0001571049-16-019836.txt : 20161114 0001571049-16-019836.hdr.sgml : 20161111 20161114131022 ACCESSION NUMBER: 0001571049-16-019836 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 97 CONFORMED PERIOD OF REPORT: 20160930 FILED AS OF DATE: 20161114 DATE AS OF CHANGE: 20161114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HAWTHORN BANCSHARES, INC. CENTRAL INDEX KEY: 0000893847 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 431626350 STATE OF INCORPORATION: MO FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-23636 FILM NUMBER: 161993065 BUSINESS ADDRESS: STREET 1: 132 EAST HIGH STREET CITY: JEFFERSON CITY STATE: MO ZIP: 65101 BUSINESS PHONE: (573)761-6100 MAIL ADDRESS: STREET 1: P. O. BOX 688 CITY: JEFFERSON CITY STATE: MO ZIP: 65102 FORMER COMPANY: FORMER CONFORMED NAME: EXCHANGE NATIONAL BANCSHARES INC DATE OF NAME CHANGE: 19940323 10-Q 1 t1602634_10q.htm FORM 10-Q
 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One) 

xQuarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2016

or

¨Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from ______________ to ______________

 

Commission File Number: 0-23636

 

HAWTHORN BANCSHARES, INC.

(Exact name of registrant as specified in its charter)

 

Missouri   43-1626350

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

132 East High Street, Box 688, Jefferson City, Missouri 65102

(Address of principal executive offices)                                        (Zip Code)

  

(573) 761-6100

(Registrant’s telephone number, including area code)

 

N/A

(Former name, former address and former fiscal year, if changed since last report.)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes ¨ No

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x Yes ¨ No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.:

 

Large accelerated filer ¨ Accelerated filer ¨
Non-accelerated filer x (Do not check if a smaller reporting company) Smaller reporting company ¨

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨ Yes x No

 

As of November 09, 2016, the registrant had 5,624,310 shares of common stock, par value $1.00 per share, outstanding

 

 
   

 

 

Part I - Financial Information

Item 1. Financial Statements

 

HAWTHORN BANCSHARES, INC. AND SUBSIDIARIES

Consolidated Balance Sheets (unaudited)

 

   September 30,   December 31, 
(In thousands, except per share data)  2016   2015 
ASSETS          
Cash and due from banks  $19,106   $20,484 
Federal funds sold and other overnight interest-bearing deposits   19,788    7,893 
Cash and cash equivalents   38,894    28,377 
Investment in available-for-sale securities, at fair value   221,824    235,054 
Other investments and securities, at cost   9,240    8,037 
Total investment securities   231,064    243,091 
Loans   947,771    865,080 
Allowances for loan losses   (9,470)   (8,604)
Net loans   938,301    856,476 
Premises and equipment - net   35,591    36,389 
Mortgage servicing rights   2,370    2,847 
Other real estate and repossessed assets - net   14,438    15,992 
Accrued interest receivable   4,624    4,853 
Cash surrender value - life insurance   2,396    2,348 
Other assets   10,041    10,548 
Total assets  $1,277,719   $1,200,921 
LIABILITIES AND STOCKHOLDERS' EQUITY          
Deposits          
Non-interest bearing demand  $229,987   $208,035 
Savings, interest checking and money market   477,945    441,080 
Time deposits $100,000 and over   153,651    132,244 
Other time deposits   156,448    165,838 
Total deposits   1,018,031    947,197 
Federal funds purchased and securities sold under agreements to repurchase   28,504    56,834 
Subordinated notes   49,486    49,486 
Federal Home Loan Bank advances   79,000    50,000 
Accrued interest payable   408    382 
Other liabilities   9,502    9,736 
Total liabilities   1,184,931    1,113,635 
Stockholders’ equity:          
Common stock, $1 par value, authorized 15,000,000 shares; issued 5,822,357 and 5,605,202 shares, respectively   5,822    5,605 
Surplus   41,497    38,549 
Retained earnings   50,021    48,700 
Accumulated other comprehensive loss, net of tax   (567)   (2,018)
Treasury stock; 194,045 and 164,013 shares, at cost   (3,985)   (3,550)
Total stockholders’ equity   92,788    87,286 
Total liabilities and stockholders’ equity  $1,277,719   $1,200,921 

 

See accompanying notes to the consolidated financial statements (unaudited).

 

 2 

 

 

HAWTHORN BANCSHARES, INC. AND SUBSIDIARIES

Consolidated Statements of Income (unaudited)

 

   Three Months Ended   Nine Months Ended 
   September 30,   September 30, 
(In thousands, except per share amounts)  2016   2015   2016   2015 
INTEREST INCOME                    
Interest and fees on loans  $10,634   $10,713   $30,929   $30,891 
Interest on investment securities:                    
Taxable   754    872    2,523    2,663 
Nontaxable   119    169    381    524 
Federal funds sold and other overnight interest-bearing deposits   19    3    69    24 
Dividends on other securities   80    72    231    139 
Total interest income   11,606    11,829    34,133    34,241 
INTEREST EXPENSE                    
Interest on deposits:                    
Savings, interest checking and money market   291    241    874    738 
Time deposit accounts $100,000 and over   267    222    708    653 
Other time deposits   231    269    707    831 
Interest on federal funds purchased and securities sold under agreements to repurchase   13    12    51    28 
Interest on subordinated notes   375    325    1,095    958 
Interest on Federal Home Loan Bank advances   282    202    732    513 
Total interest expense   1,459    1,271    4,167    3,721 
Net interest income   10,147    10,558    29,966    30,520 
Provision for loan losses   300    0    975    250 
Net interest income after provision for loan losses   9,847    10,558    28,991    30,270 
NON-INTEREST INCOME                    
Service charges and other fees   882    903    2,544    2,597 
Bank card income and fees   593    632    1,875    1,849 
Trust department income   216    235    699    714 
Real estate servicing fees, net   (4)   177    (36)   357 
Gain on sale of mortgage loans, net   266    322    653    1,103 
Gain on sale of investment securities   111    0    602    8 
Other   61    67    185    157 
Total non-interest income   2,125    2,336    6,522    6,785 
NON-INTEREST EXPENSE                    
Salaries and employee benefits   5,063    5,320    15,718    15,798 
Occupancy expense, net   730    685    2,037    2,064 
Furniture and equipment expense   438    464    1,288    1,379 
Processing, network, and bank card expense   878    806    2,490    2,402 
Legal, examination, and professional fees   277    332    939    943 
FDIC insurance assessment   196    175    560    673 
Advertising and promotion   283    273    734    780 
Postage, printing, and supplies   244    250    771    794 
Real estate foreclosure expense (gains), net   49    (329)   232    (352)
Other   927    1,001    2,753    2,472 
Total non-interest expense   9,085    8,977    27,522    26,953 
Income before income taxes   2,887    3,917    7,991    10,102 
Income tax expense   1,003    1,378    2,697    3,497 
Net income   1,884    2,539    5,294    6,605 
Basic earnings per share  $0.33   $0.45   $0.94   $1.17 
Diluted earnings per share  $0.33   $0.45   $0.94   $1.17 

 

See accompanying notes to the consolidated financial statements (unaudited).

 

 3 

 

 

HAWTHORN BANCSHARES, INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income (unaudited)

 

   Three Months Ended   Nine Months Ended 
   September 30,   September 30, 
(In thousands)  2016   2015   2016   2015 
Net income  $1,884   $2,539   $5,294   $6,605 
Other comprehensive income (loss), net of tax                    
Investment securities available-for-sale:                    
Unrealized gain (loss) on investment securities available-for-sale, net of tax   (294)   993    1,788    627 
Adjustment for gain on sale of investment securities, net of tax   (69)   0    (373)   (5)
Defined benefit pension plans:                    
Amortization of prior service cost included in net periodic pension cost, net of tax   12    24    36    68 
Total other comprehensive income (loss)   (351)   1,017    1,451    690 
Total comprehensive income  $1,533   $3,556   $6,745   $7,295 

 

See accompanying notes to the consolidated financial statements (unaudited).

 

 4 

 

 

HAWTHORN BANCSHARES, INC. AND SUBSIDIARIES

Consolidated Statements of Stockholders' Equity (unaudited)

 

               Accumulated         
               Other       Total 
               Comprehensive       Stock - 
   Common       Retained   Income   Treasury   holders' 
(In thousands)  Stock   Surplus   Earnings   (Loss)   Stock   Equity 
Balance, December 31, 2014  $5,396   $35,901   $44,016   $(1,228)  $(3,517)  $80,568 
Net income   0    0    6,605    0    0    6,605 
Other comprehensive income   0    0    0    690    0    690 
Stock dividend   209    2,638    (2,847)   0    0    0 
Stock based compensation expense   0    5    0    0    0    5 
Cash dividends declared, common stock   0    0    (795)   0    0    (795)
Balance, September 30, 2015  $5,605   $38,544   $46,979   $(538)  $(3,517)  $87,073 
                               
Balance, December 31, 2015  $5,605   $38,549   $48,700   $(2,018)  $(3,550)  $87,286 
Net income   0    0    5,294    0    0    5,294 
Other comprehensive income   0    0    0    1,451    0    1,451 
Stock dividend   217    2,932    (3,149)   0    0    0 
Stock based compensation expense   0    16    0    0    0    16 
Purchases of treasury stock   0    0    0    0    (435)   (435)
Cash dividends declared, common stock   0    0    (824)   0    0    (824)
Balance, September 30, 2016  $5,822   $41,497   $50,021   $(567)  $(3,985)  $92,788 

 

See accompanying notes to the consolidated financial statements (unaudited).

 

 5 

 

 

HAWTHORN BANCSHARES, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows (unaudited)

 

   Nine Months Ended  September 30, 
(In thousands)  2016   2015 
Cash flows from operating activities:          
Net income  $5,294   $6,605 
Adjustments to reconcile net income to net cash provided by operating activities:          
Provision for loan losses   975    250 
Depreciation expense   1,432    1,454 
Net amortization of investment securities, premiums, and discounts   1,418    1,007 
Stock based compensation expense   16    5 
Change in fair value of mortgage servicing rights   690    291 
Gain on sale of investment securities   (602)   (8)
Gain on sales and dispositions of premises and equipment   (9)   (8)
Gain on sales and dispositions of other real estate and repossessed assets   (215)   (151)
Provision for other real estate owned   176    (6)
Decrease (increase) in accrued interest receivable   229    (93)
Increase in cash surrender value -life insurance   (48)   (45)
(Increase) decrease in other assets   (135)   2,224 
Increase in accrued interest payable   26    5 
(Decrease) increase in other liabilities   (243)   1,251 
Origination of mortgage loans for sale   (27,849)   (40,008)
Proceeds from the sale of mortgage loans   28,769    40,090 
Gain on sale of mortgage loans, net   (653)   (1,103)
Other, net   (155)   (194)
Net cash provided by operating activities   9,116    11,566 
Cash flows from investing activities:          
Net increase in loans   (85,087)   (21,892)
Purchase of available-for-sale debt securities   (102,000)   (81,595)
Proceeds from maturities of available-for-sale debt securities   42,441    24,188 
Proceeds from calls of available-for-sale debt securities   13,535    11,440 
Proceeds from sales of available-for-sale debt securities   60,720    720 
Proceeds from sales of FHLB stock   0    400 
Purchases of FHLB stock   (1,203)   (4,915)
Purchases of premises and equipment   (881)   (709)
Proceeds from sales of premises and equipment   9    11 
Proceeds from sales of other real estate and foreclosed assets   3,613    1,443 
Net cash used in investing activities   (68,853)   (70,909)
Cash flows from financing activities:          
Net increase in demand deposits   21,952    2,014 
Net increase in interest-bearing transaction accounts   36,865    10,819 
Net increase (decrease) in time deposits   12,017    (10,179)
Net (decrease) increase in federal funds purchased and securities sold under agreements to repurchase   (28,330)   9,792 
Repayment of FHLB advances   (16,000)   (55,000)
FHLB advances   45,000    92,000 
Purchases of treasury stock   (435)   0 
Cash dividends paid - common stock   (815)   (785)
Net cash provided by financing activities   70,254    48,661 
Net increase (decrease) in cash and cash equivalents   10,517    (10,682)
Cash and cash equivalents, beginning of period   28,377    42,809 
Cash and cash equivalents, end of period  $38,894   $32,127 

 

See accompanying notes to the consolidated financial statements (unaudited).

 

 6 

 

 

HAWTHORN BANCSHARES, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows (continued) (unaudited)

 

   Nine Months Ended  September 30, 
(In thousands)  2016   2015 
Supplemental disclosures of cash flow information:          
Cash paid during the year for:          
Interest  $4,141   $3,717 
Income taxes  $2,705   $1,559 
Noncash investing activities:          
Other real estate and repossessed assets acquired in settlement of loans  $2,020   $4,549 

 

See accompanying notes to the consolidated financial statements (unaudited).

 

 7 

 

 

Hawthorn Bancshares, Inc.
and subsidiaries

 

Notes to the Consolidated Financial Statements

 

(Unaudited)

 

(1)Summary of Significant Accounting Policies

 

Hawthorn Bancshares, Inc. (the Company) through its subsidiary, Hawthorn Bank (the Bank), provides a broad range of banking services to individual and corporate customers located within the communities in and surrounding Jefferson City, Columbia, Clinton, Warsaw, Springfield, Branson, and the greater Kansas City metropolitan area. The Company is subject to competition from other financial and nonfinancial institutions providing financial products. Additionally, the Company and its subsidiaries are subject to the regulations of certain regulatory agencies and undergo periodic examinations by those regulatory agencies.

 

The accompanying unaudited consolidated financial statements of the Company have been prepared in conformity with U.S. generally accepted accounting principles (U.S. GAAP) for interim financial information and with the instructions to Form10-Q, and Rule 10-01 of Regulation S-X. Accordingly, the unaudited consolidated financial statements do not include all of the information and disclosures required by U.S. GAAP for complete financial statements and should be read in conjunction with the consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015. Certain amounts in the 2015 condensed consolidated financial statements have been reclassified to conform to the 2016 condensed consolidated presentation. Such reclassifications have no effect on previously reported net income or stockholders’ equity.

 

The preparation of the consolidated financial statements includes all adjustments that, in the opinion of management, are necessary in order to make those statements not misleading. Management is required to make estimates and assumptions, including the determination of the allowance for loan losses, real estate acquired in connection with foreclosure or in satisfaction of loans, and fair values of investment securities available-for-sale that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Company’s management has evaluated and did not identify any subsequent events or transactions requiring recognition or disclosure in the consolidated financial statements.

 

Stock Dividend On July 1, 2016, the Company paid a special stock dividend of four percent to shareholders of record at the close of business on June 15, 2016. For all periods presented, share information, including basic and diluted earnings per share, has been adjusted retroactively to reflect this change.

 

The following represents significant new accounting principles adopted in 2016:

 

Consolidation The FASB issued ASU No. 2015-02, Amendments to the Consolidation Analysis, in February 2015. The amendment substantially changes the way reporting entities are required to evaluate whether they should consolidate certain legal entities. All legal entities are subject to reevaluation under the new amendment. Specifically, the amendments modify the evaluation of whether limited partnerships and similar legal entities are variable interest entities (VIEs) or voting interest entities, eliminate the presumption that a general partner should consolidate a limited partnership, and affect the consolidation analysis of reporting entities that are involved with VIEs. The amendments were effective for interim and annual periods beginning January 1, 2016. The adoption did not have a significant effect on the Company’s consolidated financial statements.

 

Intangible Assets The FASB issued ASU 2015-05, Customer's Accounting for Fees Paid in a Cloud Computing Arrangement, in April 2015. The amendments provide guidance to customers about whether a cloud computing arrangement includes a software license. Arrangements containing a license should be recorded as consistent with the acquisition of software licenses, whereas arrangements that do not include a software license should be recorded as consistent with the accounting for service contracts. These amendments were effective for interim and annual periods beginning January 1, 2016. The adoption did not have a significant effect on the Company's consolidated financial statements.

 

 8 

 

 

Hawthorn Bancshares, Inc.
and subsidiaries

 

Notes to the Consolidated Financial Statements

 

(Unaudited)

 

(2)Loans and Allowance for Loan Losses

 

Loans

 

A summary of loans, by major class within the Company’s loan portfolio, at September 30, 2016 and December 31, 2015 is as follows:

 

   September 30,   December 31, 
(in thousands)  2016   2015 
Commercial, financial, and agricultural  $172,274   $149,091 
Real estate construction - residential   17,066    16,895 
Real estate construction - commercial   48,743    33,943 
Real estate mortgage - residential   256,786    256,086 
Real estate mortgage - commercial   423,779    385,869 
Installment and other consumer   29,123    23,196 
Total loans  $947,771   $865,080 

 

The Bank grants real estate, commercial, installment, and other consumer loans to customers located within the communities surrounding Jefferson City, Columbia, Clinton, Warsaw, Springfield, Branson and the greater Kansas City metropolitan area. As such, the Bank is susceptible to changes in the economic environment in these communities. The Bank does not have a concentration of credit in any one economic sector. Installment and other consumer loans consist primarily of automobile financing. At September 30, 2016, loans with a carrying value of $472.9 million, or $388.3 million fair value, were pledged to the Federal Home Loan Bank as collateral for borrowings and letters of credit.

 

Allowance for Loan Losses

 

The following is a summary of the allowance for loan losses during the periods indicated.

 

   Three Months Ended September 30, 2016 
   Commercial,   Real Estate   Real Estate   Real Estate   Real Estate   Installment         
   Financial, &   Construction -   Construction -   Mortgage -   Mortgage -   Loans to   Un-     
(in thousands)  Agricultural   Residential   Commercial   Residential   Commercial   Individuals   allocated   Total 
Balance at beginning of period  $2,996   $63   $249   $2,293   $3,411   $284   $96   $9,392 
Additions:                                        
Provision for loan losses   (94)   (4)   44    (152)   450    50    6    300 
Deductions:                                        
Loans charged off   157    0    0    92    27    86    0    362 
Less recoveries on loans   (26)   0    0    (31)   (36)   (47)   0    (140)
Net loans charged off   131    0    0    61    (9)   39    0    222 
Balance at end of period  $2,771   $59   $293   $2,080   $3,870   $295   $102   $9,470 

 

   Nine Months Ended September 30, 2016 
   Commercial,   Real Estate   Real Estate   Real Estate   Real Estate   Installment         
   Financial, &   Construction -   Construction -   Mortgage -   Mortgage -   Loans to   Un-     
(in thousands)  Agricultural   Residential   Commercial   Residential   Commercial   Individuals   allocated   Total 
Balance at beginning of period  $2,153   $59   $644   $2,439   $2,935   $273   $101   $8,604 
Additions:                                        
Provision for loan losses   710    0    (852)   66    944    106    1    975 
Deductions:                                        
Loans charged off   295    0    1    474    137    209    0    1,116 
Less recoveries on loans   (203)   0    (502)   (49)   (128)   (125)   0    (1,007)
Net loans charged off   92    0    (501)   425    9    84    0    109 
Balance at end of period  $2,771   $59   $293   $2,080   $3,870   $295   $102   $9,470 

 

 9 

 

 

Hawthorn Bancshares, Inc.
and subsidiaries

 

Notes to the Consolidated Financial Statements

 

(Unaudited)

 

   Three Months Ended September 30, 2015 
   Commercial,   Real Estate   Real Estate   Real Estate   Real Estate   Installment         
   Financial, &   Construction -   Construction -   Mortgage -   Mortgage -   Loans to   Un-     
(in thousands)  Agricultural   Residential   Commercial   Residential   Commercial   Individuals   allocated   Total 
Balance at beginning of period  $3,124   $17   $414   $2,332   $3,870   $185   $44   $9,986 
Additions:                                        
Provision for loan losses   439    (27)   137    (233)   (503)   66    121    0 
Deductions:                                        
Loans charged off   591    0    0    87    126    80    0    884 
Less recoveries on loans   (28)   (28)   0    (45)   (5)   (38)   0    (144)
Net loans charged off   563    (28)   0    42    121    42    0    740 
Balance at end of period  $3,000   $18   $551   $2,057   $3,246   $209   $165   $9,246 

 

   Nine Months Ended September 30, 2015 
   Commercial,   Real Estate   Real Estate   Real Estate   Real Estate   Installment         
   Financial, &   Construction -   Construction -   Mortgage -   Mortgage -   Loans to   Un-     
(in thousands)  Agricultural   Residential   Commercial   Residential   Commercial   Individuals   allocated   Total 
Balance at beginning of period  $1,779   $171   $466   $2,527   $3,846   $270   $40   $9,099 
Additions:                                        
Provision for loan losses   1,319    (475)   90    (277)   (598)   66    125    250 
Deductions:                                        
Loans charged off   741    0    5    298    159    241    0    1,444 
Less recoveries on loans   (643)   (322)   0    (105)   (157)   (114)   0    (1,341)
Net loans (recovered) charged off   98    (322)   5    193    2    127    0    103 
Balance at end of period  $3,000   $18   $551   $2,057   $3,246   $209   $165   $9,246 

 

Loans, or portions of loans, are charged off to the extent deemed uncollectible or a loss is confirmed. Loan charge-offs reduce the allowance for loan losses, and recoveries of loans previously charged off are added back to the allowance. If management determines that it is probable that all amounts due on a loan will not be collected under the original terms of the loan agreement, the loan is considered to be impaired. These loans are evaluated individually for impairment and specific reserves are estimated as further discussed below. Loans not individually evaluated are aggregated by risk characteristics and reserves are recorded using a consistent methodology that considers historical loan loss experience by loan type, delinquencies, current economic conditions, loan risk ratings and industry concentration.

 

Beginning in the first quarter of 2016, the Company began to lengthen its look-back period with the intent to increase such period from three to five years over the next two years. The Company believes that the five-year look-back period, which is consistent with the Company’s practices prior to the start of the economic recession in 2008, provides a representative historical loss period in the current economic environment.

 

 10 

 

 

Hawthorn Bancshares, Inc.
and subsidiaries

 

Notes to the Consolidated Financial Statements

 

(Unaudited)

 

The following table provides the balance in the allowance for loan losses at September 30, 2016 and December 31, 2015, and the related loan balance by impairment methodology.

 

   Commercial,   Real Estate   Real Estate   Real Estate   Real Estate   Installment         
   Financial, and   Construction -   Construction -   Mortgage -   Mortgage -   Loans to   Un-     
(in thousands)  Agricultural   Residential   Commercial   Residential   Commercial   Individuals   allocated   Total 
September 30, 2016                                        
Allowance for loan losses:                                        
Individually evaluated for impairment  $632   $0   $8   $386   $262   $14   $0   $1,302 
Collectively evaluated for impairment   2,139    59    285    1,694    3,608    281    102    8,168 
Total  $2,771   $59   $293   $2,080   $3,870   $295   $102   $9,470 
Loans outstanding:                                        
Individually evaluated for impairment  $1,811   $0   $51   $5,195   $2,068   $117   $0   $9,242 
Collectively evaluated for impairment   170,463    17,066    48,692    251,591    421,711    29,006    0    938,529 
Total  $172,274   $17,066   $48,743   $256,786   $423,779   $29,123   $0   $947,771 
                                         
December 31, 2015                                        
Allowance for loan losses:                                        
Individually evaluated for impairment  $285   $0   $15   $955   $266   $19   $0   $1,540 
Collectively evaluated for impairment   1,868    59    629    1,484    2,669    254    101    7,064 
Total  $2,153   $59   $644   $2,439   $2,935   $273   $101   $8,604 
Loans outstanding:                                        
Individually evaluated for impairment  $1,005   $0   $102   $5,936   $3,081   $144   $0   $10,268 
Collectively evaluated for impairment   148,086    16,895    33,841    250,150    382,788    23,052    0    854,812 
Total  $149,091   $16,895   $33,943   $256,086   $385,869   $23,196   $0   $865,080 

 

Impaired Loans

 

Loans evaluated under ASC 310-10-35 include loans which are individually evaluated for impairment. All other loans are collectively evaluated for impairment under ASC 450-20. Impaired loans individually evaluated for impairment totaled $9.2 million and $10.3 million at September 30, 2016 and December 31, 2015, respectively, and are comprised of loans on non-accrual status and loans which have been classified as troubled debt restructurings (TDRs).

 

The net carrying value of impaired loans is generally based on the fair values of collateral obtained through independent appraisals or internal evaluations, less selling costs, or by discounting the total expected future cash flows. At September 30, 2016 and December 31, 2015, $4.7 million and $6.4 million, respectively, of impaired loans were evaluated based on the fair value less estimated selling costs of the loan’s collateral. Once the impairment amount is calculated a specific reserve allocation is recorded. At September 30, 2016, $1.3 million of the Company’s allowance for loan losses was allocated to impaired loans totaling $9.2 million compared to $1.5 million of the Company's allowance for loan losses allocated to impaired loans totaling $10.3 million at December 31, 2015. Management determined that $2.1 million, or 23%, of total impaired loans required no reserve allocation at September 30, 2016 compared to $4.5 million, or 44%, at December 31, 2015 primarily due to adequate collateral values, acceptable payment history and adequate cash flow ability.

 

 11 

 

 

Hawthorn Bancshares, Inc.
and subsidiaries

 

Notes to the Consolidated Financial Statements

 

(Unaudited)

 

The categories of impaired loans at September 30, 2016 and December 31, 2015 are as follows:

 

   September 30,   December 31, 
(in thousands)  2016   2015 
Non-accrual loans  $3,587   $4,418 
Performing TDRs   5,655    5,850 
Total impaired loans  $9,242   $10,268 

 

The following tables provide additional information about impaired loans at September 30, 2016 and December 31, 2015, respectively, segregated between loans for which an allowance has been provided and loans for which no allowance has been provided.

 

       Unpaid     
   Recorded   Principal   Specific 
(in thousands)  Investment   Balance   Reserves 
September 30, 2016               
With no related allowance recorded:               
Commercial, financial and agricultural  $787   $927   $0 
Real estate - residential   1,345    1,346    0 
Total  $2,132   $2,273   $0 
With an allowance recorded:               
Commercial, financial and agricultural  $1,024   $1,059   $632 
Real estate - construction commercial   51    56    8 
Real estate - residential   3,850    3,914    386 
Real estate - commercial   2,068    2,404    262 
Consumer   117    147    14 
Total  $7,110   $7,580   $1,302 
Total impaired loans  $9,242   $9,853   $1,302 

 

       Unpaid     
   Recorded   Principal   Specific 
(in thousands)  Investment   Balance   Reserves 
December 31, 2015               
With no related allowance recorded:               
Commercial, financial and agricultural  $448   $450   $0 
Real estate - residential   1,645    1,712    0 
Real estate - commercial   2,446    2,572    0 
Total  $4,539   $4,734   $0 
With an allowance recorded:               
Commercial, financial and agricultural  $557   $572   $285 
Real estate - construction commercial   102    115    15 
Real estate - residential   4,291    4,320    955 
Real estate - commercial   635    884    266 
Consumer   144    182    19 
Total  $5,729   $6,073   $1,540 
Total impaired loans  $10,268   $10,807   $1,540 

 

 12 

 

 

Hawthorn Bancshares, Inc.
and subsidiaries

 

Notes to the Consolidated Financial Statements

 

(Unaudited)

  

The following table presents by class, information related to the average recorded investment and interest income recognized on impaired loans during the periods indicated.

 

   Three Months Ended September 30,   Nine Months Ended September 30, 
   2016   2015   2016   2015 
       Interest       Interest       Interest       Interest 
   Average   Recognized   Average   Recognized   Average   Recognized   Average   Recognized 
   Recorded   For the   Recorded   For the   Recorded   For the   Recorded   For the 
(in thousands)  Investment   Period Ended   Investment   Period Ended   Investment   Period Ended   Investment   Period Ended 
With no related allowance recorded:                                        
Commercial, financial and agricultural  $460   $(9)  $3,416   $6   $491   $18   $4,033   $33 
Real estate - construction residential   0    0    0    0    0    0    1,101    0 
Real estate - construction commercial   0    0    0    0    0    0    2,002    0 
Real estate - residential   2,050    27    2,326    5    1,640    63    2,924    26 
Real estate - commercial   1,167    17    2,958    17    1,769    17    8,978    103 
Consumer   0    0    0    0    0    0    10    1 
Total  $3,677   $35   $8,700   $28   $3,900   $98   $19,048   $163 
With an allowance recorded:                                        
Commercial, financial and agricultural  $1,398   $(13)  $787   $5   $924   $9   $1,389   $18 
Real estate - construction residential   0    0    0    0    0    0    0    0 
Real estate - construction commercial   51    0    55    0    64    0    28    0 
Real estate - residential   2,992    20    4,850    30    3,741    78    4,713    80 
Real estate - commercial   811    14    1,228    0    717    61    1,216    0 
Consumer   118    (1)   162    0    123    0    209    0 
Total  $5,370   $20   $7,082   $35   $5,569   $148   $7,555   $98 
Total impaired loans  $9,047   $55   $15,782   $63   $9,469   $246   $26,603   $261 

 

The recorded investment varies from the unpaid principal balance primarily due to partial charge-offs taken resulting from current appraisals received. The amount recognized as interest income on impaired loans continuing to accrue interest, primarily related to troubled debt restructurings, was $55,000 and $246,000, for the three months and nine months ended September 30, 2016, respectively, compared to $63,000 and $261,000 for the three and nine months ended September 30, 2015, respectively. The average recorded investment in impaired loans is calculated on a monthly basis during the periods reported.

 

Delinquent and Non-Accrual Loans

 

The delinquency status of loans is determined based on the contractual terms of the notes. Borrowers are generally classified as delinquent once payments become 30 days or more past due. The Company’s policy is to discontinue the accrual of interest income on any loan when, in the opinion of management, the ultimate collectibility of interest or principal is no longer probable. In general, loans are placed on non-accrual when they become 90 days or more past due. However, management considers many factors before placing a loan on non-accrual, including the delinquency status of the loan, the overall financial condition of the borrower, the progress of management’s collection efforts and the value of the underlying collateral. Non-accrual loans are returned to accrual status when, in the opinion of management, the financial condition of the borrower indicates that the timely collectibility of interest and principal is probable and the borrower demonstrates the ability to pay under the terms of the note through a sustained period of repayment performance, which is generally six months.

 

The following table provides aging information for the Company’s past due and non-accrual loans at September 30, 2016 and December 31, 2015.

 

 13 

 

 

Hawthorn Bancshares, Inc.
and subsidiaries

 

Notes to the Consolidated Financial Statements

 

(Unaudited)

 

   Current or       90 Days         
   Less Than       Past Due         
   30 Days   30 - 89 Days   And Still         
(in thousands)  Past Due   Past Due   Accruing   Non-Accrual   Total 
September 30, 2016                         
Commercial, Financial, and Agricultural  $170,674   $443   $0   $1,157   $172,274 
Real Estate Construction - Residential   16,815    251    0    0    17,066 
Real Estate Construction - Commercial   48,692    0    0    51    48,743 
Real Estate Mortgage - Residential   253,884    1,138    60    1,704    256,786 
Real Estate Mortgage - Commercial   422,409    811    0    559    423,779 
Installment and Other Consumer   28,846    160    1    116    29,123 
Total  $941,320   $2,803   $61   $3,587   $947,771 
December 31, 2015                         
Commercial, Financial, and Agricultural  $148,597   $185   $1   $308   $149,091 
Real Estate Construction - Residential   16,895    0    0    0    16,895 
Real Estate Construction - Commercial   33,776    65    0    102    33,943 
Real Estate Mortgage - Residential   251,253    2,511    0    2,322    256,086 
Real Estate Mortgage - Commercial   383,684    643    0    1,542    385,869 
Installment and Other Consumer   22,840    207    5    144    23,196 
Total  $857,045   $3,611   $6   $4,418   $865,080 

 

Credit Quality

 

The Company categorizes loans into risk categories based upon an internal rating system reflecting management’s risk assessment. Loans are placed on watch status when one or more weaknesses that may result in the deterioration of the repayment exits or the Company’s credit position at some future date. Loans classified as substandard are inadequately protected by the current sound worth and paying capacity of the obligor or by the collateral pledged, if any. Loans so classified may have a well-defined weakness or weaknesses that jeopardize the repayment of the debt. Such loans are characterized by the distinct possibility that the Company may sustain some loss if the deficiencies are not corrected. A loan is classified as a troubled debt restructuring (TDR) when a borrower is experiencing financial difficulties that lead to the restructuring of a loan, where the Company grants concessions to the borrower in the restructuring that it would not otherwise consider. Loans classified as TDRs which continue to accrue interest are classified as performing TDRs. Loans classified as TDRs which are not accruing interest are classified as nonperforming TDRs and are included with all other nonaccrual loans for presentation purposes. It is the Company’s policy to discontinue the accrual of interest income on loans when management believes that the collection of interest or principal is doubtful. Loans are placed on non-accrual status when (1) deterioration in the financial condition of the borrower exists for which payment of full principal and interest is not expected, or (2) payment of principal or interest has been in default for a period of 90 days or more and the asset is not both well secured and in the process of collection. Subsequent interest payments received on such loans are applied to principal if any doubt exists as to the collectability of such principal; otherwise, such receipts are recorded as interest income on a cash basis.

 

 14 

 

 

Hawthorn Bancshares, Inc.
and subsidiaries

 

Notes to the Consolidated Financial Statements

 

(Unaudited)

 

The following table presents the risk categories by class at September 30, 2016 and December 31, 2015.

 

(in thousands)  Commercial,
Financial, &
Agricultural
   Real Estate
Construction -
Residential
   Real Estate
Construction -
Commercial
   Real Estate
Mortgage -
Residential
   Real Estate
Mortgage -
Commercial
   Installment
and other
Consumer
   Total 
At September 30, 2016                                   
Watch  $9,858   $662   $1,167   $18,078   $45,869   $0   $75,634 
Substandard   140    0    0    1,201    462    0    1,803 
Performing TDRs   654    0    0    3,492    1,509    0    5,655 
Non-accrual   1,157    0    51    1,704    559    116    3,587 
Total  $11,809   $662   $1,218   $24,475   $48,399   $116   $86,679 
At December 31, 2015                                   
Watch  $8,663   $1,267   $1,296   $22,191   $24,303   $186   $57,906 
Substandard   421    0    37    3,737    1,485    36    5,716 
Performing TDRs   697    0    0    3,615    1,538    0    5,850 
Non-accrual   308    0    102    2,322    1,542    144    4,418 
Total  $10,089   $1,267   $1,435   $31,865   $28,868   $366   $73,890 

 

Troubled Debt Restructurings

 

At September 30, 2016, loans classified as TDRs totaled $6.3 million, of which $597,000 were classified as nonperforming TDRs and included in non-accrual loans and $5.7 million were classified as performing TDRs. At December 31, 2015, loans classified as TDRs totaled $6.4 million, of which $527,000 were classified as nonperforming TDRs and included in non-accrual loans and $5.9 million were classified as performing TDRs. Both performing and nonperforming TDRs are considered impaired loans. When an individual loan is determined to be a TDR, the amount of impairment is based upon the present value of expected future cash flows discounted at the loan’s effective interest rate or the fair value of the underlying collateral less applicable selling costs. Accordingly, specific reserves of $445,000 and $910,000 related to TDRs were allocated to the allowance for loan losses at September 30, 2016 and December 31, 2015, respectively.

