PAGE
|
||
Part I
|
FINANCIAL INFORMATION
|
|
Item 1.
|
Financial Statements (unaudited):
|
|
Consolidated Balance Sheet as of June 30, 2013 and December 31, 2012
|
1
|
|
Consolidated Statement of Income for the Three and Six Months Ended June 30, 2013 and 2012
|
2
|
|
Consolidated Statement of Comprehensive Income for the Three and Six Months ended June 30, 2013 and 2012
|
3
|
|
Consolidated Statement of Cash Flows for the Six Months ended June 30, 2013 and 2012
|
4
|
|
Notes to Consolidated Financial Statements
|
5-27
|
|
Item 2.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
28-49
|
Item 3.
|
Quantitative and Qualitative Disclosures About Market Risk
|
49-50
|
Item 4.
|
Controls and Procedures
|
50
|
Part II
|
OTHER INFORMATION
|
|
Item 1.
|
Legal Proceedings
|
50
|
Item 1A.
|
Risk Factors
|
50
|
Item 2.
|
Unregistered Sales of Equity Securities and Use of Proceeds
|
51
|
Item 3.
|
Defaults Upon Senior Securities
|
51
|
Item 4.
|
Mine Safety Disclosures
|
51
|
Item 5.
|
Other Information
|
51
|
Item 6.
|
Exhibits
|
51-52
|
Signatures
|
53
|
CITIZENS FINANCIAL SERVICES, INC.
|
||
CONSOLIDATED BALANCE SHEET
|
||
(UNAUDITED)
|
||
June 30
|
December 31
|
|
(in thousands except share data)
|
2013
|
2012
|
ASSETS:
|
||
Cash and due from banks:
|
||
Noninterest-bearing
|
$ 7,928
|
$ 12,307
|
Interest-bearing
|
3,642
|
14,026
|
Total cash and cash equivalents
|
11,570
|
26,333
|
Available-for-sale securities
|
307,935
|
310,252
|
Loans held for sale
|
796
|
1,458
|
|
||
Loans (net of allowance for loan losses:
|
||
2013, $6,989 and 2012, $6,784)
|
508,747
|
495,679
|
|
||
Premises and equipment
|
11,396
|
11,521
|
Accrued interest receivable
|
3,821
|
3,816
|
Goodwill
|
10,256
|
10,256
|
Bank owned life insurance
|
14,427
|
14,177
|
Other assets
|
10,128
|
8,935
|
|
|
|
TOTAL ASSETS
|
$ 879,076
|
$ 882,427
|
|
|
|
LIABILITIES:
|
||
Deposits:
|
||
Noninterest-bearing
|
$ 86,852
|
$ 89,494
|
Interest-bearing
|
661,162
|
647,602
|
Total deposits
|
748,014
|
737,096
|
Borrowed funds
|
33,993
|
46,126
|
Accrued interest payable
|
964
|
1,143
|
Other liabilities
|
7,223
|
8,587
|
TOTAL LIABILITIES
|
790,194
|
792,952
|
STOCKHOLDERS' EQUITY:
|
||
Preferred Stock
|
||
$1.00 par value; authorized 3,000,000 shares June 30, 2013 and December 31, 2012;
|
||
none issued in 2013 or 2012
|
-
|
-
|
Common stock
|
||
$1.00 par value; authorized 15,000,000 shares; issued 3,305,517 at June 30, 2013 and
|
||
3,161,324 at December 31, 2012
|
3,306
|
3,161
|
Additional paid-in capital
|
23,545
|
16,468
|
Retained earnings
|
69,538
|
71,813
|
Accumulated other comprehensive (loss) income
|
(713)
|
4,631
|
Treasury stock, at cost: 267,006 shares at June 30, 2013
|
||
and 262,921 shares at December 31, 2012
|
(6,794)
|
(6,598)
|
TOTAL STOCKHOLDERS' EQUITY
|
88,882
|
89,475
|
TOTAL LIABILITIES AND
|
||
STOCKHOLDERS' EQUITY
|
$ 879,076
|
$ 882,427
|
The accompanying notes are an integral part of these unaudited consolidated financial statements.
|
CITIZENS FINANCIAL SERVICES, INC.
|
||||
CONSOLIDATED STATEMENT OF INCOME
|
||||
(UNAUDITED)
|
||||
Three Months Ended
|
Six Months Ended
|
|||
|
June 30
|
June 30,
|
||
(in thousands, except share and per share data)
|
2013
|
2012
|
2013
|
2012
|
INTEREST INCOME:
|
||||
Interest and fees on loans
|
$ 7,141
|
$ 7,439
|
$ 14,278
|
$ 14,904
|
Interest-bearing deposits with banks
|
9
|
1
|
19
|
6
|
Investment securities:
|
|
|
||
Taxable
|
936
|
1,237
|
1,899
|
2,434
|
Nontaxable
|
844
|
920
|
1,713
|
1,874
|
Dividends
|
18
|
16
|
38
|
32
|
TOTAL INTEREST INCOME
|
8,948
|
9,613
|
17,947
|
19,250
|
INTEREST EXPENSE:
|
||||
Deposits
|
1,287
|
1,555
|
2,615
|
3,221
|
Borrowed funds
|
310
|
393
|
668
|
806
|
TOTAL INTEREST EXPENSE
|
1,597
|
1,948
|
3,283
|
4,027
|
NET INTEREST INCOME
|
7,351
|
7,665
|
14,664
|
15,223
|
Provision for loan losses
|
75
|
105
|
225
|
210
|
NET INTEREST INCOME AFTER
|
||||
PROVISION FOR LOAN LOSSES
|
7,276
|
7,560
|
14,439
|
15,013
|
NON-INTEREST INCOME:
|
||||
Service charges
|
1,079
|
1,129
|
2,103
|
2,207
|
Trust
|
169
|
151
|
370
|
324
|
Brokerage and insurance
|
121
|
75
|
213
|
225
|
Investment securities gains, net
|
98
|
213
|
294
|
321
|
Gains on loans sold
|
50
|
131
|
161
|
185
|
Earnings on bank owned life insurance
|
126
|
126
|
250
|
250
|
Other
|
100
|
104
|
204
|
233
|
TOTAL NON-INTEREST INCOME
|
1,743
|
1,929
|
3,595
|
3,745
|
NON-INTEREST EXPENSES:
|
||||
Salaries and employee benefits
|
2,795
|
2,668
|
5,600
|
5,421
|
Occupancy
|
312
|
314
|
654
|
624
|
Furniture and equipment
|
113
|
96
|
215
|
202
|
Professional fees
|
188
|
224
|
417
|
492
|
FDIC insurance
|
113
|
115
|
225
|
238
|
Pennsylvania shares tax
|
182
|
160
|
365
|
326
|
Other
|
1,129
|
988
|
2,178
|
2,090
|
TOTAL NON-INTEREST EXPENSES
|
4,832
|
4,565
|
9,654
|
9,393
|
Income before provision for income taxes
|
4,187
|
4,924
|
8,380
|
9,365
|
Provision for income taxes
|
907
|
1,171
|
1,813
|
2,163
|
NET INCOME
|
$ 3,280
|
$ 3,753
|
$ 6,567
|
$ 7,202
|
|
||||
PER COMMON SHARE DATA:
|
||||
Net Income - Basic
|
$ 1.08
|
$ 1.23
|
$ 2.17
|
$ 2.35
|
Net Income - Diluted
|
$ 1.08
|
$ 1.23
|
$ 2.16
|
$ 2.35
|
Cash Dividends Paid
|
$ 0.271
|
$ 0.283
|
$ 0.543
|
$ 0.562
|
The accompanying notes are an integral part of these unaudited consolidated financial statements.
|
CITIZENS FINANCIAL SERVICES, INC.
|
||||||||
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
|
||||||||
(UNAUDITED)
|
||||||||
Three Months Ended
|
Six Months Ended
|
|||||||
June 30,
|
June 30,
|
|||||||
(in thousands)
|
2013
|
2012
|
2013
|
2012
|
||||
Net income
|
$ 3,280
|
$ 3,753
|
$ 6,567
|
$ 7,202
|
||||
Other comprehensive income (loss):
|
||||||||
Change in unrealized gains on available for sale securities
|
(6,656)
|
741
|
(8,032)
|
318
|
||||
Income tax effect
|
2,263
|
(252)
|
2,731
|
(108)
|
||||
Change in unrecognized pension cost
|
128
|
-
|
128
|
-
|
||||
Income tax effect
|
(44)
|
-
|
(44)
|
-
|
||||
Change in unrealized loss on interest rate swap
|
51
|
45
|
101
|
66
|
||||
Income tax effect
|
(17)
|
(15)
|
(34)
|
(23)
|
||||
Less: Reclassification adjustment for investment
|
||||||||
security gains included in net income
|
(98)
|
(213)
|
(294)
|
(321)
|
||||
Income tax effect
|
33
|
72
|
100
|
109
|
||||
Other comprehensive income (loss), net of tax
|
(4,340)
|
378
|
(5,344)
|
41
|
||||
Comprehensive income (loss)
|
$ (1,060)
|
$ 4,131
|
$ 1,223
|
$ 7,243
|
||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
|
CITIZENS FINANCIAL SERVICES, INC.
|
||
CONSOLIDATED STATEMENT OF CASH FLOWS
|
||
(UNAUDITED)
|
Six Months Ended
|
|
June 30,
|
||
(in thousands)
|
2013
|
2012
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
||
Net income
|
$ 6,567
|
$ 7,202
|
Adjustments to reconcile net income to net
|
||
cash provided by operating activities:
|
||
Provision for loan losses
|
225
|
210
|
Depreciation and amortization
|
216
|
211
|
Amortization and accretion of investment securities
|
1,234
|
1,196
|
Deferred income taxes
|
9
|
28
|
Investment securities gains, net
|
(294)
|
(321)
|
Earnings on bank owned life insurance
|
(250)
|
(250)
|
Originations of loans held for sale
|
(11,801)
|
(14,241)
|
Proceeds from sales of loans held for sale
|
12,624
|
14,426
|
Realized gains on loans sold
|
(161)
|
(185)
|
Increase in accrued interest receivable
|
(5)
|
(179)
|
Decrease in accrued interest payable
|
(179)
|
(290)
|
Other, net
|
413
|
(269)
|
Net cash provided by operating activities
|
8,598
|
7,538
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
||
Available-for-sale securities:
|
||
Proceeds from sales
|
15,773
|
16,654
|
Proceeds from maturity and principal repayments
|
49,651
|
68,914
|
Purchase of securities
|
(72,372)
|
(90,754)
|
Proceeds from redemption of regulatory stock
|
513
|
245
|
Purchase of regulatory stock
|
(207)
|
(1,405)
|
Net increase in loans
|
(13,246)
|
(9,679)
|
Purchase of premises and equipment
|
(203)
|
(117)
|
Proceeds from sale of foreclosed assets held for sale
|
-
|
345
|
Net cash used in investing activities
|
(20,091)
|
(15,797)
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
||
Net increase in deposits
|
10,918
|
4,774
|
Repayments of long-term borrowings
|
(10,800)
|
(4,110)
|
Net decrease in short-term borrowed funds
|
(1,333)
|
(2,706)
|
Purchase of treasury and restricted stock
|
(380)
|
(637)
|
Dividends paid
|
(1,675)
|
(1,726)
|
Net cash used in financing activities
|
(3,270)
|
(4,405)
|
Net decrease in cash and cash equivalents
|
(14,763)
|
(12,664)
|
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
|
26,333
|
30,432
|
CASH AND CASH EQUIVALENTS AT END OF PERIOD
|
$ 11,570
|
$ 17,768
|
Supplemental Disclosures of Cash Flow Information:
|
||
Interest paid
|
$ 3,462
|
$ 4,317
|
Income taxes paid
|
$ 2,295
|
$ 2,095
|
Loans transferred to foreclosed property
|
$ 54
|
$ 123
|
|
||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
|
Three months ended
|
Six months ended
|
|||
|
June 30,
|
June 30,
|
||
|
2013
|
2012
|
2013
|
2012
|
Net income applicable to common stock
|
$3,280,000
|
$3,753,000
|
$6,567,000
|
$7,202,000
|
Basic earnings per share computation
|
||||
Weighted average common shares outstanding
|
3,031,279
|
3,058,663
|
3,032,491
|
3,063,500
|
Earnings per share - basic
|
$1.08
|
$1.23
|
$2.17
|
$2.35
|
Diluted earnings per share computation
|
||||
Weighted average common shares outstanding for basic earnings per share
|
3,031,279
|
3,058,663
|
3,032,491
|
3,063,500
|
Add: Dilutive effects of restricted stock
|
1,578
|
1,409
|
781
|
624
|
Weighted average common shares outstanding for dilutive earnings per share
|
3,032,857
|
3,060,072
|
3,033,272
|
3,064,124
|
Earnings per share - diluted
|
$1.08
|
$1.23
|
$2.16
|
$2.35
|
Gross
|
Gross
|
|||
Amortized
|
Unrealized
|
Unrealized
|
Fair
|
|
June 30, 2013
|
Cost
|
Gains
|
Losses
|
Value
|
Available-for-sale securities:
|
||||
U.S. agency securities
|
$ 138,674
|
$ 875
|
$ (1,669)
|
$ 137,880
|
U.S. treasury securities
|
11,845
|
-
|
(374)
|
11,471
|
Obligations of state and
|
||||
political subdivisions
|
93,203
|
2,939
|
(965)
|
95,177
|
Corporate obligations
|
21,161
|
356
|
(551)
|
20,966
|
Mortgage-backed securities in
|
||||
government sponsored entities
|
40,313
|
844
|
(277)
|
40,880
|
Equity securities in financial institutions
|
832
|
729
|
-
|
1,561
|
Total available-for-sale securities
|
$ 306,028
|
$ 5,743
|
$ (3,836)
|
$ 307,935
|
Gross
|
Gross
|
|||
Amortized
|
Unrealized
|
Unrealized
|
Fair
|
|
December 31, 2012
|
Cost
|
Gains
|
Losses
|
Value
|
Available-for-sale securities:
|
||||
U.S. agency securities
|
$ 125,125
|
$ 2,150
|
$ (41)
|
$ 127,234
|
U.S. treasury securities
|
4,922
|
25
|
-
|
4,947
|
Obligations of state and
|
||||
political subdivisions
|
95,288
|
5,721
|
(134)
|
100,875
|
Corporate obligations
|
21,699
|
452
|
(42)
|
22,109
|
Mortgage-backed securities in
|
||||
government sponsored entities
|
52,072
|
1,728
|
(127)
|
53,673
|
Equity securities in financial institutions
|
912
|
502
|
-
|
1,414
|
Total available-for-sale securities
|
$ 300,018
|
$ 10,578
|
$ (344)
|
$ 310,252
|
June 30, 2013
|
Less than Twelve Months
|
Twelve Months or Greater
|
Total
|
||||
Gross
|
Gross
|
Gross
|
|||||
Fair
|
Unrealized
|
Fair
|
Unrealized
|
Fair
|
Unrealized
|
||
Value
|
Losses
|
Value
|
Losses
|
Value
|
Losses
|
||
U.S. agency securities
|
$ 79,007
|
$ (1,669)
|
$ -
|
$ -
|
$ 79,007
|
$ (1,669)
|
|
U.S. treasury securities
|
11,471
|
(374)
|
-
|
-
|
11,471
|
(374)
|
|
Obligations of state and
|
|||||||
political subdivisions
|
19,910
|
(965)
|
-
|
-
|
19,910
|
(965)
|
|
Corporate obligations
|
12,018
|
(551)
|
-
|
-
|
12,018
|
(551)
|
|
Mortgage-backed securities in
|
|||||||
government sponsored entities
|
23,272
|
(266)
|
47
|
(11)
|
23,319
|
(277)
|
|
Total securities
|
$ 145,678
|
$ (3,825)
|
$ 47
|
$ (11)
|
$ 145,725
|
$ (3,836)
|
|
December 31, 2012
|
|||||||
U.S. agency securities
|
$ 6,016
|
$ (41)
|
$ -
|
$ -
|
$ 6,016
|
$ (41)
|
|
Obligations of states and
|
|||||||
political subdivisions
|
7,981
|
(134)
|
-
|
-
|
7,981
|
(134)
|
|
Corporate obligations
|
10,972
|
(42)
|
-
|
-
|
10,972
|
(42)
|
|
Mortgage-backed securities in
|
|||||||
government sponsored entities
|
8,651
|
(127)
|
-
|
-
|
8,651
|
(127)
|
|
Total securities
|
$ 33,620
|
$ (344)
|
$ -
|
$ -
|
$ 33,620
|
$ (344)
|
Three Months Ended
|
Six Months Ended
|
|||
June 30,
|
June 30,
|
|||
2013
|
2012
|
2013
|
2012
|
|
Gross gains
|
$ 238
|
$ 213
|
$ 434
|
$ 321
|
Gross losses
