under the repurchase plan (1) | |
| January 1 – January 31 | - | - | - | 18,758 |
| February 1 – February 28 | - | - | - | 18,758 |
| March 1 – March 31 | - | - | - | 18,758 |
| (1) | On October 16, 2013, the Company announced the adoption of a stock repurchase program under which the Company can repurchase up to 92,018 shares of its common stock, or approximately 5% of the then current outstanding shares. The program provides for repurchases through open market or private transactions, through block trades, and pursuant to any trading plan adopted in accordance with Rule 10b5-1 of the Securities and Exchange Commission. The Company has completed the repurchase of 73,260 shares permitted under the program. |
| Item 3. | Defaults Upon Senior Securities |
| None. | |
| Item 4. | Mine Safety Disclosures |
| None. | |
| Item 5. | Other Information |
| None. |
| 52 |
| Item 6. | Exhibits |
31.1 - Certification of the Chief Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a)
31.2 - Certification of the Chief Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a)
32.1 - Certification of the Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101 INS - XBRL Instance Document
101 SCH - XBRL Taxonomy Extension Schema Document
101 CAL - XBRL Taxonomy Calculation Linkbase Document
101 DEF - XBRL Taxonomy Extension Definition Linkbase Document
101 LAB - XBRL Taxonomy Label Linkbase Document
101 PRE - XBRL Taxonomy Presentation Linkbase Document
| 53 |
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| JACKSONVILLE BANCORP, INC. | |
| Registrant | |
| Date: 05/10/2016 | /s/ Richard A. Foss |
| Richard A. Foss | |
| President and Chief Executive Officer | |
| /s/ Diana S. Tone | |
| Diana S. Tone | |
| Chief Financial Officer |
| 54 |
EXHIBITS
Exhibit 31.1
Certification of Chief Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Richard A. Foss, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Jacksonville Bancorp, Inc.; |
| 2. | Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; |
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a) | designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b) | designed such internal controls over financial reporting, or caused such internal controls over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principle; |
| c) | evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the period covered by this report based on such evaluation; and |
| d) | disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annul report) that has materially affected, or is reasonably likely to materially affect the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions): |
| a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting. |
| 05/10/2016 | /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 quarterly report on Form 10-Q of Jacksonville Bancorp, Inc.; |
| 2. | Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; |
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a) | designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b) | designed such internal controls over financial reporting, or caused such internal controls over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principle; |
| c) | evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the period covered by this report based on such evaluation; and |
| d) | disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annul report) that has materially affected, or is reasonably likely to materially affect the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions): |
| a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting. |
| 05/10/2016 | /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 Quarterly Report of Jacksonville Bancorp, Inc. (“Company”) on Form 10-Q for the period ending March 31, 2016 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. |
| 05/10/2016 | /s/ Richard A. Foss | ||
| Date | Richard A. Foss | ||
| President and Chief Executive Officer | |||
| 05/10/2016 | /s/ Diana S. Tone | ||
| Date | Diana S. Tone | ||
| Chief Financial Officer | |||
Document and Entity Information - shares |
3 Months Ended | |
|---|---|---|
Mar. 31, 2016 |
May. 01, 2016 |
|
| Document And Entity Information Abstract | ||
| Entity Registrant Name | Jacksonville Bancorp, Inc. | |
| Entity Central Index Key | 0001484949 | |
| Trading Symbol | jxsb | |
| Current Fiscal Year End Date | --12-31 | |
| Entity Filer Category | Smaller Reporting Company | |
| Entity Common Stock Shares Outstanding | 1,796,323 | |
| Document Type | 10-Q | |
| Document Period End Date | Mar. 31, 2016 | |
| Amendment Flag | false | |
| Document Fiscal Year Focus | 2016 | |
| Document Fiscal Period Focus | Q1 |
CONDENSED CONSOLIDATED BALANCE SHEETS (Parentheticals) - USD ($) |
Mar. 31, 2016 |
Dec. 31, 2015 |
|---|---|---|
| Statement Of Financial Position [Abstract] | ||
| Allowance for loan losses of loans receivable (in dollars) | $ 2,934,691 | $ 2,919,594 |
| Valuation allowance on mortgage servicing rights (in dollars) | $ 44,028 | $ 47,354 |
| 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 | 1,792,013 | 1,791,513 |
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited) - USD ($) |
3 Months Ended | |
|---|---|---|
Mar. 31, 2016 |
Mar. 31, 2015 |
|
| Statement Of Income And Comprehensive Income [Abstract] | ||
| Net Income | $ 827,378 | $ 786,257 |
| Other Comprehensive Income | ||
| Unrealized appreciation on available-for-sale securities, net of taxes of $157,965 and $298,922 for 2016 and 2015, respectively. | 306,636 | 580,261 |
| Less: reclassification adjustment for realized gains included in net income, net of taxes of $34,531 and $45,293, for 2016 and 2015, respectively. | 67,030 | 87,923 |
| Total other comprehensive income (loss) | 239,606 | 492,338 |
| Comprehensive Income | $ 1,066,984 | $ 1,278,595 |
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited) (Parentheticals) - USD ($) |
3 Months Ended | |
|---|---|---|
Mar. 31, 2016 |
Mar. 31, 2015 |
|
| Statement Of Income And Comprehensive Income [Abstract] | ||
| Taxes on unrealized appreciation (depreciation) on available-for-sale securities | $ 157,965 | $ 298,922 |
| Taxes on reclassification adjustment for realized gains included in net income | $ 34,531 | $ 45,293 |
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (Unaudited) - 3 months ended Mar. 31, 2016 - USD ($) |
Common Stock |
Additional Paid-in Capital |
Retained Earnings |
Unallocated ESOP Shares |
Accumulated Other Comprehensive Income |
Total |
|---|---|---|---|---|---|---|
| BALANCE at Dec. 31, 2015 | $ 17,915 | $ 13,664,914 | $ 31,305,040 | $ (211,710) | $ 790,341 | $ 45,566,500 |
| Increase (Decrease) in Stockholders' Equity [Roll Forward] | ||||||
| Net Income | 827,378 | 827,378 | ||||
| Other comprehensive income | 239,606 | 239,606 | ||||
| Exercise of stock options | 5 | 7,820 | 7,825 | |||
| Stock-based compensation expense | 22,232 | 22,232 | ||||
| Shares held by ESOP, committed to be released | 9,060 | 5,980 | 15,040 | |||
| Dividends ($0.10 per share) | (152,211) | (152,211) | ||||
| BALANCE at Mar. 31, 2016 | $ 17,920 | $ 13,704,026 | $ 31,980,207 | $ (205,730) | $ 1,029,947 | $ 46,526,370 |
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (Unaudited) (Parentheticals) |
3 Months Ended |
|---|---|
|
Mar. 31, 2016
$ / shares
| |
| Statement Of Stockholders Equity [Abstract] | |
| Dividends, per share (in dollars per share) | $ 0.10 |
FINANCIAL STATEMENTS |
3 Months Ended | ||
|---|---|---|---|
Mar. 31, 2016 | |||
| Accounting Policies [Abstract] | |||
| FINANCIAL STATEMENTS |
The accompanying interim condensed consolidated financial statements include the accounts of Jacksonville Bancorp, Inc. and its wholly-owned subsidiary, Jacksonville Savings Bank (the “Bank”) and its wholly-owned subsidiary, Financial Resources Group, Inc. collectively (the “Company”). All significant intercompany accounts and transactions have been eliminated.