 

The following table summarizes loans that were modified as TDRs during the periods indicated.

 

 15 

 

 

Hawthorn Bancshares, Inc.
and subsidiaries

 

Notes to the Consolidated Financial Statements

 

(Unaudited)

 

   Three Months Ended September 30, 
   2016   2015 
   Recorded Investment (1)   Recorded Investment (1) 
(in thousands)  Number of
Contracts
   Pre-
Modification
   Post-
Modification
   Number of
Contracts
   Pre-
Modification
   Post-
Modification
 
Troubled Debt Restructurings                              
Commercial, financial and agricultural   2   $32   $32    0   $0   $0 
Real estate mortgage - residential   4    298    296    0    0    0 
Total   6   $330   $328    0   $0   $0 

 

   Nine Months Ended September 30, 
   2016   2015 
   Recorded Investment (1)   Recorded Investment (1) 
(in thousands)  Number of
Contracts
   Pre-
Modification
   Post-
Modification
   Number of
Contracts
   Pre-
Modification
   Post-
Modification
 
Troubled Debt Restructurings                              
Commercial, financial and agricultural   2   $32   $32    3   $250   $240 
Real estate mortgage - residential   5    376    374    3    510    464 
Real estate mortgage - commercial   0    0    0    4    1,273    1,137 
Total   7   $408   $406    10   $2,033   $1,841 

 

(1) The amounts reported post-modification are inclusive of all partial pay-downs and charge-offs, and no portion of the debt was forgiven. Loans modified as a TDR that were fully paid down, charged-off or foreclosed upon during the period ended are not reported.

 

The Company’s portfolio of loans classified as TDRs include concessions for the borrower given financial condition such as interest rates below the current market rate, deferring principal payments, and extending maturity dates. There were six loans and seven loans meeting the TDR criteria during the three and nine months ended September 30, 2016, respectively, compared to no loans and ten loans during the three and nine months ended September 30, 2015, respectively.

 

Upon default of a TDR, which is considered to be 90 days or more past due under the modified terms, impairment is measured based on the fair value of the underlying collateral less applicable selling costs. The impairment amount is either charged off as a reduction to the allowance for loan losses, provided for as a specific reserve within the allowance for loan losses, or in the process of foreclosure. There was one TDR that defaulted during the three and nine months ended September 30, 2016 and is in the process of foreclosure within twelve months of its modification date and no TDR’s defaulted during 2015. See Lending and Credit Management section for further information.

 

(3)Other Real Estate and Repossessed Assets

 

   September 30,   December 31, 
(in thousands)  2016   2015 
Commercial  $831   $1,445 
Real estate construction - commercial   12,380    12,380 
Real estate mortgage - residential   1,020    477 
Real estate mortgage - commercial   3,439    4,923 
Repossessed assets   28    0 
Total  $17,698   $19,225 
Less valuation allowance for other real estate owned   (3,260)   (3,233)
Total other real estate and repossessed assets  $14,438   $15,992 

 

 16 

 

 

Hawthorn Bancshares, Inc.
and subsidiaries

 

Notes to the Consolidated Financial Statements

 

(Unaudited)

 

Changes in the net carrying amount of other real estate and repossessed assets were as follows for the periods indicated:

 

   Three Months Ended September 30,   Nine Months Ended September 30, 
   2016   2015   2016   2015 
Balance at beginning of period  $18,462   $15,749   $19,225   $15,140 
Additions   386    3,032    2,020    4,549 
Proceeds from sales   (1,214)   (407)   (3,613)   (1,443)
Charge-offs against the valuation allowance for other real estate owned, net   (48)   0    (149)   (16)
Net gain on sales   112    7    215    151 
Total other real estate and repossessed assets  $17,698   $18,381   $17,698   $18,381 
Less valuation allowance for other real estate owned   (3,260)   (3,233)   (3,260)   (3,233)
Balance at end of period  $14,438   $15,148   $14,438   $15,148 

 

At September 30, 2016, $141,000 of consumer mortgage loans secured by residential real estate properties were in the process of foreclosure compared to $390,000 at December 31, 2015.

 

Activity in the valuation allowance for other real estate owned was as follows for the periods indicated:

 

   Three Months Ended September 30,   Nine Months Ended September 30, 
(in thousands)  2016   2015   2016   2015 
Balance, beginning of period  $3,208   $3,233   $3,233   $3,255 
Provision for other real estate owned   100    0    176    (6)
Charge-offs   (48)   0    (149)   (16)
Balance, end of period  $3,260   $3,233   $3,260   $3,233 

 

 17 

 

 

Hawthorn Bancshares, Inc.
and subsidiaries

 

Notes to the Consolidated Financial Statements

 

(Unaudited)

 

(4)Investment Securities

 

The amortized cost, contractual maturity, gross unrealized gains and losses, and fair value of debt securities classified as available-for-sale at September 30, 2016 and December 31, 2015 are shown below:

  

   Maturity*                 
                   Total             
   1 Year   1-5   5-10   After   Amortized   Gross Unrealized   Fair 
(in thousands)  or Less   Years   Years   10 Years   Cost   Gains   Losses   Value 
September 30, 2016                                        
U.S. government and federal agency obligations  $0   $0   $10,954   $2,494   $13,448   $13   $(121)  $13,340 
Government sponsored enterprises   3,010    30,595    0    0    33,605    82    (10)   33,677 
Obligations of states and political subdivisions   2,315    16,672    16,112    1,332    36,431    436    (100)   36,767 
Mortgage-backed securities:                                        
Residential - government agencies   1,040    115,679    17,789    1,516    136,024    1,159    (159)   137,024 
Commercial - government agencies   0    988    0    0    988    28    0    1,016 
Total mortgage-backed securities   1,040    116,667    17,789    1,516    137,012    1,187    (159)   138,040 
Total available-for-sale securities  $6,365   $163,934   $44,855   $5,342   $220,496   $1,718   $(390)  $221,824 
                                         
December 31, 2015                                        
Government sponsored enterprises  $23,067   $50,538   $0   $0   $73,605   $127   $(235)  $73,497 
Obligations of states and political subdivisions   1,827    16,975    12,593    829    32,224    493    (11)   32,706 
Mortgage-backed securities:                                        
Residential - government agencies   1,508    106,648    19,291    1,746    129,193    432    (1,768)   127,857 
Commercial - government agencies   0    986    0    0    986    8    0    994 
Total mortgage-backed securities   1,508    107,634    19,291    1,746    130,179    440    (1,768)   128,851 
Total available-for-sale securities  $26,402   $175,147   $31,884   $2,575   $236,008   $1,060   $(2,014)  $235,054 

 

* Expected maturities may differ from contractual maturities because borrowers have the right to call or prepay obligations with or without prepayment penalties.

 

All of the Company’s investment securities are classified as available for sale. Agency bonds and notes, small business administration guaranteed loan certificates (SBA), residential and commercial agency mortgage-backed securities, and agency collateralized mortgage obligations (CMO) include securities issued by the Government National Mortgage Association (GNMA), a U.S. government agency, and the Federal National Mortgage Association (FNMA), the Federal Home Loan Mortgage Corporation (FHLMC) and the Federal Home Loan Bank (FHLB), which are U.S. government-sponsored enterprises.

 

Other investments and securities primarily consist of Federal Home Loan Bank stock and the Company’s interest in statutory trusts. These securities are reported at cost in the amount of $9.2 million and $8.0 million as of September 30, 2016 and December 31, 2015, respectively.

 

Debt securities with carrying values aggregating approximately $183.2 million and $182.7 million at September 30, 2016 and December 31, 2015, respectively, were pledged to secure public funds, securities sold under agreements to repurchase, and for other purposes as required or permitted by law.

 

Gross unrealized losses on debt securities and the fair value of the related securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at September 30, 2016 and December 31, 2015 were as follows:

 

 18 

 

 

Hawthorn Bancshares, Inc.
and subsidiaries

 

Notes to the Consolidated Financial Statements

 

(Unaudited)

 

   Less than 12 months   12 months or more   Total   Total 
   Fair   Unrealized   Fair   Unrealized   Fair   Unrealized 
(in thousands)  Value   Losses   Value   Losses   Value   Losses 
At September 30, 2016                              
U.S. government and federal agency obligations  $11,827   $(121)  $0   $0   $11,827   $(121)
Government sponsored enterprises   9,001    (10)   0    0    9,001    (10)
Obligations of states and political subdivisions   15,202    (100)   0    0    15,202    (100)
Mortgage-backed securities:                              
Residential - government agencies   31,631    (109)   3,376    (50)   35,007    (159)
Total  $67,661   $(340)  $3,376   $(50)  $71,037   $(390)
                               
(in thousands)                              
At December 31, 2015                              
Government sponsored enterprises  $43,539   $(222)  $1,002   $(13)  $44,541   $(235)
Obligations of states and political subdivisions   2,571    (6)   718    (5)   3,289    (11)
Mortgage-backed securities:                              
Residential - government agencies   56,095    (620)   43,576    (1,148)   99,671    (1,768)
Total  $102,205   $(848)  $45,296   $(1,166)  $147,501   $(2,014)

 

The total available for sale portfolio consisted of approximately 282 securities at September 30, 2016. The portfolio included 76 securities having an aggregate fair value of $71.0 million that were in a loss position at September 30, 2016. Securities identified as temporarily impaired which had been in a loss position for 12 months or longer had a fair value of $3.4 million at September 30, 2016. The $390,000 aggregate unrealized loss included in accumulated other comprehensive income at September 30, 2016 was caused by interest rate fluctuations.

 

The total available for sale portfolio consisted of approximately 316 securities at December 31, 2015. The portfolio included 111 securities having an aggregate fair value of $147.5 million that were in a loss position at December 31, 2015. Securities identified as temporarily impaired which had been in a loss position for 12 months or longer had a fair value of $45.3 million at December 31, 2015. The $2.0 million aggregate unrealized loss included in accumulated other comprehensive income at December 31, 2015 was caused by interest rate fluctuations.

 

Because the decline in fair value is attributable to changes in interest rates and not credit quality, these investments were not considered other-than-temporarily impaired at September 30, 2016 and December 31, 2015, respectively. In the absence of changes in credit quality of these investments, the fair value is expected to recover on all debt securities as they approach their maturity date, or re-pricing date or if market yields for such investments decline. In addition, the Company does not have the intent to sell these investments over the period of recovery, and it is not more likely than not that the Company will be required to sell such investment securities.

 

The following table presents the components of investment securities gains and losses, which have been recognized in earnings.

 

   Three Months Ended September 30,   Nine Months Ended September 30, 
(in thousands)  2016   2015   2016   2015 
Gains realized on sales  $133   $0   $623   $8 
Losses realized on sales   (21)   0    (21)   0 
Other-than-temporary impairment recognized   0    0    0    0 
Investment securities gains  $112   $0   $602   $8 

 

 19 

 

 

Hawthorn Bancshares, Inc.
and subsidiaries

 

Notes to the Consolidated Financial Statements

 

(Unaudited)

 

(5)Intangible Assets

 

Mortgage Servicing Rights

 

At September 30, 2016, the Company was servicing approximately $299.7 million of loans sold to the secondary market compared to $312.1 million at December 31, 2015, and $311.8 million at September 30, 2015. Mortgage loan servicing fees, reported as non-interest income, earned on loans sold were $233,000 and $654,000 for the three and nine months ended September 30, 2016, respectively, compared to $206,000 and $648,000 for the three and nine months ended September 30, 2015, respectively.

 

The table below presents changes in mortgage servicing rights (MSRs) for the periods indicated.

 

   Three Months Ended September 30,   Nine Months Ended September 30, 
(in thousands)  2016   2015   2016   2015 
Balance at beginning of period  $2,511   $2,727   $2,847   $2,762 
Originated mortgage servicing rights   96    76    213    303 
Changes in fair value:                    
Due to change in model inputs and assumptions (1)   (52)   136    (197)   223 
Other changes in fair value (2)   (185)   (165)   (493)   (514)
Balance at end of period  $2,370   $2,774   $2,370   $2,774 

 

(1) The change in fair value resulting from changes in valuation inputs or assumptions used in the valuation model reflects the change in discount rates and prepayment speed assumptions primarily due to changes in interest rates.

(2) Other changes in fair value reflect changes due to customer payments and passage of time.

 

The following key data and assumptions were used in estimating the fair value of the Company’s MSRs as of the nine months ended September 30, 2016 and 2015:

 

   Nine Months Ended September 30, 
   2016   2015 
Weighted average constant prepayment rate   13.20%   10.06%
Weighted average note rate   3.88%   3.92%
Weighted average discount rate   9.20%   9.35%
Weighted average expected life (in years)   4.80    5.80 

 

(6)Federal Funds Purchased and Securities Sold Under Agreements to Repurchase

 

   September 30,   December 31, 
   2016   2015 
Federal funds purchased  $0   $0 
Repurchase agreements   28,504    56,834 
Total  $28,504   $56,834 

 

The Company offers a sweep account program whereby amounts in excess of an established limit are “swept” from the customer’s demand deposit account on a daily basis into retail repurchase agreements pursuant to individual repurchase agreements between the Company and its customers. Repurchase agreements are agreements to sell securities subject to an obligation to repurchase the same or similar securities. They are accounted for as secured borrowings, not as sales and purchases of the securities portfolio. The securities collateral pledged for the repurchase agreements with customers is maintained by a designated third party custodian. The collateral amounts pledged to repurchase agreements by remaining maturity in the table below are limited to the outstanding balances of the related asset or liability; thus amounts of excess collateral are not shown.

 

 20 

 

 

Hawthorn Bancshares, Inc.
and subsidiaries

 

Notes to the Consolidated Financial Statements

 

(Unaudited)

 

Repurchase Agreements  Remaining Contractual Maturity of the Agreements 
   Overnight   Less   Greater     
   and   than   than     
(in thousands)  continuous   90 days   90 days   Total 
At September 30, 2016                    
Government sponsored enterprises  $3,381   $0   $0   $3,381 
Mortgage-backed securities   25,123    0    0    25,123 
Total  $28,504   $0   $0   $28,504 
                     
At December 31, 2015                    
Government sponsored enterprises  $46,819   $0   $0   $46,819 
Mortgage-backed securities   10,015    0    0    10,015 
Total  $56,834   $0   $0   $56,834 

 

(7)Income Taxes

 

Income taxes as a percentage of earnings before income taxes as reported in the consolidated financial statements were 34.7% for the three months ended September 30, 2016 compared to 35.2% for the three months ended September 30, 2015. Income taxes as a percentage of earnings before income taxes as reported in the consolidated financial statements were 33.8% for the nine months ended September 30, 2016 compared to 34.6% for the nine months ended September 30, 2015. The decrease in tax rates year over year is primarily due to an immaterial return to provision adjustment recorded in the first quarter of 2016.

 

The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income of the appropriate character during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, taxable income available in carryback years, and tax planning strategies in making this assessment. With the exception of certain capital losses generated during 2013 and 2014, it is management’s opinion that the Company will more likely than not realize the benefits of these temporary differences as of September 30, 2016 and, therefore, only established a valuation reserve against the Company’s capital loss carry forward. Management arrived at this conclusion based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible. As indicated above, the Company generated approximately $219,000 of capital losses during 2013 and 2014 as a result of disposing of certain limited partnership interests. The capital losses will expire between 2019 and 2020, and it is management’s opinion that the Company will not more likely than not generate the capital gain income necessary to utilize the capital loss carry forwards before the capital losses expire. As such, the Company has established an $83,000 valuation reserve against its capital loss carry forward deferred tax asset.

 

(8)Stockholders’ Equity

 

Accumulated Other Comprehensive Loss

 

The following details the change in the components of the Company’s accumulated other comprehensive income (loss) for the nine months ended September 30, 2016 and 2015:

 

 21 

 

 

Hawthorn Bancshares, Inc.
and subsidiaries

 

Notes to the Consolidated Financial Statements

 

(Unaudited)

 

   Nine months ended September 30, 2016 
           Accumulated 
       Unrecognized Net   Other 
   Unrealized   Pension and   Comprehensive 
   Gain (Loss)   Postretirement   (Loss) 
(in thousands)  on Securities (1)   Costs (2)   Income 
Balance at beginning of period  $(591)  $(1,427)  $(2,018)
Other comprehensive income (loss), before reclassifications   2,884    59    2,943 
Amounts reclassified from accumulated other comprehensive income (loss)   (602)   0    (602)
Current period other comprehensive income, before tax   2,282    59    2,341 
Income tax expense   (867)   (23)   (890)
Current period other comprehensive income, net of tax   1,415    36    1,451 
Balance at end of period  $824   $(1,391)  $(567)

 

   Nine months ended September 30, 2015 
           Accumulated 
       Unrecognized Net   Other 
   Unrealized   Pension and   Comprehensive 
   Gain (Loss)   Postretirement   (Loss) 
(in thousands)  on Securities (1)   Costs (2)   Income 
Balance at beginning of period  $214   $(1,442)  $(1,228)
Other comprehensive income (loss), before reclassifications   1,012    108    1,120 
Amounts reclassified from accumulated other comprehensive income (loss)   (8)   0    (8)
Current period other comprehensive income, before tax   1,004    108    1,112 
Income tax expense   (382)   (40)   (422)
Current period other comprehensive income, net of tax   622    68    690 
Balance at end of period  $836   $(1,374)  $(538)

 

(1) The pre-tax amounts reclassified from accumulated other comprehensive income (loss) are included in gain on sale of investment securities in the consolidated statements of income.

(2) The pre-tax amounts reclassified from accumulated other comprehensive income (loss) are included in the computation of net periodic pension cost.

 

 22 

 

 

Hawthorn Bancshares, Inc.
and subsidiaries

 

Notes to the Consolidated Financial Statements

 

(Unaudited)

 

(9)Employee Benefit Plans

 

Employee Benefits

 

Employee benefits charged to operating expenses are summarized in the table below for the periods indicated.

  

   Three Months Ended September 30,   Nine Months Ended September 30, 
(in thousands)  2016   2015   2016   2015 
Payroll taxes  $251   $261   $883   $860 
Medical plans   415    491    1,414    1,462 
401k match and profit sharing   201    225    585    720 
Pension plan   307    348    920    1,044 
Other   56    56    118    99 
Total employee benefits  $1,230   $1,381   $3,920   $4,185 

 

The Company’s profit-sharing plan includes a matching 401k portion, in which the Company matches the first 3% of eligible employee contributions. The Company made annual contributions in an amount up to 6% of income before income taxes and before contributions to the profit-sharing and pension plans for all participants, limited to the maximum amount deductible for federal income tax purposes, for each of the periods shown. In addition, employees were able to make additional tax-deferred contributions.

 

Pension

 

The Company provides a noncontributory defined benefit pension plan for all full-time employees. An employer is required to recognize the funded status of a defined benefit postretirement plan as an asset or liability in its balance sheet and to recognize changes in that funded status in the year in which the changes occur through comprehensive income. Under the Company’s funding policy for the defined benefit pension plan, contributions are made to a trust as necessary to provide for current service and for any unfunded accrued actuarial liabilities over a reasonable period. To the extent that these requirements are fully covered by assets in the trust, a contribution might not be made in a particular year. A pension contribution in the amount of $772,000 was made on April 15, 2016.

 

Components of Net Pension Cost and Other Amounts Recognized in Accumulated Other Comprehensive Income

 

The following items are components of net pension cost for the periods indicated:

 

   Estimated   Actual 
(in thousands)  2016   2015 
Service cost - benefits earned during the year  $1,179   $1,325 
Interest costs on projected benefit obligations   956    838 
Expected return on plan assets   (1,057)   (957)
Expected administrative expenses   70    40 
Amortization of prior service cost   79    79 
Amortization of unrecognized net loss   0    66 
Net periodic pension expense  $1,227   $1,391 
           
Pension expense - three months ended September 30, (actual)  $307   $348 
Pension expense - nine months ended September 30, (actual)  $920   $1,044 

 

 23 

 

 

Hawthorn Bancshares, Inc.
and subsidiaries

 

Notes to the Consolidated Financial Statements

 

(Unaudited)

 

(10)Stock Compensation

 

The Company’s stock option plan provides for the grant of options to purchase up to 553,361 shares of the Company’s common stock to officers and other key employees of the Company and its subsidiaries. All options have been granted at exercise prices equal to fair value and vest over periods ranging from four to five years.

 

The following table summarizes the Company’s stock option activity:

 

           Weighted     
       Weighted   Average   Aggregate 
   Number   average   Contractual   Intrinsic 
   of   Exercise   Term   Value 
   Shares   Price   (in years)   ($000) 
Outstanding, December 31, 2015   65,270   $20.68           
Granted   0    0.00           
Exercised   0    0.00           
Forfeited or expired   (20,812)   21.89           
Outstanding, September 30, 2016   44,458   $20.11    1.25   $0.00 
Exercisable, September 30, 2016   43,189   $20.25    1.22   $0.00 

 

Options have been adjusted to reflect a 4% stock dividend paid on July 1, 2016.

 

Total stock-based compensation expense was $5,000 and $16,000 for the three and nine months ended September 30, 2016, respectively, compared to $1,000 and $5,000 for both the three and nine months ended September 30, 2015, respectively. As of September 30, 2016, the total unrecognized compensation expense related to non-vested stock awards was $4,000 and the related weighted average period over which it is expected to be recognized is approximately 0.51 years.

 

(11)Earnings per Share

 

Stock Dividend On July 1, 2016, the Company paid a special stock dividend of 4% to common shareholders of record at the close of business on June 15, 2016. For all periods presented, share information, including basic and diluted earnings per share, has been adjusted retroactively to reflect this change.

 

Basic earnings per share is computed by dividing income available to shareholders by the weighted average number of shares outstanding during the year. Diluted earnings per share gives effect to all dilutive potential shares that were outstanding during the year. The calculations of basic and diluted earnings per share are as follows for the periods indicated:

 

   Three Months Ended September 30,   Nine Months Ended September 30, 
(dollars in thousands, except per share data)  2016   2015   2016   2015 
Basic earnings per share:                    
Net income available to shareholders  $1,884   $2,539   $5,294   $6,605 
Basic earnings per share  $0.33   $0.45   $0.94   $1.17 
Diluted earnings per share:                    
Net income available to shareholders  $1,884   $2,539   $5,294   $6,605 
Average shares outstanding   5,632,362    5,660,499    5,643,190    5,660,499 
Effect of dilutive stock options   0    0    0    0 
Average shares outstanding including dilutive stock options   5,632,362    5,660,499    5,643,190    5,660,499 
Diluted earnings per share  $0.33    0.45   $0.94    1.17 

 

 24 

 

 

Hawthorn Bancshares, Inc.
and subsidiaries

 

Notes to the Consolidated Financial Statements

 

(Unaudited)

 

Under the treasury stock method, outstanding stock options are dilutive when the average market price of the Company’s common stock, when combined with the effect of any unamortized compensation expense, exceeds the option price during the period, except when the Company has a loss from continuing operations available to shareholders. In addition, proceeds from the assumed exercise of dilutive options along with the related tax benefit are assumed to be used to repurchase common shares at the average market price of such stock during the period.

 

Options to purchase 44,458 and 69,106 shares during the three and nine months ended September 30, 2016 and 2015, respectively, were not included in the respective computations of diluted earnings per share because the exercise price of the option, when combined with the effect of the unamortized compensation expense, was greater than the average market price of the common shares and were considered anti-dilutive.

 

Repurchase Program On August 6, 2015, the Board of Directors authorized a share repurchase plan to purchase through open market transactions $2.0 million market value of the Company’s common stock. During 2016, the Company repurchased 30,033 shares of common stock pursuant to the plan at an average price of $14.50 per share. At September 30, 2016, approximately $1.5 million may be used to purchase shares under the plan.

 

The table below shows activity in the outstanding shares of the Company's common stock during the periods presented in the table. Shares in the table below are presented on a historical basis and have not been restated for the annual 4% stock dividends.

 

   Number of shares 
   September 30,   December 31,   September 30, 
   2016   2015   2015 
Outstanding, beginning of period   5,441,190    5,233,986    5,233,986 
Issuance of stock:               
4% stock dividend   217,155    209,359    209,359 
Purchase of treasury stock   (30,033)   (2,155)   0 
Outstanding, end of period   5,628,312    5,441,190    5,443,344 

 

Except as noted in the above table, all share and per share amounts in this note have been restated for the 4% common stock dividend distributed July 1, 2016.

 

(12)Fair Value Measurements

 

The Company uses fair value measurements to record fair value adjustments to certain financial and nonfinancial assets and liabilities. The FASB ASC Topic 820, Fair Value Measurements and Disclosures, defines fair value, establishes a framework for the measurement of fair value, and enhances disclosures about fair value measurements. The standard applies whenever other standards require (permit) assets or liabilities to be measured at fair value but does not expand the use of fair value in any new circumstances. In this standard, FASB clarified the principle that fair value should be based on the assumptions market participants would use when pricing the asset or liability. In support of this principle, the standard establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. As of September 30, 2016 and December 31, 2015, respectively, there were no transfers into or out of Levels 1-3.

 

The fair value hierarchy is as follows:

 

Level 1 – Inputs are unadjusted quoted prices for identical assets or liabilities in active markets.

 

Level 2 – Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets and liabilities in active markets, such as interest rates and yield curves that are observable at commonly quoted intervals.

 

Level 3 – Inputs are unobservable inputs for the asset or liability and significant to the fair value. These may be internally developed using the Company’s best information and assumptions that a market participant would consider.

 

ASC Topic 820 also provides guidance on determining fair value when the volume and level of activity for the asset or liability have significantly decreased and on identifying circumstances when a transaction may not be considered orderly.

 

 25 

 

 

Hawthorn Bancshares, Inc.
and subsidiaries

 

Notes to the Consolidated Financial Statements

 

(Unaudited)

 

The Company is required to disclose assets and liabilities measured at fair value on a recurring basis separate from those measured at fair value on a nonrecurring basis. Nonfinancial assets measured at fair value on a nonrecurring basis would include foreclosed real estate, long-lived assets, and core deposit intangible assets, which are reviewed when circumstances or other events indicate that impairment may have occurred. 

 

Valuation Methods for Instruments Measured at Fair Value on a Recurring Basis

 

Following is a description of the Company’s valuation methodologies used for assets and liabilities recorded at fair value on a recurring basis:

 

Available-for-Sale Securities

 

The fair value measurements of the Company’s investment securities are determined by a third party pricing service which considers observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions, among other things. The fair value measurements are subject to independent verification to another pricing source by management each quarter for reasonableness. Securities classified as available-for-sale are reported at fair value utilizing Level 2 inputs.

 

Mortgage Servicing Rights

 

The fair value of mortgage servicing rights is based on the discounted value of estimated future cash flows utilizing contractual cash flows, servicing rate, constant prepayment rate, servicing cost, and discount rate factors. Accordingly, the fair value is estimated based on a valuation model that calculates the present value of estimated future net servicing income. The model incorporates assumptions that market participants use in estimating future net servicing income, including estimates of prepayment speeds, market discount rates, cost to service, float earnings rates, and other ancillary income, including late fees. The valuation models estimate the present value of estimated future net servicing income. The Company classifies its servicing rights as Level 3.

 

       Fair Value Measurements 
       Quoted Prices         
       in Active         
       Markets for   Other   Significant 
       Identical   Observable   Unobservable 
       Assets   Inputs   Inputs 
(in thousands)  Fair Value   (Level 1)   (Level 2)   (Level 3) 
September 30, 2016                    
Assets:                    
U.S. government and federal agency obligations  $13,340   $0   $13,340   $0 
Government sponsored enterprises   33,677    0    33,677    0 
Obligations of states and political subdivisions   36,767    0    36,767    0 
Mortgage-backed securities   138,040    0    138,040    0 
Mortgage servicing rights   2,370    0    0    2,370 
Total  $224,194   $0   $221,824   $2,370 
                     
December 31, 2015                    
Assets:                    
Government sponsored enterprises  $73,497   $0    73,497    0 
Obligations of states and political subdivisions   32,706    0    32,706    0 
Mortgage and asset-backed securities   128,851    0    128,851    0 
Mortgage servicing rights   2,847    0    0    2,847 
Total  $237,901   $0   $235,054   $2,847 

 

 26 

 

 

Hawthorn Bancshares, Inc.
and subsidiaries

 

Notes to the Consolidated Financial Statements

 

(Unaudited)

 

The changes in Level 3 assets and liabilities measured at fair value on a recurring basis are summarized as follows:

 

   Fair Value Measurements Using   Fair Value Measurements Using 
   Significant Unobservable Inputs   Significant Unobservable Inputs 
   (Level 3)   (Level 3) 
   Mortgage Servicing Rights   Mortgage Servicing Rights 
(in thousands)  Three Months Ended September 30,   Nine Months Ended September 30, 
   2016   2015   2016   2015 
Balance at beginning of period  $2,511   $2,727   $2,847   $2,762 
Total gains or losses (realized/unrealized):                    
Included in earnings   (237)   (29)   (690)   (291)
Included in other comprehensive income   0    0    0    0 
Purchases   0    0    0    0 
Sales   0    0    0    0 
Issues   96    76    213    303 
Settlements   0    0    0    0 
Balance at end of period  $2,370   $2,774   $2,370   $2,774 

 

The change in valuation of mortgage servicing rights arising from inputs and assumptions decreased $52,000 and $197,000, compared to an increase of $136,000 and $223,000 for the three and nine months ended September 30, 2016 and 2015, respectively. MSR values have been falling steadily throughout 2016. The lower values are primarily related to faster prepay speed assumptions, consistent with lower long term interest rates.

 

   Quantitative Information about Level 3 Fair Value Measurements  
   Valuation Technique  Unobservable Inputs  Input Value 
         Nine Months Ended September 30, 
         2016   2015 
Mortgage servicing rights   Discounted cash flows  Weighted average constant prepayment rate   13.20%   10.06%
      Weighted average note rate   3.88%   3.92%
      Weighted average discount rate   9.20%   9.35%
      Weighted average expected life (in years)   4.80    5.80 

 

Valuation methods for instruments measured at fair value on a nonrecurring basis

 

Following is a description of the Company’s valuation methodologies used for assets and liabilities recorded at fair value on a nonrecurring basis:

 

Impaired Loans

 

The Company does not record loans at fair value on a recurring basis other than loans that are considered impaired. The net carrying value of impaired loans is generally based on fair values of the underlying collateral obtained through independent appraisals or internal evaluations less estimated selling costs, or by discounting the total expected future cash flows. Once the fair value of the collateral less estimated selling costs has been determined and any impairment amount calculated, a specific reserve allocation is made. Because many of these inputs are not observable, the measurements are classified as Level 3. As of September 30, 2016, the Company identified $7.1 million in impaired loans that had specific allowances for losses aggregating $1.3 million. Related to these loans, there was $153,000 and $920,000 in charge-offs recorded during the three and nine months ended September 30, 2016, respectively. As of September 30, 2015, the Company identified $6.8 million in impaired loans that had specific allowances for losses aggregating $2.0 million. Related to these loans, there was $695,000 and $1.0 million in charge-offs recorded during the three and nine months ended September 30, 2015, respectively.

 

 27 

 

 

Hawthorn Bancshares, Inc.
and subsidiaries

 

Notes to the Consolidated Financial Statements

 

(Unaudited)

 

Other Real Estate and Foreclosed Assets

 

Other real estate and foreclosed assets consisted of loan collateral that has been repossessed through foreclosure. This collateral is comprised of commercial and residential real estate and other non-real estate property, including autos, manufactured homes, and construction equipment. Other real estate assets are recorded as held for sale initially at the lower of the loan balance or fair value of the collateral less estimated selling costs. The Company relies on external appraisals and assessment of property values by internal staff. In the case of non-real estate collateral, reliance is placed on a variety of sources, including external estimates of value and judgment based on experience and expertise of internal specialists. Subsequent to foreclosure, valuations are updated periodically, and the assets may be written down to reflect a new cost basis. Because many of these inputs are not observable, the measurements are classified as Level 3.

 

       Fair Value Measurements Using         
       Quoted Prices           Three   Nine 
       in Active           Months   Months 
       Markets for   Other   Significant   Ended   Ended 
       Identical   Observable   Unobservable   September 30,   September 30, 
   Total   Assets   Inputs   Inputs   Total Gains   Total Gains 
(in thousands)  Fair Value   (Level 1)   (Level 2)   (Level 3)   (Losses)*   (Losses)* 
September 30, 2016                              
Assets:                              
Impaired loans:                              
Commercial, financial, & agricultural  $392   $0   $0   $392   $0    (359)
Real estate construction - commercial   43    0    0    43    0    0 
Real estate mortgage - residential   3,464    0    0    3,464    (80)   (295)
Real estate mortgage - commercial   1,806    0    0    1,806    (71)   (248)
Consumer   103    0    0    103    (2)   (18)
Total  $5,808   $0   $0   $5,808   $(153)   (920)
Other real estate and foreclosed assets  $14,438   $0   $0   $14,438   $21    70 
                               
September 30, 2015                              
Assets:                              
Impaired loans:                              
Commercial, financial, & agricultural  $462   $0   $0   $462   $(540)   (561)
Real estate construction - commercial   45    0    0    45    0    0 
Real estate mortgage - residential   3,618    0    0    3,618    (61)   (267)
Real estate mortgage - commercial   572    0    0    572    (89)   (118)
Consumer   121    0    0    121    (5)   (54)
Total  $4,818   $0   $0   $4,818   $(695)   (1,000)
Other real estate and foreclosed assets  $15,148   $0   $0   $15,148   $(80)   112 

 

* Total gains (losses) reported for other real estate and foreclosed assets includes charge-offs, valuation write downs, and net losses taken during the periods reported.