|
(140)
|
-
|
(140)
|
-
|
Net gains
|
$ 98
|
$ 213
|
$ 294
|
$ 321
|
Amortized
|
||
Cost
|
Fair Value
|
|
Available-for-sale debt securities:
|
||
Due in one year or less
|
$ 10,605
|
$ 10,697
|
Due after one year through five years
|
93,632
|
93,674
|
Due after five years through ten years
|
84,743
|
83,978
|
Due after ten years
|
116,216
|
118,025
|
Total
|
$ 305,196
|
$ 306,374
|
June 30, 2013
|
Total Loans
|
Individually
evaluated for
impairment
|
Collectively
evaluated for
impairment
|
|
Real estate loans:
|
||||
Residential
|
$ 180,782
|
$ 487
|
$ 180,295
|
|
Commercial and agricultural
|
198,127
|
8,332
|
189,795
|
|
Construction
|
13,455
|
-
|
13,455
|
|
Consumer
|
10,062
|
-
|
10,062
|
|
Other commercial and agricultural loans
|
54,073
|
1,774
|
52,299
|
|
State and political subdivision loans
|
59,237
|
-
|
59,237
|
|
Total
|
515,736
|
$ 10,593
|
$ 505,143
|
|
Allowance for loan losses
|
6,989
|
|||
Net loans
|
$ 508,747
|
December 31, 2012
|
Total Loans
|
Individually
evaluated for
impairment
|
Collectively
evaluated for
impairment
|
|
Real estate loans:
|
||||
Residential
|
$ 178,080
|
$ 424
|
$ 177,656
|
|
Commercial and agricultural
|
194,725
|
9,093
|
185,632
|
|
Construction
|
12,011
|
-
|
12,011
|
|
Consumer
|
10,559
|
-
|
10,559
|
|
Other commercial and agricultural loans
|
47,880
|
901
|
46,979
|
|
State and political subdivision loans
|
59,208
|
-
|
59,208
|
|
Total
|
502,463
|
$ 10,418
|
$ 492,045
|
|
Allowance for loan losses
|
6,784
|
|||
Net loans
|
$ 495,679
|
Recorded
|
Recorded
|
||||
Unpaid
|
Investment
|
Investment
|
Total
|
||
Principal
|
With No
|
With
|
Recorded
|
Related
|
|
June 30, 2013
|
Balance
|
Allowance
|
Allowance
|
Investment
|
Allowance
|
Real estate loans:
|
|||||
Mortgages
|
$ 376
|
$ 144
|
$ 207
|
$ 351
|
$ 24
|
Home Equity
|
136
|
-
|
136
|
136
|
13
|
Commercial
|
10,023
|
5,704
|
2,628
|
8,332
|
499
|
Agricultural
|
-
|
-
|
-
|
-
|
-
|
Construction
|
-
|
-
|
-
|
-
|
-
|
Consumer
|
-
|
-
|
-
|
-
|
-
|
Other commercial loans
|
1,828
|
1,466
|
308
|
1,774
|
1
|
Other agricultural loans
|
-
|
-
|
-
|
-
|
-
|
State and political
|
|||||
subdivision loans
|
-
|
-
|
-
|
-
|
-
|
Total
|
$ 12,363
|
$ 7,314
|
$ 3,279
|
$ 10,593
|
$ 537
|
December 31, 2012
|
|||||
Real estate loans:
|
|||||
Mortgages
|
$ 309
|
$ 150
|
$ 136
|
$ 286
|
$ 8
|
Home Equity
|
138
|
-
|
138
|
138
|
14
|
Commercial
|
10,669
|
6,476
|
2,617
|
9,093
|
559
|
Agricultural
|
-
|
-
|
-
|
-
|
-
|
Construction
|
-
|
-
|
-
|
-
|
-
|
Consumer
|
-
|
-
|
-
|
-
|
-
|
Other commercial loans
|
950
|
592
|
309
|
901
|
1
|
Other agricultural loans
|
-
|
-
|
-
|
-
|
-
|
State and political
|
|||||
subdivision loans
|
-
|
-
|
-
|
-
|
-
|
Total
|
$ 12,066
|
$ 7,218
|
$ 3,200
|
$ 10,418
|
$ 582
|
For the Six Months ended
|
||||||
June 30, 2013
|
June 30, 2012
|
|||||
Interest
|
Interest
|
|||||
Average
|
Interest
|
Income
|
Average
|
Interest
|
Income
|
|
Recorded
|
Income
|
Recognized
|
Recorded
|
Income
|
Recognized
|
|
Investment
|
Recognized
|
Cash Basis
|
Investment
|
Recognized
|
Cash Basis
|
|
Real estate loans:
|
||||||
Mortgages
|
$ 330
|
$ 4
|
$ -
|
$ 83
|
$ 1
|
$ -
|
Home Equity
|
137
|
2
|
-
|
93
|
2
|
1
|
Commercial
|
8,595
|
84
|
35
|
8,138
|
39
|
23
|
Agricultural
|
-
|
-
|
-
|
-
|
-
|
-
|
Construction
|
-
|
-
|
-
|
-
|
-
|
-
|
Consumer
|
-
|
-
|
-
|
-
|
-
|
-
|
Other commercial loans
|
1,786
|
41
|
-
|
468
|
-
|
-
|
Other agricultural loans
|
-
|
-
|
-
|
-
|
-
|
-
|
State and political
|
||||||
subdivision loans
|
-
|
-
|
-
|
-
|
-
|
-
|
Total
|
$ 10,848
|
$ 131
|
$ 35
|
$ 8,782
|
$ 42
|
$ 24
|
For the Three Months Ended
|
||||||
June 30, 2013
|
June 30, 2012
|
|||||
Interest
|
Interest
|
|||||
Average
|
Interest
|
Income
|
Average
|
Interest
|
Income
|
|
Recorded
|
Income
|
Recognized
|
Recorded
|
Income
|
Recognized
|
|
Investment
|
Recognized
|
Cash Basis
|
Investment
|
Recognized
|
Cash Basis
|
|
Real estate loans:
|
||||||
Mortgages
|
$ 352
|
$ 2
|
$ -
|
$ 165
|
$ 1
|
$ -
|
Home Equity
|
136
|
1
|
-
|
93
|
1
|
-
|
Commercial
|
8,406
|
39
|
21
|
8,049
|
21
|
5
|
Agricultural
|
-
|
-
|
-
|
-
|
-
|
-
|
Construction
|
-
|
-
|
-
|
-
|
-
|
-
|
Consumer
|
-
|
-
|
-
|
-
|
-
|
-
|
Other commercial loans
|
1,916
|
22
|
-
|
457
|
-
|
-
|
Other agricultural loans
|
-
|
-
|
-
|
-
|
-
|
-
|
State and political
|
||||||
subdivision loans
|
-
|
-
|
-
|
-
|
-
|
-
|
Total
|
$ 10,810
|
$ 64
|
$ 21
|
$ 8,764
|
$ 23
|
$ 5
|
·
|
Pass (Grades 1-5) – These loans are to customers with credit quality ranging from an acceptable to very high quality and are protected by the current net worth and paying capacity of the obligor or by the value of the underlying collateral.
|
·
|
Special Mention (Grade 6) – This loan grade is in accordance with regulatory guidance and includes loans where a potential weakness or risk exists, which could cause a more serious problem if not corrected.
|
·
|
Substandard (Grade 7) – This loan grade is in accordance with regulatory guidance and includes loans that have a well-defined weakness based on objective evidence and be characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.
|
·
|
Doubtful (Grade 8) – This loan grade is in accordance with regulatory guidance and includes loans that have all the weaknesses inherent in a substandard asset. In addition, these weaknesses make collection or liquidation in full highly questionable and improbable, based on existing circumstances.
|
·
|
Loss (Grade 9) – This loan grade is in accordance with regulatory guidance and includes loans that are considered uncollectible, or of such value that continuance as an asset is not warranted.
|
June 30, 2013
|
Pass
|
Special
Mention
|
Substandard
|
Doubtful
|
Loss
|
Ending Balance
|
Real estate loans:
|
||||||
Commercial
|
$ 152,901
|
$ 6,141
|
$ 19,227
|
$ 211
|
$ -
|
$ 178,480
|
Agricultural
|
15,042
|
2,713
|
1,892
|
-
|
-
|
19,647
|
Construction
|
13,455
|
-
|
-
|
-
|
-
|
13,455
|
Other commercial loans
|
41,744
|
601
|
2,304
|
9
|
-
|
44,658
|
Other agricultural loans
|
7,205
|
935
|
1,275
|
-
|
-
|
9,415
|
State and political
|
||||||
subdivision loans
|
59,237
|
-
|
-
|
-
|
-
|
59,237
|
Total
|
$ 289,584
|
$ 10,390
|
$ 24,698
|
$ 220
|
$ -
|
$ 324,892
|
December 31, 2012
|
Pass
|
Special
Mention
|
Substandard
|
Doubtful
|
Loss
|
Ending Balance
|
Real estate loans:
|
||||||
Commercial
|
$ 149,892
|
$ 7,616
|
$ 19,127
|
$ 75
|
$ -
|
$ 176,710
|
Agricultural
|
13,690
|
2,386
|
1,939
|
-
|
-
|
18,015
|
Construction
|
12,011
|
-
|
-
|
-
|
-
|
12,011
|
Other commercial loans
|
39,239
|
826
|
1,555
|
-
|
-
|
41,620
|
Other agricultural loans
|
4,833
|
589
|
838
|
-
|
-
|
6,260
|
State and political
|
||||||
subdivision loans
|
58,120
|
-
|
1,088
|
-
|
-
|
59,208
|
Total
|
$ 277,785
|
$ 11,417
|
$ 24,547
|
$ 75
|
$ -
|
$ 313,824
|
June 30, 2013
|
Performing
|
Non-performing
|
Total
|
Real estate loans:
|
|||
Mortgages
|
$ 111,395
|
$ 545
|
$ 111,940
|
Home Equity
|
68,677
|
165
|
68,842
|
Consumer
|
10,062
|
-
|
10,062
|
Total
|
$ 190,134
|
$ 710
|
$ 190,844
|
December 31, 2012
|
Performing
|
Non-performing
|
Total
|
Real estate loans:
|
|||
Mortgages
|
$ 105,822
|
$ 726
|
$ 106,548
|
Home Equity
|
71,263
|
269
|
71,532
|
Consumer
|
10,555
|
4
|
10,559
|
Total
|
$ 187,640
|
$ 999
|
$ 188,639
|
30-59 Days
|
60-89 Days
|
90 Days
|
Total Past
|
Total Financing
|
90 Days and
|
|||
June 30, 2013
|
Past Due
|
Past Due
|
Or Greater
|
Due
|
Current
|
Receivables
|
Accruing
|
|
Real estate loans:
|
||||||||
Mortgages
|
$ 443
|
$ 214
|
$ 450
|
$ 1,107
|
$ 110,833
|
$ 111,940
|
$ 63
|
|
Home Equity
|
389
|
117
|
140
|
646
|
68,196
|
68,842
|
38
|
|
Commercial
|
158
|
-
|
2,496
|
2,654
|
175,826
|
178,480
|
137
|
|
Agricultural
|
-
|
-
|
-
|
-
|
19,647
|
19,647
|
-
|
|
Construction
|
-
|
-
|
-
|
-
|
13,455
|
13,455
|
-
|
|
Consumer
|
58
|
1
|
-
|
59
|
10,003
|
10,062
|
-
|
|
Other commercial loans
|
864
|
1
|
323
|
1,188
|
43,470
|
44,658
|
15
|
|
Other agricultural loans
|
49
|
-
|
-
|
49
|
9,366
|
9,415
|
-
|
|
State and political
|
||||||||
subdivision loans
|
-
|
-
|
-
|
-
|
59,237
|
59,237
|
-
|
|
Total
|
$ 1,961
|
$ 333
|
$ 3,409
|
$ 5,703
|
$ 510,033
|
$ 515,736
|
$ 253
|
|
Loans considered non-accrual
|
$ 108
|
$ -
|
$ 3,156
|
$ 3,264
|
$ 4,942
|
$ 8,206
|
||
Loans still accruing
|
1,853
|
333
|
253
|
2,439
|
505,091
|
507,530
|
||
Total
|
$ 1,961
|
$ 333
|
$ 3,409
|
$ 5,703
|
$ 510,033
|
$ 515,736
|
||
30-59 Days
|
60-89 Days
|
90 Days
|
Total Past
|
Total Financing
|
90 Days and
|
|||
December 31, 2012
|
Past Due
|
Past Due
|
Or Greater
|
Due
|
Current
|
Receivables
|
Accruing
|
|
Real estate loans:
|
||||||||
Mortgages
|
$ 636
|
$ 294
|
$ 493
|
$ 1,423
|
$ 105,125
|
$ 106,548
|
$ 244
|
|
Home Equity
|
267
|
17
|
222
|
506
|
71,026
|
71,532
|
88
|
|
Commercial
|
602
|
-
|
2,149
|
2,751
|
173,959
|
176,710
|
152
|
|
Agricultural
|
54
|
-
|
-
|
54
|
17,961
|
18,015
|
-
|
|
Construction
|
-
|
-
|
-
|
-
|
12,011
|
12,011
|
-
|
|
Consumer
|
45
|
43
|
4
|
92
|
10,467
|
10,559
|
4
|
|
Other commercial loans
|
962
|
-
|
317
|
1,279
|
40,341
|
41,620
|
18
|
|
Other agricultural loans
|
-
|
-
|
-
|
-
|
6,260
|
6,260
|
-
|
|
State and political
|
||||||||
subdivision loans
|
-
|
-
|
-
|
-
|
59,208
|
59,208
|
-
|
|
Total
|
$ 2,566
|
$ 354
|
$ 3,185
|
$ 6,105
|
$ 496,358
|
$ 502,463
|
$ 506
|
|
Loans considered non-accrual
|
$ 73
|
$ 69
|
$ 2,679
|
$ 2,821
|
$ 5,246
|
$ 8,067
|
||
Loans still accruing
|
2,493
|
285
|
506
|
3,284
|
491,112
|
494,396
|
||
Total
|
$ 2,566
|
$ 354
|
$ 3,185
|
$ 6,105
|
$ 496,358
|
$ 502,463
|
June 30, 2013
|
December 31, 2012
|
|||
Real estate loans:
|
||||
Mortgages
|
$ 482
|
$ 482
|
||
Home Equity
|
127
|
181
|
||
Commercial
|
7,241
|
7,042
|
||
Agricultural
|
-
|
-
|
||
Construction
|
-
|
-
|
||
Consumer
|
-
|
-
|
||
Other commercial loans
|
356
|
362
|
||
Other agricultural loans
|
-
|
-
|
||
State and political subdivision
|
-
|
-
|
||
$ 8,206
|
$ 8,067
|
For the Six Months Ended June 30, 2013
|
||||||
Number of contracts
|
Pre-modification Outstanding Recorded Investment
|
Post-Modification Outstanding Recorded Investment
|
||||
Interest
Modification
|
Term
Modification
|
Interest
Modification
|
Term
Modification
|
Interest Modification
|
Term
Modification
|
|
Real estate loans:
|
||||||
Mortgages
|
1
|
-
|
$ 72
|
$ -
|
$ 72
|
$ -
|
Commercial
|
-
|
2
|
-
|
1,365
|
-
|
1,365
|
Other commercial loans
|
-
|
2
|
-
|
1,530
|
-
|
1,530
|
Total
|
1
|
4
|
$ 72
|
$ 2,895
|
$ 72
|
$ 2,895
|
For the Three Months Ended June 30, 2012
|
||||||
Number of contracts
|
Pre-modification Outstanding Recorded Investment
|
Post-Modification Outstanding Recorded Investment
|
||||
Interest
Modification
|
Term
Modification
|
Interest
Modification
|
Term
Modification
|
Interest Modification
|
Term
Modification
|
|
Real estate loans:
|
||||||
Mortgages
|
1
|
1
|
$ 48
|
$ 71
|
$ 48
|
$ 71
|
Total
|
1
|
1
|
$ 48
|
$ 71
|
$ 48
|
$ 71
|
For the Six Months Ended June 30, 2012
|
||||||
Number of contracts
|
Pre-modification Outstanding Recorded Investment
|
Post-Modification Outstanding Recorded Investment
|
||||
Interest
Modification
|
Term
Modification
|
Interest
Modification
|
Term
Modification
|
Interest Modification
|
Term
Modification
|
|
Real estate loans:
|
||||||
Mortgages
|
1
|
1
|
$ 48
|
$ 71
|
$ 48
|
$ 71
|
Commercial
|
-
|
2
|
-
|
98
|
-
|
98
|
Total
|
1
|
3
|
$ 48
|
$ 169
|
$ 48
|
$ 169
|
For the Three Months Ended
|
For the Six Months Ended
|
|||||||
June 30, 2013
|
June 30, 2012
|
June 30, 2013
|
June 30, 2012
|
|||||
Number of contracts
|
Recorded investment
|
Number of contracts
|
Recorded investment
|
Number of contracts
|
Recorded investment
|
Number of contracts
|
Recorded investment
|
|
Real estate loans:
|
||||||||
Commercial
|
1
|
$ 535
|
-
|
$ -
|
-
|
$ -
|
1
|
$ 48
|
Total recidivism
|
1
|
$ 535
|
-
|
$ -
|
-
|
$ -
|
1
|
$ 48
|
June 30, 2013
|
December 31, 2012
|
||||||
Individually
evaluated for impairment
|
Collectively
evaluated for impairment
|
Total
|
Individually
evaluated for
impairment
|
Collectively
evaluated for
impairment
|
Total
|
||
Real estate loans:
|
|||||||
Residential
|
$ 38
|
$ 896
|
$ 934
|
$ 22
|
$ 853
|
$ 875
|
|
Commercial and agricultural
|
499
|
3,741
|
4,240
|
559
|
3,878
|
4,437
|
|
Construction
|
-
|
91
|
91
|
-
|
38
|
38
|
|
Consumer
|
-
|
114
|
114
|
-
|
119
|
119
|
|
Other commercial and agricultural loans
|
-
|
957
|
957
|
1
|
727
|
728
|
|
State and political subdivision loans
|
-
|
310
|
310
|
-
|
271
|
271
|
|
Unallocated
|