In the opinion of management, the preceding unaudited consolidated financial statements contain all adjustments (consisting only of normal recurring accruals) necessary 1) for a fair presentation and 2) to make the financial statements not misleading as to the financial condition of the Company as of March 31, 2016, and the results of its operations for the three month periods ended March 31, 2016 and 2015. The results of operations for the three month periods are not necessarily indicative of the results which may be expected for the entire year. The condensed consolidated balance sheet of the Company as of December 31, 2015 has been derived from the audited consolidated balance sheet of the Company as of that date. Certain information and note disclosures normally included in the Company’s annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements of the Company for the year ended December 31, 2015 filed as an exhibit to the Company’s Form 10-K filed in March, 2016. The accounting and reporting policies of the Company conform to accounting principles generally accepted in the United States of America (GAAP), the requirements of Form 10-Q, and to prevailing practices within the industry.
Certain amounts included in the 2015 consolidated statements have been reclassified to conform to the 2016 presentation.
|
NEW ACCOUNTING PRONOUNCEMENTS |
3 Months Ended | ||
|---|---|---|---|
Mar. 31, 2016 | |||
| Accounting Changes And Error Corrections [Abstract] | |||
| NEW ACCOUNTING PRONOUNCEMENTS |
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). The update provides a five-step revenue recognition model for all revenue arising from contracts with customers and affects all entities that enter into contracts to provide goods or services to their customers (unless the contracts are included in the scope of other standards). The guidance requires an entity to recognize the revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. 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 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 did not 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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EARNINGS PER SHARE |
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| Earnings Per Share [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| EARNINGS PER SHARE |
Earnings Per Share - Basic earnings per share is determined by dividing net income for the period by the weighted average number of common shares. Diluted earnings per share considers the potential effects of the exercise of outstanding stock options under the Company’s stock option plans.
The following reflects earnings per share calculations for basic and diluted methods:
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STOCK-BASED COMPENSATION |
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| Disclosure Of Compensation Related Costs Share based Payments [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| STOCK-BASED COMPENSATION |
In connection with the 2010 second-step conversion and related stock offering, the ESOP purchased an additional 41,614 shares for the exclusive benefit of eligible employees. The ESOP borrowed funds from the Company in an amount sufficient to purchase the 41,614 shares (approximately 4% of the common stock issued in the offering). The loan is secured by the shares purchased and will be repaid by the ESOP with funds from contributions made by the Bank and dividends received by the ESOP, with funds from any contributions on ESOP assets. Contributions will be applied to repay interest on the loan first, and the remainder will be applied to principal. The loan is expected to be repaid over a period of up to 20 years. Shares purchased with the loan proceeds are held in a suspense account for allocation among participants as the loan is repaid. Contributions to the ESOP and shares released from the suspense account are allocated among participants in proportion to their compensation, relative to total compensation of all active participants. Participants will vest on a pro-rata basis and reach 100% vesting in the accrued benefits under the ESOP after six years. Vesting is accelerated upon retirement, death, or disability of the participant or a change in control of the Bank. Forfeitures will be reallocated to remaining plan participants. Benefits may be payable upon retirement, death, disability, separation from service, or termination of the ESOP. Since the Bank’s annual contributions are discretionary, benefits payable under the ESOP cannot be estimated.
In the event a terminated ESOP participant desires to sell his or her shares of the Company’s stock, the ESOP includes a put option, which is a right to demand that the Company buy any shares of its stock distributed to participants at fair value.
The Company is accounting for its ESOP in accordance with ASC Topic 718, “Employers Accounting for Employee Stock Ownership Plans.” Accordingly, the debt of the ESOP is eliminated in consolidation and the shares pledged as collateral are reported as unearned ESOP shares in the consolidated balance sheet. Contributions to the ESOP shall be sufficient to pay principal and interest currently due under the loan agreement. As shares are committed to be released from the collateral, the Company reports compensation expense equal to the average market price of the shares for the respective period, and the shares become outstanding for earnings per share computations. Dividends, if any, on unallocated shares are recorded as a reduction of debt and accrued interest.
A summary of ESOP shares at March 31, 2016 and 2015 is shown below.
On April 24, 2012, the compensation committee of the board of directors approved the awards of 104,035 options to purchase Company common stock. The stock options vest over a five-year period and expire ten years after the date of the grant. Apart from the vesting schedule, there are no performance-based conditions or any other material conditions applicable to the options issued.
The following table summarizes stock option activity for the three months ended March 31, 2016.
Intrinsic value for stock options is defined as the difference between the current market value and the exercise price. The value is based upon a closing price of $26.00 per share on March 31, 2016.
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LOAN PORTFOLIO COMPOSITION |
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| Receivables [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| LOAN PORTFOLIO COMPOSITION |
At March 31, 2016 and December 31, 2015, the composition of the Company’s loan portfolio is shown below.
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 Bank’s primary lending origination activity has been one-to-four family, owner-occupied, residential mortgage loans secured by property located in the Company’s market area. The Company generates loans through marketing efforts, existing customers and referrals, real estate brokers, builders and local businesses. Generally, one-to-four family loan originations are limited to the financing of loans secured by properties located within the Company’s market area.