 

(13)Fair Value of Financial Instruments

 

The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate such value:

 

Loans

 

The fair values of loans are estimated by discounting the expected future cash flows using the current rates at which similar loans could be made to borrowers with similar credit ratings and for the same remaining maturities. The net carrying amount of impaired loans is generally based on the fair values of collateral obtained through independent appraisals or internal evaluations, or by discounting the total expected future cash flows. This method of estimating fair value does not incorporate the exit-price concept of fair value prescribed by ASC Topic 820.

 

 28 

 

 

Hawthorn Bancshares, Inc.
and subsidiaries

 

Notes to the Consolidated Financial Statements

 

(Unaudited)

 

Investment Securities

 

A detailed description of the fair value measurement of the debt instruments in the available-for-sale sections of the investment security portfolio is provided in the Fair Value Measurement section above. A schedule of investment securities by category and maturity is provided in the notes on Investment Securities.

 

Federal Home Loan Bank (FHLB) Stock

 

Ownership of equity securities of FHLB is restricted and there is no established market for their resale. The carrying amount is a reasonable estimate of fair value.

 

Federal Funds Sold, Cash, and Due from Banks

 

The carrying amounts of short-term federal funds sold and securities purchased under agreements to resell, interest earning deposits with banks, and cash and due from banks approximate fair value. Federal funds sold and securities purchased under agreements to resell classified as short-term generally mature in 90 days or less.

 

Mortgage Servicing Rights

 

The fair value of mortgage servicing rights is based on the discounted value of estimated future cash flows utilizing contractual cash flows, servicing rate, constant prepayment rate, servicing cost, and discount rate factors. Accordingly, the fair value is estimated based on a valuation model that calculates the present value of estimated future net servicing income. The model incorporates assumptions that market participants use in estimating future net servicing income, including estimates of prepayment speeds, market discount rates, cost to service, float earnings rates, and other ancillary income, including late fees.

 

Cash Surrender Value - Life Insurance

 

The fair value of Bank owned life insurance (BOLI) approximates the carrying amount. Upon liquidation of these investments, the Company would receive the cash surrender value which equals the carrying amount.

 

Accrued Interest Receivable and Payable

 

For accrued interest receivable and payable, the carrying amount is a reasonable estimate of fair value because of the short maturity for these financial instruments.

 

Deposits

 

The fair value of deposits with no stated maturity, such as noninterest-bearing demand, NOW accounts, savings, and money market, is equal to the amount payable on demand. The fair value of time deposits is based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently offered for deposits of similar remaining maturities.

 

Securities Sold under Agreements to Repurchase and Interest-bearing Demand Notes to U.S. Treasury

 

For securities sold under agreements to repurchase and interest-bearing demand notes to U.S. Treasury, the carrying amount is a reasonable estimate of fair value, as such instruments reprice in a short time period.

 

Subordinated Notes and Other Borrowings

 

The fair value of subordinated notes and other borrowings is based on the discounted value of contractual cashflows. The discount rate is estimated using the rates currently offered for other borrowed money of similar remaining maturities.

 

 29 

 

 

Hawthorn Bancshares, Inc.
and subsidiaries

 

Notes to the Consolidated Financial Statements

 

(Unaudited)

 

A summary of the carrying amounts and fair values of the Company’s financial instruments at September 30, 2016 and December 31, 2015 is as follows:

 

           September 30, 2016 
           Fair Value Measurements 
           Quoted Prices         
           in Active       Net 
           Markets for   Other   Significant 
   September 30, 2016   Identical   Observable   Unobservable 
   Carrying   Fair   Assets   Inputs   Inputs 
(in thousands)  Amount   Value   (Level 1)   (Level 2)   (Level 3) 
Assets:                         
Cash and due from banks  $19,106   $19,106   $19,106   $0   $0 
Federal funds sold and overnight interest-bearing deposits   19,788    19,788    19,788    0    0 
Investment in available-for-sale securities   221,824    221,824    0    221,824    0 
Loans, net   938,301    939,573    0    0    939,573 
Investment in FHLB stock   4,593    4,593    0    4,593    0 
Mortgage servicing rights   2,370    2,370    0    0    2,370 
Cash surrender value - life insurance   2,396    2,396    0    2,396    0 
Accrued interest receivable   4,624    4,624    4,624    0    0 
   $1,213,002   $1,214,274   $43,518   $228,813   $941,943 
Liabilities:                         
Deposits:                         
Non-interest bearing demand  $229,987   $229,987   $229,987   $0   $0 
Savings, interest checking and money market   477,945    477,945    477,945    0    0 
Time deposits   310,099    309,188    0    0    309,188 
Federal funds purchased and securities sold under agreements to repurchase   28,504    28,504    28,504    0    0 
Subordinated notes   49,486    31,970    0    31,970    0 
Federal Home Loan Bank advances   79,000    79,510    0    79,510    0 
Accrued interest payable   408    408    408    0    0 
   $1,175,429   $1,157,512   $736,844   $111,480   $309,188 

 

 30 

 

 

Hawthorn Bancshares, Inc.
and subsidiaries

 

Notes to the Consolidated Financial Statements

 

(Unaudited)

 

           December 31, 2015 
           Fair Value Measurements 
           Quoted Prices         
           in Active       Net 
           Markets for   Other   Significant 
   December 31, 2015   Identical   Observable   Unobservable 
   Carrying   Fair   Assets   Inputs   Inputs 
(in thousands)  amount   value   (Level 1)   (Level 2)   (Level 3) 
Assets:                         
Cash and due from banks  $20,484   $20,484   $20,484   $0   $0 
Federal funds sold and overnight interest-bearing deposits   7,893    7,893    7,893    0    0 
Investment in available-for-sale securities   235,054    235,054    0    235,054    0 
Loans, net   856,476    854,775    0    0    854,775 
Investment in FHLB stock   3,390    3,390    0    3,390    0 
Mortgage servicing rights   2,847    2,847    0    0    2,847 
Cash surrender value - life insurance   2,348    2,348    0    2,348    0 
Accrued interest receivable   4,853    4,853    4,853    0    0 
   $1,133,345   $1,131,644   $33,230   $240,792   $857,622 
Liabilities:                         
Deposits:                         
Non-interest bearing demand  $208,035   $208,035   $208,035   $0   $0 
Savings, interest checking and money market   441,080    441,080    441,080    0    0 
Time deposits   298,082    298,323    0    0    298,323 
Federal funds purchased and securities sold under agreements to repurchase   56,834    56,834    56,834    0    0 
Subordinated notes   49,486    40,821    0    40,821    0 
Federal Home Loan Bank advances   50,000    52,340    0    52,340    0 
Accrued interest payable   382    382    382    0    0 
   $1,103,899   $1,097,815   $706,331   $93,161   $298,323 

 

Off-Balance Sheet Financial Instruments

 

The fair value of commitments to extend credit and standby letters of credit is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements, the likelihood of the counterparties drawing on such financial instruments, and the present creditworthiness of such counterparties. The Company believes such commitments have been made on terms that are competitive in the markets in which it operates.

 

Limitations

 

The fair value estimates provided are made at a point in time based on market information and information about the financial instruments. Because no market exists for a portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the fair value estimates.

 

 31 

 

  

Hawthorn Bancshares, Inc.
and subsidiaries

 

Notes to the Consolidated Financial Statements

 

(Unaudited)

 

(14)Repurchase Reserve Liability

 

The Company’s repurchase reserve liability for estimated losses incurred on sold loans was $160,000 at both September 30, 2016 and December 31, 2015. This liability represents management’s estimate of the potential repurchase or make-whole liability for residential mortgage loans originated for sale that may arise from representation and warranty claims that could relate to a variety of issues, including but not limited to, misrepresentation of facts, appraisal issues, or program requirements that may not meet investor guidelines. At September 30, 2016, the Company accrued $2,000 for the reimbursement of expenses incurred on one repurchase loss remitted in April 2016 compared to $40,000 accrued for the expenses on one repurchase loss remitted in April 2015 of the prior year. At September 30, 2016, the Company was servicing 2,909 loans sold to the secondary market with a balance of approximately $299.7 million compared to 3,024 loans sold with a balance of approximately $312.1 million at December 31, 2015.

  

   Three Months Ended September 30,   Nine Months Ended September 30, 
(in thousands)  2016   2015   2016   2015 
Balance at beginning of year  $160   $160   $160   $160 
Provision for repurchase liability   0    0    2    40 
Reimbursement of expenses   0    0    (2)   (40)
Balance at end of year  $160   $160   $160   $160 

 

(15)Commitments and Contingencies

 

The Company issues financial instruments with off-balance-sheet risk in the normal course of business of meeting the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. These instruments may involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized in the consolidated balance sheets.

 

The Company’s extent of involvement and maximum potential exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of these instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for financial instruments included on its consolidated balance sheets. At September 30, 2016, no amounts have been accrued for any estimated losses for these financial instruments.

 

The contractual amount of off-balance-sheet financial instruments were as follows as of the dates indicated:

 

   September 30,   December 31, 
(in thousands)  2016   2015 
Commitments to extend credit  $233,005   $161,306 
Commitments to originate residential first and second mortgage loans   3,273    3,175 
Standby letters of credit   1,608    1,466 
Total   237,886    165,947 

 

Commitments

 

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since certain of the commitments and letters of credit are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the customer. Collateral held varies, but may include accounts receivable, inventory, furniture and equipment, and real estate.

 

Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. These standby letters of credit are primarily issued to support contractual obligations of the Company’s customers. The approximate remaining term of standby letters of credit range from one month to five years at September 30, 2016.

 

 32 

 

 

Hawthorn Bancshares, Inc.
and subsidiaries

 

Notes to the Consolidated Financial Statements

 

(Unaudited)

 

Pending Litigation

 

The Company and its subsidiaries are defendants in various legal actions incidental to the Company’s past and current business activities. Based on the Company’s analysis, and considering the inherent uncertainties associated with litigation, management does not believe that it is reasonably possible that these legal actions will materially adversely affect the Company’s consolidated financial condition or results of operations in the near term. The Company records a loss accrual for all legal matters for which it deems a loss is probable and can be reasonably estimated. Some legal matters, which are at early stages in the legal process, have not yet progressed to the point where a loss is deemed probable or an amount can be estimated.

 

 33 

 

 

Item 2 - Management’s Discussion and Analysis of Financial Condition

And Results of Operations

 

This report contains certain forward-looking statements with respect to the financial condition, results of operations, plans, objectives, future performance and business of the Company, Hawthorn Bancshares, Inc., and its subsidiaries, including, without limitation:

 

·statements that are not historical in nature, and
·statements preceded by, followed by or that include the words believes, expects, may, will, should, could, anticipates, estimates, intends or similar expressions.

 

Forward-looking statements are not guarantees of future performance or results. They involve risks, uncertainties and assumptions. Actual results may differ materially from those contemplated by the forward-looking statements due to, among others, the following factors:

 

·competitive pressures among financial services companies may increase significantly,
·changes in the interest rate environment may reduce interest margins,
·general economic conditions, either nationally or in Missouri, may be less favorable than expected and may adversely affect the quality of our loans and other assets,
·increases in non-performing assets in the Company’s loan portfolios and adverse economic conditions may necessitate increases to our provisions for loan losses,
·costs or difficulties related to the integration of the business of the Company and its acquisition targets may be greater than expected,
·legislative or regulatory changes may adversely affect the business in which the Company and its subsidiaries are engaged, and
·changes may occur in the securities markets.

 

We have described under the caption Risk Factors in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015, and in other reports filed with the SEC from time to time, additional factors that could cause actual results to be materially different from those described in the forward-looking statements. Other factors that have not been identified in this report could also have this effect. You are cautioned not to put undue reliance on any forward-looking statement, which speak only as of the date they were made.

 

Overview

 

Crucial to the Company’s community banking strategy is growth in its commercial banking services, retail mortgage lending and retail banking services. Through the branch network of its subsidiary bank, the Company, with $1.2 billion in assets at September 30, 2016, provides a broad range of commercial and personal banking services. The Bank’s specialties include commercial banking for small and mid-sized businesses, including equipment, operating, commercial real estate, Small Business (SBA) loans, and personal banking services including real estate mortgage lending, installment and consumer loans, certificates of deposit, individual retirement and other time deposit accounts, checking accounts, savings accounts, and money market accounts. Other financial services that the Company provides include trust services that include estate planning, investment and asset management services and a comprehensive suite of cash management services. The geographic areas in which the Company provides products and services include the communities in and surrounding Jefferson City, Columbia, Clinton, Warsaw, Springfield, Branson, and the greater Kansas City metropolitan area.

 

The Company's primary source of revenue is net interest income derived primarily from lending and deposit taking activities. Much of the Company's business is commercial, commercial real estate development, and mortgage lending. The Company's income from mortgage brokerage activities is directly dependent on mortgage rates and the level of home purchases and refinancings.

 

The success of the Company's growth strategy depends primarily on the ability of its banking subsidiary to generate an increasing level of loans and deposits at acceptable risk levels and on acceptable terms without significant increases in non-interest expenses relative to revenues generated. The Company's financial performance also depends, in part, on its ability to manage various portfolios and to successfully introduce additional financial products and services by expanding new and existing customer relationships, utilizing improved technology, and enhancing customer satisfaction. Furthermore, the success

 

 34 

 

 

of the Company's growth strategy depends on its ability to maintain sufficient regulatory capital levels during periods in which general economic conditions are unfavorable and despite economic conditions being beyond its control.

 

The Company’s subsidiary bank is a full-service bank conducting a general banking business, offering its customers checking and savings accounts, debit cards, certificates of deposit, safety deposit boxes and a wide range of lending services, including commercial and industrial loans, residential real estate loans, single payment personal loans, installment loans and credit card accounts. In addition, the Bank provides trust services.

 

The deposit accounts of the Bank are insured by the Federal Deposit Insurance Corporation (FDIC) to the extent provided by law. The operations of the Bank are supervised and regulated by the FDIC and the Missouri Division of Finance. Periodic examinations of the Bank are conducted by representatives of the FDIC and the Missouri Division of Finance. Such regulations, supervision and examinations are principally for the benefit of depositors, rather than for the benefit of shareholders. The Company is subject to supervision and examination by the Board of Governors of the Federal Reserve System.

 

CRITICAL ACCOUNTING POLICIES

 

The following accounting policies are considered most critical to the understanding of the Company’s financial condition and results of operations. These critical accounting policies require management’s most difficult, subjective and complex judgments about matters that are inherently uncertain. Because these estimates and judgments are based on current circumstances, they may change over time or prove to be inaccurate based on actual experiences. In the event that different assumptions or conditions were to prevail, and depending upon the severity of such changes, the possibility of a materially different financial condition and/or results of operations could reasonably be expected. The impact and any associated risks related to the critical accounting policies on the business operations are discussed throughout Management’s Discussion and Analysis of Financial Condition and Results of Operations, where such policies affect the reported and expected financial results.

 

Allowance for Loan Losses

 

Management has identified the accounting policy related to the allowance for loan losses as critical to the understanding of the Company's results of operations, since the application of this policy requires significant management assumptions and estimates that could result in materially different amounts to be reported if conditions or underlying circumstances were to change. Further discussion of the methodology used in establishing the allowance and the impact of any associated risks related to these policies on the Company’s business operations is provided in note 1 to the Company’s unaudited consolidated financial statements and is also discussed in the Lending and Credit Management section below. Many of the loans are deemed collateral dependent for purposes of the measurement of the impairment loss, thus the fair value of the underlying collateral and sensitivity of such fair values due to changing market conditions, supply and demand, condition of the collateral and other factors can be volatile over periods of time. Such volatility can have an impact on the financial performance of the Company.

 

Other Real Estate and Repossessed Assets

 

Other real estate and repossessed assets consist of loan collateral that has been repossessed through foreclosure. This collateral is comprised of commercial and residential real estate and other non-real estate property, including autos, manufactured homes, and construction equipment. Other real estate assets are initially recorded as held for sale at the fair value of the collateral less estimated selling costs. Any adjustment is recorded as a charge-off against the allowance for loan losses. The Company relies on external appraisals and assessment of property values by internal staff. In the case of non-real estate collateral, reliance is placed on a variety of sources, including external estimates of value and judgment based on experience and expertise of internal specialists. Subsequent to foreclosure, valuations are updated periodically, and the assets may be written down to reflect a new cost basis. The write-downs are recorded as other real estate expense, net. The Company establishes a valuation allowance related to other real estate owned on an asset-by-asset basis. The valuation allowance is created during the holding period when the fair value less cost to sell is lower than the cost of the property.

 

 35 

 

 

SELECTED CONSOLIDATED FINANCIAL DATA

 

The following table presents selected consolidated financial information for the Company as of and for each of the three and nine months ended September 30, 2016 and 2015, respectively. The selected consolidated financial data should be read in conjunction with the unaudited consolidated financial statements of the Company, including the related notes, presented elsewhere herein.

 

Selected Financial Data 

   Three Months Ended   Nine Months Ended 
   September 30,   September 30, 
(In thousands, except per share data)  2016   2015   2016   2015 
Per Share Data                    
Basic earnings per share  $0.33   $0.45   $0.94  $1.17 
Diluted earnings per share   0.33    0.45    0.94    1.17 
Dividends paid on common stock   273    262    815    785 
Book value per share             16.44    15.38 
Market price per share             15.25    13.43 
Selected Ratios                    
(Based on average balance sheets)                    
Return on total assets   0.59%   0.84%   0.57%   0.74%
Return on stockholders' equity   8.09%   11.09%   7.78%   10.55%
Stockholders' equity to total assets   7.33%   7.09%   7.31%   7.00%
Efficiency ratio (1)   74.03%   69.62%   75.43%   72.25%
                     
(Based on end-of-period data)                    
Stockholders' equity to assets             7.26%   7.09%
Total risk-based capital ratio             14.11%   14.62%
Tier 1 risk-based capital ratio             11.63%   11.77%
Common equity Tier 1 capital             8.73%   8.84%
Tier 1 leverage ratio (2)             9.86%   9.70%

 

(1)Efficiency ratio is calculated as non-interest expense as a percentage of total revenue. Total revenue includes net interest income and non-interest income.
(2)Tier I leverage ratio is calculated by dividing Tier 1 capital by average total consolidated assets.

 

 36 

 

 

RESULTS OF OPERATIONS ANALYSIS

 

The Company has prepared all of the consolidated financial information in this report in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP). In preparing the consolidated financial statements in accordance with U.S. GAAP, the Company makes estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. There can be no assurances that actual results will not differ from those estimates.

 

   Three Months Ended September 30,   Nine Months Ended September 30, 
(In thousands)  2016   2015   $ Change   % Change   2016   2015   $ Change   % Change 
                                 
Net interest income  $10,147   $10,558   $(411)   (3.9)%  $29,966   $30,520   $(554)   (1.8)%
Provision for loan losses   300    -    300    100.0    975    250    725    290.0 
Non-interest income   2,125    2,336    (211)   (9.0)   6,522    6,785    (263)   (3.9)
Non-interest expense   9,085    8,977    108    1.2    27,522    26,953    569    2.1 
Income before income taxes   2,887    3,917    (1,030)   (26.3)   7,991    10,102    (2,111)   (20.9)
Income tax expense   1,003    1,378    (375)   (27.2)   2,697    3,497    (800)   (22.9)
Net income  $1,884   $2,539   $(655)   (25.8)%  $5,294   $6,605   $(1,311)   (19.8)%

 

Consolidated net income decreased $655,000 to $1.9 million, or $0.33 per diluted share, for the three months ended September 30, 2016 compared to $2.5 million, or $0.45 per diluted share, for the three months ended September 30, 2015. For the three months ended September 30, 2016, the return on average assets was 0.59%, the return on average stockholders’ equity was 8.09%, and the efficiency ratio was 74.03%.

 

Consolidated net income decreased $1.3 million to $5.3 million, or $0.94 per diluted share, for the nine months ended September 30, 2016 compared to $6.6 million, or $1.17 per diluted share, for the nine months ended September 30, 2015. For the nine months ended September 30, 2016, the return on average assets was 0.94%, the return on average stockholders’ equity was 7.78%, and the efficiency ratio was 75.43%.

 

Net interest income was $10.1 million and $30.0 million for the three and nine months ended September 30, 2016, respectively, compared to $10.6 million and $30.5 million for the three and nine months end September 30, 2015, respectively. The net interest margin (expressed on a fully taxable equivalent basis) decreased to 3.44% for the three months ended September 30, 2016, compared to 3.78% for the three months ended September 30, 2015, and decreased to 3.47% for the nine months ended September 30, 2016 compared to 3.71% for the nine months ended September 30, 2015. These changes are discussed in greater detail under the Average Balance Sheets and Rate and Volume Analysis section below.

 

A $300,000 and $975,000 provision for loan losses was recorded for the three and nine months ended September 30, 2016, respectively, compared to no provision and $250,000 provision for the three and nine months ended September 30, 2015.

 

The Company’s net charge-offs were $222,000, or 0.02% of average loans, for the three months ended September 30, 2016 compared to net charge-offs of $740,000, or 0.08% of average loans, for the three months ended September 30, 2015. For the nine months ended September 30, 2016, the Company’s net charge-offs were $109,000, or 0.01% of average loans compared to net charge-offs of $103,000, or 0.01% of average loans for the nine months ended September 30, 2015.

 

Non-performing loans totaled $9.3 million, or 0.98% of total loans, at September 30, 2016 compared to $10.3 million, or 1.19% of total loans, at December 31, 2015, and $14.6 million, or 1.66% of total loans, at September 30, 2015. These changes are discussed in greater detail under the Lending and Credit Management section below.

 

Non-interest income decreased $211,000, or 9.0%, to $2.1 million for the three months ended September 30, 2016 compared to $2.3 million for the three months ended September 30, 2015, and decreased $263,000, or 3.9%, to $6.5 million for the nine months ended September 30, 2016 compared to $6.8 million for the nine months ended September 30, 2015. These changes are discussed in greater detail below under Non-interest Income.

 

Non-interest expense increased $108,000, or 1.2%, to $9.1 million for the three months ended September 30, 2016 compared to $9.0 million for the three months ended September 30, 2015, and increased $569,000, or 2.1%, to $27.5 million for the nine months ended September 30, 2016 compared to $27.0 million for the nine months ended September 30, 2015. These changes are discussed in greater detail below under Non-interest Expense.

 

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Average Balance Sheets

 

Net interest income is the largest source of revenue resulting from the Company’s lending, investing, borrowing, and deposit gathering activities. It is affected by both changes in the level of interest rates and changes in the amounts and mix of interest earning assets and interest bearing liabilities. The following table presents average balance sheets, net interest income, average yields of earning assets, average costs of interest bearing liabilities, net interest spread and net interest margin on a fully taxable equivalent basis for each of the periods ended September 30, 2016 and 2015, respectively.

 

 38 

 

 

   Three Months Ended September 30, 
(In thousands)  2016   2015 
       Interest   Rate       Interest   Rate 
   Average   Income/   Earned/   Average   Income/   Earned/ 
   Balance   Expense(1)   Paid(1)   Balance   Expense(1)   Paid(1) 
ASSETS                              
Loans: (2) (4)                              
Commercial  $164,558   $1,874    4.53%  $165,978   $1,938    4.63%
Real estate construction - residential   16,550    189    4.54    14,102    385    10.83 
Real estate construction - commercial   46,104    511    4.41    41,977    709    6.70 
Real estate mortgage - residential   251,085    2,836    4.49    245,660    2,849    4.60 
Real estate mortgage - commercial   425,533    4,982    4.66    382,707    4,616    4.79 
Consumer   26,937    292    4.31    21,036    268    5.05 
Total loans  $930,767   $10,684    4.57%  $871,460   $10,765    4.90%
Investment securities: (3)                              
Government sponsored enterprises  $42,340   $123    1.16%  $75,326   $261    1.37%
Asset backed securities   156,720    615    1.56    125,188    598    1.90 
State and municipal   31,831    193    2.41    33,984    265    3.09 
Total investment securities  $230,891   $931    1.60%  $234,498   $1,124    1.90%
Other investments and securities, at cost   9,044    80    3.52    8,485    72    3.37 
Federal funds sold and interest bearing deposits in other financial institutions   14,504    19    0.52    8,347    3    0.14 
Total interest earning assets  $1,185,206   $11,714    3.93%  $1,122,790   $11,964    4.23%
All other assets   87,697              90,248           
Allowance for loan losses   (9,377)             (9,971)          
Total assets  $1,263,526             $1,203,067           
LIABILITIES AND                              
STOCKHOLDERS' EQUITY                              
NOW accounts  $189,219   $147    0.31%  $191,026   $114    0.24%
Savings   96,938    12    0.05    90,851    12    0.05 
Commercial   646    1    0.62    0    0    0.00 
Money market   190,137    131    0.27    176,380    115    0.26 
Time deposits of $100,000 and over   151,918    267    0.70    137,542    222    0.64 
Other time deposits   157,836    231    0.58    172,945    269    0.62 
Total time deposits  $786,694   $789    0.40%  $768,744   $732    0.38%
Federal funds purchased and securities sold under agreements to repurchase   31,393    13    0.16    26,296    11    0.17 
Subordinated notes   49,486    375    3.01    49,486    326    2.61 
Federal Home Loan Bank Advances   74,109    282    1.51    61,207    202    1.31 
Total borrowings  $154,988   $670    1.72%  $136,989   $539    1.56%
Total interest bearing liabilities  $941,682   $1,459    0.62%  $905,733   $1,271    0.56%
Demand deposits   220,036              202,138           
Other liabilities   9,203              9,937           
Total liabilities   1,170,921              1,117,808           
Stockholders' equity   92,605              85,259           
Total liabilities and stockholders' equity  $1,263,526             $1,203,067           
Net interest income (FTE)        10,255              10,693      
Net interest spread             3.31%             3.67%
Net interest margin             3.44%             3.78%

 

(1)Interest income and yields are presented on a fully taxable equivalent basis using the federal statutory income tax rate of 34%, net of nondeductible interest expense. Such adjustments totaled $108,000 and $135,000 for the three months ended September 30, 2016 and 2015, respectively.
(2)Non-accruing loans are included in the average amounts outstanding.
(3)Average balances based on amortized cost.
(4)Fees and costs on loans are included in interest income.

 

 39 

 

 

   Nine Months Ended September 30, 
(In thousands)  2016   2015 
       Interest   Rate       Interest   Rate 
   Average   Income/   Earned/   Average   Income/   Earned/ 
   Balance   Expense(1)   Paid(1)   Balance   Expense(1)   Paid(1) 
ASSETS                              
Loans: (2) (4)                              
Commercial  $155,384   $5,383    4.61%  $157,077   $5,594    4.76%
Real estate construction - residential   17,624    602    4.55    15,077    789    7.00 
Real estate construction - commercial   41,489    1,460    4.69    46,055    1,776    5.16 
Real estate mortgage - residential   251,819    8,590    4.54    246,399    8,633    4.68 
Real estate mortgage - commercial   406,104    14,192    4.66    378,344    13,455    4.75 
Consumer   25,513    854    4.46    20,304    798    5.25 
Total loans  $897,933   $31,081    4.61%  $863,256   $31,045    4.81%
Investment securities: (3)                              
U.S. government and federal agency obligations  $49,216   $427    1.16%  $73,680    772    1.40%
Asset backed securities   159,693    2,053    1.71    126,256    1,848    1.96 
State and municipal   30,549    612    2.67    34,834    828    3.18 
Total investment securities  $239,458   $3,092    1.72%  $234,770   $3,448    1.96%
Other investments and securities, at cost   8,544    231    3.60    6,252    138    2.95 
Federal funds sold and interest bearing deposits in other financial institutions   17,640    69    0.52    11,716    24    0.27 
Total interest earning assets  $1,163,575   $34,473    3.95%  $1,115,994   $34,655    4.15%
All other assets   88,942              89,568           
Allowance for loan losses   (8,959)             (9,757)          
Total assets  $1,243,558             $1,195,805           
LIABILITIES AND                              
STOCKHOLDERS' EQUITY                              
NOW accounts  $201,508   $471    0.31%  $205,448   $375    0.24%
Savings   95,403    36    0.05    88,651    36    0.05 
Commercial   217    1    0.61                
Money market   183,491    365    0.27    173,014    328    0.25 
Time deposits of $100,000 and over   139,140    709    0.68    138,598    653    0.63 
Other time deposits   161,126    707    0.58    177,617    830    0.62 
Total time deposits  $780,885   $2,289    0.39%  $783,328   $2,222    0.38%
Federal funds purchased and securities sold under agreements to repurchase   38,979    51    0.17    22,589    28    0.17 
Subordinated notes   49,486    1,095    2.95    49,486    958    2.59 
Federal Home Loan Bank Advances   61,949    732    1.57    47,960    513    1.43 
Total borrowings  $150,414   $1,878    1.66%  $120,035   $1,499    1.67%
Total interest bearing liabilities  $931,299   $4,167    0.60%  $903,363   $3,721    0.55%
Demand deposits   211,930              198,690           
Other liabilities   9,476              10,085           
Total liabilities   1,152,705              1,112,138           
Stockholders' equity   90,853              83,667           
Total liabilities and stockholders' equity  $1,243,558             $1,195,805           
Net interest income (FTE)        30,306              30,934      
Net interest spread             3.35%             3.60%
Net interest margin             3.47%             3.71%

 

(1)Interest income and yields are presented on a fully taxable equivalent basis using the federal statutory income tax rate of 34%, net of nondeductible interest expense. Such adjustments totaled $340,000 and $414,000 for the nine months ended September 30, 2016 and 2015, respectively.
(2)Non-accruing loans are included in the average amounts outstanding.
(3)Average balances based on amortized cost.
(4)Fees and costs on loans are included in interest income.

 

 40 

 

 

Rate and Volume Analysis

 

The following table summarizes the changes in net interest income on a fully taxable equivalent basis, by major category of interest earning assets and interest bearing liabilities, identifying changes related to volumes and rates for the three and nine months ended September 30, 2016 compared to the three and nine months ended September 30, 2015. The change in interest due to the combined rate/volume variance has been allocated to rate and volume changes in proportion to the absolute dollar amounts of change in each.

 

   Three Months Ended September 30,   Nine Months Ended September 30, 
   2016 vs. 2015   2016 vs. 2015 
       Change due to       Change due to 
   Total   Average   Average   Total   Average   Average 
(In thousands)  Change   Volume   Rate   Change   Volume   Rate 
Interest income on a fully  taxable equivalent basis: (1)                              
Loans: (2) (4)                              
Commercial  $(64)  $(17)  $(47)  $(211)  $(60)  $(151)
Real estate construction - residential   (196)   58    (254)   (187)   118    (305)
Real estate construction - commercial   (198)   65    (263)   (316)   (168)   (148)
Real estate mortgage - residential   (13)   62    (75)   (43)   188    (231)
Real estate mortgage - commercial   366    505    (139)   737    973    (236)
Consumer   24    68    (44)   56    186    (130)
Investment securities: (3)                              
U.S. government and federal agency  obligations   (138)   (101)   (37)   (345)   (227)   (118)
Asset backed securities   17    135    (118)   205    448    (243)
State and municipal   (72)   (16)   (56)   (216)   (95)   (121)
Other investments and securities, at cost   8    5    3    93    58    35 
Federal funds sold and interest bearing deposits in other financial institutions   16    3    13    45    16    29 
Total interest income   (250)   767    (1,017)   (182)   1,437    (1,619)
Interest expense:                              
NOW accounts   33    (1)   34    96    (7)   103 
Savings   0    1    (1)   0    3    (3)
Commercial   1    0    1    1    0    1 
Money market   16    9    7    37    21    16 
Time deposits of $100,000 and over   45    24    21    56    3    53 
Other time deposits   (38)   (23)   (15)   (123)   (74)   (49)
Federal funds purchased and securities sold under agreements to repurchase   2    2    0    23    21    2 
Subordinated notes   49    0    49    137    0    137 
Federal Home Loan Bank advances   80    47    33    219    162    57 
Total interest expense   188    59    129    446    129    317 
Net interest income on a fully taxable equivalent basis  $(438)  $708   $(1,146)  $(628)  $1,308   $(1,936)

 

(1)Interest income and yields are presented on a fully taxable equivalent basis using the Federal statutory income tax rate of 34%, net of nondeductible interest expense. Such adjustments totaled $108,000 and $340,000 for the three and nine months end September 30, 2016, respectively, compared to $135,000 and $414,000 for the three and nine months September 30, 2015, respectively.
(2)Non-accruing loans are included in the average amounts outstanding.
(3)Average balances based on amortized cost.
(4)Fees and costs on loans are included in interest income.

 

Financial results for the three months ended September 30, 2016 compared to the three months ended September 30, 2015, reflected a decrease in net interest income, on a tax equivalent basis, of $438,000, or 4.10%, and financial results for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015 reflected a decrease of $628,000, or 2.03%.

 

Measured as a percentage of average earning assets, the net interest margin (expressed on a fully taxable equivalent basis) decreased to 3.44% for the three months ended September 30, 2016 compared to 3.78% for the three months ended September 30, 2015, and decreased to 3.47% for the nine months ended September 30, 2016 compared to 3.71% for the nine months ended September 30, 2015. The decrease in net interest income and the net

 

 41 

 

 

interest margin was due to a contraction in the net interest spread caused primarily by a decrease in the yield on investment securities maturing at higher historical rates and new replacement securities yielding lower current market rates.

 

Average interest-earning assets increased $62.4 million, or 5.56%, to $1.19 billion for the three months ended September 30, 2016 compared to $1.12 billion for the three months ended September 30, 2015, and average interest bearing liabilities increased $35.9 million, or 3.97%, to $941.7 million for the three months ended September 30, 2016 compared to $905.7 million for the three months ended September 30, 2015.

 

Average interest-earning assets increased $47.6 million, or 4.26%, to $1.16 billion for the nine months ended September 30, 2016 compared to $1.12 billion for the nine months ended September 30, 2015, and average interest bearing liabilities increased $27.9 million, or 3.09%, to $931.3 million for the nine months ended September 30, 2016 compared to $903.4 million for the nine months ended September 30, 2015.

 

Total interest income (expressed on a fully taxable equivalent basis) decreased to $11.7 million and $34.5 million for the three and nine months ended September 30, 2016, respectively, compared to $12.0 million and $34.7 million for the three and nine months ended September 30, 2015, respectively. The Company’s rates earned on interest earning assets were 3.93% and 3.95% for the three and nine months ended September 30, 2016, respectively, compared to 4.23% and 4.15% for the three and nine months ended September 30, 2015, respectively.

 

Interest income on loans was $10.7 million and $31.1 million for the three and nine months ended September 30, 2016, respectively, compared to $10.8 million and $31.0 million for the three and nine months ended September 30, 2015, respectively.