-
|
343
|
343
|
-
|
316
|
316
|
|
Total
|
$ 537
|
$ 6,452
|
$ 6,989
|
$ 582
|
$ 6,202
|
$ 6,784
|
Balance at
March 31, 2013
|
Charge-offs
|
Recoveries
|
Provision
|
Balance at
June 30, 2013
|
|
Real estate loans:
|
|||||
Residential
|
$ 913
|
$ (13)
|
$ -
|
$ 34
|
$ 934
|
Commercial and agricultural
|
4,416
|
-
|
-
|
(176)
|
4,240
|
Construction
|
78
|
-
|
-
|
13
|
91
|
Consumer
|
118
|
(10)
|
9
|
(3)
|
114
|
Other commercial and agricultural loans
|
700
|
-
|
-
|
257
|
957
|
State and political
|
-
|
||||
subdivision loans
|
303
|
-
|
-
|
7
|
310
|
Unallocated
|
400
|
-
|
-
|
(57)
|
343
|
Total
|
$ 6,928
|
$ (23)
|
$ 9
|
$ 75
|
$ 6,989
|
Balance at
December 31, 2012
|
Charge-offs
|
Recoveries
|
Provision
|
Balance at
June 30, 2013
|
|
Real estate loans:
|
|||||
Residential
|
$ 875
|
$ (13)
|
$ 2
|
$ 70
|
$ 934
|
Commercial and agricultural
|
4,437
|
-
|
-
|
(197)
|
4,240
|
Construction
|
38
|
-
|
-
|
53
|
91
|
Consumer
|
119
|
(30)
|
21
|
4
|
114
|
Other commercial and agricultural loans
|
728
|
-
|
-
|
229
|
957
|
State and political
|
-
|
||||
subdivision loans
|
271
|
-
|
-
|
39
|
310
|
Unallocated
|
316
|
-
|
-
|
27
|
343
|
Total
|
$ 6,784
|
$ (43)
|
$ 23
|
$ 225
|
$ 6,989
|
Balance at
March 31, 2012
|
Charge-offs
|
Recoveries
|
Provision
|
Balance at
June 30, 2012
|
|
Real estate loans:
|
|||||
Residential
|
$ 753
|
$ -
|
$ -
|
$ 33
|
$ 786
|
Commercial and agricultural
|
4,336
|
-
|
6
|
63
|
4,405
|
Construction
|
16
|
-
|
-
|
3
|
19
|
Consumer
|
96
|
(16)
|
7
|
21
|
108
|
Other commercial and agricultural loans
|
671
|
-
|
3
|
11
|
685
|
State and political
|
-
|
||||
subdivision loans
|
245
|
-
|
-
|
1
|
246
|
Unallocated
|
428
|
-
|
-
|
(27)
|
401
|
Total
|
$ 6,545
|
$ (16)
|
$ 16
|
$ 105
|
$ 6,650
|
Balance at
December 31, 2011
|
Charge-offs
|
Recoveries
|
Provision
|
Balance at
June 30, 2012
|
|
Real estate loans:
|
|||||
Residential
|
$ 805
|
$ (49)
|
$ -
|
$ 30
|
$ 786
|
Commercial and agricultural
|
4,132
|
(2)
|
6
|
269
|
4,405
|
Construction
|
15
|
-
|
-
|
4
|
19
|
Consumer
|
111
|
(24)
|
16
|
5
|
108
|
Other commercial and agricultural loans
|
674
|
-
|
6
|
5
|
685
|
State and political
|
-
|
||||
subdivision loans
|
235
|
-
|
-
|
11
|
246
|
Unallocated
|
515
|
-
|
-
|
(114)
|
401
|
Total
|
$ 6,487
|
$ (75)
|
$ 28
|
$ 210
|
$ 6,650
|
·
|
Level of and trends in delinquencies, impaired/classified loans
|
§
|
Change in volume and severity of past due loans
|
§
|
Volume of non-accrual loans
|
§
|
Volume and severity of classified, adversely or graded loans;
|
·
|
Level of and trends in charge-offs and recoveries;
|
·
|
Trends in volume, terms and nature of the loan portfolio;
|
·
|
Effects of any changes in risk selection and underwriting standards and any other changes in lending and recovery policies, procedures and practices;
|
·
|
Changes in the quality of the Bank’s loan review system;
|
·
|
Experience, ability and depth of lending management and other relevant staff;
|
·
|
National, state, regional and local economic trends and business conditions
|
§
|
General economic conditions
|
§
|
Unemployment rates
|
§
|
Inflation / Consumer Price Index
|
§
|
Changes in values of underlying collateral for collateral-dependent loans;
|
·
|
Industry conditions including the effects of external factors such as competition, legal, and regulatory requirements on the level of estimated credit losses; and
|
·
|
Existence and effect of any credit concentrations, and changes in the level of such concentrations.
|
·
|
The qualitative factor for national, state, regional and local economic trends and business conditions was increased for all loan categories due to rising unemployment rates in the local economy as a result of the slowdown in Marcellus shale natural gas exploration activities.
|
·
|
The qualitative factor for trends in volume, terms and nature of the loan portfolio was increased for commercial and agricultural real estate, other commercial and agricultural loans and state and political subdivision loan categories due to the increase of the number of loans that are participations that were purchased from other banks and therefore subject to different underwriting standards.
|
·
|
The qualitative factor for the existence and effect of any credit concentrations and changes in the level of such concentrations was increased for commercial and other loans and was lowered for commercial and agricultural real estate as the loan growth has slowed in 2013.
|
·
|
The qualitative factor for trends in volume, terms and nature of the loan portfolio was increased for commercial and agricultural real estate, other commercial and agricultural loans and state and political subdivision loan categories due to the increase of the number of loans that are participations that were purchased from other banks and therefore subject to different underwriting standards.
|
·
|
The qualitative factor for the existence and effect of any credit concentrations and changes in the level of such concentrations was increased for commercial and other loans and was lowered for commercial and agricultural real estate as the loan growth has slowed in 2013.
|
·
|
The qualitative factor for changes in values of underlying collateral was decreased for residential and commercial real estate loans due to the serious flooding experienced in our primary market in the third quarter of 2011 not being as severe as originally expected.
|
·
|
The qualitative factors for changes in levels of and trends in delinquencies, impaired/classified loans were increased for commercial real estate due to the increase in the Company’s internal watch list for commercial real estate loans since December 31, 2011.
|
·
|
The qualitative factors for changes in industry conditions were increased for agricultural real estate and other agricultural loans due to decreases in milk prices from December 31, 2011 to June 30, 2012.
|
Three Months Ended
|
Six Months Ended
|
|||
June 30,
|
June 30,
|
|||
2013
|
2012
|
2013
|
2012
|
|
Service cost
|
$ 76
|
$ 54
|
$ 177
|
$ 167
|
Interest cost
|
79
|
35
|
185
|
174
|
Expected return on plan assets
|
(169)
|
(80)
|
(343)
|
(286)
|
Net amortization and deferral
|
86
|
52
|
128
|
68
|
Net periodic benefit cost
|
$ 72
|
$ 61
|
$ 147
|
$ 123
|
Three months ended June 30,
|
Six months ended June 30,
|
|||||||
2013
|
2012
|
2013
|
2012
|
|||||
Weighted
|
Weighted
|
Weighted
|
Weighted
|
|||||
Unvested
|
Average
|
Unvested
|
Average
|
Unvested
|
Average
|
Unvested
|
Average
|
|
Shares
|
Market Price
|
Shares
|
Market Price
|
Shares
|
Market Price
|
Shares
|
Market Price
|
|
Outstanding, beginning of period
|
7,269
|
$ 35.16
|
6,280
|
$ 28.15
|
8,646
|
$ 35.51
|
9,921
|
$ 29.37
|
Granted
|
3,027
|
48.21
|
3,808
|
37.10
|
3,027
|
48.21
|
3,808
|
37.10
|
Forfeited
|
-
|
-
|
-
|
-
|
(55)
|
37.10
|
-
|
-
|
Vested
|
(2,830)
|
31.35
|
(1,581)
|
26.80
|
(4,152)
|
33.26
|
(5,222)
|
25.59
|
Outstanding, end of period
|
7,466
|
$ 41.89
|
8,507
|
$ 35.16
|
7,466
|
$ 41.89
|
8,507
|
$ 35.16
|
Three months ended June 30, 2013
|
||||
Unrealized gain (loss)
on available for sale securities (a)
|
Unrealized gain
(loss) on interest
rate swap (a)
|
Defined Benefit Pension Items
(a)
|
Total
|
|
Balance as of March 31, 2013
|
$ 5,717
|
$ (99)
|
$ (1,991)
|
$ 3,627
|
Other comprehensive income (loss) before reclassifications (net of tax)
|
(4,393)
|
34
|
-
|
(4,359)
|
Amounts reclassified from accumulated other
|
||||
comprehensive income (loss) (net of tax)
|
(65)
|
-
|
84
|
19
|
Net current period other comprehensive income (loss)
|
(4,458)
|
34
|
84
|
(4,340)
|
Balance as of June 30, 2013
|
$ 1,259
|
$ (65)
|
$ (1,907)
|
$ (713)
|
Six months ended June 30, 2013
|
||||
Unrealized gain (loss)
on available for sale securities (a)
|
Unrealized gain
(loss) on interest
rate swap (a)
|
Defined Benefit Pension Items
(a)
|
Total
|
|
Balance as of December 31, 2012
|
$ 6,754
|
$ (132)
|
$ (1,991)
|
$ 4,631
|
Other comprehensive income (loss) before reclassifications (net of tax)
|
(5,301)
|
67
|
-
|
(5,234)
|
Amounts reclassified from accumulated other
|
||||
comprehensive income (loss) (net of tax)
|
(194)
|
-
|
84
|
(110)
|
Net current period other comprehensive income (loss)
|
(5,495)
|
67
|
84
|
(5,344)
|
Balance as of June 30, 2013
|
$ 1,259
|
$ (65)
|
$ (1,907)
|
$ (713)
|
(a) Amounts in parentheses indicate debits
|
Details about accumulated other comprehensive income (loss)
|
Amount reclassified from accumulated
comprehensive income (loss) (a)
|
Affected line item in the statement
where net Income is presented
|
||
Three Months Ended
|
Six Months Ended
|
|||
June 30, 2013
|
||||
Unrealized gains and losses on available for sale securities
|
||||
$ 98
|
$ 294
|
Investment securities gains, net
|
||
(33)
|
(100)
|
Provision for income taxes
|
||
$ 65
|
$ 194
|
Net of tax
|
||
Defined benefit pension items
|
||||
$ (128)
|
$ (128)
|
Salaries and employee benefits
|
||
44
|
44
|
Provision for income taxes
|
||
$ (84)
|
$ (84)
|
Net of tax
|
||
(a) Amounts in parentheses indicate debits to profit/loss
|
Level I:
|
Quoted prices are available in active markets for identical assets or liabilities as of the reported date.
|
Level II:
|
Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reported date. The nature of these assets and liabilities include items for which quoted prices are available but traded less frequently, and items that are fair valued using other financial instruments, the parameters of which can be directly observed.
|
Level III:
|
Assets and liabilities that have little to no pricing observability as of the reported date. These items do not have two-way markets and are measured using management’s best estimate of fair value, where the inputs into the determination of fair value require significant management judgment or estimation.
|
June 30, 2013
|
||||||||||
Level I
|
Level II
|
Level III
|
Total
|
|||||||
Fair value measurements on a recurring basis:
|
||||||||||
Assets
|
||||||||||
Securities available for sale:
|
||||||||||
U.S. Agency securities
|
$ -
|
$ 137,880
|
$ -
|
$ 137,880
|
||||||
U.S. Treasury securities
|
11,471
|
11,471
|
||||||||
Obligations of state and
|
||||||||||
political subdivisions
|
-
|
95,177
|
-
|
95,177
|
||||||
Corporate obligations
|
-
|
20,966
|
-
|
20,966
|
||||||
Mortgage-backed securities in
|
||||||||||
government sponsored entities
|
-
|
40,880
|
-
|
40,880
|
||||||
Equity securities in financial institutions
|
1,561
|
-
|
-
|
1,561
|
||||||
Liabilities
|
||||||||||
Trust Preferred Interest Rate Swap
|
-
|
(99)
|
-
|
(99)
|
December 31, 2012
|
||||||||||
Level I
|
Level II
|
Level III
|
Total
|
|||||||
Fair value measurements on a recurring basis:
|
||||||||||
Assets
|
||||||||||
Securities available for sale:
|
||||||||||
U.S. Agency securities
|
$ -
|
$ 127,234
|
$ -
|
$ 127,234
|
||||||
U.S. Treasury securities
|
-
|
4,947
|
-
|
4,947
|
||||||
Obligations of state and
|
||||||||||
political subdivisions
|
-
|
100,875
|
-
|
100,875
|
||||||
Corporate obligations
|
-
|
22,109
|
-
|
22,109
|
||||||
Mortgage-backed securities in
|
||||||||||
government sponsored entities
|
-
|
53,673
|
-
|
53,673
|
||||||
Equity securities in financial institutions
|
1,414
|
-
|
-
|
1,414
|
||||||
Liabilities
|
||||||||||
Trust Preferred Interest Rate Swap
|
-
|
(200)
|
-
|
(200)
|
·
|
Impaired Loans - Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. Once a loan is identified as individually impaired, management measures impairment using one of several methods, including collateral value, liquidation value and discounted cash flows. Those impaired loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans. Collateral values are estimated using Level 2 inputs based on observable market data or Level 3 inputs based on customized discounting criteria. For a majority of impaired real estate related loans, the Company obtains a current external appraisal. Other valuation techniques are used as well, including internal valuations, comparable property analysis and contractual sales information.
|
·
|
Other Real Estate owned – Other real estate owned, which is obtained through the Bank’s foreclosure process is valued utilizing the appraised collateral value. Collateral values are estimated using Level 2 inputs based on observable market data or Level 3 inputs based on customized discounting criteria. At the time the foreclosure is completed, the Company obtains an updated external appraisal.