Fixed rate one-to-four family residential mortgage loans are generally conforming loans, underwritten according to secondary market guidelines. The Company generally originates both fixed and adjustable rate mortgage loans in amounts up to the maximum conforming loan limits established by the Federal Housing Finance Agency.
The Company originates for resale to Freddie Mac and the Federal Home Loan Bank fixed-rate one-to-four family residential mortgage loans with terms of 15 years or more. The fixed-rate mortgage loans amortize monthly with principal and interest due each month. Residential real estate loans often remain outstanding for significantly shorter periods than their contractual terms because borrowers may refinance or prepay loans at their option. The Company offers fixed-rate one-to-four family residential mortgage loans with terms of up to 30 years without prepayment penalty.
The Company currently offers adjustable-rate mortgage loans for terms ranging up to 30 years. They generally offer adjustable-rate mortgage loans that adjust between one and five years on the anniversary date of origination. Interest rate adjustments are up to two hundred basis points per year, with a cap of up to six hundred basis points on interest rate increases over the life of the loan. In a rising interest rate environment, such rate limitations may prevent adjustable-rate mortgage loans from repricing to market interest rates, which would have an adverse effect on the net interest income. In the low interest rate environment that has existed over the past five years, the adjustable-rate portfolio has repriced downward resulting in lower interest income from this portion of the loan portfolio. In addition, during this period borrowers have shown a preference for fixed-rate loans. The Company has used different interest indices for adjustable-rate mortgage loans in the past such as the average yield on U.S. Treasury securities, adjusted to a constant maturity of one-year, three-years or five-years. The origination of fixed-rate mortgage loans versus adjustable-rate mortgage loans is monitored on an ongoing basis and is affected significantly by the level of market interest rates, customer preference, interest rate risk position and competitors’ loan products.
Adjustable-rate mortgage loans make the loan portfolio more interest rate sensitive and provide an alternative for those borrowers who meet the underwriting criteria, but are unable to qualify for a fixed-rate mortgage. However, as the interest income earned on adjustable-rate mortgage loans varies with prevailing interest rates, such loans do not offer predictable cash flows in the same manner as long-term, fixed-rate loans. Adjustable-rate mortgage loans carry increased credit risk associated with potentially higher monthly payments by borrowers as general market interest rates increase. 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 that, among other things, the borrower sells or otherwise disposes of the underlying real property serving as collateral for the loan. Due-on-sale clauses are a means of imposing assumption fees and increasing the interest rate on 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, generally should not 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 Real Estate Loans - The Company originates and purchases commercial real estate loans. Commercial real estate loans are secured primarily by improved properties such as multi-family residential, retail facilities and office buildings, restaurants and other non-residential buildings. The maximum loan-to-value ratio for commercial real estate loans originated is generally 80%. Commercial real estate loans are generally written up to terms of five years with adjustable interest rates. The rates are generally tied to the prime rate and generally have a specified floor. Many of the fixed-rate commercial real estate loans are not fully amortizing and therefore require a “balloon” payment at maturity. The Company purchases from time to time commercial real estate loan participations primarily from outside the Company’s market area. All participation loans are approved following a review to ensure that the loan satisfies the underwriting standards.
Underwriting standards for commercial real estate loans include a determination of the applicant’s credit history and an assessment of the applicant’s ability to meet existing obligations and payments on the proposed loan. The income approach is primarily utilized to determine whether income generated from the applicant’s business or real estate offered as collateral is adequate to repay the loan. There is an emphasis on the ratio of the property’s projected net cash flow to the loan’s debt service requirement (generally requiring a minimum ratio of 120%). In underwriting a loan, the value of the real estate offered as collateral in relation to the proposed loan amount is considered. Generally, the loan amount cannot be greater than 80% of the value of the real estate. Written appraisals are usually obtained from either licensed or certified appraisers on all commercial real estate loans in excess of $250,000. Creditworthiness of the applicant is assessed by reviewing a credit report, financial statements and tax returns of the applicant, as well as obtaining other public records regarding the applicant.
Loans secured by commercial real estate generally involve a greater degree of credit risk than one-to-four family residential mortgage loans and carry larger loan balances. This increased credit risk is a result of several factors, including the effects of general economic conditions on income producing properties and the successful operation or management of the properties securing the loans. Furthermore, the repayment of loans secured by commercial real estate is typically dependent upon the successful operation of the related business and real estate property. If the cash flow from the project is reduced, the borrower’s ability to repay the loan may be impaired.
Agricultural Real Estate Loans - The Company originates and purchases agricultural real estate loans. The maximum loan-to-value ratio for agricultural real estate loans we originate is generally 75%. Our agricultural real estate loans are generally written up to terms of five years with adjustable interest rates. The rates are generally tied to the average yield on U.S. Treasury securities, adjusted to a constant maturity of one-year, three-years, or five-years and generally have a specified floor. Many of our fixed-rate agricultural real estate loans are not fully amortizing and therefore require a “balloon” payment at maturity. We purchase from time to time agricultural real estate loan participations primarily from other local institutions within our market area. All participation loans are approved following a review to ensure that the loan satisfies our underwriting standards.
Underwriting standards for agricultural real estate include a determination of the applicant’s credit history and an assessment of the applicant’s ability to meet existing obligations and payments on the proposed loan. The income approach is primarily utilized to determine whether income generated from the applicant’s farm operation or real estate offered as collateral is adequate to repay the loan. We emphasize the ratio of the property’s projected cash flow to the loan’s debt service requirement (generally requiring a minimum ratio of 120%). In underwriting a loan, we consider the value of the real estate offered as collateral in relation to the proposed loan amount. Generally, the loan amount cannot be greater than 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 than one-to-four family residential mortgage loans and carry larger loan balances. This increased credit risk is a result of several factors, including the effects of general economic and market conditions on farm operations and the successful operation or management of the properties securing the loans. The repayment of loans secured by agricultural estate is typically dependent upon the successful operation of the farm and real estate property. If the cash flow is reduced, the borrower’s ability to repay the loan may be impaired.