 

Average loans outstanding increased $59.3 million, or 6.81%, to $930.8 million for the three months ended September 30, 2016 compared to $871.5 million for the three months ended September 30, 2015. The average yield on loans receivable decreased to 4.57% for the three months ended September 30, 2016 compared to 4.90% for the three months ended September 30, 2015.

 

For the nine months ended September 30, 2016, average loans outstanding increased $34.7 million, or 4.02%, to $897.9 million compared to $863.3 million for the nine months ended September 30, 2015. The average yield on loans receivable decreased to 4.61% for the nine months ended September 30, 2016 compared to 4.81% for the nine months ended September 30, 2015.

 

Total interest expense was $1.5 million and $4.2 million for the three and nine months ended September 30, 2016, respectively, compared to $1.3 million and $3.7 million for the three and nine months ended September 30, 2015, respectively. The Company’s rates paid on interest bearing liabilities were 0.62% and 0.60% for the three and nine months ended September 30, 2016 compared to 0.56% and 0.55% for the three and nine months ended September 30, 2015, respectively. See the Liquidity Management section for further discussion.

 

Interest expense on deposits increased to $789,000 and $2.3 million for the three and nine months ended September 30, 2016, respectively, compared to $732,000 and $2.2 million for the three and nine months ended September 30, 2015, respectively.

 

Average time deposits increased $18.0 million, or 2.33%, to $786.7 million for the three months ended September 30, 2016 compared to $768.7 million for the three months ended September 30, 2015. The average cost of deposits increased to 0.40% for the three months ended September 30, 2016 compared to 0.38% for the three months ended September 30, 2015.

 

For the nine months ended September 30, 2016, average time deposits decreased $2.4 million, or 0.31%, to $780.9 million for the nine months ended September 30, 2015 compared to $783.3 million for the nine months ended September 30, 2015. The average cost of deposits increased to 0.39% for the nine months ended September 30, 2016 compared to 0.38% for the nine months ended September 30, 2015 primarily as a result of higher market interest rates.

 

Interest expense on borrowings increased to $670,000 and $1.9 million for the three and nine months ended September 30, 2016, respectively, compared to $539,000 and $1.5 million for the three and nine months ended September 30, 2015, respectively.

 

Average borrowings increased $18.0 million, or 13.14%, to $155.0 million for the three months ended September 30, 2016 compared to $137.0 million for the three months ended September 30, 2015. The average cost of borrowings increased to 1.72% for the three months ended September 30, 2016 compared to 1.56% for the three months ended September 30, 2015.

 

For the nine months ended September 30, 2016, average borrowings increased $30.4 million, or 25.31%, to $150.4 million for the nine months ended September 30, 2015 compared to $120.0 million for the nine months ended September 30, 2015. The average cost of borrowings decreased to 1.66% for the nine months ended September 30, 2016 compared to 1.67% for the nine months ended September 30, 2015. See the Liquidity Management section for further discussion.

 

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Non-interest Income and Expense

 

Non-interest income for the periods indicated was as follows:

 

   Three Months Ended September 30,   Nine Months Ended September 30, 
(In thousands)  2016   2015   $
Change
   %
Change
   2016   2015   $
Change
   %
Change
 
Non-interest Income                                        
Service charges and other fees  $882   $903   $(21)   (2.3)%  $2,544   $2,597   $(53)   (2.0)%
Bank card income and fees   593    632    (39)   (6.2)   1,875    1,849    26    1.4 
Trust department income   216    235    (19)   (8.1)   699    714    (15)   (2.1)
Real estate servicing fees, net   (4)   177    (181)   (102.3)   (36)   357    (393)   (110.1)
Gain on sales of mortgage loans, net   266    322    (56)   (17.4)   653    1,103    (450)   (40.8)
Gain on sale of investment securities   111    0    111    NM    602    8    594    NM 
Other   61    67    (6)   (9.0)   185    157    28    17.8 
Total non-interest income  $2,125   $2,336   $(211)   (9.0)%  $6,522   $6,785   $(263)   (3.9)%
                                         
Non-interest income as a  % of total revenue *   17.3%   18.1%             17.9%   18.2%          
                                         
Total revenue per full time  equivalent employee  $37.8   $37.9             $112.3   $109.7           

 

* Total revenue is calculated as net interest income plus non-interest income.

NM - not meaningful

 

Total non-interest income decreased $211,000, or 9.0%, to $2.1 million for the quarter ended September 30, 2016 compared to $2.3 million for the quarter ended September 30, 2015, and decreased $263,000, or 3.9%, to $6.5 million for the nine months ended September 30, 2016 compared to $6.8 million for the nine months ended September 30, 2015.

 

Real estate servicing fees, net of the change in valuation of mortgage serving rights decreased $181,000, or 102.3%, to $(4,000) for the quarter ended September 30, 2016 compared to $177,000 for the quarter ended September 30, 2015, and decreased $393,000, or 110.1%, to $(36,000) for the nine months ended September 30, 2016 compared to $357,000 for the nine months ended September 30, 2015.

 

Mortgage loan servicing fees earned on loans sold were $233,000 for the quarter ended September 30, 2016 compared to $206,000 for the quarter ended September 30, 2015. Total realized losses included in earnings attributable to the change in unrealized gains or losses related to assets still held were $237,000 for the quarter ended September 30, 2016 compared to $29,000 for the quarter ended September 30, 2015.

 

Mortgage loan servicing fees earned on loans sold were $654,000 for the nine months ended September 30, 2016 compared to $648,000 for the nine months ended September 30, 2015. Total realized losses included in earnings attributable to the change in unrealized gains or losses related to assets still held were $690,000 for the nine months ended September 30, 2016 compared to $291,000 for the nine months ended September 30, 2015. The Company was servicing $299.7 million of mortgage loans at September 30, 2015 compared to $312.1 million and $311.8 million at December 31, 2015 and September 30, 2015, respectively.

 

Gain on sales of mortgage loans decreased $56,000, or 17.4%, to $266,000 for the quarter ended September 30, 2016 compared to $322,000 for the quarter ended September 30, 2015, and decreased $450,000, or 40.8%, to $653,000 for the nine months ended September 30, 2016 compared to $1.1 million for the nine months ended September 30, 2015. The Company sold loans of $11.2 million for both the quarters ended September 30, 2016 and 2015, and $28.8 million for the nine months ended September 30, 2016 compared to $40.1 million for the nine months ended September 30, 2015.

 

Gain on sale of investment securities During the nine months ended September 30, 2016 the Company received $60.7 million from proceeds on sales of available-for-sale debt securities and recognized gains of $602,000. These transactions were the result of bond sales and purchases to replace several smaller holdings with fewer, larger investments without materially changing the duration or yield of the investment portfolio.

 

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Non-interest expense for the periods indicated was as follows:

 

   Three Months Ended September 30,   Nine Months Ended September 30, 
(In thousands)  2016   2015   $ Change   % Change   2016   2015   $ Change   % Change 
Non-interest Expense                                        
Salaries  $3,833   $3,939   $(106)   (2.7)%  $11,798   $11,613   $185    1.6%
Employee benefits   1,230    1,381    (151)   (10.9)   3,920    4,185    (265)   (6.3)
Occupancy expense, net   730    685    45    6.6    2,037    2,064    (27)   (1.3)
Furniture and equipment expense   438    464    (26)   (5.6)   1,288    1,379    (91)   (6.6)
Processing expense, network and bank card expense   878    806    72    8.9    2,490    2,402    88    3.7 
Legal, examination, and professional fees   277    332    (55)   (16.6)   939    943    (4)   (0.4)
FDIC insurance assessment   196    175    21    12.0    560    673    (113)   (16.8)
Advertising and promotion   283    273    10    3.7    734    780    (46)   (5.9)
Postage, printing, and supplies   244    250    (6)   (2.4)   771    794    (23)   (2.9)
Real estate foreclosure expense (gains), net   49    (329)   378    114.9    232    (352)   584    165.9 
Other   927    1,001    (74)   (7.4)   2,753    2,472    281    11.4 
Total non-interest expense  $9,085   $8,977   $108    1.2%  $27,522   $26,953   $569    2.1%
Efficiency ratio *   74.0%   69.6%             75.4%   72.3%          
Salaries and benefits as a % of total non-interest expense   55.7%   59.3%             57.1%   58.6%          
Number of full-time equivalent employees   325    340              325    340           

 

* Efficiency ratio is calculated as non-interest expense as a percent of total revenue. Total revenue includes net interest income and non-interest income.

 

Total non-interest expense increased $108,000, or 1.2%, to $9.1 million for the quarter ended September 30, 2016 compared to $9.0 million for the quarter ended September 30, 2015, and increased $569,000, or 2.1%, to $27.5 million for the nine months ended September 30, 2016 compared to $27.0 million for the nine months ended September 30, 2015.

 

Salaries decreased $106,000, or 2.7%, to $3.8 million for the quarter ended September 30, 2016 compared to $3.9 million for the quarter ended September 30, 2015, and increased $185,000, or 1.6%, to $11.8 million for the nine months ended September 30, 2016 compared to $11.6 million for the nine months ended September 30, 2015. The decrease quarter over quarter was primarily due to a decrease in employees and the increase year over year was primarily due to annual salary increases granted at the beginning of each year.

 

Employee benefits decreased $151,000, or 10.9%, to $1.2 million for the quarter ended September 30, 2016 compared to $1.4 million for the quarter ended September 30, 2015, and decreased $265,000, or 6.3%, to $3.9 million for the nine months ended September 30, 2016 compared to $4.2 million for the nine months ended September 30, 2015. The decreases in both quarter over quarter and year over year were primarily due to decreases in the 401(k) profit-sharing plan expense, pension plan expense, and medical insurance premiums which was due to a change in the Company’s health insurance plan effective July 1, 2016.

 

FDIC insurance assessment increased $21,000, or 12.0%, to $196,000 for the quarter ended September 30, 2016 compared to $175,000 for the quarter ended September 30, 2015, and decreased $113,000, or 16.8%, to $560,000 for the nine months ended September 30, 2016 compared to $673,000 for the nine months ended September 30, 2015. The decrease year over year was primarily due to a decrease in the 2016 assessment. This decrease was not reflected quarter over quarter primarily due to an adjustment for the second quarter 2015 estimate that was made in the third quarter of 2015. As required by the Dodd-Frank Act, the FDIC finalized a rule in March 2016 to increase the deposit insurance fund from 1.15 percent of insured deposits to 1.35 percent by 2020. Under a rule adopted in 2011, assessment rates for all banks will decline by 2 or more basis points the quarter after the fund reaches 1.15 percent, which is anticipated for the second quarter of 2016. Under the current rule, starting that same quarter, banks under $10 billion will accrue credits for the portion of their assessments that contribute to growth of the fund above 1.15 percent.

 

Real estate foreclosure expense and (gains), net increased $378,000, or 114.9%, to $49,000 for the quarter ended September 30, 2016 compared to $(329,000) for the quarter ended September 30, 2015, and increased $584,000, or 165.9%, to $232,000 for the nine months ended September 30, 2016 compared to $(352,000) for the nine months ended September 30, 2015. Net gains recognized on other real estate owned were $17,000 for the quarter ended September 30, 2016 compared to $435,000 for the quarter ended September 30, 2015, and $64,000 for the nine months ended September 30, 2016 compared to $690,000 for the nine months ended September 30, 2015. Expenses to maintain foreclosed properties were $66,000 for the quarter ended September 30, 2016 compared to $107,000 for the quarter ended September 30, 2015, and $296,000 for the nine months ended September 30, 2016 compared to $338,000 for the nine months ended September 30, 2015.

 

Other non-interest expense decreased $74,000, or 7.4%, to $927,000 for the quarter ended September 30, 2016 compared to $1.0 million for the quarter ended September 30, 2015, and increased $281,000, or 11.4%, to $2.8 million for the nine months ended September 30, 2016 compared to $2.5 million for the nine months ended September 30, 2015. The decrease quarter

 

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over quarter was primarily related to an impairment write-down on a building held for sale in 2015. The increase year over year was primarily due to an increase in debit card charge offs due to fraudulent transactions, an increase in donations, and an increase in employee training, education, and travel expenses, partially offset by the impairment write-down on a building held for sale in 2015.

 

Income taxes

 

Income taxes as a percentage of earnings before income taxes as reported in the consolidated financial statements were 34.7% for the quarter ended September 30, 2016 compared to 35.2% for the quarter ended September 30, 2015. Income taxes as a percentage of earnings before income taxes as reported in the consolidated financial statements were 33.8% for the nine months ended September 30, 2016 compared to 34.6% for the nine months ended September 30, 2015. The decrease in tax rates year over year is primarily due to an immaterial return to provision adjustment recorded during the first quarter of 2016.

 

Lending and Credit Management

 

Interest earned on the loan portfolio is a primary source of interest income for the Company. Net loans represented 73.4% of total assets as of September 30, 2016 compared to 71.3% as of December 31, 2015.

 

Lending activities are conducted pursuant to an established loan policy approved by the Bank’s Board of Directors. The Bank’s credit review process is overseen by regional loan committees with established loan approval limits. In addition, a senior loan committee reviews all credit relationships in aggregate over an established dollar amount. The senior loan committee meets weekly and is comprised of senior managers of the Bank.

 

A summary of loans, by major class within the Company’s loan portfolio as of the dates indicated is as follows:

 

   September 30,   December 31, 
(In thousands)  2016   2015 
Commercial, financial, and agricultural  $172,274   $149,091 
Real estate construction - residential   17,066    16,895 
Real estate construction - commercial   48,743    33,943 
Real estate mortgage - residential   256,786    256,086 
Real estate mortgage - commercial   423,779    385,869 
Installment loans to individuals   29,123    23,196 
Total loans  $947,771   $865,080 
Percent of categories to total loans:          
Commercial, financial, and agricultural   18.2%   17.2%
Real estate construction - residential   1.8    2.0 
Real estate construction - commercial   5.1    3.9 
Real estate mortgage - residential   27.1    29.6 
Real estate mortgage - commercial   44.7    44.6 
Installment loans to individuals   3.1    2.7 
Total   100.0%   100.0%

 

The Company extends credit to its local community market through traditional real estate mortgage products. The Company does not participate in extending credit to sub-prime residential real estate markets. The Company does not lend funds for the type of transactions defined as “highly leveraged” by bank regulatory authorities or for foreign loans. Additionally, the Company does not have any concentrations of loans exceeding 10% of total loans that are not otherwise disclosed in the loan portfolio composition table. The Company does not have any interest-earning assets that would have been included in nonaccrual, past due, or restructured loans if such assets were loans.

 

The Company generally does not retain long-term fixed rate residential mortgage loans in its portfolio. Fixed rate loans conforming to standards required by the secondary market are offered to qualified borrowers, but are not funded until the Company has a non-recourse purchase commitment from the secondary market at a predetermined price. The Company sold loans of $11.2 million and $28.8 million to investors for the three and nine months ended September 30, 2016, respectively, compared to $11.2 million and $40.1 million for the three and nine months ended September 30, 2015, respectively. At September 30, 2016, the Company was servicing approximately $299.7 million of loans sold to the secondary market compared to $312.1 million at December 31, 2015, and $311.8 million at September 30, 2015.

 

Risk Elements of the Loan Portfolio

 

Management, the senior loan committee, and internal loan review, formally review all loans in excess of certain dollar amounts (periodically established) at least annually. Currently, loans in excess of $2.0 million in aggregate and all adversely classified credits identified by management are reviewed. In addition, all other loans are reviewed on a sample basis. The senior loan committee reviews and reports to the board of directors, on a monthly basis, past due, classified, and watch list

 

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loans in order to classify or reclassify loans as loans requiring attention, substandard, doubtful, or loss. During this review, management also determines which loans should be considered impaired. Management follows the guidance provided in the FASB’s ASC Topic 310, Accounting by Creditors for Impairment of a Loan, in identifying and measuring loan impairment. If management determines that it is probable that all amounts due on a loan will not be collected under the original terms of the loan agreement, the loan is considered to be impaired. These loans are evaluated individually for impairment, and in conjunction with current economic conditions and loss experience, specific reserves are estimated as further discussed below. Loans not individually evaluated are aggregated and reserves are recorded using a consistent methodology that considers historical loan loss experience by loan type, delinquencies, current economic conditions, loan risk ratings and industry concentration. Management believes, but there can be no assurance, that these procedures keep management informed of potential problem loans. Based upon these procedures, both the allowance and provision for loan losses are adjusted to maintain the allowance at a level considered adequate by management to provide for probable losses inherent in the loan portfolio.

 

Nonperforming Assets

 

The following table summarizes nonperforming assets at the dates indicated:

   September 30,   December 31, 
(In thousands)  2016   2015 
Nonaccrual loans:          
Commercial, financial, and agricultural  $1,157   $308 
Real estate construction - commercial   51    102 
Real estate mortgage - residential   1,704    2,322 
Real estate mortgage - commercial   559    1,542 
Installment loans to individuals   116    144 
Total  $3,587   $4,418 
Loans contractually past due 90 days  or more and still accruing:          
Commercial, financial, and agricultural  $0   $1 
Real estate mortgage - residential   60    0 
Installment loans to individuals   1    5 
Total  $61   $6 
Performing troubled debt restructurings   5,655    5,850 
Total nonperforming loans   9,303    10,274 
Other real estate owned and repossessed assets   14,438    15,992 
Total nonperforming assets  $23,741   $26,266 
           
Loans  $947,771   $865,080 
Allowance for loan losses to loans   1.00%   0.99%
Nonperforming loans to loans   0.98%   1.19%
Allowance for loan losses to  nonperforming loans   101.80%   83.75%
Allowance for loan losses to  nonperforming loans, excluding TDR's - accruing   259.59%   194.48%
Nonperforming assets to loans, other real estate owned and foreclosed assets   2.47%   2.98%

 

Total nonperforming assets totaled $23.7 million at September 30, 2016 compared to $26.3 million at December 31, 2015. Nonperforming loans, defined as loans on nonaccrual status, loans 90 days or more past due and still accruing, and TDRs totaled $9.3 million, or 0.98% of total loans, at September 30, 2016 compared to $10.3 million, or 1.19% of total loans, at December 31, 2015, and $14.6 million, or 1.66% of total loans, at September 30, 2015. Non-accrual loans included $597,000 and $527,000 of loans classified as TDRs at September 30, 2016 and December 31, 2015, respectively.

 

As of September 30, 2016 and December 31, 2015, approximately $1.8 million and $5.7 million, respectively, of loans classified as substandard, not included in the nonperforming asset table, were identified as potential problem loans having more than a normal risk which raised doubts as to the ability of the borrower to comply with present loan repayment terms. Even though borrowers are experiencing moderate cash flow problems as well as some deterioration in collateral value, management believes the general allowance was sufficient to cover the risks and probable losses related to such loans at September 30, 2016 and December 31, 2015, respectively.

 

Total non-accrual loans at September 30, 2016 decreased $831,000, or 19.0%, to $3.6 million compared to $4.4 million at December 31, 2015. This decrease primarily consisted of decreases in real estate mortgage residential and commercial loans, partially offset by an increase in commercial, financial, and agricultural loans. The decrease in non-accrual loans primarily resulted from the sale of a piece of collateral and transfers of impaired loans to other real estate owned and repossessed assets.

 

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Loans past due 90 days and still accruing interest at September 30, 2016, were $61,000 compared to $6,000 at December 31, 2015. Other real estate and repossessed assets at September 30, 2016 were $14.4 million compared to $16.0 million at December 31, 2015. During the nine months ended September 30, 2016, $2.0 million of nonaccrual loans, net of charge-offs taken, moved to other real estate owned and repossessed assets compared to $1.5 million during the nine months ended September 30, 2015.

 

The following table summarizes the Company’s TDRs at the dates indicated:

 

   September 30, 2016   December 31, 2015 
(In thousands)  Number of
Contracts
   Recorded
Investment
   Specific
Reserves
   Number of
Contracts
   Recorded
Investment
   Specific
Reserves
 
Performing TDRs                              
Commercial, financial and agricultural   8   $654   $7    8   $697   $67 
Real estate mortgage - residential   7    3,492    170    7    3,615    630 
Real estate mortgage - commercial   3    1,509    99    3    1,538    - 
Total performing TDRs   18   $5,655   $276    18   $5,850   $697 
Nonperforming TDRs                              
Commercial, financial and agricultural   2   $32   $5    -   $-   $- 
Real estate mortgage - residential   5    374    61    -    -    - 
Real estate mortgage - commercial   2    191    103    4    527    213 
Total nonperforming TDRs   9   $597   $169    4   $527   $213 
Total TDRs   27   $6,252   $445    22   $6,377   $910 

 

At September 30, 2016, loans classified as TDRs totaled $6.3 million, with $445,000 of specific reserves, of which $597,000 were classified as nonperforming TDRs and $5.7 million were classified as performing TDRs. This compared to $6.4 million of loans classified as TDRs, with $910,000 of specific reserves, of which $527,000 were classified as nonperforming TDRs and $5.9 million were classified as performing TDRs at December 31, 2015. Both performing and nonperforming TDRs are considered impaired loans. When an individual loan is determined to be a TDR, the amount of impairment is based upon the present value of expected future cash flows discounted at the loan’s effective interest rate or the fair value of the underlying collateral less applicable selling costs. The net decrease in total TDRs from December 31, 2015 to September 30, 2016 was primarily due to approximately $531,000 of payments received, partially offset by $406,000 of new loans designated as TDRs during the nine months ended September 30, 2016.

 

Allowance for Loan Losses and Provision

 

Allowance for Loan Losses

 

The following table is a summary of the allocation of the allowance for loan losses:

 

   September 30,   December 31, 
(In thousands)  2016   2015 
Allocation of allowance for loan losses at end of period:          
Commercial, financial, and agricultural  $2,771   $2,153 
Real estate construction - residential   59    59 
Real estate construction - commercial   293    644 
Real estate mortgage - residential   2,080    2,439 
Real estate mortgage - commercial   3,870    2,935 
Installment loans to individuals   295    273 
Unallocated   102    101 
Total  $9,470   $8,604 

 

The allowance for loan losses (ALL) was $9.5 million, or 1.00% of loans outstanding, at September 30, 2016 compared to $8.6 million, or 0.99% of loans outstanding, at December 31, 2015, and $9.2 million, or 1.05% of loans outstanding, at September 30, 2015. The ratio of the allowance for loan losses to nonperforming loans, excluding performing TDR’s, was 259.59% at September 30, 2016, compared to 194.48% at December 31, 2015.

 

The following table is a summary of the general and specific allocations of the allowance for loan losses:

 

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   September 30,   December 31, 
(In thousands)  2016   2015 
Allocation of allowance for loan losses:          
Individually evaluated for impairment - specific reserves  $1,302   $1,540 
Collectively evaluated for impairment - general reserves   8,168    7,064 
Total  $9,470   $8,604 

 

The specific reserve component applies to loans evaluated individually for impairment. The net carrying value of impaired loans is generally based on the fair values of collateral obtained through independent appraisals and/or internal evaluations, less costs to sell, or by discounting the total expected future cash flows. Once the impairment amount is calculated, a specific reserve allocation is recorded. At September 30, 2016, $1.3 million of the Company’s ALL was allocated to impaired loans totaling approximately $9.2 million compared to $1.5 million of the Company’s ALL allocated to impaired loans totaling approximately $10.3 million at December 31, 2015. Management determined that $2.1 million, or 23%, of total impaired loans required no reserve allocation at September 30, 2016 compared to $4.5 million, or 44%, at December 31, 2015 primarily due to adequate collateral values, acceptable payment history and adequate cash flow ability.

 

The incurred loss component of the general reserve, or loans collectively evaluated for impairment, is determined by applying loss rates to pools of loans by asset type. Loans not individually evaluated are aggregated by risk characteristics and reserves are recorded using a consistent methodology that considers historical loan loss experience by loan type. Beginning in the first quarter of 2016, the Company began to lengthen its look-back period with the intent to increase such period from three to five years over the next two years. The Company believes that the five-year look-back period, which is consistent with the Company’s practices prior to the start of the economic recession in 2008, provides a representative historical loss period in the current economic environment. These historical loss rates for each risk group are used as the starting point to determine loss rates for measurement purposes. The historical loan loss rates are multiplied by loss emergence periods (LEP) which represent the estimated time period between a borrower first experiencing financial difficulty and the recognition of a loss.

 

The Company’s methodology includes qualitative risk factors that allow management to adjust its estimates of losses based on the most recent information available and to address other limitations in the quantitative component that is based on historical loss rates. Such risk factors are generally reviewed and updated quarterly, as appropriate, and are adjusted to reflect changes in national and local economic conditions and developments, the nature, volume and terms of loans in the portfolio, including changes in volume and severity of past due loans, the volume of nonaccrual loans, and the volume and severity of adversely classified or graded loans, loan concentrations, assessment of trends in collateral values, assessment of changes in the quality of the Company’s internal loan review department, and changes in lending policies and procedures, including underwriting standards and collections, charge-off and recovery practices.

 

The specific and general reserve allocations represent management’s best estimate of probable losses inherent in the loan portfolio at the evaluation date. Although the allowance for loan losses is comprised of specific and general allocations, the entire allowance is available to absorb any credit losses.

 

Provision

 

The provision for loan losses was $300,000 and $975,000 for the three and nine months ended September 30, 2016, respectively, compared to no provision and $250,000 for the three and nine months ended September 30, 2015, respectively. The increase was primarily due to using a fifteen quarter look-back period compared to twelve quarters, as discussed above, in addition to an increase in loans.

 

The following table summarizes loan loss experience for the periods indicated:

 

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   Three Months Ended   Nine Months Ended 
   September 30,   September 30, 
(In thousands)  2016   2015   2016   2015 
Analysis of allowance for loan losses:                    
Balance beginning of period  $9,392   $9,986   $8,604   $9,099 
Charge-offs:                    
Commercial, financial, and agricultural   157    591    295    741 
Real estate construction - commercial   -    -    1    5 
Real estate mortgage - residential   92    87    474    298 
Real estate mortgage - commercial   27    126    137    159 
Installment loans to individuals   86    80    209    241 
Total charge-offs   362    884    1,116    1,444 
Recoveries:                    
Commercial, financial, and agricultural  $26   $28   $203   $643 
Real estate construction - residential   -    28    -    322 
Real estate construction - commercial   -    -    502    - 
Real estate mortgage - residential   31    45    49    105 
Real estate mortgage - commercial   36    5    128    157 
Installment loans to individuals   47    38    125    114 
Total recoveries   140    144    1,007    1,341 
Net charge-offs   222    740    109    103 
Provision for loan losses   300    -    975    250 
Balance end of period  $9,470   $9,246   $9,470   $9,246 

 

Net Loan Charge-offs

 

The Company’s net loan charge-offs were $222,000, or 0.02% of average loans, for the three months ended September 30, 2016, compared to net loan charge-offs of $740,000, or 0.08% of average loans, for the three months ended September 30, 2015. The decrease in charge-offs quarter over quarter primarily related to one commercial loan relationship recorded during the third quarter of 2015.

 

The Company’s net loan charge-offs were $109,000, or 0.01% of average loans, for the nine months ended September 30, 2016, compared to net loan charge-offs of $103,000, or 0.01% of average loans, for the nine months ended September 30, 2015. Although loan charge-offs decreased year over year, loan recoveries also decreased from the prior year. One commercial loan and one real estate residential construction loan recovery were received during the first and second quarters of 2015 compared to a significant commercial real estate construction loan recovery received from the sale of collateral during the second quarter of 2016.

 

Liquidity and Capital Resources

 

Liquidity Management

 

The role of liquidity management is to ensure funds are available to meet depositors' withdrawal and borrowers' credit demands while at the same time maximizing profitability. This is accomplished by balancing changes in demand for funds with changes in the supply of those funds. Liquidity to meet the demands is provided by maturing assets, short-term liquid assets that can be converted to cash and the ability to attract funds from external sources, principally depositors. Due to the nature of services offered by the Company, management prefers to focus on transaction accounts and full service relationships with customers.

 

The Company’s Asset/Liability Committee (ALCO), primarily made up of senior management, has direct oversight responsibility for the Company's liquidity position and profile. A combination of daily, weekly, and monthly reports provided to management detail the following: internal liquidity metrics, composition and level of the liquid asset portfolio, timing differences in short-term cash flow obligations, available pricing and market access to the financial markets for capital, and exposure to contingent draws on the Company's liquidity.

 

The Company has a number of sources of funds to meet liquidity needs on a daily basis. The Company’s most liquid assets are comprised of available for sale investment securities, federal funds sold, and excess reserves held at the Federal Reserve.

 

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   September 30,   December 31, 
(In thousands)  2016   2015 
Federal funds sold and other overnight interest-bearing deposits  $19,788   $7,893 
Available-for-sale investment securities   221,824    235,054 
Total  $241,612   $242,947 

 

Federal funds sold and resale agreements normally have overnight maturities and are used for general daily liquidity purposes. The fair value of the available-for-sale investment portfolio was $221.8 million at September 30, 2016 and included an unrealized net gain of $1.3 million. The portfolio includes projected maturities and mortgage backed securities pay-downs of approximately $20.9 million over the next twelve months, which offer resources to meet either new loan demand or reductions in the Company’s deposit base.

 

The Company pledges portions of its investment securities portfolio to secure public fund deposits, federal funds purchase lines, securities sold under agreements to repurchase, borrowing capacity at the Federal Reserve Bank, and for other purposes required by law. At September 30, 2016 and December 31, 2015, the Company’s unpledged securities in the available for sale portfolio totaled approximately $38.6 million and $52.4 million, respectively.

 

Total investment securities pledged for these purposes were as follows:

 

   September 30,   December 31, 
(In thousands)  2016   2015 
Investment securities pledged for the purpose of securing:          
Federal Reserve Bank borrowings  $9,721   $3,481 
Federal funds purchased and securities sold under agreements to repurchase   43,424    66,911 
Other deposits   130,063    112,282 
Total pledged, at fair value  $183,208   $182,674 

 

Liquidity is available from the Company’s base of core customer deposits, defined as demand, interest checking, savings, and money market deposit accounts. At September 30, 2016, such deposits totaled $707.9 million and represented 69.5% of the Company’s total deposits. These core deposits are normally less volatile and are often tied to other products of the Company through long lasting relationships. Time deposits and certificates of deposit of $100,000 and over totaled $310.1 million at September 30, 2016. These accounts are normally considered more volatile and higher costing representing 30.5% of total deposits at September 30, 2016.

 

Core deposits at September 30, 2016 and December 31, 2015 were as follows:

 

   September 30,   December 31, 
(In thousands)  2016   2015 
Core deposit base:          
Non-interest bearing demand  $229,987   $208,035 
Interest checking   187,744    176,124 
Savings and money market   290,201    264,956 
Total  $707,932   $649,115 

 

Other components of liquidity are the level of borrowings from third party sources and the availability of future credit. The Company’s outside borrowings are comprised of securities sold under agreements to repurchase, Federal Home Loan Bank advances, and subordinated notes. Federal funds purchased are overnight borrowings obtained mainly from upstream correspondent banks with which the Company maintains approved credit lines. As of September 30, 2016, under agreements with these unaffiliated banks, the Bank may borrow up to $40.0 million in federal funds on an unsecured basis and $17.4 million on a secured basis. There were no federal funds purchased outstanding at September 30, 2016. Securities sold under agreements to repurchase are generally borrowed overnight and are secured by a portion of the Company’s investment portfolio. At September 30, 2016, there was $28.5 million in repurchase agreements. The Company may periodically borrow additional short-term funds from the Federal Reserve Bank through the discount window; although no such borrowings were outstanding at September 30, 2016.

 

The Bank is a member of the Federal Home Loan Bank of Des Moines (FHLB). As a member of the FHLB, the Bank has access to credit products of the FHLB. As of September 30, 2016, the Bank had $79.0 million in outstanding borrowings with the FHLB. In addition, the Company has $49.5 million in outstanding subordinated notes issued to wholly-owned grantor trusts, funded by preferred securities issued by the trusts.

 

Borrowings outstanding at September 30, 2016 and December 31, 2015 were as follows:

 

 50 

 

  

   September 30,   December 31, 
(In thousands)  2016   2015 
Borrowings:          
Securities sold under agreements to repurchase  $28,504   $56,834 
Federal Home Loan Bank advances   79,000    50,000 
Subordinated notes   49,486    49,486 
Total  $156,990   $156,320 

 

The Company pledges certain assets, including loans and investment securities to the Federal Reserve Bank, FHLB, and other correspondent banks as security to establish lines of credit and borrow from these entities. Based on the type and value of collateral pledged, the Company may draw advances against this collateral.

 

The following table reflects the advance equivalent of the assets pledged, borrowings, and letters of credit outstanding in addition to the estimated future funding capacity available to the Company as follows:

 

   September 30,   December 31, 
   2016   2015 
(In thousands)  FHLB   Federal
Reserve
Bank
   Federal
Funds
Purchased
Lines
   Total   FHLB   Federal
Reserve
Bank
   Federal
Funds
Purchased
Lines
   Total 
Advance equivalent  $302,533   $9,518   $47,905   $359,956   $257,513   $3,412   $45,175   $306,100 
Advances outstanding   (79,000)   0    0    (79,000)   (50,000)   0    0    (50,000)
Total available  $223,533   $9,518   $47,905   $280,956   $207,513   $3,412   $45,175   $256,100 

 

At September 30, 2016, loans with a market value of $388.3 million were pledged at the Federal Home Loan Bank as collateral for borrowings and letters of credit. At September 30, 2016, investments with a market value of $19.5 million were pledged to secure federal funds purchase lines and borrowing capacity at the Federal Reserve Bank.

 

Sources and Uses of Funds

 

Cash and cash equivalents were $38.9 million at September 30, 2016 compared to $28.4 million at December 31, 2015. The $8.6 million increase resulted from changes in the various cash flows produced by operating, investing, and financing activities of the Company, as shown in the accompanying consolidated statement of cash flows for the nine months ended September 30, 2016. Cash flow provided from operating activities consists mainly of net income adjusted for certain non-cash items. Operating activities provided cash flow of $9.1 million for the nine months ended September 30, 2016.

 

Investing activities consisting mainly of purchases, sales and maturities of available-for-sale securities, and changes in the level of the loan portfolio used total cash of $68.8 million. The cash outflow primarily consisted of $102.0 million purchases of investment securities, and $85.1 million net increase in loans, partially offset by $60.7 million proceeds from sales of investment securities, and $56.0 from maturities, calls, and pay-downs of investment securities.