|
June 30, 2013
|
|||||||||
Level 1
|
Level II
|
Level III
|
Total
|
||||||
Impaired Loans
|
$ -
|
$ -
|
$ 10,056
|
$ 10,056
|
|||||
Other real estate owned
|
-
|
-
|
670
|
670
|
|||||
December 31, 2012
|
|||||||||
Level 1
|
Level II
|
Level III
|
Total
|
||||||
Impaired Loans
|
$ -
|
$ -
|
$ 9,836
|
$ 9,836
|
|||||
Other real estate owned
|
-
|
-
|
616
|
616
|
Fair value as of
|
||||||
June 30,
2013
|
December 31,
2012
|
Valuation Technique(s)
|
Unobservable input
|
Range
|
||
Impaired Loans
|
$ 4,610
|
$ 4,882
|
Discounted Cash Flows
|
Change in discount rates
|
0-7%
|
|
5,446
|
4,954
|
Appraised Collateral Values
|
Discount for time since appraisal
|
0-20%
|
||
Selling costs
|
0%-10%
|
|||||
Holding period
|
0 - 18 months
|
|||||
Other real estate owned
|
670
|
616
|
Appraised Collateral Values
|
Discount for time since appraisal
|
0-20%
|
|
Selling costs
|
0%-10%
|
|||||
Holding period
|
0 - 18 months
|
Carrying
|
|||||
June 30, 2013
|
Amount
|
Fair Value
|
Level I
|
Level II
|
Level III
|
Financial assets:
|
|||||
Cash and due from banks
|
$ 11,570
|
$ 11,570
|
$ 11,570
|
$ -
|
$ -
|
Available-for-sale securities
|
307,935
|
307,935
|
1,561
|
306,374
|
-
|
Loans held for sale
|
796
|
796
|
796
|
||
Net loans
|
508,747
|
522,909
|
-
|
-
|
522,909
|
Bank owned life insurance
|
14,427
|
14,427
|
14,427
|
-
|
-
|
Regulatory stock
|
3,259
|
3,259
|
3,259
|
-
|
-
|
Accrued interest receivable
|
3,821
|
3,821
|
3,821
|
-
|
-
|
Financial liabilities:
|
|||||
Deposits
|
$ 748,014
|
$ 750,811
|
$ 477,983
|
$ -
|
$ 272,828
|
Borrowed funds
|
33,993
|
30,965
|
-
|
30,965
|
-
|
Trust preferred interest rate swap
|
99
|
99
|
-
|
99
|
-
|
Accrued interest payable
|
964
|
964
|
964
|
-
|
-
|
Carrying
|
|||||
December 31, 2012
|
Amount
|
Fair Value
|
Level I
|
Level II
|
Level III
|
Financial assets:
|
|||||
Cash and due from banks
|
$ 26,333
|
$ 26,333
|
$ 26,333
|
$ -
|
$ -
|
Available-for-sale securities
|
310,252
|
310,252
|
1,414
|
308,838
|
-
|
Loans held for sale
|
1,458
|
1,458
|
1,458
|
||
Net loans
|
495,679
|
522,502
|
-
|
-
|
522,502
|
Bank owned life insurance
|
14,177
|
14,177
|
14,177
|
-
|
-
|
Regulatory stock
|
3,565
|
3,565
|
3,565
|
-
|
-
|
Accrued interest receivable
|
3,816
|
3,816
|
3,816
|
-
|
-
|
Financial liabilities:
|
|||||
Deposits
|
$ 737,096
|
$ 742,422
|
$ 462,557
|
$ -
|
$ 279,865
|
Borrowed funds
|
46,126
|
43,403
|
-
|
43,403
|
-
|
Trust preferred interest rate swap
|
200
|
200
|
-
|
200
|
-
|
Accrued interest payable
|
1,143
|
1,143
|
1,143
|
-
|
-
|
·
|
Interest rates could change more rapidly or more significantly than we expect.
|
·
|
The economy could change significantly in an unexpected way, which would cause the demand for new loans and the ability of borrowers to repay outstanding loans to change in ways that our models do not anticipate.
|
·
|
The stock and bond markets could suffer a significant disruption, which may have a negative effect on our financial condition and that of our borrowers, and on our ability to raise money by issuing new securities.
|
·
|
It could take us longer than we anticipate to implement strategic initiatives designed to increase revenues or manage expenses, or we may not be able to implement those initiatives at all.
|
·
|
Acquisitions and dispositions of assets could affect us in ways that we have not anticipated.
|
·
|
We may become subject to new legal obligations or the resolution of litigation may have a negative effect on our financial condition.
|
·
|
We may become subject to new and unanticipated accounting, tax, or regulatory practices, regulations or requirements, including the costs of compliance with such changes.
|
·
|
We could experience greater loan delinquencies than anticipated, adversely affecting our earnings and financial condition. We could also experience greater losses than expected due to the ever increasing volume of information theft and fraudulent scams impacting our customers and the banking industry.
|
·
|
We could lose the services of some or all of our key personnel, which would negatively impact our business because of their business development skills, financial expertise, lending experience, technical expertise and market area knowledge.
|
·
|
Exploration and drilling of the natural gas reserves in the Marcellus Shale in our market area may be affected by federal, state and local laws and regulations such as restrictions on production, permitting, changes in taxes and environmental protection, which could negatively impact our customers and, as a result, negatively impact our loan and deposit volume and loan quality.
|
·
|
Similarly, customers dependent on the exploration and drilling of the natural gas reserves may be dependent on the market price of natural gas. As a result, decreases in the market price of natural gas could also negatively impact our customers.
|
Analysis of Average Balances and Interest Rates (1)
|
||||||
Six Months Ended
|
||||||
June 30, 2013
|
June 30, 2012
|
|||||
Average
|
Average
|
Average
|
Average
|
|||
Balance (1)
|
Interest
|
Rate
|
Balance (1)
|
Interest
|
Rate
|
|
(dollars in thousands)
|
$
|
$
|
%
|
$
|
$
|
%
|
ASSETS
|
||||||
Short-term investments:
|
||||||
Interest-bearing deposits at banks
|
20,030
|
19
|
0.19
|
2,467
|
6
|
0.53
|
Total short-term investments
|
20,030
|
19
|
0.19
|
2,467
|
6
|
0.53
|
Investment securities:
|
||||||
Taxable
|
211,226
|
1,937
|
1.83
|
236,403
|
2,466
|
2.09
|
Tax-exempt (3)
|
91,518
|
2,595
|
5.67
|
94,355
|
2,839
|
6.02
|
Total investment securities
|
302,744
|
4,532
|
2.99
|
330,758
|
5,305
|
3.21
|
Loans:
|
||||||
Residential mortgage loans
|
179,547
|
5,463
|
6.14
|
184,664
|
5,970
|
6.50
|
Construction
|
12,065
|
304
|
5.08
|
9,353
|
267
|
5.74
|
Commercial & agricultural loans
|
247,749
|
7,215
|
5.87
|
233,403
|
7,318
|
6.31
|
Loans to state & political subdivisions
|
59,199
|
1,316
|
4.48
|
55,888
|
1,320
|
4.75
|
Other loans
|
9,917
|
406
|
8.26
|
10,334
|
434
|
8.45
|
Loans, net of discount (2)(3)(4)
|
508,477
|
14,704
|
5.83
|
493,642
|
15,309
|
6.24
|
Total interest-earning assets
|
831,251
|
19,255
|
4.67
|
826,867
|
20,620
|
5.02
|
Cash and due from banks
|
3,673
|
12,361
|
||||
Bank premises and equipment
|
11,452
|
11,621
|
||||
Other assets
|
31,113
|
30,894
|
||||
Total non-interest earning assets
|
46,238
|
54,876
|
||||
Total assets
|
877,489
|
881,743
|
||||
LIABILITIES AND STOCKHOLDERS' EQUITY
|
||||||
Interest-bearing liabilities:
|
||||||
NOW accounts
|
202,540
|
381
|
0.38
|
200,140
|
410
|
0.41
|
Savings accounts
|
91,231
|
76
|
0.17
|
82,886
|
81
|
0.20
|
Money market accounts
|
83,092
|
192
|
0.47
|
69,486
|
153
|
0.44
|
Certificates of deposit
|
274,431
|
1,966
|
1.44
|
296,759
|
2,577
|
1.75
|
Total interest-bearing deposits
|
651,294
|
2,615
|
0.81
|
649,271
|
3,221
|
1.00
|
Other borrowed funds
|
43,350
|
668
|
3.11
|
58,097
|
806
|
2.79
|
Total interest-bearing liabilities
|
694,644
|
3,283
|
0.95
|
707,368
|
4,027
|
1.14
|
Demand deposits
|
86,430
|
85,494
|
||||
Other liabilities
|
8,781
|
9,940
|
||||
Total non-interest-bearing liabilities
|
95,211
|
95,434
|
||||
Stockholders' equity
|
87,634
|
78,941
|
||||
Total liabilities & stockholders' equity
|
877,489
|
881,743
|
||||
Net interest income
|
15,972
|
16,593
|
||||
Net interest spread (5)
|
3.72%
|
3.88%
|
||||
Net interest income as a percentage
|
||||||
of average interest-earning assets
|
3.87%
|
4.04%
|
||||
Ratio of interest-earning assets
|
||||||
to interest-bearing liabilities
|
120%
|
117%
|
||||
(1) Averages are based on daily averages.
|
||||||
(2) Includes loan origination and commitment fees.
|
||||||
(3) Tax exempt interest revenue is shown on a tax equivalent basis for proper comparison using
|
||||||
a statutory federal income tax rate of 34%.
|
||||||
(4) Income on non-accrual loans is accounted for on a cash basis, and the loan balances are included in interest-earning assets.
|
||||||
(5) Interest rate spread represents the difference between the average rate earned on interest-earning assets
|
||||||
and the average rate paid on interest-bearing liabilities.
|
Analysis of Average Balances and Interest Rates (1)
|
||||||
Three Months Ended
|
||||||
June 30, 2013
|
June 30, 2012
|
|||||
Average
|
Average
|
Average
|
Average
|
|||
Balance (1)
|
Interest
|
Rate
|
Balance (1)
|
Interest
|
Rate
|
|
(dollars in thousands)
|
$
|
$
|
%
|
$
|
$
|
%
|
ASSETS
|
||||||
Short-term investments:
|
||||||
Interest-bearing deposits at banks
|
16,897
|
9
|
0.21
|
2,151
|
1
|
0.24
|
Total short-term investments
|
16,897
|
9
|
0.21
|
2,151
|
1
|
0.24
|
Investment securities:
|
||||||
Taxable
|
210,996
|
954
|
1.81
|
241,739
|
1,253
|
2.08
|
Tax-exempt (3)
|
90,873
|
1,278
|
5.63
|
92,864
|
1,395
|
6.00
|
Total investment securities
|
301,869
|
2,232
|
2.96
|
334,603
|
2,648
|
3.17
|
Loans:
|
||||||
Residential mortgage loans
|
179,823
|
2,722
|
6.07
|
184,281
|
2,945
|
6.43
|
Construction
|
12,294
|
149
|
4.86
|
9,934
|
141
|
5.71
|
Commercial & agircultural loans
|
253,493
|
3,637
|
5.75
|
236,130
|
3,678
|
6.26
|
Loans to state & political subdivisions
|
59,205
|
646
|
4.38
|
56,302
|
663
|
4.74
|
Other loans
|
9,812
|
200
|
8.18
|
10,374
|
216
|
8.37
|
Loans, net of discount (2)(3)(4)
|
514,627
|
7,354
|
5.73
|
497,021
|
7,643
|
6.18
|
Total interest-earning assets
|
833,393
|
9,595
|
4.62
|
833,775
|
10,292
|
4.96
|
Cash and due from banks
|
3,791
|
10,114
|
||||
Bank premises and equipment
|
11,412
|
11,575
|
||||
Other assets
|
30,183
|
30,659
|
||||
Total non-interest earning assets
|
45,386
|
52,348
|
||||
Total assets
|
878,779
|
886,123
|
||||
LIABILITIES AND STOCKHOLDERS' EQUITY
|
||||||
Interest-bearing liabilities:
|
||||||
NOW accounts
|
206,553
|
197
|
0.38
|
202,737
|
208
|
0.41
|
Savings accounts
|
92,123
|
36
|
0.16
|
84,242
|
41
|
0.20
|
Money market accounts
|
82,844
|
95
|
0.46
|
70,757
|
74
|
0.42
|
Certificates of deposit
|
272,794
|
959
|
1.41
|
295,160
|
1,232
|
1.68
|
Total interest-bearing deposits
|
654,314
|
1,287
|
0.79
|
652,896
|
1,555
|
0.96
|
Other borrowed funds
|
40,488
|
310
|
3.07
|
57,632
|
393
|
2.74
|
Total interest-bearing liabilities
|
694,802
|
1,597
|
0.92
|
710,528
|
1,948
|
1.10
|
Demand deposits
|
86,942
|
86,373
|
||||
Other liabilities
|
8,184
|
9,035
|
||||
Total non-interest-bearing liabilities
|
95,126
|
95,408
|
||||
Stockholders' equity
|
88,851
|
80,187
|
||||
Total liabilities & stockholders' equity
|
878,779
|
886,123
|
||||
Net interest income
|
7,998
|
8,344
|
||||
Net interest spread (5)
|
3.70%
|
3.86%
|
||||
Net interest income as a percentage
|
||||||
of average interest-earning assets
|
3.85%
|
4.03%
|
||||
Ratio of interest-earning assets
|
||||||
to interest-bearing liabilities
|
120%
|
1.17
|
||||
(1) Averages are based on daily averages.
|
||||||
(2) Includes loan origination and commitment fees.
|
||||||
(3) Tax exempt interest revenue is shown on a tax equivalent basis for proper comparison using a statutory federal income tax rate of 34%.
|
||||||
(4) Income on non-accrual loans is accounted for on a cash basis, and the loan balances are included in interest-earning assets.
|
||||||
(5) Interest rate spread represents the difference between the average rate earned on interest-earning assets
|
||||||
and the average rate paid on interest-bearing liabilities.
|
For the Three Months
|
For the Six Months
|
||||
Ended June 30
|
Ended June 30
|
||||
2013
|
2012
|
2013
|
2012
|
||
Interest and dividend income from investment securities
|
|||||
and interest bearing deposits at banks (non-tax adjusted)
|
$ 1,807
|
$ 2,174
|
$ 3,669
|
$ 4,346
|
|
Tax equivalent adjustment
|
434
|
475
|
882
|
965
|
|
Interest and dividend income from investment securities
|
|||||
and interest bearing deposits at banks (tax equivalent basis)
|
$ 2,241
|
$ 2,649
|
$ 4,551
|
$ 5,311
|
|
Interest and fees on loans (non-tax adjusted)
|
$ 7,141
|
$ 7,439
|
$ 14,278
|
$ 14,904
|
|
Tax equivalent adjustment
|
213
|
204
|
426
|
405
|
|
Interest and fees on loans (tax equivalent basis)
|
$ 7,354
|
$ 7,643
|
$ 14,704
|
$ 15,309
|
|
Total interest income
|
$ 8,948
|
$ 9,613
|
$ 17,947
|
$ 19,250
|
|
Total interest expense
|
1,597
|
1,948
|
3,283
|
4,027
|
|
Net interest income
|
7,351
|
7,665
|
14,664
|
15,223
|
|
Total tax equivalent adjustment
|
647
|
679
|
1,308
|
1,370
|
|
Net interest income (tax equivalent basis)
|
$ 7,998
|
$ 8,344
|
$ 15,972
|
$ 16,593
|
Three months ended June 30, 2013 vs. 2012 (1)
|
Six months ended June 30, 2013 vs. 2012 (1)
|
|||||
Change in
|
Change
|
Total
|
Change in
|
Change
|
Total
|
|
Volume
|
in Rate
|
Change
|
Volume
|
in Rate
|
Change
|
|
Interest Income:
|
||||||
Short-term investments:
|
||||||
Interest-bearing deposits at banks
|
$ 8
|
$ -
|
$ 8
|
$ 14
|
$ (1)
|
$ 13
|
Investment securities:
|
||||||
Taxable
|
(149)
|
(150)
|
(299)
|
(248)
|
(281)
|
(529)
|
Tax-exempt
|
(33)
|
(84)
|
(117)
|
(84)
|
(160)
|
(244)
|
Total investments
|
(182)
|
(234)
|
(416)
|
(332)
|
(441)
|
(773)
|
Loans:
|
||||||
Residential mortgage loans
|
(67)
|
(156)
|
(223)
|
(179)
|
(328)
|
(507)
|
Construction
|
31
|
(23)
|
8
|
62
|
(25)
|
37
|
Commercial & farm loans
|
271
|
(312)
|
(41)
|
696
|
(799)
|
(103)
|
Loans to state & political subdivisions
|
35
|
(52)
|
(17)
|
72
|
(76)
|
(4)
|
Other loans
|
(11)
|
(5)
|
(16)
|
(18)
|
(10)
|
(28)
|
Total loans, net of discount
|
259
|
(548)
|
(289)
|
633
|
(1,238)
|
(605)
|
Total Interest Income
|
85
|
(782)
|
(697)
|
315
|
(1,680)
|
(1,365)
|
Interest Expense:
|
||||||
Interest-bearing deposits:
|
||||||
NOW accounts
|
4
|
(15)
|
(11)
|
4
|
(33)
|
(29)
|
Savings accounts
|
4
|
(9)
|
(5)
|
10
|
(15)
|
(5)
|
Money Market accounts
|
16
|
5
|
21
|
31
|
8
|
39
|
Certificates of deposit
|
(104)
|
(169)
|
(273)
|
(190)
|
(421)
|
(611)
|
Total interest-bearing deposits
|
(80)
|
(188)
|
(268)
|
(145)
|
(461)
|
(606)
|
Other borrowed funds
|
(126)
|
43
|
(83)
|
(248)
|
110
|
(138)
|
Total interest expense
|
(206)
|
(145)
|
(351)
|
(393)
|
(351)
|
(744)
|
Net interest income
|
$ 291
|
$ (637)
|
$ (346)
|
$ 708
|
$ (1,329)
|
$ (621)
|
(1) The portion of the total change attributable to both volume and rate changes, which can not be separated, has been allocated proportionally to the change due to volume and the change due to rate prior to allocation.
|
·
|
The average balance of taxable securities decreased by $25.2 million while tax-exempt securities decreased by $2.8 million, which had the effect of decreasing interest income by $248,000 and $84,000, respectively, due to volume.
|
·
|
The yield on investment securities decreased 22 basis points from 3.21% to 2.99%, which corresponds to a decrease in interest income of $441,000. The majority of this decrease is attributable to the change in yield on taxable securities, which experienced a decrease of 26 basis points from 2.09% to 1.83%. The yield on investments declined due to the amount of purchases we made in the current low interest rate environment. For a discussion of the Company’s current investment strategy, see the “Financial Condition – Investments”.