Home Equity Loans – The Company originates home equity loans and lines of credit, which are generally secured by the borrower’s principal residence. The maximum amount of a home equity loan or line of credit is generally 95% of the appraised value of a borrower’s real estate collateral less the amount of any existing mortgages or related liabilities. Home equity loans and lines of credit are approved with both fixed and adjustable interest rates which we determine based upon market conditions. Such loans may be fully amortized over the life of the loan or have a balloon feature. Generally, the maximum term for home equity loans is 10 years.
Underwriting standards for home equity loans include a determination of the applicant’s credit history and an assessment of the applicant’s ability to meet existing obligations and payments on the proposed loan. The stability of the applicant’s monthly income may be determined by verification of gross monthly income from primary employment, and additionally from any verifiable secondary income. We also consider the length of employment with the borrower’s present employer as well as the amount of time the borrower has lived in the local area. Creditworthiness of the applicant is of primary consideration; however, the underwriting process also includes a comparison of the value of the collateral in relation to the proposed loan amount.
Home equity loans entail greater risks than one-to-four family residential mortgage loans, which are secured by first lien mortgages. 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 - The Company originates commercial business loans to borrowers located in the Company’s market area which are secured by collateral other than real estate or which can be unsecured. Commercial business loan participations are also purchased from other lenders, which may be made to borrowers outside the Company’s market area. Commercial business loans are generally secured by equipment and inventory and generally are offered with adjustable rates tied to the prime rate or the average yield on U.S. Treasury securities, adjusted to a constant maturity of either one-year, three-years or five-years and various terms of maturity generally from three years to five years. Unsecured business loans are originated on a limited basis in those instances where the applicant’s financial strength and creditworthiness has been established. Commercial business loans generally bear higher interest rates than residential loans, but they also may involve a higher risk of default since their repayment is generally dependent on the successful operation of the borrower’s business. Personal guarantees are generally obtained from the borrower or a third party as a condition to originating its business loans.
Underwriting standards for commercial 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. The financial strength of each applicant is assessed through the review of financial statements and tax returns provided by the applicant. The creditworthiness of an applicant is derived from a review of credit reports as well as a search of public records. Business loans are periodically reviewed following origination. Financial statements are requested at least annually and review them for substantial deviations or changes that might affect repayment of the loan. Loan officers also visit the premises of borrowers to observe the business premises, facilities, and personnel and to inspect the pledged collateral. Underwriting standards for business loans are different for each type of loan depending on the financial strength of the applicant and the value of collateral offered as security.
Agricultural Business Loans - The Company originates agricultural business loans to borrowers located in our market area which are secured by collateral other than real estate or which can be unsecured. Agricultural business loans are generally secured by equipment and blanket security agreements on all farm assets. These loans are generally offered with fixed rates with terms up to five years. Agricultural business loans generally bear lower interest rates than residential loans due to competitive market pressures. The repayment of agricultural business loans is generally dependent on the successful operation of the farm operation. Personal guarantees are generally obtained from the borrower as a condition to originating agricultural business loans.
Underwriting standards for agricultural business loans include a determination of the applicant’s ability to meet existing obligations and payments on the proposed loan from normal cash flows generated in the applicant’s business. The financial strength of each applicant is assessed through the review of financial statements, pro-forma cash flow statements, and tax returns provided by the applicant. The creditworthiness of an applicant is derived from a review of credit reports as well as a search of public records. Financial statements are requested at least annually and reviewed for substantial deviations or changes that might affect repayment of the loan. Loan officers may also visit the premises of borrowers to observe the operation, facilities, equipment, and personnel and to inspect the pledged collateral. Underwriting standards for agricultural business loans are different for each type of loan depending on the financial strength of the applicant and the value of collateral offered as security.
The repayment of agricultural business loans generally is dependent on the successful operation of a farm and can be adversely affected by fluctuations in crop prices, increase in interest rates, and changes in weather conditions. These developments may result in smaller harvests and less income for farmers which may adversely affect such borrower’s ability to repay a loan, and potentially result in an increase in the level of problem loans and loan losses in our agricultural portfolio. While not required, the majority of our agricultural business loans are covered by crop insurance, which provides protection against loss due to lower crop yields as a result of unfavorable weather conditions.
Consumer Loans – The Company originates consumer loans, including automobile loans, loans secured by deposit accounts, unsecured loans and mobile home loans. Consumer loans are generally offered on a fixed-rate basis. Automobile loans are offered with maturities of up to 60 months for new automobiles. Loans secured by used automobiles will have maximum terms which vary depending upon the age of the automobile. Automobile loans are generally originated with a loan-to-value ratio below the greater of 80% of the purchase price or 100% of NADA loan value. The loan-to-value ratio may be greater or less depending on the borrower’s credit history, debt to income ratio, home ownership and other banking relationships with us.
Underwriting standards for consumer loans include a determination of the applicant’s credit history and an assessment of the applicant’s ability to meet existing obligations and payments on the proposed loan. The stability of the applicant’s monthly income may be determined by verification of gross monthly income from primary employment, and additionally from any verifiable secondary income. We also consider the length of employment with the borrower’s present employer as well as the amount of time the borrower has lived in the local area. Creditworthiness of the applicant is of primary consideration; however, the underwriting process also includes a comparison of the value of the collateral in relation to the proposed loan amount.
Consumer loans entail greater risks than one-to-four family residential mortgage loans, particularly consumer loans secured by rapidly depreciating assets such as automobiles or loans that are unsecured. In such cases, collateral repossessed after a default may not provide an adequate source of repayment of the outstanding loan balance because of damage, loss or depreciation. Further, consumer loan payments are dependent on the borrower’s continuing financial stability, and therefore are more likely to be adversely affected by job loss, divorce, illness or personal bankruptcy. Such events would increase our risk of loss on unsecured loans. Finally, the application of various Federal and state laws, including Federal and state bankruptcy and insolvency laws, may limit the amount which can be recovered on such loans in the event of a default.
The following tables present the balance in the allowance for loan losses and the recorded investment in loans based on portfolio segment and impairment method as of and for the periods ended March 31, 2016, March 31, 2015, and December 31, 2015.
Management’s opinion as to the ultimate collectability of loans is subject to estimates regarding future cash flows from operations and the value of property, real and personal, pledged as collateral. These estimates are affected by changing economic conditions and the economic prospects of borrowers.
The allowance for loan losses is maintained at a level that, in management’s judgment, is adequate to cover probable credit losses inherent in the loan portfolio at the balance sheet date. The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to earnings. Loan losses are charged against the allowance when management believes the uncollectability of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.