 

Financing activities provided cash of $70.3 million, resulting primarily from a $36.9 million increase in interest bearing transaction accounts, $29.0 million increase in net FHLB advances, and $22.0 million increase in time deposits, partially offset by a $28.3 million decrease in federal funds purchased and securities sold under agreements to repurchase. Future short-term liquidity needs arising from daily operations are not expected to vary significantly during 2016.

 

In the normal course of business, the Company enters into certain forms of off-balance sheet transactions, including unfunded loan commitments and letters of credit. These transactions are managed through the Company's various risk management processes. Management considers both on-balance sheet and off-balance sheet transactions in its evaluation of the Company's liquidity. The Company had $237.9 million in unused loan commitments and standby letters of credit as of September 30, 2016. Although the Company's current liquidity resources are adequate to fund this commitment level the nature of these commitments is such that the likelihood of such a funding demand is very low.

 

The Company is a legal entity, separate and distinct from the Bank, which must provide its own liquidity to meet its operating needs. The Company’s ongoing liquidity needs primarily include funding its operating expenses and paying cash dividends to its shareholders. The Company paid cash dividends to its shareholders totaling approximately $815,000 and $785,000 for the nine months ended September 30, 2016 and 2015, respectively. A large portion of the Company’s liquidity is obtained from the Bank in the form of dividends. The Bank did not declare or pay dividends to the Company during the nine months ended September 30, 2016. At September 30, 2016 and December 31, 2015, the Company had cash and cash equivalents totaling $2.1 million and $5.0 million, respectively.

 

 51 

 

 

Capital Management

 

The Company and the Bank are subject to various regulatory capital requirements administered by federal and state banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on the Company’s consolidated financial statements. Under capital adequacy guidelines, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classification of the Company and the Bank are subject to qualitative judgments by the regulators about components, risk-weightings, and other factors.

 

In July 2013, the federal banking agencies issued final rules to implement the Basel III regulatory capital reforms and changes required by the Dodd-Frank Act. The phase-in period for the Company began on January 1, 2015. The Federal Reserve System’s (FRB) capital adequacy guidelines require that bank holding companies maintain a Common Equity Tier 1 risk-based capital ratio equal to at least 4.5% of its risk-weighted assets, a Tier 1 risk-based capital ratio equal to at least 6% of its risk-weighted assets and a total risk-based capital ratio equal to at least 8% of its risk-weighted assets. In addition, bank holding companies generally are required to maintain a Tier 1 leverage ratio of at least 4%. 

 

In addition, the final rules establish a common equity tier 1 capital conservation buffer of 2.5% of risk-weighted assets applicable to all banking organizations. Institutions that do not maintain the required capital buffer will become subject to progressively more stringent limitations on the percentage of earnings that can be paid out in dividends or used for stock repurchases and on the payment of discretionary bonuses to senior executive management. The capital conservation buffer requirement will be phased in over four years beginning in 2016. The capital conservation buffer requirement effectively raises the minimum required risk-based capital ratios to 7% Common Equity Tier 1 Capital, 8.5% Tier 1 Capital and 10.5% Total Capital on a fully phased-in basis.

 

Under the Basel III requirements, at September 30, 2016 and December 31, 2015, the Company met all capital adequacy requirements and had regulatory capital ratios in excess of the levels established for well-capitalized institutions, as shown in the following table as of periods indicated:

 

                   Well-Capitalized Under 
           Required for Capital   Prompt Corrective Action 
   Actual   Adequacy Purposes   Provision 
(in thousands)  Amount   Ratio   Amount   Ratio   Amount   Ratio 
September 30, 2016                              
Total Capital (to risk-weighted assets):                              
Company  $150,985    14.11%  $85,592    8.00%  $ N.A.    N.A. % 
Bank   145,352    13.64    85,275    8.00    106,594    10.00 
Tier I Capital (to risk-weighted assets):                              
Company  $124,473    11.63%  $64,194    6.00%  $N.A.    N.A. % 
Bank   135,722    12.73    63,956    6.00    85,275    8.00 
Common Equity Tier I Capital                              
(to risk-weighted assets)                              
Company  $93,355    8.73%  $48,145    4.50%  $N.A.    N.A. % 
Bank   135,722    12.70    47,967    4.50    69,286    6.50 
Tier I Capital (to adjusted average assets):                              
Company  $124,473    9.86%  $50,507    4.00%  $N.A.    N.A. % 
Bank   135,722    10.81    50,231    4.00    62,789    5.00 

 

(in thousands)                              
December 31, 2015                              
Total Capital (to risk-weighted assets):                              
Company  $146,068    14.78%  $79,066    8.00%   N.A.    N.A. % 
Bank   137,572    13.98    78,718    8.00   $98,398    10.00 
Tier I Capital (to risk-weighted assets):                              
Company  $118,875    12.03%  $59,299    6.00%   N.A.    N.A. % 
Bank   128,808    13.09    59,039    6.00   $78,718    8.00 
Common Equity Tier I Capital                              
(to risk-weighted assets)                              
Company  $89,304    9.04%  $44,475    4.50%  $ N.A.    N.A. % 
Bank   128,808    13.09    44,279    4.50    63,959    6.50 
Tier I capital (to adjusted average assets):                              
Company  $118,875    9.84%  $48,314    4.00%  $ N.A.    N.A. % 
Bank   128,808    10.73    48,025    4.00    60,031    5.00 

 

 52 

 

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

Interest Sensitivity

 

Market risk arises from exposure to changes in interest rates and other relevant market rate or price risk. The Company faces market risk in the form of interest rate risk through transactions other than trading activities. The Company uses financial modeling techniques to measure interest rate risk. These techniques measure the sensitivity of future earnings due to changing interest rate environments. Guidelines established by the Company's Asset/Liability Committee and approved by the board of directors are used to monitor exposure of earnings at risk. General interest rate movements are used to develop sensitivity as the Company feels it has no primary exposure to specific points on the yield curve. For the nine months ended September 30, 2016, our Company utilized a 400 basis point immediate and gradual move in interest rates (both upward and downward) applied to both a parallel and proportional yield curve. However, there are no assurances that the change will not be more or less than this estimate.

 

The following table represents estimated interest rate sensitivity and periodic and cumulative gap positions calculated as of September 30, 2016. Significant assumptions used for this table included: loans will repay at historic repayment rates; certain interest-bearing demand accounts are interest sensitive due to immediate repricing, and fixed maturity deposits will not be withdrawn prior to maturity. A significant variance in actual results from one or more of these assumptions could materially affect the results reflected in the table.

 

                       Over     
                       5 Years or     
                       No stated     
(In thousands)  Year 1   Year 2   Year 3   Year 4   Year 5   Maturity   Total 
ASSETS                                   
Investment securities  $20,856   $12,398   $25,605   $63,661   $57,283   $42,021   $221,824 
Federal funds sold and other over-night interest-bearing deposits   19,788    -    -    -    -    -    19,788 
Other restricted investments   6,240    -    -    3,000    -    -    9,240 
Loans   275,075    126,829    122,401    134,310    144,897    144,259    947,771 
Total  $321,959   $139,227   $148,006   $200,971   $202,180   $186,280   $1,198,623 
                                    
LIABILITIES                                   
Savings, interest checking, and money market deposits  $250,336   $-   $227,609   $-   $-   $-   $477,945 
Time deposits   222,138    51,876    22,883    6,758    6,444    -    310,099 
Federal funds purchased and  securities sold under agreements to repurchase   28,504    -    -    -    -    -    28,504 
Subordinated notes   49,486    -    -    -    -    -    49,486 
Federal Home Loan Bank advances   27,000    22,000    15,000    11,000    4,000    -    79,000 
Total  $577,464   $73,876   $265,492   $17,758   $10,444   $-   $945,034 
Interest-sensitivity GAP                                   
Periodic GAP  $(255,505)  $65,351   $(117,486)  $183,213   $191,736   $186,280   $253,589 
Cumulative GAP  $(255,505)  $(190,154)  $(307,640)  $(124,427)  $67,309   $253,589   $253,589 
                                    
Ratio of interest-earning  assets to interest-bearing liabilities                                   
Periodic GAP   0.56    1.88    0.56    11.32    19.36    NM    1.27 
Cumulative GAP   0.56    0.71    0.66    0.87    1.07    1.27    1.27 

 

Effects of Inflation

 

The effects of inflation on financial institutions are different from the effects on other commercial enterprises since financial institutions make few significant capital or inventory expenditures, which are directly affected by changing prices. Because bank assets and liabilities are virtually all monetary in nature, inflation does not affect a financial institution as much as do changes in interest rates. The general level of inflation does underlie the general level of most interest rates, but interest rates do not increase at the rate of inflation as do prices of goods and services. Rather, interest rates react more to changes in the expected rate of inflation and to changes in monetary and fiscal policy.

 

 53 

 

 

Inflation does have an impact on the growth of total assets in the banking industry, often resulting in a need to increase capital at higher than normal rates to maintain an appropriate capital to asset ratio. In the opinion of management, inflation did not have a significant effect on the Company's operations for the three months ended September 30, 2016.

 

Item 4. Controls and Procedures

 

Our Company's management has evaluated, with the participation of our principal executive and principal financial officers, the effectiveness of our disclosure controls and procedures as defined in Rules 13a – 15(e) or 15d – 15(e) of the Securities Exchange Act of 1934 as of September 30, 2016.  Based upon and as of the date of that evaluation, our principal executive and principal financial officers concluded that our disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports we file and submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported as and when required.  It should be noted that any system of disclosure controls and procedures, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system are met.  In addition, the design of any system of disclosure controls and procedures is based in part upon assumptions about the likelihood of future events. Because of these and other inherent limitations of any such system, there can be no assurance that any design will always succeed in achieving its stated goals under all potential future conditions, regardless of how remote.

 

There has been no change in our Company's internal control over financial reporting that occurred during the three months ended September 30, 2016 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

Impact of New Accounting Standards

 

Revenue from Contracts with Customers The FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), in May 2014. The ASU supersedes revenue recognition requirements in Topic 605, Revenue Recognition, including most industry-specific revenue recognition guidance in the FASB Accounting Standards Codification. The core principle of the new guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance identifies specific steps that entities should apply in order to achieve this principle. The amendments are effective for interim and annual periods beginning January 1, 2018 and must be applied retrospectively.

 

In March 2016, the FASB began to issue targeted guidance to clarify specific implementation issues of ASU 2014-09. The FASB issued ASU 2016-08, Principal versus Agent Considerations (Reporting Revenue Gross versus Net), which provides guidance on determining an entity's role in providing goods and services as a principal versus an agent, and whether it controls each specified good or service before it is transferred to the customer. In April 2016, ASU 2016-10, Identifying Performance Obligations and Licensing, was issued, which clarifies the guidance related to whether goods or services are distinct within the contract and therefore are a performance obligation, and clarifies the timing and pattern of revenue recognition for licenses of intellectual property. The effective date and transition requirements of these ASUs are the same as those of ASU 2014-09.

 

In May 2016, the FASB issued ASU 2016-12, Revenue from Contracts with Customers: Narrow-Scope Improvements and Practical Expedients. The amendments in this update address narrow-scope improvements to the accounting guidance on collectability, noncash consideration, and completed contracts at transition. Additionally, the amendments in this Update provide a practical expedient for contract modifications at transition and an accounting policy election related to the presentation of sales taxes and other similar taxes collected from customers. The amendments also included a rescission issued in May 2016, ASU 2016-11, Revenue Recognition and Derivatives and Hedging: Rescission of SEC Guidance Because of ASU 2014-09 and 2014-16 Pursuant to Staff Announcements at the March 3, 2016 Emerging Task Force meeting, and relates to revenue and expense recognition for freight services in process, accounting for shipping and handling fees and costs, and accounting for consideration given by a vendor to a customer. These amendments are effective upon the adoption of ASU 2014-09. The Company continues to assess the impact of the ASU's adoption on the Company’s consolidated financial statements and disclosures.

 

Debt Instruments The FASB issued ASU 2016-06, Contingent Put and Call Options in Debt Instruments, in March 2016. The ASU clarifies the requirements for assessing whether contingent call (put) options that can accelerate the payment of principal on debt instruments are clearly and closely related to their debt hosts. Under the new guidance, the embedded options should be assessed solely in accordance with a four-step decision sequence, with no additional assessment of whether the triggering event is indexed to interest rates or credit risk. The amendments are effective January 1, 2017 and are not expected to have a significant effect on the Company's consolidated financial statements.

 

Financial Instruments The FASB issued ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, in January 2016. The amendments require all equity investments to be measured at fair value with changes in the fair value recognized through net income, other than those accounted for under the equity method of accounting or those that

 

 54 

 

 

result in the consolidation of the investee. Additionally, these amendments require presentation in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk for those liabilities measured at fair value. The amendments also require use of the exit price notion when measuring the fair value of financial instruments for disclosure purposes. These amendments are effective for interim and annual periods beginning January 1, 2018. The Company is in the process of evaluating the impact of the ASU's adoption on the Company's consolidated financial statements, including potential changes to the Company's note disclosure of the fair value of its loan portfolio.

 

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The revised accounting guidance will remove all recognition thresholds and will require a company to recognize an allowance for credit losses for the difference between the amortized cost basis of a financial instrument and the amount of amortized cost that the company expects to collect over the instrument's contractual life. It also amends the credit loss measurement guidance for available-for-sale debt securities and beneficial interests in securitized financial assets. This new accounting guidance will be effective for interim and annual reporting periods beginning after December 15, 2019. The Company is currently evaluating the impact of the ASU's adoption on the Company's consolidated financial statements.

 

Leases In February 2016, the FASB issued ASU 2016-02, Leases, in order to increase transparency and comparability by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The ASU primarily affects lessee accounting, which requires the lessee to recognize a right-of-use asset and a liability to make lease payments for those leases classified as operating leases under previous GAAP. For leases with a term of 12 months or less, an election by class of underlying asset not to recognize lease assets and lease liabilities is permitted. The ASU also provides additional guidance as to the definition of a lease, identification of lease components, and sale and leaseback transactions. The amendments in the ASU are effective for interim and annual periods beginning January 1, 2019. The Company is in the process of evaluating the impact of the ASU's adoption on the Company's consolidated financial statements.

 

Liabilities The FASB issued ASU 2016-04, Recognition of Breakage for Certain Prepaid Store-Value Products, in March 2016, in order to address current and potential future diversity in practice related to the derecognition of a prepaid store-value product liability. Such products include prepaid gift cards issued on a specific payment network and redeemable at network-accepting merchant locations, prepaid telecommunication cards, and traveler's checks. The amendments require that the portion of the dollar value of prepaid stored-value products that is ultimately unredeemed (that is, the breakage) be accounted for consistent with the breakage guidance for stored-value product transactions provided in ASC Topic 606 - Revenue from Contracts with Customers. These amendments are effective for interim and annual periods beginning January 1, 2018. The Company is in the process of evaluating the impact of the ASU's adoption on the Company's consolidated financial statements.

 

Stock Compensation The FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, in March 2016, in order to reduce complexity in this area and improve the usefulness of information provided to users. Amendments which will affect public companies include the recognition of excess tax benefits and deficiencies in income tax expense or benefit in the income statement, guidance as to the classification of excess tax benefits on the statement of cash flows, an election to account for award forfeitures as they occur, and the ability to withhold taxes up to the maximum statutory rate in the applicable jurisdictions without triggering liability classification of the award. The amendments are effective January 1, 2017. The Company is in the process of evaluating the impact of the ASU's adoption on the Company's consolidated financial statements.

 

Statement of Cash Flows The FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, in August 2016, in order to address concerns regarding diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. In particular, this ASU addresses eight specific cash flow issues in an effort to reduce this diversity in practice: (1) debt prepayment or debt extinguishment costs; (2) settlement of zero-coupon bonds; (3) contingent consideration payments made after a business combination; (4) proceeds from the settlement of insurance claims; (5) proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies; (6) distributions received from equity method investees; (7) beneficial interests in securitization transactions; and (8) separately identifiable cash flows and application of the predominance principle. The amendments are effective for annual periods beginning after December 15, 2017, and for interim periods within those annual periods. The Company is in the process of evaluating the impact of the ASU's adoption on the Company's consolidated financial statements.

 

 55 

 

 

PART II - OTHER INFORMATION

 

Item 1.Legal Proceedings

 

The information required by this Item is set forth in Commitments and Contingencies, Pending Litigation, in our Company’s Notes to Consolidated Financial Statements (unaudited).

 

Item 1A.Risk Factors None

 

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds

 

The following table summarizes the purchases made by or on behalf of the Company or certain affiliated purchasers of shares of the Company's common stock during the three months ended September 30, 2016:

 

Period  (a) Total Number of
 Shares (or Units)
Purchased
   (b) Average
Price Paid per
Share (or Unit)
   (c) Total Number of Shares
(or Units) Purchased as
 Part of Publicly Announced  
Plans or Programs
   (d) Maximum Number (or
 Approximate Dollar Value)
 of Shares (or Units) that
 May Yet Be Purchased
 Under the Plans or
 Programs *
 
July 1-31, 2016   5,998   $14.01    5,998   $1,656,712 
August 1-31, 2016   5,450   $14.16    5,450   $1,579,549 
September 1-30, 2016   3,284   $14.66    3,284   $1,531,401 
Total   14,732   $14.21    14,732   $1,531,401 

 

* On August 6, 2015, the Company announced that its Board of Directors authorized the purchase, through open market transactions, of up to $2,000,000 market value of the Company's common stock. Management was given discretion to determine the number and pricing of the shares to be purchased, as well as, the timing of any such purchases.

 

Item 3.Defaults Upon Senior Securities None

 

Item 4.Mine Safety Disclosures None

 

Item 5.Other Information None

 

Item 6.Exhibits

 

Exhibit No.     Description
     
3.1   Restated Articles of Incorporation of our Company (filed as Exhibit 3.1 to our Company's current report on Form 8-K on August 9, 2007 and incorporated herein by reference).
     
3.2   Amended and Restated Bylaws of our Company (filed as Exhibit 3.1 to our Company's current report on Form 8-K on June 8, 2009 and incorporated herein by reference).
     
4.1   Specimen certificate representing shares of our Company’s $1.00 par value common stock (filed as Exhibit 4.1 to our Company’s Annual Report on Form  10-K for the fiscal year ended December 31, 1999 (Commission file number 0-23636) and incorporated herein by reference).
     
31.1   Certificate of the Chief Executive Officer of our Company pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

 56 

 

 

31.2   Certificate of the Chief Financial Officer of our Company pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
     
32.1   Certificate of the Chief Executive Officer of our Company pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
     
32.2   Certificate of the Chief Financial Officer of our Company pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
     
101   Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Changes in Equity, (iv) the Consolidated Statements of Cash Flows and (v) the Notes to Consolidated Financial Statements, tagged as blocks of text and in detail (XBRL)

 

 57 

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

HAWTHORN BANCSHARES, INC.

 

Date    
     
  /s/ David T. Turner  
     
November 14, 2016 David T. Turner, Chairman of the Board and  
  Chief Executive Officer (Principal Executive Officer)  
     
  /s/ W. Bruce Phelps  
     
November 14, 2016 W. Bruce Phelps, Chief Financial Officer (Principal Financial  
  Officer and Principal Accounting Officer)  

 

 58 

 

 

HAWTHORN BANCSHARES, INC.

 

INDEX TO EXHIBITS

 

September 30, 2016 Form 10-Q

 

Exhibit No.   Description
     
3.1   Restated Articles of Incorporation of our Company (filed as Exhibit 3.1 to our Company's current report on Form 8-K on August 9, 2007 and incorporated herein by reference).
     
3.2   Amended and Restated Bylaws of our Company (filed as Exhibit 3.1 to our Company's current report on Form 8-K on June 8, 2009 and incorporated herein by reference).
     
4.1  

Specimen certificate representing shares of our Company’s $1.00 par value common stock (filed as Exhibit 4.1 to our Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1999 (Commission file number 0-23636) and incorporated herein by reference).

     
31.1   Certificate of the Chief Executive Officer of our Company pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
     
31.2   Certificate of the Chief Financial Officer of our Company pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
     
32.1   Certificate of the Chief Executive Officer of our Company pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
     
32.2   Certificate of the Chief Financial Officer of our Company pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
     
101   Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Changes in Equity, (iv) the Consolidated Statements of Cash Flows and (v) the Notes to Consolidated Financial Statements, tagged as blocks of text and in detail (XBRL)

 

 

*As provided in Rule 406T of Regulation S-T, this information is furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933, as amended, and Section 18 of the Securities Exchange Act of 1934, as amended.

**Incorporated by reference.

 

 59 

 

EX-31.1 2 t1602634_ex31-1.htm EXHIBIT 31.1

 

Exhibit 31.1

 

CERTIFICATIONS

I, David T. Turner, certify that:

 

1. I have reviewed this quarterly report on Form 10-Q of Hawthorn Bancshares, Inc.;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

 

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

 

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

 

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

 

Date: November 14, 2016  
  /s/ David T. Turner
  David T. Turner
  Chairman of the Board and Chief Executive Officer

 

 

 

EX-31.2 3 t1602634_ex31-2.htm EXHIBIT 31.2

 

Exhibit 31.2

 

CERTIFICATIONS

 

I, W. Bruce Phelps, certify that:

 

1. I have reviewed this quarterly report on Form 10-Q of Hawthorn Bancshares, Inc.;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

 

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

 

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

 

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

 

Date: November 14, 2016  
  /s/ W. Bruce Phelps
  W. Bruce Phelps
  Chief Financial Officer

 

 

 

EX-32.1 4 t1602634_ex32-1.htm EXHIBIT 32.1

 

Exhibit 32.1

 

Certification of Chief Executive Officer

 

In connection with the Quarterly Report of Hawthorn Bancshares, Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2016 as filed with the Securities and Exchange Commission (the “Report”), I, David T. Turner, Chairman of the Board and Chief Executive Officer of our Company, hereby certify in accordance with 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

 

(a)       The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

 

(b)       The information contained in the Report fairly presents, in all material aspects, the financial condition and results of operations of the Company.

 

Dated:  November 14, 2016  
  /s/ David T. Turner
  David T. Turner
  Chairman of the Board and Chief Executive Officer

 

 

 

EX-32.2 5 t1602634_ex32-2.htm EXHIBIT 32.2

 

Exhibit 32.2

 

Certification of Chief Financial Officer

 

In connection with the Quarterly Report of Hawthorn Bancshares, Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2016 as filed with the Securities and Exchange Commission (the “Report”), I, W. Bruce Phelps, Chief Financial Officer of our Company, hereby certify in accordance with 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

 

(a)       The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

 

(b)       The information contained in the Report fairly presents, in all material aspects, the financial condition and results of operations of the Company.

 

Dated:  November 14, 2016  
  /s/ W. Bruce Phelps
  W. Bruce Phelps
  Chief Financial Officer

 

 

 

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font-stretch: normal;"><i>Impaired Loans</i></p> <p style="text-align: justify; widows: 2; text-transform: none; text-indent: 0px; margin: 0pt 0px 0pt 27pt; font: 10pt 'times new roman', times, serif; white-space: normal; orphans: 2; letter-spacing: normal; color: #000000; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal;">&#160;</p> <p style="text-align: justify; widows: 2; text-transform: none; text-indent: 0px; margin: 0pt 0px 0pt 27pt; font: 10pt 'times new roman', times, serif; white-space: normal; orphans: 2; letter-spacing: normal; color: #000000; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal;">The Company does not record loans at fair value on a recurring basis other than loans that are considered impaired. 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Document and Entity Information - shares
9 Months Ended
Sep. 30, 2016
Nov. 09, 2016
Document And Entity Information Abstract    
Entity Registrant Name HAWTHORN BANCSHARES, INC.  
Entity Central Index Key 0000893847  
Trading Symbol hwbk  
Current Fiscal Year End Date --12-31  
Entity Filer Category Non-accelerated Filer  
Entity Common Stock, Shares Outstanding   5,624,310
Document Type 10-Q  
Document Period End Date Sep. 30, 2016  
Amendment Flag false  
Document Fiscal Year Focus 2016  
Document Fiscal Period Focus Q3  
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Consolidated Balance Sheets (unaudited) - USD ($)
$ in Thousands
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Dec. 31, 2015
ASSETS    
Cash and due from banks $ 19,106 $ 20,484
Federal funds sold and other overnight interest-bearing deposits 19,788 7,893
Cash and cash equivalents 38,894 28,377
Investment in available-for-sale securities, at fair value 221,824 235,054
Other investments and securities, at cost 9,240 8,037
Total investment securities 231,064 243,091
Loans 947,771 865,080
Allowances for loan losses (9,470) (8,604)
Net loans 938,301 856,476
Premises and equipment - net 35,591 36,389
Mortgage servicing rights 2,370 2,847
Other real estate and repossessed assets - net 14,438 15,992
Accrued interest receivable 4,624 4,853
Cash surrender value - life insurance 2,396 2,348
Other assets 10,041 10,548
Total assets 1,277,719 1,200,921
Deposits    
Non-interest bearing demand 229,987 208,035
Savings, interest checking and money market 477,945 441,080
Time deposits $100,000 and over 153,651 132,244
Other time deposits 156,448 165,838
Total deposits 1,018,031 947,197
Federal funds purchased and securities sold under agreements to repurchase 28,504 56,834
Subordinated notes 49,486 49,486
Federal Home Loan Bank advances 79,000 50,000
Accrued interest payable 408 382
Other liabilities 9,502 9,736
Total liabilities 1,184,931 1,113,635
Stockholders' equity:    
Common stock, $1 par value, authorized 15,000,000 shares; issued 5,822,357 and 5,605,202 shares, respectively 5,822 5,605
Surplus 41,497 38,549
Retained earnings 50,021 48,700
Accumulated other comprehensive loss, net of tax (567) (2,018)
Treasury stock; 194,045 and 164,013 shares, at cost (3,985) (3,550)
Total stockholders' equity 92,788 87,286
Total liabilities and stockholders' equity $ 1,277,719 $ 1,200,921
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Consolidated Balance Sheets (unaudited) (Parentheticals) - $ / shares
Sep. 30, 2016
Dec. 31, 2015
Statement of Financial Position [Abstract]    
Common stock, par value (in dollars per share) $ 1 $ 1
Common stock, shares authorized 15,000,000 15,000,000
Common stock, shares issued 5,822,357 5,605,202
Treasury stock, shares 194,045 164,013
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Consolidated Statements of Income (unaudited) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2016
Sep. 30, 2015
Sep. 30, 2016
Sep. 30, 2015
INTEREST INCOME        
Interest and fees on loans $ 10,634 $ 10,713 $ 30,929 $ 30,891
Interest on investment securities:        
Taxable 754 872 2,523 2,663
Nontaxable 119 169 381 524
Federal funds sold and other overnight interest-bearing deposits 19 3 69 24
Dividends on other securities 80 72 231 139
Total interest income 11,606 11,829 34,133 34,241
Interest on deposits:        
Savings, interest checking and money market 291 241 874 738
Time deposit accounts $100,000 and over 267 222 708 653
Other time deposits 231 269 707 831
Interest on federal funds purchased and securities sold under agreements to repurchase 13 12 51 28
Interest on subordinated notes 375 325 1,095 958
Interest on Federal Home Loan Bank advances 282 202 732 513
Total interest expense 1,459 1,271 4,167 3,721
Net interest income 10,147 10,558 29,966 30,520
Provision for loan losses 300 0 975 250
Net interest income after provision for loan losses 9,847 10,558 28,991 30,270
NON-INTEREST INCOME        
Service charges and other fees 882 903 2,544 2,597
Bank card income and fees 593 632 1,875 1,849
Trust department income 216 235 699 714
Real estate servicing fees, net (4) 177 (36) 357
Gain on sale of mortgage loans, net 266 322 653 1,103
Gain on sale of investment securities 111 0 602 8
Other 61 67 185 157
Total non-interest income 2,125 2,336 6,522 6,785
NON-INTEREST EXPENSE        
Salaries and employee benefits 5,063 5,320 15,718 15,798
Occupancy expense, net 730 685 2,037 2,064
Furniture and equipment expense 438 464 1,288 1,379
Processing, network, and bank card expense 878 806 2,490 2,402
Legal, examination, and professional fees 277 332 939 943
FDIC insurance assessment 196 175 560 673
Advertising and promotion 283 273 734 780
Postage, printing, and supplies 244 250 771 794
Real estate foreclosure expense (gains), net 49 (329) 232 (352)
Other 927 1,001 2,753 2,472
Total non-interest expense 9,085 8,977 27,522 26,953
Income before income taxes 2,887 3,917 7,991 10,102
Income tax expense 1,003 1,378 2,697 3,497
Net income $ 1,884 $ 2,539 $ 5,294 $ 6,605
Basic earnings per share (in dollars per share) $ 0.33 $ 0.45 $ 0.94 $ 1.17
Diluted earnings per share (in dollars per share) $ 0.33 $ 0.45 $ 0.94 $ 1.17
XML 16 R5.htm IDEA: XBRL DOCUMENT v3.5.0.2
Consolidated Statements of Comprehensive Income (unaudited) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2016
Sep. 30, 2015
Sep. 30, 2016
Sep. 30, 2015
Consolidated Statements of Comprehensive Income        
Net income $ 1,884 $ 2,539 $ 5,294 $ 6,605
Investment securities available-for-sale:        
Unrealized gain (loss) on investment securities available-for-sale, net of tax (294) 993 1,788 627
Adjustment for gain on sale of investment securities, net of tax (69) 0 (373) (5)
Defined benefit pension plans:        
Amortization of prior service cost included in net periodic pension cost, net of tax 12 24 36 68
Total other comprehensive income (loss) (351) 1,017 1,451 690
Total comprehensive income $ 1,533 $ 3,556 $ 6,745 $ 7,295
XML 17 R6.htm IDEA: XBRL DOCUMENT v3.5.0.2
Consolidated Statements of Stockholders' Equity (unaudited) - USD ($)
$ in Thousands
Common Stock
Surplus
Retained Earnings
Accumulated Other Comprehensive Income (Loss)
Treasury Stock
Total
Balance at Dec. 31, 2014 $ 5,396 $ 35,901 $ 44,016 $ (1,228) $ (3,517) $ 80,568
Increase (Decrease) in Stockholders' Equity            
Net income 0 0 6,605 0 0 6,605
Other comprehensive income 0 0 0 690 0 690
Stock dividend 209 2,638 (2,847) 0 0 0
Stock based compensation expense 0 5 0 0 0 5
Cash dividends declared, common stock 0 0 (795) 0 0 (795)
Balance at Sep. 30, 2015 5,605 38,544 46,979 (538) (3,517) 87,073
Balance at Dec. 31, 2015 5,605 38,549 48,700 (2,018) (3,550) 87,286
Increase (Decrease) in Stockholders' Equity            
Net income 0 0 5,294 0 0 5,294
Other comprehensive income 0 0 0 1,451 0 1,451
Stock dividend 217 2,932 (3,149) 0 0 0
Stock based compensation expense 0 16 0 0 0 16
Purchases of treasury stock 0 0 0 0 (435) (435)
Cash dividends declared, common stock 0 0 (824) 0 0 (824)
Balance at Sep. 30, 2016 $ 5,822 $ 41,497 $ 50,021 $ (567) $ (3,985) $ 92,788
XML 18 R7.htm IDEA: XBRL DOCUMENT v3.5.0.2
Consolidated Statements of Cash Flows (unaudited) - USD ($)
$ in Thousands
9 Months Ended
Sep. 30, 2016
Sep. 30, 2015
Cash flows from operating activities:    
Net income $ 5,294 $ 6,605
Adjustments to reconcile net income to net cash provided by operating activities:    
Provision for loan losses 975 250
Depreciation expense 1,432 1,454
Net amortization of investment securities, premiums, and discounts 1,418 1,007
Stock based compensation expense 16 5
Change in fair value of mortgage servicing rights 690 291
Gain on sale of investment securities (602) (8)
Gain on sales and dispositions of premises and equipment (9) (8)
Gain on sales and dispositions of other real estate and repossessed assets (215) (151)
Provision for other real estate owned 176 (6)
Decrease (increase) in accrued interest receivable 229 (93)
Increase in cash surrender value -life insurance (48) (45)
(Increase) decrease in other assets (135) 2,224
Increase in accrued interest payable 26 5
(Decrease) increase in other liabilities (243) 1,251
Origination of mortgage loans for sale (27,849) (40,008)
Proceeds from the sale of mortgage loans 28,769 40,090
Gain on sale of mortgage loans, net (653) (1,103)
Other, net (155) (194)
Net cash provided by operating activities 9,116 11,566
Cash flows from investing activities:    
Net increase in loans (85,087) (21,892)
Purchase of available-for-sale debt securities (102,000) (81,595)
Proceeds from maturities of available-for-sale debt securities 42,441 24,188
Proceeds from calls of available-for-sale debt securities 13,535 11,440
Proceeds from sales of available-for-sale debt securities 60,720 720
Proceeds from sales of FHLB stock 0 400
Purchases of FHLB stock (1,203) (4,915)
Purchases of premises and equipment (881) (709)
Proceeds from sales of premises and equipment 9 11
Proceeds from sales of other real estate and foreclosed assets 3,613 1,443
Net cash used in investing activities (68,853) (70,909)
Cash flows from financing activities:    
Net increase in demand deposits 21,952 2,014
Net increase in interest-bearing transaction accounts 36,865 10,819
Net increase (decrease) in time deposits 12,017 (10,179)
Net (decrease) increase in federal funds purchased and securities sold under agreements to repurchase (28,330) 9,792
Repayment of FHLB advances (16,000) (55,000)
FHLB advances 45,000 92,000
Purchases of treasury stock (435) 0
Cash dividends paid - common stock (815) (785)
Net cash provided by financing activities 70,254 48,661
Net increase (decrease) in cash and cash equivalents 10,517 (10,682)
Cash and cash equivalents, beginning of period 28,377 42,809
Cash and cash equivalents, end of period 38,894 32,127
Cash paid during the year for:    
Interest 4,141 3,717
Income taxes 2,705 1,559
Noncash investing activities:    
Other real estate and repossessed assets acquired in settlement of loans $ 2,020 $ 4,549
XML 19 R8.htm IDEA: XBRL DOCUMENT v3.5.0.2
Summary of Significant Accounting Policies
9 Months Ended
Sep. 30, 2016
Accounting Policies [Abstract]  
Summary of Significant Accounting Policies
(1) Summary of Significant Accounting Policies

 

Hawthorn Bancshares, Inc. (the Company) through its subsidiary, Hawthorn Bank (the Bank), provides a broad range of banking services to individual and corporate customers located within the communities in and surrounding Jefferson City, Columbia, Clinton, Warsaw, Springfield, Branson, and the greater Kansas City metropolitan area. The Company is subject to competition from other financial and nonfinancial institutions providing financial products. Additionally, the Company and its subsidiaries are subject to the regulations of certain regulatory agencies and undergo periodic examinations by those regulatory agencies.