|
·
|
The average balance of commercial and agricultural loans increased $14.3 million from a year ago as we continue to emphasize and strive for growth in this segment of the loan portfolio utilizing disciplined underwriting standards. This had a positive impact of $696,000 on total interest income due to volume, which was offset by a decrease of $799,000 due to rate, as the yield earned decreased from 6.31% to 5.87% due to the decreasing rate environment and increased competition.
|
·
|
Interest income on residential mortgage loans decreased $507,000 of which $328,000 was due to rate and $179,000 was due to decreased volume. The average balance decreased $5.1 million due to the significant refinancing of qualifying mortgages that were sold on the secondary market in the last three quarters of 2012 and the first quarter of 2013. The loans were sold to minimize future interest rate risk, while also being able to recognize a gain on the sale.
|
·
|
Interest expense on certificates of deposits decreased $611,000 over the same period last year. There was a decrease in the average rate on certificates of deposit from 1.75% to 1.44% resulting in a decrease in interest expense of $421,000. Additionally, the average balance of certificates of deposit decreased $22.3 million causing a decrease in interest expense of $190,000.
|
·
|
Interest expense on other borrowed funds decreased $138,000 over the same period last year. The average balance of other borrowed funds decreased $14.7 million causing a decrease in interest expense of $248,000. This decrease was offset by an increase the average rate on other borrowed funds of 32 basis points resulting in an increase in interest expense of $110,000. The increase in rate on the other borrowed funds is a result of the leveraging strategy utilized in 2012 that resulted in a significant amount of overnight borrowings with a cost of 25 basis points.
|
·
|
Total investment income decreased by $416,000 compared to same period last year. This was due to a $32.7 million decrease in the average balance of investment securities, which resulted in a decrease in income of $182,000, and a 21 point decrease in rate on investments from 3.17% to 2.96%, which equates to $234,000.
|
·
|
Total loan interest income decreased $289,000 compared to last year. This was predominantly due to a decrease in rate of 45 points from 6.18% to 5.73% offset by a change in volume as a result of a $17.6 million increase in average loans outstanding.
|
Six months ended June 30,
|
Change
|
|||
2013
|
2012
|
Amount
|
%
|
|
Service charges
|
$ 2,103
|
$ 2,207
|
$ (104)
|
(4.7)
|
Trust
|
370
|
324
|
46
|
14.2
|
Brokerage and insurance
|
213
|
225
|
(12)
|
(5.3)
|
Gains on loans sold
|
161
|
185
|
(24)
|
(13.0)
|
Investment securities gains, net
|
294
|
321
|
(27)
|
(8.4)
|
Earnings on bank owned life insurance
|
250
|
250
|
-
|
-
|
Other
|
204
|
233
|
(29)
|
(12.4)
|
Total
|
$ 3,595
|
$ 3,745
|
$ (150)
|
(4.0)
|
Three months ended June 30,
|
Change
|
|||
2013
|
2012
|
Amount
|
%
|
|
Service charges
|
$ 1,079
|
$ 1,129
|
$ (50)
|
(4.4)
|
Trust
|
169
|
151
|
18
|
11.9
|
Brokerage and insurance
|
121
|
75
|
46
|
61.3
|
Gains on loans sold
|
50
|
131
|
(81)
|
(61.8)
|
Investment securities gains, net
|
98
|
213
|
(115)
|
(54.0)
|
Earnings on bank owned life insurance
|
126
|
126
|
-
|
-
|
Other
|
100
|
104
|
(4)
|
(3.8)
|
Total
|
$ 1,743
|
$ 1,929
|
$ (186)
|
(9.6)
|
Six months ended
|
||||
June 30,
|
Change
|
|||
2013
|
2012
|
Amount
|
%
|
|
Salaries and employee benefits
|
$ 5,600
|
$ 5,421
|
$ 179
|
3.3
|
Occupancy
|
654
|
624
|
30
|
4.8
|
Furniture and equipment
|
215
|
202
|
13
|
6.4
|
Professional fees
|
417
|
492
|
(75)
|
(15.2)
|
FDIC insurance
|
225
|
238
|
(13)
|
(5.5)
|
Pennsylvania shares tax
|
365
|
326
|
39
|
12.0
|
ORE expenses
|
74
|
(31)
|
105
|
(338.7)
|
Other
|
2,104
|
2,121
|
(17)
|
(0.8)
|
Total
|
$ 9,654
|
$ 9,393
|
$ 261
|
2.8
|
|
Three months ended
|
|||
June 30,
|
Change
|
|||
2013
|
2012
|
Amount
|
%
|
|
Salaries and employee benefits
|
$ 2,795
|
$ 2,668
|
$ 127
|
4.8
|
Occupancy
|
312
|
314
|
(2)
|
(0.6)
|
Furniture and equipment
|
113
|
96
|
17
|
17.7
|
Professional fees
|
188
|
224
|
(36)
|
(16.1)
|
FDIC insurance
|
113
|
115
|
(2)
|
(1.7)
|
Pennsylvania shares tax
|
182
|
160
|
22
|
13.8
|
ORE expenses
|
31
|
(88)
|
119
|
(135.2)
|
Other
|
1,098
|
1,076
|
22
|
2.0
|
Total
|
$ 4,832
|
$ 4,565
|
$ 267
|
5.8
|
June 30, 2013
|
December 31, 2012
|
|||
Amount
|
%
|
Amount
|
%
|
|
Available-for-sale:
|
||||
U.S. agency securities
|
$ 137,880
|
44.8
|
$ 127,234
|
41.0
|
U.S. treasury securities
|
11,471
|
3.7
|
4,947
|
1.6
|
Obligations of state and
|
||||
political subdivisions
|
95,177
|
30.9
|
100,875
|
32.5
|
Corporate obligations
|
20,966
|
6.8
|
22,109
|
7.1
|
Mortgage-backed securities in
|
||||
government sponsored entities
|
40,880
|
13.3
|
53,673
|
17.3
|
Equity securities in financial
|
||||
institutions
|
1,561
|
0.5
|
1,414
|
0.5
|
Total
|
$ 307,935
|
100.0
|
$ 310,252
|
100.0
|
June 30, 2013/
|
||
December 31, 2012
|
||
Change
|
||
(dollars in thousands)
|
Amount
|
%
|
Available-for-sale:
|
||
U.S. agency securities
|
$ 10,646
|
8.4
|
U.S. treasury securities
|
6,524
|
131.9
|
Obligations of state and
|
||
political subdivisions
|
(5,698)
|
(5.6)
|
Corporate obligations
|
(1,143)
|
(5.2)
|
Mortgage-backed securities in
|
||
government sponsored entities
|
(12,793)
|
(23.8)
|
Equity securities in financial
|
||
institutions
|
147
|
10.4
|
Total
|
$ (2,317)
|
(0.7)
|
June 30,
|
December 31,
|
|||
2013
|
2012
|
|||
Amount
|
%
|
Amount
|
%
|
|
Real estate:
|
||||
Residential
|
$ 180,782
|
35.1
|
$ 178,080
|
35.4
|
Commercial
|
178,480
|
34.6
|
176,710
|
35.2
|
Agricultural
|
19,647
|
3.8
|
18,015
|
3.6
|
Construction
|
13,455
|
2.6
|
12,011
|
2.4
|
Consumer
|
10,062
|
2.0
|
10,559
|
2.1
|
Commercial and other loans
|
54,073
|
10.5
|
47,880
|
9.5
|
State & political subdivision loans
|
59,237
|
11.4
|
59,208
|
11.8
|
Total loans
|
515,736
|
100.0
|
502,463
|
100.0
|
Less allowance for loan losses
|
6,989
|
6,784
|
||
Net loans
|
$ 508,747
|
$ 495,679
|
June 30, 2013/
|
||
December 31, 2012
|
||
Change
|
||
Amount
|
%
|
|
Real estate:
|
||
Residential
|
$ 2,702
|
1.5
|
Commercial
|
1,771
|
1.0
|
Agricultural
|
1,631
|
9.1
|
Construction
|
1,444
|
12.0
|
Consumer
|
(497)
|
(4.7)
|
Commercial and other loans
|
6,193
|
12.9
|
State & political subdivision loans
|
29
|
0.0
|
Total loans
|
$ 13,273
|
2.6
|
June 30,
|
December 31,
|
||||
2013
|
2012
|
2011
|
2010
|
2009
|
|
Balance
|
|||||
at beginning of period
|
$ 6,784
|
$ 6,487
|
$ 5,915
|
$ 4,888
|
$ 4,378
|
Charge-offs:
|
|||||
Real estate:
|
|||||
Residential
|
(13)
|
(95)
|
(101)
|
(147)
|
(76)
|
Commercial
|
-
|
(2)
|
(29)
|
(53)
|
(236)
|
Agricultural
|
-
|
-
|
-
|
-
|
(1)
|
Consumer
|
(30)
|
(54)
|
(71)
|
(35)
|
(80)
|
Commercial and other loans
|
-
|
(21)
|
(6)
|
(173)
|
(153)
|
Total loans charged-off
|
(43)
|
(172)
|
(207)
|
(408)
|
(546)
|
Recoveries:
|
|||||
Real estate:
|
|||||
Residential
|
2
|
-
|
-
|
4
|
1
|
Commercial
|
-
|
9
|
15
|
11
|
1
|
Agricultural
|
-
|
-
|
-
|
-
|
-
|
Consumer
|
21
|
33
|
57
|
45
|
52
|
Commercial and other loans
|
-
|
7
|
32
|
120
|
77
|
Total loans recovered
|
23
|
49
|
104
|
180
|
131
|
Net loans charged-off
|
(20)
|
(123)
|
(103)
|
(228)
|
(415)
|
Provision charged to expense
|
225
|
420
|
675
|
1,255
|
925
|
Balance at end of year
|
$ 6,989
|
$ 6,784
|
$ 6,487
|
$ 5,915
|
$ 4,888
|
Loans outstanding at end of period
|
$ 515,736
|
$ 502,463
|
$ 487,509
|
$ 473,517
|
$ 456,384
|
Average loans outstanding, net
|
$ 508,477
|
$ 496,822
|
$ 474,972
|
$ 468,620
|
$ 442,921
|
Non-performing assets:
|
|||||
Non-accruing loans
|
$ 8,206
|
$ 8,067
|
$ 9,165
|
$ 11,853
|
$ 5,871
|
Accrual loans - 90 days or more past due
|
253
|
506
|
275
|
692
|
884
|
Total non-performing loans
|
$ 8,459
|
$ 8,573
|
$ 9,440
|
$ 12,545
|
$ 6,755
|
Foreclosed assets held for sale
|
670
|
616
|
860
|
693
|
302
|
Total non-performing assets
|
$ 9,129
|
$ 9,189
|
$ 10,300
|
$ 13,238
|
$ 7,057
|
Annualized net charge-offs to average loans
|
0.01%
|
0.02%
|
0.02%
|
0.05%
|
0.09%
|
Allowance to total loans
|
1.36%
|
1.35%
|
1.33%
|
1.25%
|
1.07%
|
Allowance to total non-performing loans
|
82.62%
|
79.13%
|
68.72%
|
47.15%
|
72.36%
|
Non-performing loans as a percent of loans
|
|||||
net of unearned income
|
1.64%
|
1.71%
|
1.94%
|
2.65%
|
1.48%
|
Non-performing assets as a percent of loans
|
|||||
net of unearned income
|
1.77%
|
1.83%
|
2.11%
|
2.80%
|
1.55%
|
June 30
|
December 31
|
|||||||||
2013
|
2012
|
2011
|
2010
|
2009
|
||||||
Amount
|
%
|
Amount
|
%
|
Amount
|
%
|
Amount
|
%
|
Amount
|
%
|
|
Real estate loans:
|
||||||||||
Residential
|
$ 934
|
35.1
|
$ 875
|
35.4
|
$ 805
|
37.7
|
$ 969
|
39.1
|
$ 801
|
42.7
|
Commercial, agricultural
|
4,240
|
38.4
|
4,437
|
38.8
|
4,132
|
37.9
|
3,380
|
36.2
|
2,864
|
33.6
|
Construction
|
91
|
2.6
|
38
|
2.4
|
15
|
1.7
|
22
|
2.1
|
20
|
1.2
|
Consumer
|
114
|
2.0
|
119
|
2.1
|
111
|
2.2
|
108
|
2.4
|
131
|
2.6
|
Commercial and other loans
|
957
|
10.5
|
728
|
9.5
|
674
|
9.1
|
983
|
10.0
|
918
|
9.7
|
State & political subdivision loans
|
310
|
11.4
|
271
|
11.8
|
235
|
11.4
|
137
|
10.1
|
93
|
10.1
|
Unallocated
|
343
|
N/A
|
316
|
N/A
|
515
|
N/A
|
316
|
N/A
|
61
|
N/A
|
Total allowance for loan losses
|
$ 6,989
|
100.0
|
$ 6,784
|
100.0
|
$ 6,487
|
100.0
|
$ 5,915
|
100.0
|
$ 4,888
|
100.0
|
June 30, 2013
|
December 31, 2012
|
||||||||
Non-Performing Loans
|
Non-Performing Loans
|
||||||||
30 - 90 Days
|
90 Days Past
|
Non-
|
Total Non-
|
30 - 90 Days
|
90 Days Past
|
Non-
|
Total Non-
|
||
Past Due
|
Due Accruing
|
accrual
|
Performing
|
Past Due
|
Due Accruing
|
accrual
|
Performing
|
||
Real estate:
|
|||||||||
Residential
|
$ 1,152
|
$ 101
|
$ 609
|
$ 710
|
$ 1,108
|
$ 332
|
$ 663
|
$ 995
|
|
Commercial
|
60
|
137
|
7,241
|
7,378
|
597
|
152
|
7,042
|
7,194
|
|
Agricultural
|
-
|
-
|
-
|
-
|
54
|
-
|
-
|
-
|
|
Construction
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Consumer
|
59
|
-
|
-
|
-
|
87
|
4
|
-
|
4
|
|
Commercial and other loans
|
915
|
15
|
356
|
371
|
932
|
18
|
362
|
380
|
|
Total nonperforming loans
|
$ 2,186
|
$ 253
|
$ 8,206
|
$ 8,459
|
$ 2,778
|
$ 506
|
$ 8,067
|
$ 8,573
|
Change in Non-Performing Loans
|
||
June 30, 2013 /December 31, 2012
|
||
Amount
|
%
|
|
Real estate:
|
||
Residential
|
$ (285)
|
(28.6)
|
Commercial
|
184
|
2.6
|
Agricultural
|
-
|
N/A
|
Construction
|
-
|
N/A
|
Consumer
|
(4)
|
(100.0)
|
Commercial and other loans
|
(9)
|
(2.4)
|
Total nonperforming loans
|
$ (114)
|
(1.3)
|
·
|
A commercial customer with a total loan relationship of $4.3 million secured by 164 residential properties was considered non-accrual as of June 30, 2013. In the first quarter of 2011, the Company and borrower entered into a forbearance agreement to restructure the debt. As a result of all loan payments being made on the loans through June 30, 2013, there is no specific reserve allocation as of June 30, 2013 and the loan continues to pay in accordance with the restructured agreement. During the first six months of 2013, the Bank updated a sample of appraised values of the collateral associated with this relationship and performed other reviews to ensure that there was not a significant change in the collateral values. This review did not identify any significant changes in the collateral and as a result, the Bank believes that the loan is well collateralized. In July of 2013, the customer filed for bankruptcy under Chapter 11. We are evaluating what if any impact this will have on the collateral and on the loan payments.
|
·
|
A commercial customer with a relationship of approximately $969,000 was considered non-accrual as of June 30, 2013. $669,000 of the relationship is subject to USDA guarantees. The current economic conditions related to the timber industry have significantly impacted the cash flows from the customer’s activities. Management reviewed the collateral and guarantees and determined that a specific reserve allocation of $113,000 was required as of June 30, 2013 based on the appraised value of collateral.
|
·
|
A commercial customer with a relationship of approximately $936,000 secured by real estate was considered non-accrual as of June 30, 2013. The current economic conditions have significantly impacted the cash flows from the customer’s activities. Management reviewed the collateral and determined that a specific reserve allocation of $221,000 was required as of June 30, 2013 based on the appraised value of collateral.
|
·
|
A commercial customer with a relationship of approximately $585,000 secured by real estate was considered non-accrual as of June 30, 2013. The slow down in the exploration for natural gas has significantly impacted the cash flows of the customer. Management reviewed the collateral and determined that a specific reserve allocation of $64,000 was required as of June 30, 2013 based on the appraised value of collateral.
|
·
|
While non-performing loans are still higher than the Company’s historical levels, 52.7% of this balance is associated with one customer, whose debt is current through June 30, 2013.
|
·
|
Net and gross charge-offs continue to be low in relation to the size of the Bank’s loan portfolio and compared to our peer group.