The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectability of the loans in light of historical experience, the 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 the scheduled payments of principal or interest will not be able to be collected when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan-by-loan basis for commercial and agricultural loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price or the fair value of the collateral if the loan is collateral dependent.
Groups of loans with similar risk characteristics are collectively evaluated for impairment based on the group’s historical loss experience adjusted for changes in trends, conditions and other relevant factors that affect repayment of the loans. Accordingly, individual consumer and residential loans are not separately identified for impairment measurements, unless such loans are the subject of a restructuring agreement due to financial difficulties of the borrower.
The general component covers non-classified loans and is based on historical charge-off experience and expected loss given the internal risk rating process. The loan portfolio is stratified into homogeneous groups of loans that possess similar loss characteristics and an appropriate loss ratio adjusted for other qualitative factors is applied to the homogeneous pools of loans to estimate the incurred losses in the loan portfolio.
There have been no changes to the Company’s accounting policies or methodology from the prior periods.
Credit Quality Indicators
The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis is performed on all loans at origination. In addition, lending relationships over $750,000, new commercial and commercial real estate loans, and watch list credits are reviewed annually by our loan review department in order to verify risk ratings. All watch list credits are reviewed by management and reported to the Board monthly. 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 foregoing are considered to be Pass rated loans.
The following tables present the credit risk profile of the Company’s loan portfolio based on rating category and payment activity as of March 31, 2016 and December 31, 2015.
The following tables present the Company’s loan portfolio aging analysis as of March 31, 2016 and December 31, 2015.
The accrual of interest on loans is discontinued at the time the loan is 90 days past due unless the credit is well-secured and in process of collection. Past due status is based on contractual terms of the loan. In all cases, loans are placed on non-accrual or charged-off at an earlier date if collection of principal and interest is considered doubtful.
All interest accrued but not collected for loans that are placed on non-accrual or charged-off are reversed against interest income. The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all principal and interest amounts contractually due are brought current and future payments are reasonably assured.
The Company actively seeks to reduce its investment in impaired loans. The primary tools to work through impaired loans are settlement with the borrowers or guarantors, foreclosure of the underlying collateral, or restructuring.
The Company will restructure loans when the borrower demonstrates the inability to comply with the terms of the loan, but can demonstrate the ability to meet acceptable restructured terms. Restructurings generally include one or more of the following restructuring options; reduction in the interest rate on the loan, payment extensions, forgiveness of principal, forbearance, or other actions intended to maximize collection. Restructured loans in compliance with modified terms are classified as impaired.
The following tables present impaired loans at or for the three months ended March 31, 2016 and 2015 and for the year ended December 31, 2015.
Included in certain loan categories in the impaired loans are troubled debt restructurings (TDRs), where economic concessions have been granted to borrowers who have experienced financial difficulties, that were classified as impaired. These concessions typically include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance or other actions. TDRs are considered impaired at the time of restructuring and typically are returned to accrual status after considering the borrower’s sustained repayment performance for a reasonable period of time, usually at least six months.
When loans are modified into a TDR, the Company evaluates any possible impairment similar to other impaired loans based on the present value of expected cash flows, discounted at the contractual interest rate of the original loan agreement, or based upon on the current fair value of the collateral, less selling costs for collateral dependent loans. If the Company determined that the value of the modified loan is less than the recorded investment in the loan (net of previous charge-offs, deferred loan fees or costs and unamortized premium or discount), impairment is recognized through an allowance estimate or a charge-off to the allowance. In periods subsequent to modification, the Company evaluates all TDRs, including those that have payment defaults, for possible impairment and recognizes impairment through the allowance.
The following table presents the recorded balance, at original cost, of TDRs, as of March 31, 2016 and December 31, 2015.
The following table presents the recorded balance, at original cost, of TDRs, which were performing according to the terms of the restructuring, as of March 31, 2016 and December 31, 2015.
The following table presents loans modified as TDRs during the three months ended March 31, 2016 and 2015.
First Quarter, 2016 Modifications
The Company modified one residential real estate loan with a recorded investment of $41,107. The modification was made to restructure loan and capitalize delinquent real estate taxes. The modification did not result in a write-off of the principal balance.
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 three month period ended March 31, 2016, three residential real estate loans of $191,144 and one commercial real estate loan of $749,281 that were considered TDRs defaulted as they were more than 90 days past due at March 31, 2016. Default occurs when a loan is 90 days or more past due, transferred to nonaccrual or charged-off, and is within twelve months of restructuring.
First Quarter, 2015 Modifications
The Company modified one residential real estate loan with a recorded investment of $107,357. The modification was made to consolidate and restructure delinquent loans into a workout. The modification did not result in a write-off of the principal balance.
The Company modified one consumer loan with a recorded investment of $2,469. The modification was made to extend the payment schedule three months. The modification did not result in a write-off of the principal balance.
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 three month period ended March 31, 2015, three residential real estate loans of $203,578, one commercial real estate loan of $794,110, and one home equity loan of $3,238 that were considered TDRs defaulted as they were more than 90 days past due at March 31, 2015. Default occurs when a loan is 90 days or more past due, transferred to nonaccrual or charged-off, and is within twelve months of restructuring.
The following table presents the Company’s nonaccrual loans at March 31, 2016 and December 31, 2015. This table excludes performing TDRs.
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INVESTMENTS |
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| Investments, Debt and Equity Securities [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| INVESTMENTS |
The amortized cost and approximate fair value of securities, all of which are classified as available-for-sale, are as follows:
The amortized cost and fair value of available-for-sale securities at March 31, 2016, 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 $28,173,000 at March 31, 2016 and $25,681,000 at December 31, 2015.
The book value of securities sold under agreement to repurchase amounted to $3,947,000 at March 31, 2016 and $7,591,000 at December 31, 2015. At March 31, 2016, we had $4,687,000 of repurchase agreements secured by mortgage backed securities, $1,482,000 of repurchase agreements secured by time deposits in other banks, and $598,000 in repurchase agreements secured by U.S. government agency bonds. All of our repurchase agreements mature overnight. The right of offset for a repurchase agreement resembles a secured borrowing, whereby the collateral pledged by the Company would be used to settle the fair value of the repurchase agreement should the Company be in default. The collateral is held by the Company in a segregated custodial account. In the event the collateral fair value falls below stipulated levels, the Company will pledge additional securities. The Company closely monitors collateral levels to ensure adequate levels are maintained.