 

The accompanying unaudited consolidated financial statements of the Company have been prepared in conformity with U.S. generally accepted accounting principles (U.S. GAAP) for interim financial information and with the instructions to Form10-Q, and Rule 10-01 of Regulation S-X. Accordingly, the unaudited consolidated financial statements do not include all of the information and disclosures required by U.S. GAAP for complete financial statements and should be read in conjunction with the consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015. Certain amounts in the 2015 condensed consolidated financial statements have been reclassified to conform to the 2016 condensed consolidated presentation. Such reclassifications have no effect on previously reported net income or stockholders’ equity.

 

The preparation of the consolidated financial statements includes all adjustments that, in the opinion of management, are necessary in order to make those statements not misleading. Management is required to make estimates and assumptions, including the determination of the allowance for loan losses, real estate acquired in connection with foreclosure or in satisfaction of loans, and fair values of investment securities available-for-sale that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Company’s management has evaluated and did not identify any subsequent events or transactions requiring recognition or disclosure in the consolidated financial statements.

 

Stock Dividend On July 1, 2016, the Company paid a special stock dividend of four percent to shareholders of record at the close of business on June 15, 2016. For all periods presented, share information, including basic and diluted earnings per share, has been adjusted retroactively to reflect this change.

 

The following represents significant new accounting principles adopted in 2016:

 

Consolidation The FASB issued ASU No. 2015-02, Amendments to the Consolidation Analysis, in February 2015. The amendment substantially changes the way reporting entities are required to evaluate whether they should consolidate certain legal entities. All legal entities are subject to reevaluation under the new amendment. Specifically, the amendments modify the evaluation of whether limited partnerships and similar legal entities are variable interest entities (VIEs) or voting interest entities, eliminate the presumption that a general partner should consolidate a limited partnership, and affect the consolidation analysis of reporting entities that are involved with VIEs. The amendments were effective for interim and annual periods beginning January 1, 2016. The adoption did not have a significant effect on the Company’s consolidated financial statements.

 

Intangible Assets The FASB issued ASU 2015-05, Customer's Accounting for Fees Paid in a Cloud Computing Arrangement, in April 2015. The amendments provide guidance to customers about whether a cloud computing arrangement includes a software license. Arrangements containing a license should be recorded as consistent with the acquisition of software licenses, whereas arrangements that do not include a software license should be recorded as consistent with the accounting for service contracts. These amendments were effective for interim and annual periods beginning January 1, 2016. The adoption did not have a significant effect on the Company's consolidated financial statements.
XML 20 R9.htm IDEA: XBRL DOCUMENT v3.5.0.2
Loans and Allowance for Loan Losses
9 Months Ended
Sep. 30, 2016
Loans and Leases Receivable Disclosure [Abstract]  
Loans and Allowance for Loan Losses
(2) Loans and Allowance for Loan Losses

 

Loans

 

A summary of loans, by major class within the Company’s loan portfolio, at September 30, 2016 and December 31, 2015 is as follows:

 

    September 30,     December 31,  
(in thousands)   2016     2015  
Commercial, financial, and agricultural   $ 172,274     $ 149,091  
Real estate construction - residential     17,066       16,895  
Real estate construction - commercial     48,743       33,943  
Real estate mortgage - residential     256,786       256,086  
Real estate mortgage - commercial     423,779       385,869  
Installment and other consumer     29,123       23,196  
Total loans   $ 947,771     $ 865,080  
 
The Bank grants real estate, commercial, installment, and other consumer loans to customers located within the communities surrounding Jefferson City, Columbia, Clinton, Warsaw, Springfield, Branson and the greater Kansas City metropolitan area. As such, the Bank is susceptible to changes in the economic environment in these communities. The Bank does not have a concentration of credit in any one economic sector. Installment and other consumer loans consist primarily of automobile financing. At September 30, 2016, loans with a carrying value of $472.9 million, or $388.3 million fair value, were pledged to the Federal Home Loan Bank as collateral for borrowings and letters of credit.
 
Allowance for Loan Losses

 

The following is a summary of the allowance for loan losses during the periods indicated.

 

    Three Months Ended September 30, 2016  
    Commercial,     Real Estate     Real Estate     Real Estate     Real Estate     Installment              
    Financial, &     Construction -     Construction -     Mortgage -     Mortgage -     Loans to     Un-        
(in thousands)   Agricultural     Residential     Commercial     Residential     Commercial     Individuals     allocated     Total  
Balance at beginning of period   $ 2,996     $ 63     $ 249     $ 2,293     $ 3,411     $ 284     $ 96     $ 9,392  
Additions:                                                                
Provision for loan losses     (94 )     (4 )     44       (152 )     450       50       6       300  
Deductions:                                                                
Loans charged off     157       0       0       92       27       86       0       362  
Less recoveries on loans     (26 )     0       0       (31 )     (36 )     (47 )     0       (140 )
Net loans charged off     131       0       0       61       (9 )     39       0       222  
Balance at end of period   $ 2,771     $ 59     $ 293     $ 2,080     $ 3,870     $ 295     $ 102     $ 9,470  

 

    Nine Months Ended September 30, 2016  
    Commercial,     Real Estate     Real Estate     Real Estate     Real Estate     Installment              
    Financial, &     Construction -     Construction -     Mortgage -     Mortgage -     Loans to     Un-        
(in thousands)   Agricultural     Residential     Commercial     Residential     Commercial     Individuals     allocated     Total  
Balance at beginning of period   $ 2,153     $ 59     $ 644     $ 2,439     $ 2,935     $ 273     $ 101     $ 8,604  
Additions:                                                                
Provision for loan losses     710       0       (852 )     66       944       106       1       975  
Deductions:                                                                
Loans charged off     295       0       1       474       137       209       0       1,116  
Less recoveries on loans     (203 )     0       (502 )     (49 )     (128 )     (125 )     0       (1,007 )
Net loans charged off     92       0       (501 )     425       9       84       0       109  
Balance at end of period   $ 2,771     $ 59     $ 293     $ 2,080     $ 3,870     $ 295     $ 102     $ 9,470  
 
    Three Months Ended September 30, 2015  
    Commercial,     Real Estate     Real Estate     Real Estate     Real Estate     Installment              
    Financial, &     Construction -     Construction -     Mortgage -     Mortgage -     Loans to     Un-        
(in thousands)   Agricultural     Residential     Commercial     Residential     Commercial     Individuals     allocated     Total  
Balance at beginning of period   $ 3,124     $ 17     $ 414     $ 2,332     $ 3,870     $ 185     $ 44     $ 9,986  
Additions:                                                                
Provision for loan losses     439       (27 )     137       (233 )     (503 )     66       121       0  
Deductions:                                                                
Loans charged off     591       0       0       87       126       80       0       884  
Less recoveries on loans     (28 )     (28 )     0       (45 )     (5 )     (38 )     0       (144 )
Net loans charged off     563       (28 )     0       42       121       42       0       740  
Balance at end of period   $ 3,000     $ 18     $ 551     $ 2,057     $ 3,246     $ 209     $ 165     $ 9,246  

 

    Nine Months Ended September 30, 2015  
    Commercial,     Real Estate     Real Estate     Real Estate     Real Estate     Installment              
    Financial, &     Construction -     Construction -     Mortgage -     Mortgage -     Loans to     Un-        
(in thousands)   Agricultural     Residential     Commercial     Residential     Commercial     Individuals     allocated     Total  
Balance at beginning of period   $ 1,779     $ 171     $ 466     $ 2,527     $ 3,846     $ 270     $ 40     $ 9,099  
Additions:                                                                
Provision for loan losses     1,319       (475 )     90       (277 )     (598 )     66       125       250  
Deductions:                                                                
Loans charged off     741       0       5       298       159       241       0       1,444  
Less recoveries on loans     (643 )     (322 )     0       (105 )     (157 )     (114 )     0       (1,341 )
Net loans (recovered) charged off     98       (322 )     5       193       2       127       0       103  
Balance at end of period   $ 3,000     $ 18     $ 551     $ 2,057     $ 3,246     $ 209     $ 165     $ 9,246  

 

Loans, or portions of loans, are charged off to the extent deemed uncollectible or a loss is confirmed. Loan charge-offs reduce the allowance for loan losses, and recoveries of loans previously charged off are added back to the allowance. If management determines that it is probable that all amounts due on a loan will not be collected under the original terms of the loan agreement, the loan is considered to be impaired. These loans are evaluated individually for impairment and specific reserves are estimated as further discussed below. Loans not individually evaluated are aggregated by risk characteristics and reserves are recorded using a consistent methodology that considers historical loan loss experience by loan type, delinquencies, current economic conditions, loan risk ratings and industry concentration.
 

Beginning in the first quarter of 2016, the Company began to lengthen its look-back period with the intent to increase such period from three to five years over the next two years. The Company believes that the five-year look-back period, which is consistent with the Company’s practices prior to the start of the economic recession in 2008, provides a representative historical loss period in the current economic environment.

 

The following table provides the balance in the allowance for loan losses at September 30, 2016 and December 31, 2015, and the related loan balance by impairment methodology.

 

    Commercial,     Real Estate     Real Estate     Real Estate     Real Estate     Installment              
    Financial, and     Construction -     Construction -     Mortgage -     Mortgage -     Loans to     Un-        
(in thousands)   Agricultural     Residential     Commercial     Residential     Commercial     Individuals     allocated     Total  
September 30, 2016                                                                
Allowance for loan losses:                                                                
Individually evaluated for impairment   $ 632     $ 0     $ 8     $ 386     $ 262     $ 14     $ 0     $ 1,302  
Collectively evaluated for impairment     2,139       59       285       1,694       3,608       281       102       8,168  
Total   $ 2,771     $ 59     $ 293     $ 2,080     $ 3,870     $ 295     $ 102     $ 9,470  
Loans outstanding:                                                                
Individually evaluated for impairment   $ 1,811     $ 0     $ 51     $ 5,195     $ 2,068     $ 117     $ 0     $ 9,242  
Collectively evaluated for impairment     170,463       17,066       48,692       251,591       421,711       29,006       0       938,529  
Total   $ 172,274     $ 17,066     $ 48,743     $ 256,786     $ 423,779     $ 29,123     $ 0     $ 947,771  
                                                                 
December 31, 2015                                                                
Allowance for loan losses:                                                                
Individually evaluated for impairment   $ 285     $ 0     $ 15     $ 955     $ 266     $ 19     $ 0     $ 1,540  
Collectively evaluated for impairment     1,868       59       629       1,484       2,669       254       101       7,064  
Total   $ 2,153     $ 59     $ 644     $ 2,439     $ 2,935     $ 273     $ 101     $ 8,604  
Loans outstanding:                                                                
Individually evaluated for impairment   $ 1,005     $ 0     $ 102     $ 5,936     $ 3,081     $ 144     $ 0     $ 10,268  
Collectively evaluated for impairment     148,086       16,895       33,841       250,150       382,788       23,052       0       854,812  
Total   $ 149,091     $ 16,895     $ 33,943     $ 256,086     $ 385,869     $ 23,196     $ 0     $ 865,080  

 

Impaired Loans

 

Loans evaluated under ASC 310-10-35 include loans which are individually evaluated for impairment. All other loans are collectively evaluated for impairment under ASC 450-20. Impaired loans individually evaluated for impairment totaled $9.2 million and $10.3 million at September 30, 2016 and December 31, 2015, respectively, and are comprised of loans on non-accrual status and loans which have been classified as troubled debt restructurings (TDRs).

 

The net carrying value of impaired loans is generally based on the fair values of collateral obtained through independent appraisals or internal evaluations, less selling costs, or by discounting the total expected future cash flows. At September 30, 2016 and December 31, 2015, $4.7 million and $6.4 million, respectively, of impaired loans were evaluated based on the fair value less estimated selling costs of the loan’s collateral. Once the impairment amount is calculated a specific reserve allocation is recorded. At September 30, 2016, $1.3 million of the Company’s allowance for loan losses was allocated to impaired loans totaling $9.2 million compared to $1.5 million of the Company's allowance for loan losses allocated to impaired loans totaling $10.3 million at December 31, 2015. Management determined that $2.1 million, or 23%, of total impaired loans required no reserve allocation at September 30, 2016 compared to $4.5 million, or 44%, at December 31, 2015 primarily due to adequate collateral values, acceptable payment history and adequate cash flow ability.

 

The categories of impaired loans at September 30, 2016 and December 31, 2015 are as follows:

 

    September 30,     December 31,  
(in thousands)   2016     2015  
Non-accrual loans   $ 3,587     $ 4,418  
Performing TDRs     5,655       5,850  
Total impaired loans   $ 9,242     $ 10,268  

 

The following tables provide additional information about impaired loans at September 30, 2016 and December 31, 2015, respectively, segregated between loans for which an allowance has been provided and loans for which no allowance has been provided.

 

          Unpaid        
    Recorded     Principal     Specific  
(in thousands)   Investment     Balance     Reserves  
September 30, 2016                        
With no related allowance recorded:                        
Commercial, financial and agricultural   $ 787     $ 927     $ 0  
Real estate - residential     1,345       1,346       0  
Total   $ 2,132     $ 2,273     $ 0  
With an allowance recorded:                        
Commercial, financial and agricultural   $ 1,024     $ 1,059     $ 632  
Real estate - construction commercial     51       56       8  
Real estate - residential     3,850       3,914       386  
Real estate - commercial     2,068       2,404       262  
Consumer     117       147       14  
Total   $ 7,110     $ 7,580     $ 1,302  
Total impaired loans   $ 9,242     $ 9,853     $ 1,302  

 

          Unpaid        
    Recorded     Principal     Specific  
(in thousands)   Investment     Balance     Reserves  
December 31, 2015                        
With no related allowance recorded:                        
Commercial, financial and agricultural   $ 448     $ 450     $ 0  
Real estate - residential     1,645       1,712       0  
Real estate - commercial     2,446       2,572       0  
Total   $ 4,539     $ 4,734     $ 0  
With an allowance recorded:                        
Commercial, financial and agricultural   $ 557     $ 572     $ 285  
Real estate - construction commercial     102       115       15  
Real estate - residential     4,291       4,320       955  
Real estate - commercial     635       884       266  
Consumer     144       182       19  
Total   $ 5,729     $ 6,073     $ 1,540  
Total impaired loans   $ 10,268     $ 10,807     $ 1,540  

 

The following table presents by class, information related to the average recorded investment and interest income recognized on impaired loans during the periods indicated.

 

    Three Months Ended September 30,     Nine Months Ended September 30,  
    2016     2015     2016     2015  
          Interest           Interest           Interest           Interest  
    Average     Recognized     Average     Recognized     Average     Recognized     Average     Recognized  
    Recorded     For the     Recorded     For the     Recorded     For the     Recorded     For the  
(in thousands)   Investment     Period Ended     Investment     Period Ended     Investment     Period Ended     Investment     Period Ended  
With no related allowance recorded:                                                                
Commercial, financial and agricultural   $ 460     $ (9 )   $ 3,416     $ 6     $ 491     $ 18     $ 4,033     $ 33  
Real estate - construction residential     0       0       0       0       0       0       1,101       0  
Real estate - construction commercial     0       0       0       0       0       0       2,002       0  
Real estate - residential     2,050       27       2,326       5       1,640       63       2,924       26  
Real estate - commercial     1,167       17       2,958       17       1,769       17       8,978       103  
Consumer     0       0       0       0       0       0       10       1  
Total   $ 3,677     $ 35     $ 8,700     $ 28     $ 3,900     $ 98     $ 19,048     $ 163  
With an allowance recorded:                                                                
Commercial, financial and agricultural   $ 1,398     $ (13 )   $ 787     $ 5     $ 924     $ 9     $ 1,389     $ 18  
Real estate - construction residential     0       0       0       0       0       0       0       0  
Real estate - construction commercial     51       0       55       0       64       0       28       0  
Real estate - residential     2,992       20       4,850       30       3,741       78       4,713       80  
Real estate - commercial     811       14       1,228       0       717       61       1,216       0  
Consumer     118       (1     162       0       123       0       209       0  
Total   $ 5,370     $ 20     $ 7,082     $ 35     $ 5,569     $ 148     $ 7,555     $ 98  
Total impaired loans   $ 9,047     $ 55     $ 15,782     $ 63     $ 9,469     $ 246     $ 26,603     $ 261  

 

The recorded investment varies from the unpaid principal balance primarily due to partial charge-offs taken resulting from current appraisals received. The amount recognized as interest income on impaired loans continuing to accrue interest, primarily related to troubled debt restructurings, was $55,000 and $246,000, for the three months and nine months ended September 30, 2016, respectively, compared to $63,000 and $261,000 for the three and nine months ended September 30, 2015, respectively. The average recorded investment in impaired loans is calculated on a monthly basis during the periods reported.

 

Delinquent and Non-Accrual Loans

 

The delinquency status of loans is determined based on the contractual terms of the notes. Borrowers are generally classified as delinquent once payments become 30 days or more past due. The Company’s policy is to discontinue the accrual of interest income on any loan when, in the opinion of management, the ultimate collectibility of interest or principal is no longer probable. In general, loans are placed on non-accrual when they become 90 days or more past due. However, management considers many factors before placing a loan on non-accrual, including the delinquency status of the loan, the overall financial condition of the borrower, the progress of management’s collection efforts and the value of the underlying collateral. Non-accrual loans are returned to accrual status when, in the opinion of management, the financial condition of the borrower indicates that the timely collectibility of interest and principal is probable and the borrower demonstrates the ability to pay under the terms of the note through a sustained period of repayment performance, which is generally six months.

 
The following table provides aging information for the Company’s past due and non-accrual loans at September 30, 2016 and December 31, 2015.

 

    Current or           90 Days              
    Less Than           Past Due              
    30 Days     30 - 89 Days     And Still              
(in thousands)   Past Due     Past Due     Accruing     Non-Accrual     Total  
September 30, 2016                                        
Commercial, Financial, and Agricultural   $ 170,674     $ 443     $ 0     $ 1,157     $ 172,274  
Real Estate Construction - Residential     16,815       251       0       0       17,066  
Real Estate Construction - Commercial     48,692       0       0       51       48,743  
Real Estate Mortgage - Residential     253,884       1,138       60       1,704       256,786  
Real Estate Mortgage - Commercial     422,409       811       0       559       423,779  
Installment and Other Consumer     28,846       160       1       116       29,123  
Total   $ 941,320     $ 2,803     $ 61     $ 3,587     $ 947,771  
December 31, 2015                                        
Commercial, Financial, and Agricultural   $ 148,597     $ 185     $ 1     $ 308     $ 149,091  
Real Estate Construction - Residential     16,895       0       0       0       16,895  
Real Estate Construction - Commercial     33,776       65       0       102       33,943  
Real Estate Mortgage - Residential     251,253       2,511       0       2,322       256,086  
Real Estate Mortgage - Commercial     383,684       643       0       1,542       385,869  
Installment and Other Consumer     22,840       207       5       144       23,196  
Total   $ 857,045     $ 3,611     $ 6     $ 4,418     $ 865,080  

 

Credit Quality

 

The Company categorizes loans into risk categories based upon an internal rating system reflecting management’s risk assessment. Loans are placed on watch status when one or more weaknesses that may result in the deterioration of the repayment exits or the Company’s credit position at some future date. Loans classified as substandard are inadequately protected by the current sound worth and paying capacity of the obligor or by the collateral pledged, if any. Loans so classified may have a well-defined weakness or weaknesses that jeopardize the repayment of the debt. Such loans are characterized by the distinct possibility that the Company may sustain some loss if the deficiencies are not corrected. A loan is classified as a troubled debt restructuring (TDR) when a borrower is experiencing financial difficulties that lead to the restructuring of a loan, where the Company grants concessions to the borrower in the restructuring that it would not otherwise consider. Loans classified as TDRs which continue to accrue interest are classified as performing TDRs. Loans classified as TDRs which are not accruing interest are classified as nonperforming TDRs and are included with all other nonaccrual loans for presentation purposes. It is the Company’s policy to discontinue the accrual of interest income on loans when management believes that the collection of interest or principal is doubtful. Loans are placed on non-accrual status when (1) deterioration in the financial condition of the borrower exists for which payment of full principal and interest is not expected, or (2) payment of principal or interest has been in default for a period of 90 days or more and the asset is not both well secured and in the process of collection. Subsequent interest payments received on such loans are applied to principal if any doubt exists as to the collectability of such principal; otherwise, such receipts are recorded as interest income on a cash basis.

 

The following table presents the risk categories by class at September 30, 2016 and December 31, 2015.

 

(in thousands)  

Commercial,

Financial, &

Agricultural

   

Real Estate

Construction -

Residential

   

Real Estate

Construction -

Commercial

   

Real Estate

Mortgage -

Residential

   

Real Estate

Mortgage -

Commercial

   

Installment

and other

Consumer

    Total  
At September 30, 2016                                                        
Watch   $ 9,858     $ 662     $ 1,167     $ 18,078     $ 45,869     $ 0     $ 75,634  
Substandard     140       0       0       1,201       462       0       1,803  
Performing TDRs     654       0       0       3,492       1,509       0       5,655  
Non-accrual     1,157       0       51       1,704       559       116       3,587  
Total   $ 11,809     $ 662     $ 1,218     $ 24,475     $ 48,399     $ 116     $ 86,679  
At December 31, 2015                                                        
Watch   $ 8,663     $ 1,267     $ 1,296     $ 22,191     $ 24,303     $ 186     $ 57,906  
Substandard     421       0       37       3,737       1,485       36       5,716  
Performing TDRs     697       0       0       3,615       1,538       0       5,850  
Non-accrual     308       0       102       2,322       1,542       144       4,418  
Total   $ 10,089     $ 1,267     $ 1,435     $ 31,865     $ 28,868     $ 366     $ 73,890  

 

Troubled Debt Restructurings

 

At September 30, 2016, loans classified as TDRs totaled $6.3 million, of which $597,000 were classified as nonperforming TDRs and included in non-accrual loans and $5.7 million were classified as performing TDRs. At December 31, 2015, loans classified as TDRs totaled $6.4 million, of which $527,000 were classified as nonperforming TDRs and included in non-accrual loans and $5.9 million were classified as performing TDRs. Both performing and nonperforming TDRs are considered impaired loans. When an individual loan is determined to be a TDR, the amount of impairment is based upon the present value of expected future cash flows discounted at the loan’s effective interest rate or the fair value of the underlying collateral less applicable selling costs. Accordingly, specific reserves of $445,000 and $910,000 related to TDRs were allocated to the allowance for loan losses at September 30, 2016 and December 31, 2015, respectively.

 

The following table summarizes loans that were modified as TDRs during the periods indicated.

 
    Three Months Ended September 30,  
    2016     2015  
    Recorded Investment (1)     Recorded Investment (1)  
(in thousands)  

Number of

Contracts

   

Pre-

Modification

   

Post-

Modification

   

Number of

Contracts

   

Pre-

Modification

   

Post-

Modification

 
Troubled Debt Restructurings                                                
Commercial, financial and agricultural     2     $ 32     $ 32       0     $ 0     $ 0  
Real estate mortgage - residential     4       298       296       0       0       0  
Total     6     $ 330     $ 328       0     $ 0     $ 0  

 

    Nine Months Ended September 30,  
    2016     2015  
    Recorded Investment (1)     Recorded Investment (1)  
(in thousands)  

Number of

Contracts

   

Pre-

Modification

   

Post-

Modification

   

Number of

Contracts

   

Pre-

Modification

   

Post-

Modification

 
Troubled Debt Restructurings                                                
Commercial, financial and agricultural     2     $ 32     $ 32       3     $ 250     $ 240  
Real estate mortgage - residential     5       376       374       3       510       464  
Real estate mortgage - commercial     0       0       0       4       1,273       1,137  
Total     7     $ 408     $ 406       10     $ 2,033     $ 1,841  

 

(1) The amounts reported post-modification are inclusive of all partial pay-downs and charge-offs, and no portion of the debt was forgiven. Loans modified as a TDR that were fully paid down, charged-off or foreclosed upon during the period ended are not reported.

 

The Company’s portfolio of loans classified as TDRs include concessions for the borrower given financial condition such as interest rates below the current market rate, deferring principal payments, and extending maturity dates. There were six loans and seven loans meeting the TDR criteria during the three and nine months ended September 30, 2016, respectively, compared to no loans and ten loans during the three and nine months ended September 30, 2015, respectively.

 

Upon default of a TDR, which is considered to be 90 days or more past due under the modified terms, impairment is measured based on the fair value of the underlying collateral less applicable selling costs. The impairment amount is either charged off as a reduction to the allowance for loan losses, provided for as a specific reserve within the allowance for loan losses, or in the process of foreclosure. There was one TDR that defaulted during the three and nine months ended September 30, 2016 and is in the process of foreclosure within twelve months of its modification date and no TDR’s defaulted during 2015. See Lending and Credit Management section for further information.
XML 21 R10.htm IDEA: XBRL DOCUMENT v3.5.0.2
Other Real Estate and Repossessed Assets
9 Months Ended
Sep. 30, 2016
Other Real Estate [Abstract]  
Other Real Estate and Repossessed Assets
(3) Other Real Estate and Repossessed Assets

 

    September 30,     December 31,  
(in thousands)   2016     2015  
Commercial   $ 831     $ 1,445  
Real estate construction - commercial     12,380       12,380  
Real estate mortgage - residential     1,020       477  
Real estate mortgage - commercial     3,439       4,923  
Repossessed assets     28       0  
Total   $ 17,698     $ 19,225  
Less valuation allowance for other real estate owned     (3,260 )     (3,233 )
Total other real estate and repossessed assets   $ 14,438     $ 15,992  
  

Changes in the net carrying amount of other real estate and repossessed assets were as follows for the periods indicated:

 

    Three Months Ended September 30,     Nine Months Ended September 30,  
    2016     2015     2016     2015  
Balance at beginning of period   $ 18,462     $ 15,749     $ 19,225     $ 15,140  
Additions     386       3,032       2,020       4,549  
Proceeds from sales     (1,214 )     (407 )     (3,613 )     (1,443 )
Charge-offs against the valuation allowance for other real estate owned, net     (48 )     0       (149 )     (16 )
Net gain on sales     112       7       215       151  
Total other real estate and repossessed assets   $ 17,698     $ 18,381     $ 17,698     $ 18,381  
Less valuation allowance for other real estate owned     (3,260 )     (3,233 )     (3,260 )     (3,233 )
Balance at end of period   $ 14,438     $ 15,148     $ 14,438     $ 15,148  

 

At September 30, 2016, $141,000 of consumer mortgage loans secured by residential real estate properties were in the process of foreclosure compared to $390,000 at December 31, 2015.

 

Activity in the valuation allowance for other real estate owned was as follows for the periods indicated:

 

    Three Months Ended September 30,     Nine Months Ended September 30,  
(in thousands)   2016     2015     2016     2015  
Balance, beginning of period   $ 3,208     $ 3,233     $ 3,233     $ 3,255  
Provision for other real estate owned     100       0       176       (6 )
Charge-offs     (48 )     0       (149 )     (16 )
Balance, end of period   $ 3,260     $ 3,233     $ 3,260     $ 3,233  
XML 22 R11.htm IDEA: XBRL DOCUMENT v3.5.0.2
Investment Securities
9 Months Ended
Sep. 30, 2016
Investments Debt And Equity Securities [Abstract]  
Investment Securities
(4) Investment Securities

 

The amortized cost, contractual maturity, gross unrealized gains and losses, and fair value of debt securities classified as available-for-sale at September 30, 2016 and December 31, 2015 are shown below:

  

    Maturity*                          
                            Total                    
    1 Year     1-5     5-10     After     Amortized     Gross Unrealized     Fair  
(in thousands)   or Less     Years     Years     10 Years     Cost     Gains     Losses     Value  
September 30, 2016                                                                
U.S. government and federal agency obligations   $ 0     $ 0     $ 10,954     $ 2,494     $ 13,448     $ 13     $ (121 )   $ 13,340  
Government sponsored enterprises     3,010       30,595       0       0       33,605       82       (10 )     33,677  
Obligations of states and political subdivisions     2,315       16,672       16,112       1,332       36,431       436       (100 )     36,767  
Mortgage-backed securities:                                                                
Residential - government agencies     1,040       115,679       17,789       1,516       136,024       1,159       (159 )     137,024  
Commercial - government agencies     0       988       0       0       988       28       0       1,016  
Total mortgage-backed securities     1,040       116,667       17,789       1,516       137,012       1,187       (159 )     138,040  
Total available-for-sale securities   $ 6,365     $ 163,934     $ 44,855     $ 5,342     $ 220,496     $ 1,718     $ (390 )   $ 221,824  
                                                                 
December 31, 2015                                                                
Government sponsored enterprises   $ 23,067     $ 50,538     $ 0     $ 0     $ 73,605     $ 127     $ (235 )   $ 73,497  
Obligations of states and political subdivisions     1,827       16,975       12,593       829       32,224       493       (11 )     32,706  
Mortgage-backed securities:                                                                
Residential - government agencies     1,508       106,648       19,291       1,746       129,193       432       (1,768 )     127,857  
Commercial - government agencies     0       986       0       0       986       8       0       994  
Total mortgage-backed securities     1,508       107,634       19,291       1,746       130,179       440       (1,768 )     128,851  
Total available-for-sale securities   $ 26,402     $ 175,147     $ 31,884     $ 2,575     $ 236,008     $ 1,060     $ (2,014 )   $ 235,054  

 

* Expected maturities may differ from contractual maturities because borrowers have the right to call or prepay obligations with or without prepayment penalties.

 

All of the Company’s investment securities are classified as available for sale. Agency bonds and notes, small business administration guaranteed loan certificates (SBA), residential and commercial agency mortgage-backed securities, and agency collateralized mortgage obligations (CMO) include securities issued by the Government National Mortgage Association (GNMA), a U.S. government agency, and the Federal National Mortgage Association (FNMA), the Federal Home Loan Mortgage Corporation (FHLMC) and the Federal Home Loan Bank (FHLB), which are U.S. government-sponsored enterprises.

 

Other investments and securities primarily consist of Federal Home Loan Bank stock and the Company’s interest in statutory trusts. These securities are reported at cost in the amount of $9.2 million and $8.0 million as of September 30, 2016 and December 31, 2015, respectively.

 

Debt securities with carrying values aggregating approximately $183.2 million and $182.7 million at September 30, 2016 and December 31, 2015, respectively, were pledged to secure public funds, securities sold under agreements to repurchase, and for other purposes as required or permitted by law.

 

Gross unrealized losses on debt securities and the fair value of the related securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at September 30, 2016 and December 31, 2015 were as follows:

  

    Less than 12 months     12 months or more     Total     Total  
    Fair     Unrealized     Fair     Unrealized     Fair     Unrealized  
(in thousands)   Value     Losses     Value     Losses     Value     Losses  
At September 30, 2016                                                
U.S. government and federal agency obligations   $ 11,827     $ (121 )   $ 0     $ 0     $ 11,827     $ (121 )
Government sponsored enterprises     9,001       (10 )     0       0       9,001       (10 )
Obligations of states and political subdivisions     15,202       (100 )     0       0       15,202       (100 )
Mortgage-backed securities:                                                
Residential - government agencies     31,631       (109 )     3,376       (50 )     35,007       (159 )
Total   $ 67,661     $ (340 )   $ 3,376     $ (50 )   $ 71,037     $ (390 )
                                                 
(in thousands)                                                
At December 31, 2015                                                
Government sponsored enterprises   $ 43,539     $ (222 )   $ 1,002     $ (13 )   $ 44,541     $ (235 )
Obligations of states and political subdivisions     2,571       (6 )     718       (5 )     3,289       (11 )
Mortgage-backed securities:                                                
Residential - government agencies     56,095       (620 )     43,576       (1,148 )     99,671       (1,768 )
Total   $ 102,205     $ (848 )   $ 45,296     $ (1,166 )   $ 147,501     $ (2,014 )

 

The total available for sale portfolio consisted of approximately 282 securities at September 30, 2016. The portfolio included 76 securities having an aggregate fair value of $71.0 million that were in a loss position at September 30, 2016. Securities identified as temporarily impaired which had been in a loss position for 12 months or longer had a fair value of $3.4 million at September 30, 2016. The $390,000 aggregate unrealized loss included in accumulated other comprehensive income at September 30, 2016 was caused by interest rate fluctuations.

 

The total available for sale portfolio consisted of approximately 316 securities at December 31, 2015. The portfolio included 111 securities having an aggregate fair value of $147.5 million that were in a loss position at December 31, 2015. Securities identified as temporarily impaired which had been in a loss position for 12 months or longer had a fair value of $45.3 million at December 31, 2015. The $2.0 million aggregate unrealized loss included in accumulated other comprehensive income at December 31, 2015 was caused by interest rate fluctuations.

 

Because the decline in fair value is attributable to changes in interest rates and not credit quality, these investments were not considered other-than-temporarily impaired at September 30, 2016 and December 31, 2015, respectively. In the absence of changes in credit quality of these investments, the fair value is expected to recover on all debt securities as they approach their maturity date, or re-pricing date or if market yields for such investments decline. In addition, the Company does not have the intent to sell these investments over the period of recovery, and it is not more likely than not that the Company will be required to sell such investment securities.

 

The following table presents the components of investment securities gains and losses, which have been recognized in earnings.

 

    Three Months Ended September 30,     Nine Months Ended September 30,  
(in thousands)   2016     2015     2016     2015  
Gains realized on sales   $ 133     $ 0     $ 623     $ 8  
Losses realized on sales     (21 )     0       (21 )     0  
Other-than-temporary impairment recognized     0       0       0       0  
Investment securities gains   $ 112     $ 0     $ 602     $ 8  
XML 23 R12.htm IDEA: XBRL DOCUMENT v3.5.0.2
Intangible Assets
9 Months Ended
Sep. 30, 2016
Intangible Assets  
Intangible Assets
(5) Intangible Assets

 

Mortgage Servicing Rights

 

At September 30, 2016, the Company was servicing approximately $299.7 million of loans sold to the secondary market compared to $312.1 million at December 31, 2015, and $311.8 million at September 30, 2015. Mortgage loan servicing fees, reported as non-interest income, earned on loans sold were $233,000 and $654,000 for the three and nine months ended September 30, 2016, respectively, compared to $206,000 and $648,000 for the three and nine months ended September 30, 2015, respectively.