|
·
|
We have not experienced the significant decrease in the collateral values of local residential, commercial or agricultural real estate loan portfolios as seen in other parts of the country. Additionally, our market area is predominately centered in the Marcellus Shale natural gas exploration and drilling area. These natural gas exploration and drilling activities have significantly impacted the overall interest in real estate in our market area due to the related lease and royalty revenues associated with it. The natural gas activities have had a positive impact on the value of local real estate.
|
June 30,
|
December 31,
|
|||
2013
|
2012
|
|||
Amount
|
%
|
Amount
|
%
|
|
Non-interest-bearing deposits
|
$ 86,852
|
11.6
|
$ 89,494
|
12.1
|
NOW accounts
|
214,783
|
28.7
|
201,804
|
27.4
|
Savings deposits
|
92,747
|
12.4
|
87,836
|
11.9
|
Money market deposit accounts
|
83,638
|
11.2
|
83,423
|
11.3
|
Certificates of deposit
|
269,994
|
36.1
|
274,539
|
37.3
|
Total
|
$ 748,014
|
100.0
|
$ 737,096
|
100.0
|
June 30, 2013/
|
||
December 31, 2012
|
||
Change
|
||
Amount
|
%
|
|
Non-interest-bearing deposits
|
$ (2,642)
|
(3.0)
|
NOW accounts
|
12,979
|
6.4
|
Savings deposits
|
4,911
|
5.6
|
Money market deposit accounts
|
215
|
0.3
|
Certificates of deposit
|
(4,545)
|
(1.7)
|
Total
|
$ 10,918
|
1.5
|
June 30,
|
December 31,
|
|||||
2013
|
2012
|
|||||
Total capital (to risk-weighted assets)
|
Amount
|
Ratio
|
Amount
|
Ratio
|
||
Company
|
$ 96,099
|
17.95%
|
$ 90,889
|
17.50%
|
||
For capital adequacy purposes
|
42,820
|
8.00%
|
41,546
|
8.00%
|
||
To be well capitalized
|
53,525
|
10.00%
|
51,932
|
10.00%
|
||
Tier I capital (to risk-weighted assets)
|
||||||
Company
|
$ 89,075
|
16.64%
|
$ 84,166
|
16.21%
|
||
For capital adequacy purposes
|
21,410
|
4.00%
|
20,773
|
4.00%
|
||
To be well capitalized
|
32,115
|
6.00%
|
31,159
|
6.00%
|
||
Tier I capital (to average assets)
|
||||||
Company
|
$ 89,075
|
10.18%
|
$ 84,166
|
9.70%
|
||
For capital adequacy purposes
|
34,989
|
4.00%
|
34,692
|
4.00%
|
||
To be well capitalized
|
43,737
|
5.00%
|
43,366
|
5.00%
|
June 30,
|
December 31,
|
|||||
2013
|
2012
|
|||||
Total capital (to risk-weighted assets)
|
Amount
|
Ratio
|
Amount
|
Ratio
|
||
Bank
|
$ 92,592
|
17.35%
|
$ 87,215
|
16.84%
|
||
For capital adequacy purposes
|
42,682
|
8.00%
|
41,425
|
8.00%
|
||
To be well capitalized
|
53,353
|
10.00%
|
51,781
|
10.00%
|
||
Tier I capital (to risk-weighted assets)
|
||||||
Bank
|
$ 85,781
|
16.08%
|
$ 80,702
|
15.59%
|
||
For capital adequacy purposes
|
21,341
|
4.00%
|
20,713
|
4.00%
|
||
To be well capitalized
|
32,012
|
6.00%
|
31,069
|
6.00%
|
||
Tier I capital (to average assets)
|
||||||
Bank
|
$ 85,781
|
9.82%
|
$ 80,702
|
9.32%
|
||
For capital adequacy purposes
|
34,924
|
4.00%
|
34,634
|
4.00%
|
||
To be well capitalized
|
43,655
|
5.00%
|
43,293
|
5.00%
|
Commitments to extend credit
|
$92,710
|
Standby letters of credit
|
3,160
|
$95,870
|
ISSUER PURCHASES OF EQUITY SECURITIES
|
||||
Period
|
Total Number of Shares
(or units Purchased)
|
Average
Price Paid
per Share
(or Unit)
|
Total Number of Shares
(or Units) Purchased as
Part of Publicly
Announced Plans of
Programs
|
Maximum Number (or
Approximate Dollar
Value) of Shares (or
Units) that May Yet Be
Purchased Under the
Plans or Programs (1)
|
4/1/13 to 4/31/13
|
-
|
$0.00
|
-
|
114,821
|
5/1/13 to 5/31/13
|
-
|
$0.00
|
-
|
114,821
|
6/1/13 to 6/30/13
|
-
|
$0.00
|
-
|
114,821
|
Total
|
-
|
$0.00
|
-
|
114,821
|
(1)
|
On January 17, 2012, the Company announced that the Board of Directors authorized the Company to repurchase up to an additional 140,000 shares. The repurchases will be conducted through open-market purchases or privately negotiated transactions and will be made from time to time depending on market conditions and other factors. No time limit was placed on the duration of the share repurchase program. Any repurchased shares will be held as treasury stock and will be available for general corporate purposes.
|
3.1
|
Articles of Incorporation of Citizens Financial Services, Inc., as amended (1)
|
||
3.2
|
Bylaws of Citizens Financial Services, Inc.(2)
|
||
4.1
|
Form of Common Stock Certificate.(3)
|
||
10.1
|
*First Citizens Community Bank Annual Incentive Plan
|
||
31.1
|
Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
|
||
31.2
|
Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
|
||
32.1
|
Section 1350 Certification of Chief Executive Officer and Chief Financial Officer
|
||
101 **
|
The following materials from the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2013, formatted in XBRL (Extensible Business Reporting Language): (i) The Consolidated Balance Sheet (unaudited), (ii) the Consolidated Statement of Income (unaudited), (iii) the Consolidated Statement of Comprehensive Income (unaudited), (iv) the Consolidated Statement of Cash Flows (unaudited) and (v) related notes (unaudited).
|
Citizens Financial Services, Inc.
(Registrant)
|
|||
August 8, 2013
|
By:
|
/s/ Randall E. Black | |
Randall E. Black
|
|||
President and Chief Executive Officer
(Principal Executive Officer)
|
|||
August 8, 2013
|
By:
|
/s/ Mickey L. Jones | |
Mickey L. Jones | |||
Chief Financial Officer
(Principal Accounting Officer)
|
|||
|
|
Ÿ
|
Reward results, not effort.
|
|
|
|
|
Ÿ
|
Align the Employer’s strategic plan, budget, and shareholder interests with participant performance.
|
|
|
|
|
Ÿ
|
Motivate and reward participants for achieving /exceeding performance goals.
|
|
|
|
|
Ÿ
|
Align incentive pay with performance.
|
|
|
|
|
Ÿ
|
Enable the Employer to attract and retain talent needed to drive the success of the Bank and the Company.
|
|
|
|
|
Ÿ
|
Encourage teamwork across the Bank and the Company.
|
A.
|
The Company’s Compensation/Human Resource Committee (the “Committee”), in consultation with executive management, determines each participant’s Incentive Award Opportunity under the Plan. Notwithstanding the foregoing, the Company’s named executive officers (as noted in the Company’s annual proxy statement) do not participate in the determination of their annual Incentive Award Opportunities. As noted in Section III (B) of this Plan, Incentive Award Opportunities are shown as a percentage of “base salary” as such term is defined in Section II (C) of this Plan. Actual awards vary based on Company, Bank, Departmental/Branch and individual performance (see Section IV – Performance Measures) and range from 0% of base salary (not achieving minimal performance) to 50% of base salary (achieving exceptional performance).
|
B.
|
The following table sets forth the Incentive Award Opportunities for the various positions at the Bank and the Company level. These incentive targets are reviewed annually by the Committee to ensure the awards remain competitive. The Committee determines the competitiveness of the Incentive Award Opportunities based on industry standards. As noted in Section III (A) above, Incentive Award Opportunities are illustrated as a percentage of a participant’s “base salary” (as defined in paragraph C below).
|
Incentive Award Opportunities
|
|||
Position
|
Minimum
|
Target
|
Maximum
|
CEO/President
|
0.0%
|
25.0%
|
50.0%
|
Executive Management:
|
|||
Chief Operating Officer/
Chief Financial Officer
|
0.0%
|
20.0%
|
40.0%
|
Senior Credit Officer
|
0.0%
|
15.0%
|
30.0%
|
Senior Management
(as determined by the Committee)
|
0.0%
|
10.0%
|
25.0%
|
Branch Administrator/Small Business Underwriter
|
0.0%
|
7.5%
|
15.0%
|
Senior Business Development Officers
(“BDO”)
|
0.0%
|
10.0%
|
20.0%
|
BDO
|
0.0%
|
7.5%
|
15.0%
|
Junior BDO
|
0.0%
|
6.0%
|
12.0%
|
Mid-level Management:
|
|||
Corporate Managers
|
0.0%
|
5.0%
|
10.0%
|
Branch Managers – “A Branches”
|
0.0%
|
6.0%
|
12.0%
|
Branch Managers – “B&C Branches”
|
0.0%
|
5.0%
|
10.0%
|
Staff:
|
|||
Corporate Staff
|
0.0%
|
4.0%
|
8.0%
|
Branch Staff
|
0.0%
|
4.0%
|
8.0%
|
Internal Auditor/ Risk Compliance
|
0.0%
|
4.0%
|
8.0%
|
C.
|
Exclusively for purposes of this Plan, “base salary” is defined as the compensation earned by a participant during the Plan Year for services rendered to the Employer, excluding the following items:
|
·
|
Profit sharing contributions
|
·
|
Other discretionary incentive compensation (such as leadership awards and service awards)
|
·
|
Cash payments received for waiving Employer-paid health insurance
|
·
|
Cell phone allowances
|
·
|
Fringe benefits
|
A.
|
Corporate/Bank Performance Measures: The Company/Bank goals focus on Return on Equity (ROE), Return on Assets (ROA), Earnings Per Share (EPS) Growth, Total Shareholder Return, Efficiency Ratio, Credit Quality and Bank and Regulatory Ratings (CAMEL rating and SOX compliance). These goals are core measures of profitability and efficiency of Bank and Company resources. The Committee generally analyzes these performance measures based on three-year averages as compared to its peer group. The Committee will review the Bank’s peer group on an annual basis. The current peer group is set forth on Appendix A to this Plan. When determining whether the Corporate/Bank Performance Measures have been realized, the Compensation Committee will review public peer data compiled by the President/Chief Executive Officer and Chief Operating Officer/Chief Financial Officer of the Bank.
|
B.
|
Branch/Department Performance Measures: The Branch/Department goals vary, however they include, but are not limited to: deposit growth, asset quality and loan production. Executive Management works with the Committee on an annual basis to determine the specific Branch and Department performance measures.
|
C.
|
Individual Performance Measures: Ten percent (10%) of each participant’s Incentive Award Opportunity is based on his or her individual performance. The Committee uses each participant’s annual employee performance rating to measure individual performance under the Plan. As noted below, a “distinguished” performance rating will result in 100% credit for the Individual Performance component of a participant’s Incentive Award and a rating below “competent” will result in zero credit for the Individual Performance component of a participant’s Incentive Award.
|
|
D. The following table sets forth the weighting of the Performance Measures for 2013.
|
Position
|
Company/Bank
Measures
|
Department/
Branch Measures
|
Individual
Measures
|
CEO/President
|
80%
|
10%
|
10%
|
Executive Management:
|
|||
Chief Operating Officer/
Chief Financial Officer
|
70%
|
20%
|
10%
|
Senior Credit Officer
|
60%
|
30%
|
10%
|
Senior Management
(as determined by the Committee,
excluding Information Systems
Manager and Head of Retail)
|
50%
|
40%
|
10%
|
Information Systems Manager
|
60%
|
30%
|
10%
|
Head of Retail
|
30%
|
60%
|
10%
|
Branch Administrator/Small Business Underwriter
|
30%
|
60%
|
10%
|
Senior BDO / BDO / Junior BDO
|
30%
|
60%
|
10%
|
Mid-level Management:
|
|||
Corporate Managers
|
40%
|
50%
|
10%
|
Branch Managers – A, B & C
Branches
|
30%
|
60%
|
10%
|
Staff:
|
|||
Corporate Staff
|
40%
|
50%
|
10%
|
Branch Staff
|
30%
|
60%
|
10%
|
Internal Auditor / Risk Compliance
|
35%
|
55%
|
10%
|
A.
|
Each participant is given a performance scorecard for the Plan Year. The scorecard sets forth each participant’s Company/Bank performance goals, Branch or Departmental performance goals (as applicable) and the participant’s performance review rating for the applicable Plan year. The Company/Bank performance goals and the Branch/Department performance goals are established prior to the commencement of the applicable Performance Period. The President/Chief Executive Officer and Chief Operating Officer/Chief Financial Officer of the Company evaluate the achievement of the Bank/Company performance goals and review the results with the Committee. The President/Chief Executive Officer and Chief Operating Officer/Chief Financial Officer use the peer group set forth in Appendix A when evaluating the Employer’s achievement of certain Company/Bank performance measures. Executive Management, in consultation with Senior Management, evaluates the achievement of the Department/Branch Performance goals and reviews the results with the Committee. Upon review of the satisfaction of the performance measures, the Chief Operating Officer/Chief Financial Officer completes a scorecard for each of the Plan participants and provides the scorecard to the Committee for review. The Committee, in its sole discretion, determines the payments made under this Plan in light of the results on the scorecards and the overall financial performance of the Bank and the Company.
|
B.
|
Awards may be paid out in cash or Company common stock (“Restricted Stock”) at the discretion of the Committee. However, the President/Chief Executive Officer and members of Executive and Senior Management, as well as Branch Administrator/Small Business Underwriter and Business Development Officers will receive their Incentive Award payouts (if any) as follows:
|
Bank
|
Location
|
State
|
Adams County National Bank
|
Gettysburg
|
PA
|
Chemung Canal Trust Company
|
Elmira
|
NY
|
Citizens and Northern
|
Wellsboro
|
PA
|
CNB Bank
|
Clearfield
|
PA
|
Elmira Savings Bank
|
Elmira
|
NY
|
First Keystone National Bank
|
Berwick
|
PA
|
F&M Trust
|
Chambersburg
|
PA
|
Orrstown Bank
|
Shippensburg
|
PA
|
Jersey Shore State Bank
|
Williamsport
|
PA
|
Penn Security Bank & Trust
|
Scranton
|
PA
|
Peoples Neighborhood Bank
|
Hallstead
|
PA
|
QNB Bank
|
Quakertown
|
PA
|
3rd Federal Bank
|
Newtown
|
PA
|
AmeriServ Financial
|
Johnstown
|
PA
|
Ephrata National Bank
|
Ephrata
|
PA
|
Mid Penn Bank
|
Millersburg
|
PA
|
First Columbia Bank & Trust Company
|
Bloomsburg
|
PA
|
Dime Bank
|
Honesdale
|
PA
|
First National Community Bank
|
Dunmore
|
PA
|
Wayne Bank | Honesdale | PA |
Somerset Trust Company | Somerset | PA |
First Summit Bank | Johnstown | PA |
ESSA Bank & Trust | Stroudsburg | PA |
Fidelity Bank
|
Dunmore
|
PA
|
First Citizens Community Bank
|
Mansfield
|
PA
|
|
|
|
Date: August 8, 2013 | By: | /s/ Randall E. Black |
|
||
By: Randall E. Black
President and Chief Executive Officer
(Principal Executive Officer)
|
|
|
|
Date: August 8, 2013 | By: | /s/ Mickey L. Jones |
|
||
By: Mickey L. Jones
Chief Financial Officer
(Principal Accounting Officer)
|
1.
|
The Report fully complies with the requirements of section 13(a) or 15 (d) 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 as of and for the periods covered in the Report.
|
|
|||
Date: August 8, 2013
|
By:
|
/s/ Randall E. Black | |
By: Randall E. Black | |||
President and Chief Executive Officer
(Principal Executive Officer)
|
|||
Date: August 8, 2013
|
By:
|
/s/ Mickey L. Jones | |
By: Mickey L. Jones | |||
Chief Financial Officer
(Principal Accounting Officer)
|
|||
Earnings per Share (Tables)
|
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2013
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Earnings per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Computation of earnings per share | The following table sets forth the computation of earnings per share. Earnings per share calculations give retroactive effect to stock dividends declared by the Company.