Gross gains of $105,000 and $165,000 and gross losses of $3,000 and $32,000 resulting from sales of available-for-sale securities were realized during the three months ended March 31, 2016 and 2015, respectively.
Certain investments in debt securities are reported in the financial statements at an amount less than their historical cost. Total fair value of these investments at March 31, 2016 and December 31, 2015 were $18,573,000, and $30,677,000, respectively, which were approximately 23% and 35% of the Company’s available-for-sale investment portfolio.
Management believes the declines in fair value for these securities are temporary. Should the impairment of any of these securities become other than temporary, the cost basis of the investment will be reduced and the resulting loss recognized in net income in the period the other-than-temporary impairment is identified.
The following table shows the gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous loss position, at March 31, 2016 and December 31, 2015.
The unrealized losses on the Company’s investments in municipal bonds, U.S. government and agencies, and mortgage-backed securities were caused by interest rate increases. The contractual terms of these investments do not permit the issuer to settle the securities at a price less than the amortized cost bases of the investments. Because the Company does not intend to sell the investments and it is not more likely than not the Company will be required to sell the investments before recovery of their amortized cost bases, which may be maturity, the Company does not consider these investments to be other-than-temporarily impaired at March 31, 2016 and December 31, 2015.
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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 three months ended March 31, 2016 and 2015, were 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 AND LIABILITIES |
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.
Recurring Measurements
The following table presents the fair value measurements of assets recognized in the accompanying condensed consolidated balance sheets measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fall at March 31, 2016 and December 31, 2015:
Following is a description of the valuation methodologies and inputs used for assets measured at fair value on a recurring basis and recognized in the accompanying condensed consolidated balance sheets, as well as the general classification of such assets pursuant to the valuation hierarchy. There have been no significant changes in the valuation techniques during the three months ended March 31, 2016.
Available-for-Sale Securities - Where quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. If quoted market prices are not available, then fair values are estimated by using quoted prices of securities with similar characteristics or independent asset pricing services and pricing models, the inputs of which are market-based on independently sourced market perspectives, including, but not limited to, yield curves, interest rates, volatilities, prepayments, defaults, cumulative loss projections and cash flows. Such securities are classified in Level 2 of the valuation hierarchy. In certain cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy.
Nonrecurring Measurements
The following table presents the fair value measurement of assets measured at fair value on a nonrecurring basis and the level within the fair value hierarchy in which the fair value measurements fall at March 31, 2016 and December 31, 2015:
Following is a description of the valuation methodologies and inputs used for assets measured at fair value on a nonrecurring basis and recognized in the accompanying condensed consolidated balance sheets, as well as the general classification of such assets pursuant to the valuation hierarchy. For assets classified within Level 3 of the fair value hierarchy, the process used to develop the reported fair value is described below.
Impaired Loans (Collateral Dependent) - The estimated fair value of collateral-dependent impaired loans is based on the appraised fair value of the collateral, less estimated cost to sell. Collateral-dependent impaired loans are classified within Level 3 of the fair value hierarchy.
The Company considers the appraisal or evaluation as the starting point for determining fair value and then considers other factors and events in the environment that may affect the fair value. Appraisals of the collateral underlying collateral-dependent loans are obtained when the loan is determined to be collateral-dependent and subsequently as deemed necessary. Appraisals are reviewed for accuracy and consistency. Appraisers are selected from the list of approved appraisers maintained by management. The appraised values are reduced by discounts to consider lack of marketability and estimated cost to sell if repayment or satisfaction of the loan is dependent on the sale of the collateral.
Real Estate Owned – Real estate owned is carried at the lower of fair value at acquisition date or current estimated fair value, less estimated cost to sell when the real estate is acquired. Estimated fair value of real estate owned is based on appraisals or evaluations. Real estate owned is classified within Level 3 of the fair value hierarchy.
Appraisals of real estate owned are obtained when the real estate is acquired and subsequently as deemed necessary. Appraisals are reviewed for accuracy and consistency. Appraisers are selected from the list of approved appraisers maintained by management.
Unobservable (Level 3) Inputs The following table presents quantitative information about unobservable inputs used in recurring and nonrecurring Level 3 fair value measurements.
Fair Value of Financial Instruments
The following table presents estimated fair values of the Company’s other financial instruments and the level within the fair value hierarchy in which the fair value measurements fall at March 31, 2016 and December 31, 2015:
The following methods were used to estimate the fair value of all other financial instruments recognized in the accompanying condensed consolidated balance sheets at amounts other than fair value.
Cash and Cash Equivalents, Interest-Earning Time Deposits in Banks, Interest Receivable, Federal Home Loan Bank Stock, and Other Investments - The carrying amount approximates fair value.
Loans Held for Sale - For homogeneous categories of loans, such as mortgage loans held for sale, fair value is estimated using the quoted market prices for securities backed by similar loans, adjusted for differences in loan characteristics.
Loans - The fair value of loans is estimated by discounting the future cash flows using the market rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. Loans with similar characteristics were aggregated for purposes of the calculations.
Deposits - Deposits include demand deposits, savings accounts, NOW accounts and certain money market deposits. The carrying amount approximates fair value. The fair value of fixed-maturity time deposits is estimated using a discounted cash flow calculation that applies the rates currently offered for deposits of similar remaining maturities.
Short-term Borrowings, Interest Payable, and Advances from Borrowers for Taxes and Insurance - The carrying amount approximates fair value.
Commitments to Originate Loans, Letters of Credit, and Lines of Credit - The fair value of commitments to originate loans is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair values of letters of credit and lines of credit are based on fees currently charged for similar agreements or on the estimated cost to terminate or otherwise settle the obligations with the counterparties at the reporting date.
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MORTGAGE SERVICING RIGHTS |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Transfers and Servicing [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| MORTGAGE SERVICING RIGHTS |
Activity in the balance of mortgage servicing rights, measured using the amortization method, for the three month period ended March 31, 2016 and the year ended December 31, 2015 was as follows:
Activity in the valuation allowance for mortgage servicing rights for the three month period ended March 31, 2016 and the year ended December 31, 2015 was as follows:
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INCOME TAXES |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Income Tax Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| INCOME TAXES |
A reconciliation of income tax expense at the statutory rate to the Company’s actual income tax expense for the three months ended March 31, 2016 and 2015 is shown below.