 

The table below presents changes in mortgage servicing rights (MSRs) for the periods indicated.

 

    Three Months Ended September 30,     Nine Months Ended September 30,  
(in thousands)   2016     2015     2016     2015  
Balance at beginning of period   $ 2,511     $ 2,727     $ 2,847     $ 2,762  
Originated mortgage servicing rights     96       76       213       303  
Changes in fair value:                                
Due to change in model inputs and assumptions (1)     (52 )     136       (197 )     223  
Other changes in fair value (2)     (185 )     (165 )     (493 )     (514 )
Balance at end of period   $ 2,370     $ 2,774     $ 2,370     $ 2,774  

 

(1) The change in fair value resulting from changes in valuation inputs or assumptions used in the valuation model reflects the change in discount rates and prepayment speed assumptions primarily due to changes in interest rates.

(2) Other changes in fair value reflect changes due to customer payments and passage of time.

 

The following key data and assumptions were used in estimating the fair value of the Company’s MSRs as of the nine months ended September 30, 2016 and 2015:

 

    Nine Months Ended September 30,  
    2016     2015  
Weighted average constant prepayment rate     13.20 %     10.06 %
Weighted average note rate     3.88 %     3.92 %
Weighted average discount rate     9.20 %     9.35 %
Weighted average expected life (in years)     4.80       5.80  
XML 24 R13.htm IDEA: XBRL DOCUMENT v3.5.0.2
Federal Funds Purchased and Securities Sold Under Agreements to Repurchase
9 Months Ended
Sep. 30, 2016
Federal Funds Purchased and Securities Sold under Agreements to Repurchase [Abstract]  
Federal funds purchased and securities sold under agreements to repurchase
(6) Federal Funds Purchased and Securities Sold Under Agreements to Repurchase

 

    September 30,     December 31,  
    2016     2015  
Federal funds purchased   $ 0     $ 0  
Repurchase agreements     28,504       56,834  
Total   $ 28,504     $ 56,834  

 

The Company offers a sweep account program whereby amounts in excess of an established limit are “swept” from the customer’s demand deposit account on a daily basis into retail repurchase agreements pursuant to individual repurchase agreements between the Company and its customers. Repurchase agreements are agreements to sell securities subject to an obligation to repurchase the same or similar securities. They are accounted for as secured borrowings, not as sales and purchases of the securities portfolio. The securities collateral pledged for the repurchase agreements with customers is maintained by a designated third party custodian. The collateral amounts pledged to repurchase agreements by remaining maturity in the table below are limited to the outstanding balances of the related asset or liability; thus amounts of excess collateral are not shown.

  

Repurchase Agreements   Remaining Contractual Maturity of the Agreements  
    Overnight     Less     Greater        
    and     than     than        
(in thousands)   continuous     90 days     90 days     Total  
At September 30, 2016                                
Government sponsored enterprises   $ 3,381     $ 0     $ 0     $ 3,381  
Mortgage-backed securities     25,123       0       0       25,123  
Total   $ 28,504     $ 0     $ 0     $ 28,504  
                                 
At December 31, 2015                                
Government sponsored enterprises   $ 46,819     $ 0     $ 0     $ 46,819  
Mortgage-backed securities     10,015       0       0       10,015  
Total   $ 56,834     $ 0     $ 0     $ 56,834  
XML 25 R14.htm IDEA: XBRL DOCUMENT v3.5.0.2
Income Taxes
9 Months Ended
Sep. 30, 2016
Income Tax Disclosure [Abstract]  
Income Taxes
(7) Income Taxes

 

Income taxes as a percentage of earnings before income taxes as reported in the consolidated financial statements were 34.7% for the three months ended September 30, 2016 compared to 35.2% for the three months ended September 30, 2015. Income taxes as a percentage of earnings before income taxes as reported in the consolidated financial statements were 33.8% for the nine months ended September 30, 2016 compared to 34.6% for the nine months ended September 30, 2015. The decrease in tax rates year over year is primarily due to an immaterial return to provision adjustment recorded in the first quarter of 2016.

 

The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income of the appropriate character during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, taxable income available in carryback years, and tax planning strategies in making this assessment. With the exception of certain capital losses generated during 2013 and 2014, it is management’s opinion that the Company will more likely than not realize the benefits of these temporary differences as of September 30, 2016 and, therefore, only established a valuation reserve against the Company’s capital loss carry forward. Management arrived at this conclusion based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible. As indicated above, the Company generated approximately $219,000 of capital losses during 2013 and 2014 as a result of disposing of certain limited partnership interests. The capital losses will expire between 2019 and 2020, and it is management’s opinion that the Company will not more likely than not generate the capital gain income necessary to utilize the capital loss carry forwards before the capital losses expire. As such, the Company has established an $83,000 valuation reserve against its capital loss carry forward deferred tax asset.
XML 26 R15.htm IDEA: XBRL DOCUMENT v3.5.0.2
Stockholders' Equity
9 Months Ended
Sep. 30, 2016
Stockholders' Equity Note [Abstract]  
Stockholders' Equity
(8) Stockholders’ Equity

 

Accumulated Other Comprehensive Loss

 

The following details the change in the components of the Company’s accumulated other comprehensive income (loss) for the nine months ended September 30, 2016 and 2015:

 
    Nine months ended September 30, 2016  
                Accumulated  
          Unrecognized Net     Other  
    Unrealized     Pension and     Comprehensive  
    Gain (Loss)     Postretirement     (Loss)  
(in thousands)   on Securities (1)     Costs (2)     Income  
Balance at beginning of period   $ (591 )   $ (1,427 )   $ (2,018 )
Other comprehensive income (loss), before reclassifications     2,884       59       2,943  
Amounts reclassified from accumulated other comprehensive income (loss)     (602 )     0       (602 )
Current period other comprehensive income, before tax     2,282       59       2,341  
Income tax expense     (867 )     (23 )     (890 )
Current period other comprehensive income, net of tax     1,415       36       1,451  
Balance at end of period   $ 824     $ (1,391 )   $ (567 )

 

    Nine months ended September 30, 2015  
                Accumulated  
          Unrecognized Net     Other  
    Unrealized     Pension and     Comprehensive  
    Gain (Loss)     Postretirement     (Loss)  
(in thousands)   on Securities (1)     Costs (2)     Income  
Balance at beginning of period   $ 214     $ (1,442 )   $ (1,228 )
Other comprehensive income (loss), before reclassifications     1,012       108       1,120  
Amounts reclassified from accumulated other comprehensive income (loss)     (8 )     0       (8 )
Current period other comprehensive income, before tax     1,004       108       1,112  
Income tax expense     (382 )     (40 )     (422 )
Current period other comprehensive income, net of tax     622       68       690  
Balance at end of period   $ 836     $ (1,374 )   $ (538 )

 

(1) The pre-tax amounts reclassified from accumulated other comprehensive income (loss) are included in gain on sale of investment securities in the consolidated statements of income.

(2) The pre-tax amounts reclassified from accumulated other comprehensive income (loss) are included in the computation of net periodic pension cost.

XML 27 R16.htm IDEA: XBRL DOCUMENT v3.5.0.2
Employee Benefit Plans
9 Months Ended
Sep. 30, 2016
Compensation and Retirement Disclosure [Abstract]  
Employee Benefit Plans
(9) Employee Benefit Plans

 

Employee Benefits

 

Employee benefits charged to operating expenses are summarized in the table below for the periods indicated.

 

    Three Months Ended September 30,     Nine Months Ended September 30,  
(in thousands)   2016     2015     2016     2015  
Payroll taxes   $ 251     $ 261     $ 883     $ 860  
Medical plans     415       491       1,414       1,462  
401k match and profit sharing     201       225       585       720  
Pension plan     307       348       920       1,044  
Other     56       56       118       99  
Total employee benefits   $ 1,230     $ 1,381     $ 3,920     $ 4,185  

 

The Company’s profit-sharing plan includes a matching 401k portion, in which the Company matches the first 3% of eligible employee contributions. The Company made annual contributions in an amount up to 6% of income before income taxes and before contributions to the profit-sharing and pension plans for all participants, limited to the maximum amount deductible for federal income tax purposes, for each of the periods shown. In addition, employees were able to make additional tax-deferred contributions.

 

Pension

 

The Company provides a noncontributory defined benefit pension plan for all full-time employees. An employer is required to recognize the funded status of a defined benefit postretirement plan as an asset or liability in its balance sheet and to recognize changes in that funded status in the year in which the changes occur through comprehensive income. Under the Company’s funding policy for the defined benefit pension plan, contributions are made to a trust as necessary to provide for current service and for any unfunded accrued actuarial liabilities over a reasonable period. To the extent that these requirements are fully covered by assets in the trust, a contribution might not be made in a particular year. A pension contribution in the amount of $772,000 was made on April 15, 2016.

 

Components of Net Pension Cost and Other Amounts Recognized in Accumulated Other Comprehensive Income

 

The following items are components of net pension cost for the periods indicated:

 

    Estimated     Actual  
(in thousands)   2016     2015  
Service cost - benefits earned during the year   $ 1,179     $ 1,325  
Interest costs on projected benefit obligations     956       838  
Expected return on plan assets     (1,057 )     (957 )
Expected administrative expenses     70       40  
Amortization of prior service cost     79       79  
Amortization of unrecognized net loss     0       66  
Net periodic pension expense   $ 1,227     $ 1,391  
                 
Pension expense - three months ended September 30, (actual)   $ 307     $ 348  
Pension expense - nine months ended September 30, (actual)   $ 920     $ 1,044  
XML 28 R17.htm IDEA: XBRL DOCUMENT v3.5.0.2
Stock Compensation
9 Months Ended
Sep. 30, 2016
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Stock Compensation
(10) Stock Compensation

 

The Company’s stock option plan provides for the grant of options to purchase up to 553,361 shares of the Company’s common stock to officers and other key employees of the Company and its subsidiaries. All options have been granted at exercise prices equal to fair value and vest over periods ranging from four to five years.

 

The following table summarizes the Company’s stock option activity:

 

                Weighted        
          Weighted     Average     Aggregate  
    Number     average     Contractual     Intrinsic  
    of     Exercise     Term     Value  
    Shares     Price     (in years)     ($000)  
Outstanding, December 31, 2015     65,270     $ 20.68                  
Granted     0       0.00                  
Exercised     0       0.00                  
Forfeited or expired     (20,812 )     21.89                  
Outstanding, September 30, 2016     44,458     $ 20.11       1.25     $ 0.00  
Exercisable, September 30, 2016     43,189     $ 20.25       1.22     $ 0.00  

 

Options have been adjusted to reflect a 4% stock dividend paid on July 1, 2016.

 

Total stock-based compensation expense was $5,000 and $16,000 for the three and nine months ended September 30, 2016, respectively, compared to $1,000 and $5,000 for both the three and nine months ended September 30, 2015, respectively. As of September 30, 2016, the total unrecognized compensation expense related to non-vested stock awards was $4,000 and the related weighted average period over which it is expected to be recognized is approximately 0.51 years.

XML 29 R18.htm IDEA: XBRL DOCUMENT v3.5.0.2
Earnings per Share
9 Months Ended
Sep. 30, 2016
Earnings Per Share [Abstract]  
Earnings per Share
(11) Earnings per Share

 

Stock Dividend On July 1, 2016, the Company paid a special stock dividend of 4% to common shareholders of record at the close of business on June 15, 2016. For all periods presented, share information, including basic and diluted earnings per share, has been adjusted retroactively to reflect this change.

 

Basic earnings per share is computed by dividing income available to shareholders by the weighted average number of shares outstanding during the year. Diluted earnings per share gives effect to all dilutive potential shares that were outstanding during the year. The calculations of basic and diluted earnings per share are as follows for the periods indicated:

 

    Three Months Ended September 30,     Nine Months Ended September 30,  
(dollars in thousands, except per share data)   2016     2015     2016     2015  
Basic earnings per share:                                
Net income available to shareholders   $ 1,884     $ 2,539     $ 5,294     $ 6,605  
Basic earnings per share   $ 0.33     $ 0.45     $ 0.94     $ 1.17  
Diluted earnings per share:                                
Net income available to shareholders   $ 1,884     $ 2,539     $ 5,294     $ 6,605  
Average shares outstanding     5,632,362       5,660,499       5,643,190       5,660,499  
Effect of dilutive stock options     0       0       0       0  
Average shares outstanding including dilutive stock options     5,632,362       5,660,499       5,643,190       5,660,499  
Diluted earnings per share   $ 0.33       0.45     $ 0.94       1.17  

  

Under the treasury stock method, outstanding stock options are dilutive when the average market price of the Company’s common stock, when combined with the effect of any unamortized compensation expense, exceeds the option price during the period, except when the Company has a loss from continuing operations available to shareholders. In addition, proceeds from the assumed exercise of dilutive options along with the related tax benefit are assumed to be used to repurchase common shares at the average market price of such stock during the period.

 

Options to purchase 44,458 and 69,106 shares during the three and nine months ended September 30, 2016 and 2015, respectively, were not included in the respective computations of diluted earnings per share because the exercise price of the option, when combined with the effect of the unamortized compensation expense, was greater than the average market price of the common shares and were considered anti-dilutive.

 

Repurchase Program On August 6, 2015, the Board of Directors authorized a share repurchase plan to purchase through open market transactions $2.0 million market value of the Company’s common stock. During 2016, the Company repurchased 30,033 shares of common stock pursuant to the plan at an average price of $14.50 per share. At September 30, 2016, approximately $1.5 million may be used to purchase shares under the plan.

 

The table below shows activity in the outstanding shares of the Company's common stock during the periods presented in the table. Shares in the table below are presented on a historical basis and have not been restated for the annual 4% stock dividends.

 

    Number of shares  
    September 30,     December 31,     September 30,  
    2016     2015     2015  
Outstanding, beginning of period     5,441,190       5,233,986       5,233,986  
Issuance of stock:                        
4% stock dividend     217,155       209,359       209,359  
Purchase of treasury stock     (30,033 )     (2,155 )     0  
Outstanding, end of period     5,628,312       5,441,190       5,443,344  

 

Except as noted in the above table, all share and per share amounts in this note have been restated for the 4% common stock dividend distributed July 1, 2016.

XML 30 R19.htm IDEA: XBRL DOCUMENT v3.5.0.2
Fair Value Measurements
9 Months Ended
Sep. 30, 2016
Fair Value Disclosures [Abstract]  
Fair Value Measurements
(12) Fair Value Measurements

 

The Company uses fair value measurements to record fair value adjustments to certain financial and nonfinancial assets and liabilities. The FASB ASC Topic 820, Fair Value Measurements and Disclosures, defines fair value, establishes a framework for the measurement of fair value, and enhances disclosures about fair value measurements. The standard applies whenever other standards require (permit) assets or liabilities to be measured at fair value but does not expand the use of fair value in any new circumstances. In this standard, FASB clarified the principle that fair value should be based on the assumptions market participants would use when pricing the asset or liability. In support of this principle, the standard establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. As of September 30, 2016 and December 31, 2015, respectively, there were no transfers into or out of Levels 1-3.

 

The fair value hierarchy is as follows:

 

Level 1 – Inputs are unadjusted quoted prices for identical assets or liabilities in active markets.

 

Level 2 – Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets and liabilities in active markets, such as interest rates and yield curves that are observable at commonly quoted intervals.

 

Level 3 – Inputs are unobservable inputs for the asset or liability and significant to the fair value. These may be internally developed using the Company’s best information and assumptions that a market participant would consider.

 

ASC Topic 820 also provides guidance on determining fair value when the volume and level of activity for the asset or liability have significantly decreased and on identifying circumstances when a transaction may not be considered orderly.

  

The Company is required to disclose assets and liabilities measured at fair value on a recurring basis separate from those measured at fair value on a nonrecurring basis. Nonfinancial assets measured at fair value on a nonrecurring basis would include foreclosed real estate, long-lived assets, and core deposit intangible assets, which are reviewed when circumstances or other events indicate that impairment may have occurred. 

 

Valuation Methods for Instruments Measured at Fair Value on a Recurring Basis

 

Following is a description of the Company’s valuation methodologies used for assets and liabilities recorded at fair value on a recurring basis:

 

Available-for-Sale Securities

 

The fair value measurements of the Company’s investment securities are determined by a third party pricing service which considers observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions, among other things. The fair value measurements are subject to independent verification to another pricing source by management each quarter for reasonableness. Securities classified as available-for-sale are reported at fair value utilizing Level 2 inputs.

 

Mortgage Servicing Rights

 

The fair value of mortgage servicing rights is based on the discounted value of estimated future cash flows utilizing contractual cash flows, servicing rate, constant prepayment rate, servicing cost, and discount rate factors. Accordingly, the fair value is estimated based on a valuation model that calculates the present value of estimated future net servicing income. The model incorporates assumptions that market participants use in estimating future net servicing income, including estimates of prepayment speeds, market discount rates, cost to service, float earnings rates, and other ancillary income, including late fees. The valuation models estimate the present value of estimated future net servicing income. The Company classifies its servicing rights as Level 3.

 

          Fair Value Measurements  
          Quoted Prices              
          in Active              
          Markets for     Other     Significant  
          Identical     Observable     Unobservable  
          Assets     Inputs     Inputs  
(in thousands)   Fair Value     (Level 1)     (Level 2)     (Level 3)  
September 30, 2016                                
Assets:                                
U.S. government and federal agency obligations   $ 13,340     $ 0     $ 13,340     $ 0  
Government sponsored enterprises     33,677       0       33,677       0  
Obligations of states and political subdivisions     36,767       0       36,767       0  
Mortgage-backed securities     138,040       0       138,040       0  
Mortgage servicing rights     2,370       0       0       2,370  
Total   $ 224,194     $ 0     $ 221,824     $ 2,370  
                                 
December 31, 2015                                
Assets:                                
Government sponsored enterprises   $ 73,497     $ 0       73,497       0  
Obligations of states and political subdivisions     32,706       0       32,706       0  
Mortgage and asset-backed securities     128,851       0       128,851       0  
Mortgage servicing rights     2,847       0       0       2,847  
Total   $ 237,901     $ 0     $ 235,054     $ 2,847  

  

The changes in Level 3 assets and liabilities measured at fair value on a recurring basis are summarized as follows:

 

    Fair Value Measurements Using     Fair Value Measurements Using  
    Significant Unobservable Inputs     Significant Unobservable Inputs  
    (Level 3)     (Level 3)  
    Mortgage Servicing Rights     Mortgage Servicing Rights  
(in thousands)   Three Months Ended September 30,     Nine Months Ended September 30,  
    2016     2015     2016     2015  
Balance at beginning of period   $ 2,511     $ 2,727     $ 2,847     $ 2,762  
Total gains or losses (realized/unrealized):                                
Included in earnings     (237 )     (29 )     (690 )     (291 )
Included in other comprehensive income     0       0       0       0  
Purchases     0       0       0       0  
Sales     0       0       0       0  
Issues     96       76       213       303  
Settlements     0       0       0       0  
Balance at end of period   $ 2,370     $ 2,774     $ 2,370     $ 2,774  

 

The change in valuation of mortgage servicing rights arising from inputs and assumptions decreased $52,000 and $197,000, compared to an increase of $136,000 and $223,000 for the three and nine months ended September 30, 2016 and 2015, respectively. MSR values have been falling steadily throughout 2016. The lower values are primarily related to faster prepay speed assumptions, consistent with lower long term interest rates.

 

    Quantitative Information about Level 3 Fair Value Measurements  
    Valuation Technique   Unobservable Inputs   Input Value  
            Nine Months Ended September 30,  
            2016     2015  
Mortgage servicing rights    Discounted cash flows   Weighted average constant prepayment rate     13.20 %     10.06 %
        Weighted average note rate     3.88 %     3.92 %
        Weighted average discount rate     9.20 %     9.35 %
        Weighted average expected life (in years)     4.80       5.80  

 

Valuation methods for instruments measured at fair value on a nonrecurring basis

 

Following is a description of the Company’s valuation methodologies used for assets and liabilities recorded at fair value on a nonrecurring basis:

 

Impaired Loans

 

The Company does not record loans at fair value on a recurring basis other than loans that are considered impaired. The net carrying value of impaired loans is generally based on fair values of the underlying collateral obtained through independent appraisals or internal evaluations less estimated selling costs, or by discounting the total expected future cash flows. Once the fair value of the collateral less estimated selling costs has been determined and any impairment amount calculated, a specific reserve allocation is made. Because many of these inputs are not observable, the measurements are classified as Level 3. As of September 30, 2016, the Company identified $7.1 million in impaired loans that had specific allowances for losses aggregating $1.3 million. Related to these loans, there was $153,000 and $920,000 in charge-offs recorded during the three and nine months ended September 30, 2016, respectively. As of September 30, 2015, the Company identified $6.8 million in impaired loans that had specific allowances for losses aggregating $2.0 million. Related to these loans, there was $695,000 and $1.0 million in charge-offs recorded during the three and nine months ended September 30, 2015, respectively.

  

Other Real Estate and Foreclosed Assets

 

Other real estate and foreclosed assets consisted of loan collateral that has been repossessed through foreclosure. This collateral is comprised of commercial and residential real estate and other non-real estate property, including autos, manufactured homes, and construction equipment. Other real estate assets are recorded as held for sale initially at the lower of the loan balance or fair value of the collateral less estimated selling costs. The Company relies on external appraisals and assessment of property values by internal staff. In the case of non-real estate collateral, reliance is placed on a variety of sources, including external estimates of value and judgment based on experience and expertise of internal specialists. Subsequent to foreclosure, valuations are updated periodically, and the assets may be written down to reflect a new cost basis. Because many of these inputs are not observable, the measurements are classified as Level 3.

 

          Fair Value Measurements Using              
          Quoted Prices                 Three     Nine  
          in Active                 Months     Months  
          Markets for     Other     Significant     Ended     Ended  
          Identical     Observable     Unobservable     September 30,     September 30,  
    Total     Assets     Inputs     Inputs     Total Gains     Total Gains  
(in thousands)   Fair Value     (Level 1)     (Level 2)     (Level 3)     (Losses)*     (Losses)*  
September 30, 2016                                                
Assets:                                                
Impaired loans:                                                
Commercial, financial, & agricultural   $ 392     $ 0     $ 0     $ 392     $ 0       (359 )
Real estate construction - commercial     43       0       0       43       0       0  
Real estate mortgage - residential     3,464       0       0       3,464       (80 )     (295 )
Real estate mortgage - commercial     1,806       0       0       1,806       (71 )     (248 )
Consumer     103       0       0       103       (2 )     (18 )
Total   $ 5,808     $ 0     $ 0     $ 5,808     $ (153 )     (920 )
Other real estate and foreclosed assets   $ 14,438     $ 0     $ 0     $ 14,438     $ 21       70  
                                                 
September 30, 2015                                                
Assets:                                                
Impaired loans:                                                
Commercial, financial, & agricultural   $ 462     $ 0     $ 0     $ 462     $ (540 )     (561 )
Real estate construction - commercial     45       0       0       45       0       0  
Real estate mortgage - residential     3,618       0       0       3,618       (61 )     (267 )
Real estate mortgage - commercial     572       0       0       572       (89 )     (118 )
Consumer     121       0       0       121       (5 )     (54 )
Total   $ 4,818     $ 0     $ 0     $ 4,818     $ (695 )     (1,000 )
Other real estate and foreclosed assets   $ 15,148     $ 0     $ 0     $ 15,148     $ (80 )     112  

 

* Total gains (losses) reported for other real estate and foreclosed assets includes charge-offs, valuation write downs, and net losses taken during the periods reported.

XML 31 R20.htm IDEA: XBRL DOCUMENT v3.5.0.2
Fair Value of Financial Instruments
9 Months Ended
Sep. 30, 2016
Financial Instruments, Owned, at Fair Value [Abstract]  
Fair Value of Financial Instruments
(13) Fair Value of Financial Instruments

 

The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate such value:

 

Loans

 

The fair values of loans are estimated by discounting the expected future cash flows using the current rates at which similar loans could be made to borrowers with similar credit ratings and for the same remaining maturities. The net carrying amount of impaired loans is generally based on the fair values of collateral obtained through independent appraisals or internal evaluations, or by discounting the total expected future cash flows. This method of estimating fair value does not incorporate the exit-price concept of fair value prescribed by ASC Topic 820.

 

Investment Securities

 

A detailed description of the fair value measurement of the debt instruments in the available-for-sale sections of the investment security portfolio is provided in the Fair Value Measurement section above. A schedule of investment securities by category and maturity is provided in the notes on Investment Securities.

 

Federal Home Loan Bank (FHLB) Stock

 

Ownership of equity securities of FHLB is restricted and there is no established market for their resale. The carrying amount is a reasonable estimate of fair value.

 

Federal Funds Sold, Cash, and Due from Banks

 

The carrying amounts of short-term federal funds sold and securities purchased under agreements to resell, interest earning deposits with banks, and cash and due from banks approximate fair value. Federal funds sold and securities purchased under agreements to resell classified as short-term generally mature in 90 days or less.

 

Mortgage Servicing Rights

 

The fair value of mortgage servicing rights is based on the discounted value of estimated future cash flows utilizing contractual cash flows, servicing rate, constant prepayment rate, servicing cost, and discount rate factors. Accordingly, the fair value is estimated based on a valuation model that calculates the present value of estimated future net servicing income. The model incorporates assumptions that market participants use in estimating future net servicing income, including estimates of prepayment speeds, market discount rates, cost to service, float earnings rates, and other ancillary income, including late fees.

 

Cash Surrender Value - Life Insurance

 

The fair value of Bank owned life insurance (BOLI) approximates the carrying amount. Upon liquidation of these investments, the Company would receive the cash surrender value which equals the carrying amount.

 

Accrued Interest Receivable and Payable

 

For accrued interest receivable and payable, the carrying amount is a reasonable estimate of fair value because of the short maturity for these financial instruments.

 

Deposits

 

The fair value of deposits with no stated maturity, such as noninterest-bearing demand, NOW accounts, savings, and money market, is equal to the amount payable on demand. The fair value of time deposits is based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently offered for deposits of similar remaining maturities.

 

Securities Sold under Agreements to Repurchase and Interest-bearing Demand Notes to U.S. Treasury

 

For securities sold under agreements to repurchase and interest-bearing demand notes to U.S. Treasury, the carrying amount is a reasonable estimate of fair value, as such instruments reprice in a short time period.

 

Subordinated Notes and Other Borrowings

 

The fair value of subordinated notes and other borrowings is based on the discounted value of contractual cashflows. The discount rate is estimated using the rates currently offered for other borrowed money of similar remaining maturities.

 

A summary of the carrying amounts and fair values of the Company’s financial instruments at September 30, 2016 and December 31, 2015 is as follows:

 

                September 30, 2016  
                Fair Value Measurements  
                Quoted Prices              
                in Active           Net  
                Markets for     Other     Significant  
    September 30, 2016     Identical     Observable     Unobservable  
    Carrying     Fair     Assets     Inputs     Inputs  
(in thousands)   Amount     Value     (Level 1)     (Level 2)     (Level 3)  
Assets:                                        
Cash and due from banks   $ 19,106     $ 19,106     $ 19,106     $ 0     $ 0  
Federal funds sold and overnight interest-bearing deposits     19,788       19,788       19,788       0       0  
Investment in available-for-sale securities     221,824       221,824       0       221,824       0  
Loans, net     938,301       939,573       0       0       939,573  
Investment in FHLB stock     4,593       4,593       0       4,593       0  
Mortgage servicing rights     2,370       2,370       0       0       2,370  
Cash surrender value - life insurance     2,396       2,396       0       2,396       0  
Accrued interest receivable     4,624       4,624       4,624       0       0  
    $ 1,213,002     $ 1,214,274     $ 43,518     $ 228,813     $ 941,943  
Liabilities:                                        
Deposits:                                        
Non-interest bearing demand   $ 229,987     $ 229,987     $ 229,987     $ 0     $ 0  
Savings, interest checking and money market     477,945       477,945       477,945       0       0  
Time deposits     310,099       309,188       0       0       309,188  
Federal funds purchased and securities sold under agreements to repurchase     28,504       28,504       28,504       0       0  
Subordinated notes     49,486       31,970       0       31,970       0  
Federal Home Loan Bank advances     79,000       79,510       0       79,510       0  
Accrued interest payable     408       408       408       0       0  
    $ 1,175,429     $ 1,157,512     $ 736,844     $ 111,480     $ 309,188  
  
                December 31, 2015  
                Fair Value Measurements  
                Quoted Prices              
                in Active           Net  
                Markets for     Other     Significant  
    December 31, 2015     Identical     Observable     Unobservable  
    Carrying     Fair     Assets     Inputs     Inputs  
(in thousands)   amount     value     (Level 1)     (Level 2)     (Level 3)  
Assets:                                        
Cash and due from banks   $ 20,484     $ 20,484     $ 20,484     $ 0     $ 0  
Federal funds sold and overnight interest-bearing deposits     7,893       7,893       7,893       0       0  
Investment in available-for-sale securities     235,054       235,054       0       235,054       0  
Loans, net     856,476       854,775       0       0       854,775  
Investment in FHLB stock     3,390       3,390       0       3,390       0  
Mortgage servicing rights     2,847       2,847       0       0       2,847  
Cash surrender value - life insurance     2,348       2,348       0       2,348       0  
Accrued interest receivable     4,853       4,853       4,853       0       0  
    $ 1,133,345     $ 1,131,644     $ 33,230     $ 240,792     $ 857,622  
Liabilities:                                        
Deposits:                                        
Non-interest bearing demand   $ 208,035     $ 208,035     $ 208,035     $ 0     $ 0  
Savings, interest checking and money market     441,080       441,080       441,080       0       0  
Time deposits     298,082       298,323       0       0       298,323  
Federal funds purchased and securities sold under agreements to repurchase     56,834       56,834       56,834       0       0  
Subordinated notes     49,486       40,821       0       40,821       0  
Federal Home Loan Bank advances     50,000       52,340       0       52,340       0  
Accrued interest payable     382       382       382       0       0  
    $ 1,103,899     $ 1,097,815     $ 706,331     $ 93,161     $ 298,323  

 

Off-Balance Sheet Financial Instruments

 

The fair value of commitments to extend credit and standby letters of credit is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements, the likelihood of the counterparties drawing on such financial instruments, and the present creditworthiness of such counterparties. The Company believes such commitments have been made on terms that are competitive in the markets in which it operates.

 

Limitations

 

The fair value estimates provided are made at a point in time based on market information and information about the financial instruments. Because no market exists for a portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the fair value estimates.
XML 32 R21.htm IDEA: XBRL DOCUMENT v3.5.0.2
Repurchase Reserve Liability
9 Months Ended
Sep. 30, 2016
Repurchase Reserve Liability [Abstract]  
Repurchase Reserve Liability
(14) Repurchase Reserve Liability

 

The Company’s repurchase reserve liability for estimated losses incurred on sold loans was $160,000 at both September 30, 2016 and December 31, 2015. This liability represents management’s estimate of the potential repurchase or make-whole liability for residential mortgage loans originated for sale that may arise from representation and warranty claims that could relate to a variety of issues, including but not limited to, misrepresentation of facts, appraisal issues, or program requirements that may not meet investor guidelines. At September 30, 2016, the Company accrued $2,000 for the reimbursement of expenses incurred on one repurchase loss remitted in April 2016 compared to $40,000 accrued for the expenses on one repurchase loss remitted in April 2015 of the prior year. At September 30, 2016, the Company was servicing 2,909 loans sold to the secondary market with a balance of approximately $299.7 million compared to 3,024 loans sold with a balance of approximately $312.1 million at December 31, 2015.

 

    Three Months Ended September 30,     Nine Months Ended September 30,  
(in thousands)   2016     2015     2016     2015  
Balance at beginning of year   $ 160     $ 160     $ 160     $ 160  
Provision for repurchase liability     0       0       2       40  
Reimbursement of expenses     0       0       (2 )     (40 )
Balance at end of year   $ 160     $ 160     $ 160     $ 160  
XML 33 R22.htm IDEA: XBRL DOCUMENT v3.5.0.2
Commitments and Contingencies
9 Months Ended
Sep. 30, 2016
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies
(15) Commitments and Contingencies

 

The Company issues financial instruments with off-balance-sheet risk in the normal course of business of meeting the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. These instruments may involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized in the consolidated balance sheets.

 

The Company’s extent of involvement and maximum potential exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of these instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for financial instruments included on its consolidated balance sheets. At September 30, 2016, no amounts have been accrued for any estimated losses for these financial instruments.

 

The contractual amount of off-balance-sheet financial instruments were as follows as of the dates indicated:

 

    September 30,     December 31,  
(in thousands)   2016     2015  
Commitments to extend credit   $ 233,005     $ 161,306  
Commitments to originate residential first and second mortgage loans     3,273       3,175  
Standby letters of credit     1,608       1,466  
Total     237,886       165,947  

 

Commitments

 

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since certain of the commitments and letters of credit are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the customer. Collateral held varies, but may include accounts receivable, inventory, furniture and equipment, and real estate.

 

Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. These standby letters of credit are primarily issued to support contractual obligations of the Company’s customers. The approximate remaining term of standby letters of credit range from one month to five years at September 30, 2016.

 

Pending Litigation

 

The Company and its subsidiaries are defendants in various legal actions incidental to the Company’s past and current business activities. Based on the Company’s analysis, and considering the inherent uncertainties associated with litigation, management does not believe that it is reasonably possible that these legal actions will materially adversely affect the Company’s consolidated financial condition or results of operations in the near term. The Company records a loss accrual for all legal matters for which it deems a loss is probable and can be reasonably estimated. Some legal matters, which are at early stages in the legal process, have not yet progressed to the point where a loss is deemed probable or an amount can be estimated.
XML 34 R23.htm IDEA: XBRL DOCUMENT v3.5.0.2
Summary of Significant Accounting Policies (Policies)
9 Months Ended
Sep. 30, 2016
Accounting Policies [Abstract]  
Stock Dividend

Stock Dividend On July 1, 2016, the Company paid a special stock dividend of four percent to shareholders of record at the close of business on June 15, 2016. For all periods presented, share information, including basic and diluted earnings per share, has been adjusted retroactively to reflect this change.

Consolidation

Consolidation The FASB issued ASU No. 2015-02, Amendments to the Consolidation Analysis, in February 2015. The amendment substantially changes the way reporting entities are required to evaluate whether they should consolidate certain legal entities. All legal entities are subject to reevaluation under the new amendment. Specifically, the amendments modify the evaluation of whether limited partnerships and similar legal entities are variable interest entities (VIEs) or voting interest entities, eliminate the presumption that a general partner should consolidate a limited partnership, and affect the consolidation analysis of reporting entities that are involved with VIEs. The amendments were effective for interim and annual periods beginning January 1, 2016. The adoption did not have a significant effect on the Company’s consolidated financial statements.