|
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED) (USD $)
In Thousands, except Per Share data, unless otherwise specified |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2013
|
Jun. 30, 2012
|
Jun. 30, 2013
|
Jun. 30, 2012
|
|
INTEREST INCOME: | ||||
Interest and fees on loans | $ 7,141 | $ 7,439 | $ 14,278 | $ 14,904 |
Interest-bearing deposits with banks | 9 | 1 | 19 | 6 |
Investment securities: | ||||
Taxable | 936 | 1,237 | 1,899 | 2,434 |
Nontaxable | 844 | 920 | 1,713 | 1,874 |
Dividends | 18 | 16 | 38 | 32 |
TOTAL INTEREST INCOME | 8,948 | 9,613 | 17,947 | 19,250 |
INTEREST EXPENSE: | ||||
Deposits | 1,287 | 1,555 | 2,615 | 3,221 |
Borrowed funds | 310 | 393 | 668 | 806 |
TOTAL INTEREST EXPENSE | 1,597 | 1,948 | 3,283 | 4,027 |
NET INTEREST INCOME | 7,351 | 7,665 | 14,664 | 15,223 |
Provision for loan losses | 75 | 105 | 225 | 210 |
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES | 7,276 | 7,560 | 14,439 | 15,013 |
NON-INTEREST INCOME: | ||||
Service charges | 1,079 | 1,129 | 2,103 | 2,207 |
Trust | 169 | 151 | 370 | 324 |
Brokerage and insurance | 121 | 75 | 213 | 225 |
Investment securities gains | 98 | 213 | 294 | 321 |
Gains on loans sold | 50 | 131 | 161 | 185 |
Earnings on bank owned life insurance | 126 | 126 | 250 | 250 |
Other | 100 | 104 | 204 | 233 |
TOTAL NON-INTEREST INCOME | 1,743 | 1,929 | 3,595 | 3,745 |
NON-INTEREST EXPENSES: | ||||
Salaries and employee benefits | 2,795 | 2,668 | 5,600 | 5,421 |
Occupancy | 312 | 314 | 654 | 624 |
Furniture and equipment | 113 | 96 | 215 | 202 |
Professional fees | 188 | 224 | 417 | 492 |
FDIC insurance | 113 | 115 | 225 | 238 |
Pennsylvania shares tax | 182 | 160 | 365 | 326 |
Other | 1,129 | 988 | 2,178 | 2,090 |
TOTAL NON-INTEREST EXPENSES | 4,832 | 4,565 | 9,654 | 9,393 |
Income before provision for income taxes | 4,187 | 4,924 | 8,380 | 9,365 |
Provision for income taxes | 907 | 1,171 | 1,813 | 2,163 |
NET INCOME | $ 3,280 | $ 3,753 | $ 6,567 | $ 7,202 |
PER COMMON SHARE DATA: | ||||
Net Income - Basic (in dollars per share) | $ 1.08 | $ 1.23 | $ 2.17 | $ 2.35 |
Net Income - Diluted (in dollars per share) | $ 1.08 | $ 1.23 | $ 2.16 | $ 2.35 |
Cash Dividends Paid (in dollars per share) | $ 0.271 | $ 0.283 | $ 0.543 | $ 0.562 |
Investments
|
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2013
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Investments [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Investments | Note 4 – Investments The amortized cost and fair value of investment securities at June 30, 2013 and December 31, 2012 were as follows (in thousands):
The following table shows the Company’s gross unrealized losses and fair value of the Company’s investments with unrealized losses that are not deemed to be other-than-temporarily impaired, aggregated by investment category and length of time, which individual securities have been in a continuous unrealized loss position, at June 30, 2013 and December 31, 2012 (in thousands). As of June 30, 2013, the Company owned 74 securities whose fair value was less than their cost basis.
As of June 30, 2013, the Company’s investment securities portfolio contained unrealized losses on agency securities issued or backed by the full faith and credit of the United States government or are generally viewed as having the implied guarantee of the U.S. government, U.S treasuries, obligations of states and political subdivisions, corporate obligations and mortgage backed securities in government sponsored entities. For fixed maturity investments management considers whether the present value of cash flows expected to be collected are less than the security’s amortized cost basis (the difference defined as the credit loss), the magnitude and duration of the decline, the reasons underlying the decline and the Company’s intent to sell the security or whether it is more likely than not that the Company would be required to sell the security before its anticipated recovery in market value, to determine whether the loss in value is other than temporary. Once a decline in value is determined to be other than temporary, if the Company does not intend to sell the security, and it is more likely than not that it will not be required to sell the security before recovery of the security’s amortized cost basis, the charge to earnings is limited to the amount of credit loss. Any remaining difference between fair value and amortized cost (the difference defined as the non-credit portion) is recognized in other comprehensive income, net of applicable taxes. Otherwise, the entire difference between fair value and amortized cost is charged to earnings. For equity securities where the fair value has been significantly below cost for one year, the Company’s policy is to recognize an impairment loss unless sufficient evidence is available that the decline is not other than temporary and a recovery period can be predicted. The Company has concluded that any impairment of its investment securities portfolio outlined in the above table is not other than temporary and is the result of interest rate changes, sector credit rating changes, or company-specific rating changes that are not expected to result in the non-collection of principal and interest during the period. Proceeds from sales of securities available-for-sale for the six months ended June 30, 2013 and 2012 were $15,773,000 and $16,654,000, respectively. For the three months ended June 30, 2013 and 2012, there were sales of $11,917,000 and $5,418,000, respectively, of available-for-sale securities. The gross gains and losses were as follows (in thousands):
Investment securities with an approximate carrying value of $189.9 million and $193.3 million at June 30, 2013 and December 31, 2012, respectively, were pledged to secure public funds and certain other deposits. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. The amortized cost and fair value of debt securities at June 30, 2013, by contractual maturity, are shown below (in thousands):
|
Investments (Tables)
|
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2013
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Investments [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of amortized cost and fair value of investment securities | The amortized cost and fair value of investment securities at June 30, 2013 and December 31, 2012 were as follows (in thousands):
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Unrealized losses and fair value of investments | The following table shows the Company’s gross unrealized losses and fair value of the Company’s investments with unrealized losses that are not deemed to be other-than-temporarily impaired, aggregated by investment category and length of time, which individual securities have been in a continuous unrealized loss position, at June 30, 2013 and December 31, 2012 (in thousands). As of June 30, 2013, the Company owned 74 securities whose fair value was less than their cost basis.
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Gross gains and losses on available-for-sale securities | Proceeds from sales of securities available-for-sale for the six months ended June 30, 2013 and 2012 were $15,773,000 and $16,654,000, respectively. For the three months ended June 30, 2013 and 2012, there were sales of $11,917,000 and $5,418,000, respectively, of available-for-sale securities. The gross gains and losses were as follows (in thousands):
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of amortized cost and fair value of debt securities by contractual maturity | Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. The amortized cost and fair value of debt securities at June 30, 2013, by contractual maturity, are shown below (in thousands):
|
Loans, Credit Quality Indicator (Details) (USD $)
|
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2013
|
Dec. 31, 2012
|
Jun. 30, 2013
Minimum [Member]
|
Jun. 30, 2013
Maximum [Member]
|
Jun. 30, 2013
Real Estate Loans [Member]
Mortgages [Member]
|
Dec. 31, 2012
Real Estate Loans [Member]
Mortgages [Member]
|
Jun. 30, 2013
Real Estate Loans [Member]
Home Equity [Member]
|
Dec. 31, 2012
Real Estate Loans [Member]
Home Equity [Member]
|
Jun. 30, 2013
Real Estate Loans [Member]
Commercial [Member]
|
Dec. 31, 2012
Real Estate Loans [Member]
Commercial [Member]
|
Jun. 30, 2013
Real Estate Loans [Member]
Agricultural [Member]
|
Dec. 31, 2012
Real Estate Loans [Member]
Agricultural [Member]
|
Jun. 30, 2013
Real Estate Loans [Member]
Construction [Member]
|
Dec. 31, 2012
Real Estate Loans [Member]
Construction [Member]
|
Jun. 30, 2013
Consumer [Member]
|
Dec. 31, 2012
Consumer [Member]
|
Jun. 30, 2013
Other Commercial Loans [Member]
|
Dec. 31, 2012
Other Commercial Loans [Member]
|
Jun. 30, 2013
Other Agricultural Loans [Member]
|
Dec. 31, 2012
Other Agricultural Loans [Member]
|
Jun. 30, 2013
State and Political Subdivision Loans [Member]
|
Dec. 31, 2012
State and Political Subdivision Loans [Member]
|
Jun. 30, 2013
Pass [Member]
|
Dec. 31, 2012
Pass [Member]
|
Jun. 30, 2013
Pass [Member]
Real Estate Loans [Member]
Commercial [Member]
|
Dec. 31, 2012
Pass [Member]
Real Estate Loans [Member]
Commercial [Member]
|
Jun. 30, 2013
Pass [Member]
Real Estate Loans [Member]
Agricultural [Member]
|
Dec. 31, 2012
Pass [Member]
Real Estate Loans [Member]
Agricultural [Member]
|
Jun. 30, 2013
Pass [Member]
Real Estate Loans [Member]
Construction [Member]
|
Dec. 31, 2012
Pass [Member]
Real Estate Loans [Member]
Construction [Member]
|
Jun. 30, 2013
Pass [Member]
Other Commercial Loans [Member]
|
Dec. 31, 2012
Pass [Member]
Other Commercial Loans [Member]
|
Jun. 30, 2013
Pass [Member]
Other Agricultural Loans [Member]
|
Dec. 31, 2012
Pass [Member]
Other Agricultural Loans [Member]
|
Jun. 30, 2013
Pass [Member]
State and Political Subdivision Loans [Member]
|
Dec. 31, 2012
Pass [Member]
State and Political Subdivision Loans [Member]
|
Jun. 30, 2013
Special Mention [Member]
|
Dec. 31, 2012
Special Mention [Member]
|
Jun. 30, 2013
Special Mention [Member]
Real Estate Loans [Member]
Commercial [Member]
|
Dec. 31, 2012
Special Mention [Member]
Real Estate Loans [Member]
Commercial [Member]
|
Jun. 30, 2013
Special Mention [Member]
Real Estate Loans [Member]
Agricultural [Member]
|
Dec. 31, 2012
Special Mention [Member]
Real Estate Loans [Member]
Agricultural [Member]
|
Jun. 30, 2013
Special Mention [Member]
Real Estate Loans [Member]
Construction [Member]
|
Dec. 31, 2012
Special Mention [Member]
Real Estate Loans [Member]
Construction [Member]
|
Jun. 30, 2013
Special Mention [Member]
Other Commercial Loans [Member]
|
Dec. 31, 2012
Special Mention [Member]
Other Commercial Loans [Member]
|
Jun. 30, 2013
Special Mention [Member]
Other Agricultural Loans [Member]
|
Dec. 31, 2012
Special Mention [Member]
Other Agricultural Loans [Member]
|
Jun. 30, 2013
Special Mention [Member]
State and Political Subdivision Loans [Member]
|
Dec. 31, 2012
Special Mention [Member]
State and Political Subdivision Loans [Member]
|
Jun. 30, 2013
Substandard [Member]
|
Dec. 31, 2012
Substandard [Member]
|
Jun. 30, 2013
Substandard [Member]
Real Estate Loans [Member]
Commercial [Member]
|
Dec. 31, 2012
Substandard [Member]
Real Estate Loans [Member]
Commercial [Member]
|
Jun. 30, 2013
Substandard [Member]
Real Estate Loans [Member]
Agricultural [Member]
|
Dec. 31, 2012
Substandard [Member]
Real Estate Loans [Member]
Agricultural [Member]
|
Jun. 30, 2013
Substandard [Member]
Real Estate Loans [Member]
Construction [Member]
|
Dec. 31, 2012
Substandard [Member]
Real Estate Loans [Member]
Construction [Member]
|
Jun. 30, 2013
Substandard [Member]
Other Commercial Loans [Member]
|
Dec. 31, 2012
Substandard [Member]
Other Commercial Loans [Member]
|
Jun. 30, 2013
Substandard [Member]
Other Agricultural Loans [Member]
|
Dec. 31, 2012
Substandard [Member]
Other Agricultural Loans [Member]
|
Jun. 30, 2013
Substandard [Member]
State and Political Subdivision Loans [Member]
|
Dec. 31, 2012
Substandard [Member]
State and Political Subdivision Loans [Member]
|
Jun. 30, 2013
Doubtful [Member]
|
Dec. 31, 2012
Doubtful [Member]
|
Jun. 30, 2013
Doubtful [Member]
Real Estate Loans [Member]
Commercial [Member]
|
Dec. 31, 2012
Doubtful [Member]
Real Estate Loans [Member]
Commercial [Member]
|
Jun. 30, 2013
Doubtful [Member]
Real Estate Loans [Member]
Agricultural [Member]
|
Dec. 31, 2012
Doubtful [Member]
Real Estate Loans [Member]
Agricultural [Member]
|
Jun. 30, 2013
Doubtful [Member]
Real Estate Loans [Member]
Construction [Member]
|
Dec. 31, 2012
Doubtful [Member]
Real Estate Loans [Member]
Construction [Member]
|
Jun. 30, 2013
Doubtful [Member]
Other Commercial Loans [Member]
|
Dec. 31, 2012
Doubtful [Member]
Other Commercial Loans [Member]
|
Jun. 30, 2013
Doubtful [Member]
Other Agricultural Loans [Member]
|
Dec. 31, 2012
Doubtful [Member]
Other Agricultural Loans [Member]
|
Jun. 30, 2013
Doubtful [Member]
State and Political Subdivision Loans [Member]
|
Dec. 31, 2012
Doubtful [Member]
State and Political Subdivision Loans [Member]
|
Jun. 30, 2013
Loss [Member]
|
Dec. 31, 2012
Loss [Member]
|
Jun. 30, 2013
Loss [Member]
Real Estate Loans [Member]
Commercial [Member]
|
Dec. 31, 2012
Loss [Member]
Real Estate Loans [Member]
Commercial [Member]
|
Jun. 30, 2013
Loss [Member]
Real Estate Loans [Member]
Agricultural [Member]
|
Dec. 31, 2012
Loss [Member]
Real Estate Loans [Member]
Agricultural [Member]
|
Jun. 30, 2013
Loss [Member]
Real Estate Loans [Member]
Construction [Member]
|
Dec. 31, 2012
Loss [Member]
Real Estate Loans [Member]
Construction [Member]
|
Jun. 30, 2013
Loss [Member]
Other Commercial Loans [Member]
|
Dec. 31, 2012
Loss [Member]
Other Commercial Loans [Member]
|
Jun. 30, 2013
Loss [Member]
Other Agricultural Loans [Member]
|
Dec. 31, 2012
Loss [Member]
Other Agricultural Loans [Member]
|
Jun. 30, 2013
Loss [Member]
State and Political Subdivision Loans [Member]
|
Dec. 31, 2012
Loss [Member]
State and Political Subdivision Loans [Member]
|
Jun. 30, 2013
Internally Assigned Grade [Member]
|
Dec. 31, 2012
Internally Assigned Grade [Member]
|
Jun. 30, 2013
Performing [Member]
|
Dec. 31, 2012
Performing [Member]
|
Jun. 30, 2013
Performing [Member]
Real Estate Loans [Member]
Mortgages [Member]
|
Dec. 31, 2012
Performing [Member]
Real Estate Loans [Member]
Mortgages [Member]
|
Jun. 30, 2013
Performing [Member]
Real Estate Loans [Member]
Home Equity [Member]
|
Dec. 31, 2012
Performing [Member]
Real Estate Loans [Member]
Home Equity [Member]
|
Jun. 30, 2013
Performing [Member]
Consumer [Member]
|
Dec. 31, 2012
Performing [Member]
Consumer [Member]
|
Jun. 30, 2013
Nonperforming [Member]
|
Dec. 31, 2012
Nonperforming [Member]
|
Jun. 30, 2013
Nonperforming [Member]
Real Estate Loans [Member]
Mortgages [Member]
|
Dec. 31, 2012
Nonperforming [Member]
Real Estate Loans [Member]
Mortgages [Member]
|
Jun. 30, 2013
Nonperforming [Member]
Real Estate Loans [Member]
Home Equity [Member]
|
Dec. 31, 2012
Nonperforming [Member]
Real Estate Loans [Member]
Home Equity [Member]
|
Jun. 30, 2013
Nonperforming [Member]
Consumer [Member]
|
Dec. 31, 2012
Nonperforming [Member]
Consumer [Member]
|
|
Financing Receivable, Recorded Investment [Line Items] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Percentage of dollar volume of commercial loan portfolio to be reviewed, minimum (in hundredths) | 55.00% | 60.00% | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Amount over which all relationships to be reviewed, minimum | $ 500,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Amount which is 90 days past due to be reviewed for all aggregate loan relationships, minimum | 100,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Financing Receivable by credit exposure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total | $ 190,844,000 | $ 188,639,000 | $ 111,940,000 | $ 106,548,000 | $ 68,842,000 | $ 71,532,000 | $ 178,480,000 | $ 176,710,000 | $ 19,647,000 | $ 18,015,000 | $ 13,455,000 | $ 12,011,000 | $ 10,062,000 | $ 10,559,000 | $ 44,658,000 | $ 41,620,000 | $ 9,415,000 | $ 6,260,000 | $ 59,237,000 | $ 59,208,000 | $ 289,584,000 | $ 277,785,000 | $ 152,901,000 | $ 149,892,000 | $ 15,042,000 | $ 13,690,000 | $ 13,455,000 | $ 12,011,000 | $ 41,744,000 | $ 39,239,000 | $ 7,205,000 | $ 4,833,000 | $ 59,237,000 | $ 58,120,000 | $ 10,390,000 | $ 11,417,000 | $ 6,141,000 | $ 7,616,000 | $ 2,713,000 | $ 2,386,000 | $ 0 | $ 0 | $ 601,000 | $ 826,000 | $ 935,000 | $ 589,000 | $ 0 | $ 0 | $ 24,698,000 | $ 24,547,000 | $ 19,227,000 | $ 19,127,000 | $ 1,892,000 | $ 1,939,000 | $ 0 | $ 0 | $ 2,304,000 | $ 1,555,000 | $ 1,275,000 | $ 838,000 | $ 0 | $ 1,088,000 | $ 220,000 | $ 75,000 | $ 211,000 | $ 75,000 | $ 0 | $ 0 | $ 0 | $ 0 | $ 9,000 | $ 0 | $ 0 | $ 0 | $ 0 | $ 0 | $ 0 | $ 0 | $ 0 | $ 0 | $ 0 | $ 0 | $ 0 | $ 0 | $ 0 | $ 0 | $ 0 | $ 0 | $ 0 | $ 0 | $ 324,892,000 | $ 313,824,000 | $ 190,134,000 | $ 187,640,000 | $ 111,395,000 | $ 105,822,000 | $ 68,677,000 | $ 71,263,000 | $ 10,062,000 | $ 10,555,000 | $ 710,000 | $ 999,000 | $ 545,000 | $ 726,000 | $ 165,000 | $ 269,000 | $ 0 | $ 4,000 |
Earnings per Share
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6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2013
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Earnings per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Earnings per Share | Note 2 - Earnings per Share The following table sets forth the computation of earnings per share. Earnings per share calculations give retroactive effect to stock dividends declared by the Company.