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COMMITMENTS AND CONTINGENCIES |
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Mar. 31, 2016 | |||
| Commitments And Contingencies Disclosure [Abstract] | |||
| COMMITMENTS AND CONTINGENCIES |
Occasionally, the Company is a defendant in legal actions arising from normal business activities. Management, after consultation with legal counsel, believes that the resolution of these actions will not have any material adverse effect on the Company's consolidated financial statements.
The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers in the way of commitments to extend credit. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer's creditworthiness on a case-by-case basis. Substantially all of the Company's loans are to borrowers located in Cass, Morgan, Macoupin, Montgomery, and surrounding counties in Illinois.
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EARNINGS PER SHARE (Tables) |
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| Earnings Per Share [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of earnings per share calculations for basic and diluted methods |
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STOCK-BASED COMPENSATION (Tables) |
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| Disclosure Of Compensation Related Costs Share based Payments [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of summary of ESOP shares |
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| Schedule of stock option activity |
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LOAN PORTFOLIO COMPOSITION (Tables) |
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| Receivables [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of composition of loan portfolio |
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| Schedule of allowance for loan losses and recorded investment in loans based on portfolio segment and impairment method |
|
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| Schedule of credit risk profile of loan portfolio based on rating category and payment activity |
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of loan portfolio aging analysis |
|
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| Schedule of impaired loan |
|
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| Schedule of recorded balance at original cost of troubled debt restructurings |
|
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| Schedule of recorded balance at original cost of troubled debt restructurings performing according to terms of restructuring |
|
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| Schedule of loans modified as troubled debt restructurings |
|
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| Schedule of nonaccrual loans |
|
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INVESTMENTS (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Investments, Debt and Equity Securities [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of amortized cost and approximate fair values of available for sale securities |
|
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| Schedule of amortized cost and fair value of available-for-sale securities by contractual maturities |
|
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| Schedule of gross unrealized losses and fair value in continuous loss position |
|
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ACCUMULATED OTHER COMPREHENSIVE INCOME (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2016 | |||||||||||||||||||||||||||||||||||||
| Equity [Abstract] | |||||||||||||||||||||||||||||||||||||
| Schedule of accumulated other comprehensive income |
|
||||||||||||||||||||||||||||||||||||
CHANGES IN ACCUMULATED OTHER COMPREHENSIVE INCOME (AOCI) BY COMPONENT (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Changes In Accumulated Other Comprehensive Income (Aoci) By Component [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of reclassified from AOCI and the affected line items in the statements of income |
|
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DISCLOSURES ABOUT FAIR VALUE OF ASSETS (Tables) |
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| Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of fair value measurements of assets recognized in balance sheets measured at fair value on recurring basis |
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| Schedule of fair value measurement of assets measured at fair value on nonrecurring basis |
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| Schedule of quantitative information about unobservable inputs used in recurring and nonrecurring level 3 fair value measurements |
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| Schedule of estimated fair values of other financial instrument |
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MORTGAGE SERVICING RIGHTS (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Transfers and Servicing [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of activity in balance of mortgage servicing rights measured using amortization method |
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| Schedule of activity in valuation allowance for mortgage servicing rights |
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INCOME TAXES (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Income Tax Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of reconciliation of income tax expense at statutory rate to actual income tax expense |
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EARNINGS PER SHARE - Earnings Per Share Calculations for Basic and Diluted Methods (Details) - USD ($) |
3 Months Ended | |
|---|---|---|
Mar. 31, 2016 |
Mar. 31, 2015 |
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| Earnings Per Share [Abstract] | ||
| Net Income | $ 827,378 | $ 786,257 |
| Basic average shares outstanding | 1,770,917 | 1,775,287 |
| Diluted potential common shares: | ||
| Stock option equivalents | 18,055 | 17,080 |
| Diluted average shares outstanding | 1,788,972 | 1,792,367 |
| Basic earnings per share (in dollars per share) | $ 0.47 | $ 0.44 |
| Diluted earnings per share (in dollars per share) | $ 0.46 | $ 0.44 |
STOCK-BASED COMPENSATION - Summary of ESOP Shares (Details) - USD ($) |
Mar. 31, 2016 |
Mar. 31, 2015 |
|---|---|---|
| Disclosure Of Compensation Related Costs Share based Payments [Abstract] | ||
| Unearned shares | 20,573 | 23,845 |
| Shares committed for release | 598 | 573 |
| Allocated shares | 61,455 | 58,863 |
| Total ESOP shares | 82,626 | 83,281 |