For the three months ended June 30, 2013 there were no anti-dilutive securities, compared to 2,447 shares for the three months ended June 30, 2012 related to the restricted stock program that were excluded from the diluted earnings per share calculations since they were anti-dilutive. For the six months ended June 30, 2013 and 2012, 1,415 and 4,115 shares, respectively, related to the restricted stock program were excluded from the diluted earnings per share calculations since they were anti-dilutive. |
Loans
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6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2013
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Loans [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Loans | Note 5 – Loans The Company grants loans primarily to customers throughout North Central Pennsylvania and Southern New York. Although the Company had a diversified loan portfolio at June 30, 2013 and December 31, 2012, a substantial portion of its debtors’ ability to honor their contracts is dependent on the economic conditions within these regions. The following table summarizes the primary segments of the loan portfolio and how those segments are analyzed within the allowance for loan losses as of June 30, 2013 and December 31, 2012 (in thousands):
The segments of the Bank’s loan portfolio are disaggregated into classes to a level that allows management to monitor risk and performance. Residential real estate mortgages consists primarily of 15 to 30 year first mortgages on residential real estate, while residential real estate home equity loans are consumer purpose installment loans or lines of credit secured by a mortgage which is often a second lien on residential real estate with terms of 15 years or less. Commercial real estate loans are business purpose loans secured by a mortgage on commercial real estate. Agricultural real estate loans are loans secured by a mortgage on real estate used in agriculture production. Construction real estate loans are loans secured by residential or commercial real estate used during the construction phase of residential and commercial projects. Consumer loans are typically unsecured or primarily secured by something other than real estate and overdraft lines of credit connected with customer deposit accounts. Other commercial loans are loans for commercial purposes primarily secured by non-real estate collateral. Other agricultural loans are loans for agricultural purposes primarily secured by non-real estate collateral. State and political subdivisions are loans for state and local municipalities for capital and operating expenses or tax free loans used to finance commercial development. Management considers commercial loans, other agricultural loans, commercial real estate loans and agricultural real estate loans which are 90 days or more past due to be impaired. Management will also consider a loan impaired based on other factors it becomes aware of, including the customer’s results of operations and cash flows or if the loan is modified in a troubled debt restructuring. In addition, certain residential mortgages, home equity and consumer loans that are cross collateralized with commercial relationships that are determined to be impaired may also be classified as impaired. Impaired loans are analyzed to determine if it is probable that all amounts will not be collected according to the contractual terms of the loan agreement. If management determines that the value of the impaired 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 allocation of the allowance for loan losses or a charge-off to the allowance for loan losses. The following table includes the recorded investment and unpaid principal balances for impaired financing receivables by class, with the associated allowance amount, if applicable (in thousands):
The following table includes the average balance of impaired financing receivables by class and the income recognized on impaired loans for the three and six month periods ended June 30, 2013 and 2012(in thousands):
Credit Quality Information For commercial real estate, agricultural real estate, construction, other commercial, other agricultural and state and political subdivision loans, management uses a nine point internal risk rating system to monitor the credit quality. The first five categories are considered not criticized and are aggregated as “Pass” rated. The criticized rating categories utilized by management generally follow bank regulatory definitions. The definitions of each rating are defined below:
To help ensure that risk ratings are accurate and reflect the present and future capacity of borrowers to repay loan as agreed, the Bank’s loan rating process includes several layers of internal and external oversight. The Company’s loan officers are responsible for the timely and accurate risk rating of the loans in each of their portfolios at origination and on an ongoing basis under the supervision of management. All commercial and agricultural loans are reviewed annually to ensure the appropriateness of the loan grade. In addition, the Bank engages an external consultant on at least an annual basis. The external consultant is engaged to 1) review a minimum of 55% (60% during 2012) of the dollar volume of the commercial loan portfolio on an annual basis, 2) review new loans originated in the last year, 3) review all relationships in aggregate over $500,000, 4) review all aggregate loan relationships over $100,000 which are over 90 days past due or classified Special Mention, Substandard, Doubtful, or Loss, and 5) such other loans which management or the consultant deems appropriate. The following tables represent credit exposures by internally assigned grades as of June 30, 2013 and December 31, 2012 (in thousands):
For residential real estate mortgages, home equity and consumer loans, credit quality is monitored based on whether the loan is performing or non-performing, which is typically based on the aging status of the loan and payment activity, unless a specific action, such as bankruptcy, repossession, death or significant delay in payment occurs to raise awareness of a possible credit event. Non-performing loans include those loans that are considered nonaccrual, described in more detail below and all loans past due 90 or more days. The following table presents the recorded investment in those loan classes based on payment activity as of June 30, 2013 and December 31, 2012 (in thousands):
Age Analysis of Past Due Financing Receivables Management further monitors the performance and credit quality of the loan portfolio by analyzing the age of the portfolio as determined by the length of time a recorded payment is past due. The following table includes an aging analysis of the recorded investment of past due financing receivables as of June 30, 2013 and December 31, 2012 (in thousands):
Nonaccrual Loans Loans are considered for non-accrual status upon reaching 90 days delinquency, although the Company may be receiving partial payments of interest and partial repayments of principal on such loans or if full payment of principal and interest is not expected. Additionally, if management is made aware of other information including bankruptcy, repossession, death, or legal proceedings, the loan may be placed on non-accrual status. If a loan is 90 days or more past due and is well secured and in the process of collection, it may still be considered accruing. The following table reflects the financing receivables on non-accrual status as of June 30, 2013 and December 31, 2012, respectively. The balances are presented by class of financing receivable (in thousands):
Troubled Debt Restructurings In situations where, for economic or legal reasons related to a borrower's financial difficulties, management may grant a concession for other than an insignificant period of time to the borrower that would not otherwise be considered, the related loan is classified as a Troubled Debt Restructuring (TDR). Management strives to identify borrowers in financial difficulty early and work with them to modify more affordable terms before their loan reaches nonaccrual status. These modified terms may include rate reductions, principal forgiveness, payment forbearance and other actions intended to minimize the economic loss and to avoid foreclosure or repossession of the collateral. In cases where borrowers are granted new terms that provide for a reduction of either interest or principal, management measures any impairment on the restructuring by calculating the present value of the revised loan terms and comparing this balance to the Company’s investment in the loan prior to the restructuring. As these loans are individually evaluated, they are excluded from pooled portfolios when calculating the allowance for loan and lease losses and a separate allocation within the allowance for loan and lease losses is provided. Management continually evaluates loans that are considered TDRs, including payment history under the modified loan terms, the borrower’s ability to continue to repay the loan based on continued evaluation of their operating results and cash flows from operations. Based on this evaluation management would no longer consider a loan to be a TDR when the relevant facts support such a conclusion. There were no loan modifications that were considered TDRs during the three months ended June 30, 2013. Loan modifications that are considered TDRs completed during the six months ended June 30, 2013 and 2012 and the three months ended June 30, 2012, were as follows (dollars in thousands):
Recidivism, or the borrower defaulting on its obligation pursuant to a modified loan, results in the loan once again becoming a non-accrual loan. Recidivism occurs at a notably higher rate than do defaults on new origination loans, so modified loans present a higher risk of loss than do new origination loans. The following table presents the recorded investment in loans that were modified as TDRs during each 12-month period prior to the current reporting periods, which begin January 1, 2013 and 2012 (six month periods) and April 1, 2013 and 2012 (3 month periods), respectively, and that subsequently defaulted during these reporting periods (dollars in thousands):
Allowance for Loan Losses The following table segregates the allowance for loan losses (ALLL) into the amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment as of June 30, 2013 and December 31, 2012, respectively (in thousands):
The following tables roll forward the balance of the ALLL by portfolio segment for the three and six month periods ended June 30, 2013 and 2012, respectively (in thousands):
The Company allocates the ALLL based on the factors described below, which conform to the Company’s loan classification policy and credit quality measurements. In reviewing risk within the Bank’s loan portfolio, management has determined there to be several different risk categories within the loan portfolio. The ALLL consists of amounts applicable to: (i) residential real estate loans; (ii) residential real estate home equity loans; (iii) commercial real estate loans; (iv) agricultural real estate loans; (v) real estate construction loans; (vi) commercial and other loans; (vii) consumer loans; (viii) other agricultural loans and (ix) state and political subdivision loans. Factors considered in this process include general loan terms, collateral, and availability of historical data to support the analysis. Historical loss percentages are calculated and used as the basis for calculating allowance allocations. Certain qualitative factors are evaluated to determine additional inherent risks in the loan portfolio, which are not necessarily reflected in the historical loss percentages. These factors are then added to the historical allocation percentage to get the adjusted factor to be applied to non-classified loans. The following qualitative factors are analyzed:
The Company also maintains an unallocated allowance to account for any factors or conditions that may cause a potential loss but are not specifically addressed in the process described above. The Company analyzes its loan portfolio each quarter to determine the appropriateness of its allowance for loan losses. Loans determined to be TDRs are impaired and for purposes of estimating the ALLL must be individually evaluated for impairment. In calculating the impairment, the Company calculates the present value utilizing an analysis of discounted cash flows. If the present value calculated is below the recorded investment of the loan, impairment is recognized by a charge to the provision for loan and lease losses and a credit to the ALLL. We continually review the model utilized in calculating the required allowance. The following qualitative factors experienced changes during the first six months of 2013:
The following qualitative factors experienced changes during the three months ended June 30, 2013:
The following factors experienced changes during the first six months of 2012:
During the second quarter of 2012, there were no significant changes in any qualitative factor. As a result, the change in the allocation of the allowance from March 31, 2012, is mainly attributable to the changes in the loan portfolio balances since that date. |
Income Tax Expense
|
6 Months Ended |
---|---|
Jun. 30, 2013
|
|
Income Tax Expense [Abstract] | |
Income Tax Expense | Note 3 - Income Tax Expense Income tax expense is less than the amount calculated using the statutory tax rate, primarily as a result of tax-exempt income earned from state and municipal securities and loans and investments in tax credits. |
Loans, Past Due (Details) (USD $)
In Thousands, unless otherwise specified |
6 Months Ended | ||||||||||||||||||||||||||||
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Jun. 30, 2013
|
Dec. 31, 2012
|
Jun. 30, 2013
Minimum [Member]
|
Jun. 30, 2013
Loans Considered Non-Accrual [Member]
|
Dec. 31, 2012
Loans Considered Non-Accrual [Member]
|
Jun. 30, 2013
Loans Still Accruing [Member]
|
Dec. 31, 2012
Loans Still Accruing [Member]
|
Jun. 30, 2013
Real Estate Loans [Member]
Mortgages [Member]
|
Dec. 31, 2012
Real Estate Loans [Member]
Mortgages [Member]
|
Jun. 30, 2013
Real Estate Loans [Member]
Commercial and Agricultural [Member]
|
Dec. 31, 2012
Real Estate Loans [Member]
Commercial and Agricultural [Member]
|
Jun. 30, 2013
Real Estate Loans [Member]
Mortgages [Member]
|
Dec. 31, 2012
Real Estate Loans [Member]
Mortgages [Member]
|
Jun. 30, 2013
Real Estate Loans [Member]
Home Equity [Member]
|
Dec. 31, 2012
Real Estate Loans [Member]
Home Equity [Member]
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Jun. 30, 2013
Real Estate Loans [Member]
Commercial [Member]
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Dec. 31, 2012
Real Estate Loans [Member]
Commercial [Member]
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Jun. 30, 2013
Real Estate Loans [Member]
Agricultural [Member]
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Dec. 31, 2012
Real Estate Loans [Member]
Agricultural [Member]
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Jun. 30, 2013
Real Estate Loans [Member]
Construction [Member]
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Dec. 31, 2012
Real Estate Loans [Member]
Construction [Member]
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Jun. 30, 2013
Consumer [Member]
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Dec. 31, 2012
Consumer [Member]
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Jun. 30, 2013
Other Agricultural Loans [Member]
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Dec. 31, 2012
Other Agricultural Loans [Member]
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Jun. 30, 2013
State and Political Subdivision Loans [Member]
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Dec. 31, 2012
State and Political Subdivision Loans [Member]
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Jun. 30, 2013
Other Commercial Loans [Member]
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Dec. 31, 2012
Other Commercial Loans [Member]
|
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Recorded investment of past due [Abstract] | |||||||||||||||||||||||||||||
30 to 59 Days Past Due | $ 1,961 | $ 2,566 | $ 108 | $ 73 | $ 1,853 | $ 2,493 | $ 443 | $ 636 | $ 389 | $ 267 | $ 158 | $ 602 | $ 0 | $ 54 | $ 0 | $ 0 | $ 58 | $ 45 | $ 49 | $ 0 | $ 0 | $ 0 | $ 864 | $ 962 | |||||
60 to 89 Days Past Due | 333 | 354 | 0 | 69 | 333 | 285 | 214 | 294 | 117 | 17 | 0 | 0 | 0 | 0 | 0 | 0 | 1 | 43 | 0 | 0 | 0 | 0 | 1 | 0 | |||||
90 Days Or Greater | 3,409 | 3,185 | 3,156 | 2,679 | 253 | 506 | 450 | 493 | 140 | 222 | 2,496 | 2,149 | 0 | 0 | 0 | 0 | 0 | 4 | 0 | 0 | 0 | 0 | 323 | 317 | |||||
Total Past Due | 5,703 | 6,105 | 3,264 | 2,821 | 2,439 | 3,284 | 1,107 | 1,423 | 646 | 506 | 2,654 | 2,751 | 0 | 54 | 0 | 0 | 59 | 92 | 49 | 0 | 0 | 0 | 1,188 | 1,279 | |||||
Current | 510,033 | 496,358 | 4,942 | 5,246 | 505,091 | 491,112 | 110,833 | 105,125 | 68,196 | 71,026 | 175,826 | 173,959 | 19,647 | 17,961 | 13,455 | 12,011 | 10,003 | 10,467 | 9,366 | 6,260 | 59,237 | 59,208 | 43,470 | 40,341 | |||||
Total Loans | 515,736 | 502,463 | 8,206 | 8,067 | 507,530 | 494,396 | 180,782 | 178,080 | 198,127 | 194,725 | 111,940 | 106,548 | 68,842 | 71,532 | 178,480 | 176,710 | 19,647 | 18,015 | 13,455 | 12,011 | 10,062 | 10,559 | 9,415 | 6,260 | 59,237 | 59,208 | 44,658 | 41,620 | |
90 Days and Accruing | 253 | 506 | 63 | 244 | 38 | 88 | 137 | 152 | 0 | 0 | 0 | 0 | 0 | 4 | 0 | 0 | 0 | 0 | 15 | 18 | |||||||||
Period of past due after which loans considered as non accrual | 90 days | ||||||||||||||||||||||||||||
Financing receivables on nonaccrual status [Abstract] | |||||||||||||||||||||||||||||
Financing receivable nonaccrual status | $ 8,206 | $ 8,067 | $ 482 | $ 482 | $ 127 | $ 181 | $ 7,241 | $ 7,042 | $ 0 | $ 0 | $ 0 | $ 0 | $ 0 | $ 0 | $ 0 | $ 0 | $ 0 | $ 0 | $ 356 | $ 362 |