| Fair value of unearned shares | $ 534,898 | $ 586,032 |
STOCK-BASED COMPENSATION - Stock Option Activity (Details 1) - Stock Options |
3 Months Ended |
|---|---|
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Mar. 31, 2016
USD ($)
$ / shares
shares
| |
| Shares | |
| Outstanding, December 31, 2015 | shares | 61,120 |
| Granted | shares | |
| Exercised | shares | (500) |
| Forfeited | shares | |
| Outstanding, March 31, 2016 | shares | 60,620 |
| Exercisable, March 31, 2016 | shares | 18,535 |
| Weighted Average Exercise price/Share | |
| Outstanding, December 31, 2015 | $ / shares | $ 15.65 |
| Granted | $ / shares | |
| Exercised | $ / shares | $ 15.65 |
| Forfeited | $ / shares | |
| Outstanding, March 31, 2016 | $ / shares | $ 15.65 |
| Exercisable, March 31, 2016 | $ / shares | $ 15.65 |
| Weighted Average Remaining Contractual Life (in years) | |
| Outstanding, March 31, 2016 | 6 years |
| Exercisable, March 31, 2016 | 6 years |
| Aggregate Intrinsic Value | |
| Outstanding, March 31, 2016 | $ | $ 632,592 |
| Exercisable, March 31, 2016 | $ | $ 197,012 |
STOCK-BASED COMPENSATION (Detail Textuals) - $ / shares |
1 Months Ended | 3 Months Ended |
|---|---|---|
Apr. 24, 2012 |
Mar. 31, 2016 |
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| Stock Options | ||
| Employee Stock Ownership Plan (ESOP) Disclosures [Line Items] | ||
| Common stock reserved and awarded | 104,035 | |
| Vesting period | 5 years | |
| Award expiration period | 10 years | |
| Closing price per share | $ 26.00 | |
| Employee Stock Ownership Plan (ESOP) | ||
| Employee Stock Ownership Plan (ESOP) Disclosures [Line Items] | ||
| ESOP purchased an additional shares | 41,614 | |
| ESOP shares, percentage of common stock issued in the offering | 4.00% | |
| Maximum loan repayment term | 20 years | |
| Vesting period | 6 years |
INVESTMENTS - Amortized Cost and Fair Value of Available-for-Sale Securities by Contractual Maturities (Details 1) - USD ($) |
Mar. 31, 2016 |
Dec. 31, 2015 |
|---|---|---|
| Amortized Cost | ||
| Within one year | $ 1,283,331 | |
| More than one year to five years | 7,919,604 | |
| More than five years to ten years | 36,423,253 | |
| After ten years | 14,824,819 | |
| Available-for-sale securities, single maturity date, amortized cost | 60,451,007 | |
| Mortgage-backed securities (government- sponsored enterprises - residential) | 20,386,254 | |
| Available-for-sale securities, amortized cost, total | 80,837,261 | |
| Fair Value | ||
| Within one year | 1,286,737 | |
| More than one year to five years | 8,203,234 | |
| More than five years to ten years | 37,138,652 | |
| After ten years | 15,096,079 | |
| Available-for-sale securities, single maturity date, fair value | 61,724,702 | $ 64,294,937 |
| Mortgage-backed securities (government- sponsored enterprises - residential) | 20,673,085 | $ 23,178,395 |
| Available-for-sale securities, fair value, total | $ 82,397,787 |
INVESTMENTS (Detail Textuals) - USD ($) |
3 Months Ended | ||
|---|---|---|---|
Mar. 31, 2016 |
Mar. 31, 2015 |
Dec. 31, 2015 |
|
| Investments, Unrealized Loss Position [Line Items] | |||
| Securities pledged as collateral | $ 28,173,000 | $ 25,681,000 | |
| Securities sold under agreements to repurchase | 3,947,000 | 7,591,000 | |
| Gross realized gains on sales of available-for-sale securities | 105,000 | $ 165,000 | |
| Gross realized losses on sales of available-for-sale securities | 3,000 | $ 32,000 | |
| Debt securities, fair value | $ 18,573,000 | $ 30,677,000 | |
| Percentage of available-for-sale investment portfolio | 23.00% | 35.00% | |
| Time deposits in other banks | |||
| Investments, Unrealized Loss Position [Line Items] | |||
| Repurchase agreements secured by debt | $ 1,482,000 | ||
| U.S. government agency bonds | |||
| Investments, Unrealized Loss Position [Line Items] | |||
| Repurchase agreements secured by debt | 598,000 | ||
| Mortgage backed securities | |||
| Investments, Unrealized Loss Position [Line Items] | |||
| Repurchase agreements secured by debt | $ 4,687,000 | ||
ACCUMULATED OTHER COMPREHENSIVE INCOME - Other Comprehensive Income Components and Related Taxes (Details) - USD ($) |
Mar. 31, 2016 |
Dec. 31, 2015 |
|---|---|---|
| Accumulated Other Comprehensive Income (Loss) [Line Items] | ||
| Net-of-tax amount | $ 1,029,947 | $ 790,341 |
| Unrealized gains (losses) on available-for-sale securities | ||
| Accumulated Other Comprehensive Income (Loss) [Line Items] | ||
| Net unrealized gains on securities available-for-sale | 1,560,526 | 1,197,486 |
| Tax effect | (530,579) | (407,145) |
| Net-of-tax amount | $ 1,029,947 | $ 790,341 |
MORTGAGE SERVICING RIGHTS- Activity in the balance of Mortgage Servicing Rights Measured using Amortization Method (Details) - Mortgage servicing rights - USD ($) |
3 Months Ended | 12 Months Ended |
|---|---|---|
Mar. 31, 2016 |
Dec. 31, 2015 |
|
| Servicing Asset at Amortized Cost, Balance [Roll Forward] | ||
| Balance, beginning of period | $ 597,713 | $ 632,634 |
| Servicing rights capitalized | 9,671 | 73,650 |
| Amortization of servicing rights | (19,120) | (118,186) |
| Change in valuation allowance | 3,326 | 9,615 |
| Balance, end of period | $ 591,590 | $ 597,713 |
MORTGAGE SERVICING RIGHTS - Activity in the valuation allowance for mortgage servicing rights (Details 1) - USD ($) |
3 Months Ended | 12 Months Ended |
|---|---|---|
Mar. 31, 2016 |
Dec. 31, 2015 |
|
| Valuation Allowance for Impairment of Recognized Servicing Assets [Roll Forward] | ||
| Balance, beginning of period | $ 47,354 | |
| Balance, end of period | 44,028 | $ 47,354 |
| Capitalized mortgage servicing rights | ||
| Valuation Allowance for Impairment of Recognized Servicing Assets [Roll Forward] | ||
| Balance, beginning of period | $ 47,354 | $ 56,969 |
| Additions | ||
| Reductions | $ (3,326) | $ (9,615) |
| Balance, end of period | $ 44,028 | $ 47,354 |
INCOME TAXES - Reconciliation of Income Tax Expense at Statutory Rate to Actual Income Tax Expense (Details) - USD ($) |
3 Months Ended | |
|---|---|---|
Mar. 31, 2016 |
Mar. 31, 2015 |
|
| Income Tax Disclosure [Abstract] | ||
| Computed at the statutory rate (34%) | $ 386,491 | $ 366,218 |
| Increase (decrease) resulting from | ||
| Tax exempt interest | (113,550) | (107,610) |
| State income taxes, net | 51,698 | 48,124 |
| Increase in cash surrender value | (14,817) | (14,937) |
| Other, net | (461) | (941) |
| Actual tax expense | $ 309,361 | $ 290,854 |
INCOME TAXES - Reconciliation of Income Tax Expense at Statutory Rate to Actual Income Tax Expense (Parentheticals) (Details) |
3 Months Ended |
|---|---|
Mar. 31, 2016 | |
| Income Tax Disclosure [Abstract] | |
| Statutory income tax rate | 34.00% |