Intangible Assets

Intangible Assets The FASB issued ASU 2015-05, Customer's Accounting for Fees Paid in a Cloud Computing Arrangement, in April 2015. The amendments provide guidance to customers about whether a cloud computing arrangement includes a software license. Arrangements containing a license should be recorded as consistent with the acquisition of software licenses, whereas arrangements that do not include a software license should be recorded as consistent with the accounting for service contracts. These amendments were effective for interim and annual periods beginning January 1, 2016. The adoption did not have a significant effect on the Company's consolidated financial statements.

XML 35 R24.htm IDEA: XBRL DOCUMENT v3.5.0.2
Loans and Allowance for Loan Losses (Tables)
9 Months Ended
Sep. 30, 2016
Loans and Leases Receivable Disclosure [Abstract]  
Schedule of summary of loans, by major class within the Company's loan portfolio
    September 30,     December 31,  
(in thousands)   2016     2015  
Commercial, financial, and agricultural   $ 172,274     $ 149,091  
Real estate construction - residential     17,066       16,895  
Real estate construction - commercial     48,743       33,943  
Real estate mortgage - residential     256,786       256,086  
Real estate mortgage - commercial     423,779       385,869  
Installment and other consumer     29,123       23,196  
Total loans   $ 947,771     $ 865,080  
Schedule of summary of the allowance for loan losses
    Three Months Ended September 30, 2016  
    Commercial,     Real Estate     Real Estate     Real Estate     Real Estate     Installment              
    Financial, &     Construction -     Construction -     Mortgage -     Mortgage -     Loans to     Un-        
(in thousands)   Agricultural     Residential     Commercial     Residential     Commercial     Individuals     allocated     Total  
Balance at beginning of period   $ 2,996     $ 63     $ 249     $ 2,293     $ 3,411     $ 284     $ 96     $ 9,392  
Additions:                                                                
Provision for loan losses     (94 )     (4 )     44       (152 )     450       50       6       300  
Deductions:                                                                
Loans charged off     157       0       0       92       27       86       0       362  
Less recoveries on loans     (26 )     0       0       (31 )     (36 )     (47 )     0       (140 )
Net loans charged off     131       0       0       61       (9 )     39       0       222  
Balance at end of period   $ 2,771     $ 59     $ 293     $ 2,080     $ 3,870     $ 295     $ 102     $ 9,470  

 

    Nine Months Ended September 30, 2016  
    Commercial,     Real Estate     Real Estate     Real Estate     Real Estate     Installment              
    Financial, &     Construction -     Construction -     Mortgage -     Mortgage -     Loans to     Un-        
(in thousands)   Agricultural     Residential     Commercial     Residential     Commercial     Individuals     allocated     Total  
Balance at beginning of period   $ 2,153     $ 59     $ 644     $ 2,439     $ 2,935     $ 273     $ 101     $ 8,604  
Additions:                                                                
Provision for loan losses     710       0       (852 )     66       944       106       1       975  
Deductions:                                                                
Loans charged off     295       0       1       474       137       209       0       1,116  
Less recoveries on loans     (203 )     0       (502 )     (49 )     (128 )     (125 )     0       (1,007 )
Net loans charged off     92       0       (501 )     425       9       84       0       109  
Balance at end of period   $ 2,771     $ 59     $ 293     $ 2,080     $ 3,870     $ 295     $ 102     $ 9,470  

 

    Three Months Ended September 30, 2015  
    Commercial,     Real Estate     Real Estate     Real Estate     Real Estate     Installment              
    Financial, &     Construction -     Construction -     Mortgage -     Mortgage -     Loans to     Un-        
(in thousands)   Agricultural     Residential     Commercial     Residential     Commercial     Individuals     allocated     Total  
Balance at beginning of period   $ 3,124     $ 17     $ 414     $ 2,332     $ 3,870     $ 185     $ 44     $ 9,986  
Additions:                                                                
Provision for loan losses     439       (27 )     137       (233 )     (503 )     66       121       0  
Deductions:                                                                
Loans charged off     591       0       0       87       126       80       0       884  
Less recoveries on loans     (28 )     (28 )     0       (45 )     (5 )     (38 )     0       (144 )
Net loans charged off     563       (28 )     0       42       121       42       0       740  
Balance at end of period   $ 3,000     $ 18     $ 551     $ 2,057     $ 3,246     $ 209     $ 165     $ 9,246  

 

    Nine Months Ended September 30, 2015  
    Commercial,     Real Estate     Real Estate     Real Estate     Real Estate     Installment              
    Financial, &     Construction -     Construction -     Mortgage -     Mortgage -     Loans to     Un-        
(in thousands)   Agricultural     Residential     Commercial     Residential     Commercial     Individuals     allocated     Total  
Balance at beginning of period   $ 1,779     $ 171     $ 466     $ 2,527     $ 3,846     $ 270     $ 40     $ 9,099  
Additions:                                                                
Provision for loan losses     1,319       (475 )     90       (277 )     (598 )     66       125       250  
Deductions:                                                                
Loans charged off     741       0       5       298       159       241       0       1,444  
Less recoveries on loans     (643 )     (322 )     0       (105 )     (157 )     (114 )     0       (1,341 )
Net loans (recovered) charged off     98       (322 )     5       193       2       127       0       103  
Balance at end of period   $ 3,000     $ 18     $ 551     $ 2,057     $ 3,246     $ 209     $ 165     $ 9,246  

 

The following table provides the balance in the allowance for loan losses at September 30, 2016 and December 31, 2015, and the related loan balance by impairment methodology.

 

    Commercial,     Real Estate     Real Estate     Real Estate     Real Estate     Installment              
    Financial, and     Construction -     Construction -     Mortgage -     Mortgage -     Loans to     Un-        
(in thousands)   Agricultural     Residential     Commercial     Residential     Commercial     Individuals     allocated     Total  
September 30, 2016                                                                
Allowance for loan losses:                                                                
Individually evaluated for impairment   $ 632     $ 0     $ 8     $ 386     $ 262     $ 14     $ 0     $ 1,302  
Collectively evaluated for impairment     2,139       59       285       1,694       3,608       281       102       8,168  
Total   $ 2,771     $ 59     $ 293     $ 2,080     $ 3,870     $ 295     $ 102     $ 9,470  
Loans outstanding:                                                                
Individually evaluated for impairment   $ 1,811     $ 0     $ 51     $ 5,195     $ 2,068     $ 117     $ 0     $ 9,242  
Collectively evaluated for impairment     170,463       17,066       48,692       251,591       421,711       29,006       0       938,529  
Total   $ 172,274     $ 17,066     $ 48,743     $ 256,786     $ 423,779     $ 29,123     $ 0     $ 947,771  
                                                                 
December 31, 2015                                                                
Allowance for loan losses:                                                                
Individually evaluated for impairment   $ 285     $ 0     $ 15     $ 955     $ 266     $ 19     $ 0     $ 1,540  
Collectively evaluated for impairment     1,868       59       629       1,484       2,669       254       101       7,064  
Total   $ 2,153     $ 59     $ 644     $ 2,439     $ 2,935     $ 273     $ 101     $ 8,604  
Loans outstanding:                                                                
Individually evaluated for impairment   $ 1,005     $ 0     $ 102     $ 5,936     $ 3,081     $ 144     $ 0     $ 10,268  
Collectively evaluated for impairment     148,086       16,895       33,841       250,150       382,788       23,052       0       854,812  
Total   $ 149,091     $ 16,895     $ 33,943     $ 256,086     $ 385,869     $ 23,196     $ 0     $ 865,080  
Schedule of impaired loans
    September 30,     December 31,  
(in thousands)   2016     2015  
Non-accrual loans   $ 3,587     $ 4,418  
Performing TDRs     5,655       5,850  
Total impaired loans   $ 9,242     $ 10,268  

  

          Unpaid        
    Recorded     Principal     Specific  
(in thousands)   Investment     Balance     Reserves  
September 30, 2016                        
With no related allowance recorded:                        
Commercial, financial and agricultural   $ 787     $ 927     $ 0  
Real estate - residential     1,345       1,346       0  
Total   $ 2,132     $ 2,273     $ 0  
With an allowance recorded:                        
Commercial, financial and agricultural   $ 1,024     $ 1,059     $ 632  
Real estate - construction commercial     51       56       8  
Real estate - residential     3,850       3,914       386  
Real estate - commercial     2,068       2,404       262  
Consumer     117       147       14  
Total   $ 7,110     $ 7,580     $ 1,302  
Total impaired loans   $ 9,242     $ 9,853     $ 1,302  

 

          Unpaid        
    Recorded     Principal     Specific  
(in thousands)   Investment     Balance     Reserves  
December 31, 2015                        
With no related allowance recorded:                        
Commercial, financial and agricultural   $ 448     $ 450     $ 0  
Real estate - residential     1,645       1,712       0  
Real estate - commercial     2,446       2,572       0  
Total   $ 4,539     $ 4,734     $ 0  
With an allowance recorded:                        
Commercial, financial and agricultural   $ 557     $ 572     $ 285  
Real estate - construction commercial     102       115       15  
Real estate - residential     4,291       4,320       955  
Real estate - commercial     635       884       266  
Consumer     144       182       19  
Total   $ 5,729     $ 6,073     $ 1,540  
Total impaired loans   $ 10,268     $ 10,807     $ 1,540  

 

    Three Months Ended September 30,     Nine Months Ended September 30,  
    2016     2015     2016     2015  
          Interest           Interest           Interest           Interest  
    Average     Recognized     Average     Recognized     Average     Recognized     Average     Recognized  
    Recorded     For the     Recorded     For the     Recorded     For the     Recorded     For the  
(in thousands)   Investment     Period Ended     Investment     Period Ended     Investment     Period Ended     Investment     Period Ended  
With no related allowance recorded:                                                                
Commercial, financial and agricultural   $ 460     $ (9 )   $ 3,416     $ 6     $ 491     $ 18     $ 4,033     $ 33  
Real estate - construction residential     0       0       0       0       0       0       1,101       0  
Real estate - construction commercial     0       0       0       0       0       0       2,002       0  
Real estate - residential     2,050       27       2,326       5       1,640       63       2,924       26  
Real estate - commercial     1,167       17       2,958       17       1,769       17       8,978       103  
Consumer     0       0       0       0       0       0       10       1  
Total   $ 3,677     $ 35     $ 8,700     $ 28     $ 3,900     $ 98     $ 19,048     $ 163  
With an allowance recorded:                                                                
Commercial, financial and agricultural   $ 1,398     $ (13 )   $ 787     $ 5     $ 924     $ 9     $ 1,389     $ 18  
Real estate - construction residential     0       0       0       0       0       0       0       0  
Real estate - construction commercial     51       0       55       0       64       0       28       0  
Real estate - residential     2,992       20       4,850       30       3,741       78       4,713       80  
Real estate - commercial     811       14       1,228       0       717       61       1,216       0  
Consumer     118       (1     162       0       123       0       209       0  
Total   $ 5,370     $ 20     $ 7,082     $ 35     $ 5,569     $ 148     $ 7,555     $ 98  
Total impaired loans   $ 9,047     $ 55     $ 15,782     $ 63     $ 9,469     $ 246     $ 26,603     $ 261  
Schedule of aging information for the Company's past due and non-accrual loans
    Current or           90 Days              
    Less Than           Past Due              
    30 Days     30 - 89 Days     And Still              
(in thousands)   Past Due     Past Due     Accruing     Non-Accrual     Total  
September 30, 2016                                        
Commercial, Financial, and Agricultural   $ 170,674     $ 443     $ 0     $ 1,157     $ 172,274  
Real Estate Construction - Residential     16,815       251       0       0       17,066  
Real Estate Construction - Commercial     48,692       0       0       51       48,743  
Real Estate Mortgage - Residential     253,884       1,138       60       1,704       256,786  
Real Estate Mortgage - Commercial     422,409       811       0       559       423,779  
Installment and Other Consumer     28,846       160       1       116       29,123  
Total   $ 941,320     $ 2,803     $ 61     $ 3,587     $ 947,771  
December 31, 2015                                        
Commercial, Financial, and Agricultural   $ 148,597     $ 185     $ 1     $ 308     $ 149,091  
Real Estate Construction - Residential     16,895       0       0       0       16,895  
Real Estate Construction - Commercial     33,776       65       0       102       33,943  
Real Estate Mortgage - Residential     251,253       2,511       0       2,322       256,086  
Real Estate Mortgage - Commercial     383,684       643       0       1,542       385,869  
Installment and Other Consumer     22,840       207       5       144       23,196  
Total   $ 857,045     $ 3,611     $ 6     $ 4,418     $ 865,080  
Schedule of risk categories by class
(in thousands)  

Commercial,

Financial, &

Agricultural

   

Real Estate

Construction -

Residential

   

Real Estate

Construction -

Commercial

   

Real Estate

Mortgage -

Residential

   

Real Estate

Mortgage -

Commercial

   

Installment

and other

Consumer

    Total  
At September 30, 2016                                                        
Watch   $ 9,858     $ 662     $ 1,167     $ 18,078     $ 45,869     $ 0     $ 75,634  
Substandard     140       0       0       1,201       462       0       1,803  
Performing TDRs     654       0       0       3,492       1,509       0       5,655  
Non-accrual     1,157       0       51       1,704       559       116       3,587  
Total   $ 11,809     $ 662     $ 1,218     $ 24,475     $ 48,399     $ 116     $ 86,679  
At December 31, 2015                                                        
Watch   $ 8,663     $ 1,267     $ 1,296     $ 22,191     $ 24,303     $ 186     $ 57,906  
Substandard     421       0       37       3,737       1,485       36       5,716  
Performing TDRs     697       0       0       3,615       1,538       0       5,850  
Non-accrual     308       0       102       2,322       1,542       144       4,418  
Total   $ 10,089     $ 1,267     $ 1,435     $ 31,865     $ 28,868     $ 366     $ 73,890  
Schedule of summary of loans that were modified as TDRs
    Three Months Ended September 30,  
    2016     2015  
    Recorded Investment (1)     Recorded Investment (1)  
(in thousands)  

Number of

Contracts

   

Pre-

Modification

   

Post-

Modification

   

Number of

Contracts

   

Pre-

Modification

   

Post-

Modification

 
Troubled Debt Restructurings                                                
Commercial, financial and agricultural     2     $ 32     $ 32       0     $ 0     $ 0  
Real estate mortgage - residential     4       298       296       0       0       0  
Total     6     $ 330     $ 328       0     $ 0     $ 0  

 

    Nine Months Ended September 30,  
    2016     2015  
    Recorded Investment (1)     Recorded Investment (1)  
(in thousands)  

Number of

Contracts

   

Pre-

Modification

   

Post-

Modification

   

Number of

Contracts

   

Pre-

Modification

   

Post-

Modification

 
Troubled Debt Restructurings                                                
Commercial, financial and agricultural     2     $ 32     $ 32       3     $ 250     $ 240  
Real estate mortgage - residential     5       376       374       3       510       464  
Real estate mortgage - commercial     0       0       0       4       1,273       1,137  
Total     7     $ 408     $ 406       10     $ 2,033     $ 1,841  

(1) The amounts reported post-modification are inclusive of all partial pay-downs and charge-offs, and no portion of the debt was forgiven. Loans modified as a TDR that were fully paid down, charged-off or foreclosed upon during the period ended are not reported.

XML 36 R25.htm IDEA: XBRL DOCUMENT v3.5.0.2
Other Real Estate and Repossessed Assets (Tables)
9 Months Ended
Sep. 30, 2016
Other Real Estate [Abstract]  
Schedule of summary of real estate and other assets acquired in settlement of loans
    September 30,     December 31,  
(in thousands)   2016     2015  
Commercial   $ 831     $ 1,445  
Real estate construction - commercial     12,380       12,380  
Real estate mortgage - residential     1,020       477  
Real estate mortgage - commercial     3,439       4,923  
Repossessed assets     28       0  
Total   $ 17,698     $ 19,225  
Less valuation allowance for other real estate owned     (3,260 )     (3,233 )
Total other real estate and repossessed assets   $ 14,438     $ 15,992  
Schedule of changes in the net carrying amount of other real estate owned and repossessed assets
    Three Months Ended September 30,     Nine Months Ended September 30,  
    2016     2015     2016     2015  
Balance at beginning of period   $ 18,462     $ 15,749     $ 19,225     $ 15,140  
Additions     386       3,032       2,020       4,549  
Proceeds from sales     (1,214 )     (407 )     (3,613 )     (1,443 )
Charge-offs against the valuation allowance for other real estate owned, net     (48 )     0       (149 )     (16 )
Net gain on sales     112       7       215       151  
Total other real estate and repossessed assets   $ 17,698     $ 18,381     $ 17,698     $ 18,381  
Less valuation allowance for other real estate owned     (3,260 )     (3,233 )     (3,260 )     (3,233 )
Balance at end of period   $ 14,438     $ 15,148     $ 14,438     $ 15,148  
Schedule of summary of activity in valuation allowance for other real estate owned in settlement of loans
    Three Months Ended September 30,     Nine Months Ended September 30,  
(in thousands)   2016     2015     2016     2015  
Balance, beginning of period   $ 3,208     $ 3,233     $ 3,233     $ 3,255  
Provision for other real estate owned     100       0       176       (6 )
Charge-offs     (48 )     0       (149 )     (16 )
Balance, end of period   $ 3,260     $ 3,233     $ 3,260     $ 3,233  
XML 37 R26.htm IDEA: XBRL DOCUMENT v3.5.0.2
Investment Securities (Tables)
9 Months Ended
Sep. 30, 2016
Investments Debt And Equity Securities [Abstract]  
Schedule of amortized cost, contractual maturity, gross unrealized gains and losses, and fair value of debt securities classified as available-for-sale
    Maturity*                          
                            Total                    
    1 Year     1-5     5-10     After     Amortized     Gross Unrealized     Fair  
(in thousands)   or Less     Years     Years     10 Years     Cost     Gains     Losses     Value  
September 30, 2016                                                                
U.S. government and federal agency obligations   $ 0     $ 0     $ 10,954     $ 2,494     $ 13,448     $ 13     $ (121 )   $ 13,340  
Government sponsored enterprises     3,010       30,595       0       0       33,605       82       (10 )     33,677  
Obligations of states and political subdivisions     2,315       16,672       16,112       1,332       36,431       436       (100 )     36,767  
Mortgage-backed securities:                                                                
Residential - government agencies     1,040       115,679       17,789       1,516       136,024       1,159       (159 )     137,024  
Commercial - government agencies     0       988       0       0       988       28       0       1,016  
Total mortgage-backed securities     1,040       116,667       17,789       1,516       137,012       1,187       (159 )     138,040  
Total available-for-sale securities   $ 6,365     $ 163,934     $ 44,855     $ 5,342     $ 220,496     $ 1,718     $ (390 )   $ 221,824  
                                                                 
December 31, 2015                                                                
Government sponsored enterprises   $ 23,067     $ 50,538     $ 0     $ 0     $ 73,605     $ 127     $ (235 )   $ 73,497  
Obligations of states and political subdivisions     1,827       16,975       12,593       829       32,224       493       (11 )     32,706  
Mortgage-backed securities:                                                                
Residential - government agencies     1,508       106,648       19,291       1,746       129,193       432       (1,768 )     127,857  
Commercial - government agencies     0       986       0       0       986       8       0       994  
Total mortgage-backed securities     1,508       107,634       19,291       1,746       130,179       440       (1,768 )     128,851  
Total available-for-sale securities   $ 26,402     $ 175,147     $ 31,884     $ 2,575     $ 236,008     $ 1,060     $ (2,014 )   $ 235,054  

 

* Expected maturities may differ from contractual maturities because borrowers have the right to call or prepay obligations with or without prepayment penalties.

Schedule of gross unrealized losses on debt securities and fair value of related securities aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position
    Less than 12 months     12 months or more     Total     Total  
    Fair     Unrealized     Fair     Unrealized     Fair     Unrealized  
(in thousands)   Value     Losses     Value     Losses     Value     Losses  
At September 30, 2016                                                
U.S. government and federal agency obligations   $ 11,827     $ (121 )   $ 0     $ 0     $ 11,827     $ (121 )
Government sponsored enterprises     9,001       (10 )     0       0       9,001       (10 )
Obligations of states and political subdivisions     15,202       (100 )     0       0       15,202       (100 )
Mortgage-backed securities:                                                
Residential - government agencies     31,631       (109 )     3,376       (50 )     35,007       (159 )
Total   $ 67,661     $ (340 )   $ 3,376     $ (50 )   $ 71,037     $ (390 )
                                                 
(in thousands)                                                
At December 31, 2015                                                
Government sponsored enterprises   $ 43,539     $ (222 )   $ 1,002     $ (13 )   $ 44,541     $ (235 )
Obligations of states and political subdivisions     2,571       (6 )     718       (5 )     3,289       (11 )
Mortgage-backed securities:                                                
Residential - government agencies     56,095       (620 )     43,576       (1,148 )     99,671       (1,768 )
Total   $ 102,205     $ (848 )   $ 45,296     $ (1,166 )   $ 147,501     $ (2,014 )
Schedule of components of investment securities gains (losses), which are recognized in earnings
    Three Months Ended September 30,     Nine Months Ended September 30,  
(in thousands)   2016     2015     2016     2015  
Gains realized on sales   $ 133     $ 0     $ 623     $ 8  
Losses realized on sales     (21 )     0       (21 )     0  
Other-than-temporary impairment recognized     0       0       0       0  
Investment securities gains   $ 112     $ 0     $ 602     $ 8  
XML 38 R27.htm IDEA: XBRL DOCUMENT v3.5.0.2
Intangible Assets (Tables)
9 Months Ended
Sep. 30, 2016
Intangible Assets  
Schedule of changes in mortgage servicing rights (MSRs)
    Three Months Ended September 30,     Nine Months Ended September 30,  
(in thousands)   2016     2015     2016     2015  
Balance at beginning of period   $ 2,511     $ 2,727     $ 2,847     $ 2,762  
Originated mortgage servicing rights     96       76       213       303  
Changes in fair value:                                
Due to change in model inputs and assumptions (1)     (52 )     136       (197 )     223  
Other changes in fair value (2)     (185 )     (165 )     (493 )     (514 )
Balance at end of period   $ 2,370     $ 2,774     $ 2,370     $ 2,774  

 

(1) The change in fair value resulting from changes in valuation inputs or assumptions used in the valuation model reflects the change in discount rates and prepayment speed assumptions primarily due to changes in interest rates.

(2) Other changes in fair value reflect changes due to customer payments and passage of time.

Schedule of key data and assumptions used in estimating the fair value of the Company's MSRs
    Nine Months Ended September 30,  
    2016     2015  
Weighted average constant prepayment rate     13.20 %     10.06 %
Weighted average note rate     3.88 %     3.92 %
Weighted average discount rate     9.20 %     9.35 %
Weighted average expected life (in years)     4.80       5.80  
XML 39 R28.htm IDEA: XBRL DOCUMENT v3.5.0.2
Federal Funds Purchased and Securities Sold Under Agreements to Repurchase (Tables)
9 Months Ended
Sep. 30, 2016
Federal Funds Purchased and Securities Sold under Agreements to Repurchase [Abstract]  
Schedule of federal funds purchased and securities sold under agreements to repurchase
    September 30,     December 31,  
    2016     2015  
Federal funds purchased   $ 0     $ 0  
Repurchase agreements     28,504       56,834  
Total   $ 28,504     $ 56,834  
Schedule of repurchase agreements by remaining maturity of the agreements
Repurchase Agreements   Remaining Contractual Maturity of the Agreements  
    Overnight     Less     Greater        
    and     than     than        
(in thousands)   continuous     90 days     90 days     Total  
At September 30, 2016                                
Government sponsored enterprises   $ 3,381     $ 0     $ 0     $ 3,381  
Mortgage-backed securities     25,123       0       0       25,123  
Total   $ 28,504     $ 0     $ 0     $ 28,504  
                                 
At December 31, 2015                                
Government sponsored enterprises   $ 46,819     $ 0     $ 0     $ 46,819  
Mortgage-backed securities     10,015       0       0       10,015  
Total   $ 56,834     $ 0     $ 0     $ 56,834  
XML 40 R29.htm IDEA: XBRL DOCUMENT v3.5.0.2
Stockholders' Equity (Tables)
9 Months Ended
Sep. 30, 2016
Stockholders' Equity Note [Abstract]  
Schedule of the change in the components of the accumulated other comprehensive income (loss)
    Nine months ended September 30, 2016  
                Accumulated  
          Unrecognized Net     Other  
    Unrealized     Pension and     Comprehensive  
    Gain (Loss)     Postretirement     (Loss)  
(in thousands)   on Securities (1)     Costs (2)     Income  
Balance at beginning of period   $ (591 )   $ (1,427 )   $ (2,018 )
Other comprehensive income (loss), before reclassifications     2,884       59       2,943  
Amounts reclassified from accumulated other comprehensive income (loss)     (602 )     0       (602 )
Current period other comprehensive income, before tax     2,282       59       2,341  
Income tax expense     (867 )     (23 )     (890 )
Current period other comprehensive income, net of tax     1,415       36       1,451  
Balance at end of period   $ 824     $ (1,391 )   $ (567 )

 

    Nine months ended September 30, 2015  
                Accumulated  
          Unrecognized Net     Other  
    Unrealized     Pension and     Comprehensive  
    Gain (Loss)     Postretirement     (Loss)  
(in thousands)   on Securities (1)     Costs (2)     Income  
Balance at beginning of period   $ 214     $ (1,442 )   $ (1,228 )
Other comprehensive income (loss), before reclassifications     1,012       108       1,120  
Amounts reclassified from accumulated other comprehensive income (loss)     (8 )     0       (8 )
Current period other comprehensive income, before tax     1,004       108       1,112  
Income tax expense     (382 )     (40 )     (422 )
Current period other comprehensive income, net of tax     622       68       690  
Balance at end of period   $ 836     $ (1,374 )   $ (538 )

(1) The pre-tax amounts reclassified from accumulated other comprehensive income (loss) are included in gain on sale of investment securities in the consolidated statements of income.

(2) The pre-tax amounts reclassified from accumulated other comprehensive income (loss) are included in the computation of net periodic pension cost.
XML 41 R30.htm IDEA: XBRL DOCUMENT v3.5.0.2
Employee Benefit Plans (Tables)
9 Months Ended
Sep. 30, 2016
Compensation and Retirement Disclosure [Abstract]  
Schedule of summary of employee benefits charged to operating expenses
    Three Months Ended September 30,     Nine Months Ended September 30,  
(in thousands)   2016     2015     2016     2015  
Payroll taxes   $ 251     $ 261     $ 883     $ 860  
Medical plans     415       491       1,414       1,462  
401k match and profit sharing     201       225       585       720  
Pension plan     307       348       920       1,044  
Other     56       56       118       99  
Total employee benefits   $ 1,230     $ 1,381     $ 3,920     $ 4,185  
Schedule of components of net pension cost
    Estimated     Actual  
(in thousands)   2016     2015  
Service cost - benefits earned during the year   $ 1,179     $ 1,325  
Interest costs on projected benefit obligations     956       838  
Expected return on plan assets     (1,057 )     (957 )
Expected administrative expenses     70       40  
Amortization of prior service cost     79       79  
Amortization of unrecognized net loss     0       66  
Net periodic pension expense   $ 1,227     $ 1,391  
                 
Pension expense - three months ended September 30, (actual)   $ 307     $ 348  
Pension expense - nine months ended September 30, (actual)   $ 920     $ 1,044  
XML 42 R31.htm IDEA: XBRL DOCUMENT v3.5.0.2
Stock Compensation (Tables)
9 Months Ended
Sep. 30, 2016
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Schedule of summary of Company's stock option activity
                Weighted        
          Weighted     Average     Aggregate  
    Number     average     Contractual     Intrinsic  
    of     Exercise     Term     Value  
    Shares     Price     (in years)     ($000)  
Outstanding, December 31, 2015     65,270     $ 20.68                  
Granted     0       0.00                  
Exercised     0       0.00                  
Forfeited or expired     (20,812 )     21.89                  
Outstanding, September 30, 2016     44,458     $ 20.11       1.25     $ 0.00  
Exercisable, September 30, 2016     43,189     $ 20.25       1.22     $ 0.00  
XML 43 R32.htm IDEA: XBRL DOCUMENT v3.5.0.2
Earnings per Share (Tables)
9 Months Ended
Sep. 30, 2016
Earnings Per Share [Abstract]  
Schedule of calculations of basic and diluted earnings (loss) per share
    Three Months Ended September 30,     Nine Months Ended September 30,  
(dollars in thousands, except per share data)   2016     2015     2016     2015  
Basic earnings per share:                                
Net income available to shareholders   $ 1,884     $ 2,539     $ 5,294     $ 6,605  
Basic earnings per share   $ 0.33     $ 0.45     $ 0.94     $ 1.17  
Diluted earnings per share:                                
Net income available to shareholders   $ 1,884     $ 2,539     $ 5,294     $ 6,605  
Average shares outstanding     5,632,362       5,660,499       5,643,190       5,660,499  
Effect of dilutive stock options     0       0       0       0  
Average shares outstanding including dilutive stock options     5,632,362       5,660,499       5,643,190       5,660,499  
Diluted earnings per share   $ 0.33       0.45     $ 0.94       1.17  
Schedule of outstanding shares of the common stock
    Number of shares  
    September 30,     December 31,     September 30,  
    2016     2015     2015  
Outstanding, beginning of period     5,441,190       5,233,986       5,233,986  
Issuance of stock:                        
4% stock dividend     217,155       209,359       209,359  
Purchase of treasury stock     (30,033 )     (2,155 )     0  
Outstanding, end of period     5,628,312       5,441,190       5,443,344  
XML 44 R33.htm IDEA: XBRL DOCUMENT v3.5.0.2
Fair Value Measurements (Tables)
9 Months Ended
Sep. 30, 2016
Fair Value Disclosures [Abstract]  
Schedule of assets and liabilities recorded at fair value on a recurring basis
          Fair Value Measurements  
          Quoted Prices              
          in Active              
          Markets for     Other     Significant  
          Identical     Observable     Unobservable  
          Assets     Inputs     Inputs  
(in thousands)   Fair Value     (Level 1)     (Level 2)     (Level 3)  
September 30, 2016                                
Assets:                                
U.S. government and federal agency obligations   $ 13,340     $ 0     $ 13,340     $ 0  
Government sponsored enterprises     33,677       0       33,677       0  
Obligations of states and political subdivisions     36,767       0       36,767       0  
Mortgage-backed securities     138,040       0       138,040       0  
Mortgage servicing rights     2,370       0       0       2,370  
Total   $ 224,194     $ 0     $ 221,824     $ 2,370  
                                 
December 31, 2015                                
Assets:                                
Government sponsored enterprises   $ 73,497     $ 0       73,497       0  
Obligations of states and political subdivisions     32,706       0       32,706       0  
Mortgage and asset-backed securities     128,851       0       128,851       0  
Mortgage servicing rights     2,847       0       0       2,847  
Total   $ 237,901     $ 0     $ 235,054     $ 2,847  
Schedule of summary of changes in Level 3 assets and liabilities measured at fair value on a recurring basis
    Fair Value Measurements Using     Fair Value Measurements Using  
    Significant Unobservable Inputs     Significant Unobservable Inputs  
    (Level 3)     (Level 3)  
    Mortgage Servicing Rights     Mortgage Servicing Rights  
(in thousands)   Three Months Ended September 30,     Nine Months Ended September 30,  
    2016     2015     2016     2015  
Balance at beginning of period   $ 2,511     $ 2,727     $ 2,847     $ 2,762  
Total gains or losses (realized/unrealized):                                
Included in earnings     (237 )     (29 )     (690 )     (291 )
Included in other comprehensive income     0       0       0       0  
Purchases     0       0       0       0  
Sales     0       0       0       0  
Issues     96       76       213       303  
Settlements     0       0       0       0  
Balance at end of period   $ 2,370     $ 2,774     $ 2,370     $ 2,774  
                                 
Schedule of quantitative Information about Level 3 Fair Value Measurements
    Quantitative Information about Level 3 Fair Value Measurements  
    Valuation Technique   Unobservable Inputs   Input Value  
            Nine Months Ended September 30,  
            2016     2015  
Mortgage servicing rights   Discounted cash flows   Weighted average constant prepayment rate     13.20 %     10.06 %
        Weighted average note rate     3.88 %     3.92 %
        Weighted average discount rate     9.20 %     9.35 %
        Weighted average expected life (in years)     4.80       5.80  
Schedule of valuation methods for instruments measured at fair value on a nonrecurring basis
          Fair Value Measurements Using              
          Quoted Prices                 Three     Nine  
          in Active                 Months     Months  
          Markets for     Other     Significant     Ended     Ended  
          Identical     Observable     Unobservable     September 30,     September 30,  
    Total     Assets     Inputs     Inputs     Total Gains     Total Gains  
(in thousands)   Fair Value     (Level 1)     (Level 2)     (Level 3)     (Losses)*     (Losses)*  
September 30, 2016                                                
Assets:                                                
Impaired loans:                                                
Commercial, financial, & agricultural   $ 392     $ 0     $ 0     $ 392     $ 0       (359 )
Real estate construction - commercial     43       0       0       43       0       0  
Real estate mortgage - residential     3,464       0       0       3,464       (80 )     (295 )
Real estate mortgage - commercial     1,806       0       0       1,806       (71 )     (248 )
Consumer     103       0       0       103       (2 )     (18 )
Total   $ 5,808     $ 0     $ 0     $ 5,808     $ (153 )     (920 )
Other real estate and foreclosed assets   $ 14,438     $ 0     $ 0     $ 14,438     $ 21       70  
                                                 
September 30, 2015                                                
Assets:                                                
Impaired loans:                                                
Commercial, financial, & agricultural   $ 462     $ 0     $ 0     $ 462     $ (540 )     (561 )
Real estate construction - commercial     45       0       0       45       0       0  
Real estate mortgage - residential     3,618       0       0       3,618       (61 )     (267 )
Real estate mortgage - commercial     572       0       0       572       (89 )     (118 )
Consumer     121       0       0       121       (5 )     (54 )
Total   $ 4,818     $ 0     $ 0     $ 4,818     $ (695 )     (1,000 )
Other real estate and foreclosed assets   $ 15,148     $ 0     $ 0     $ 15,148     $ (80 )     112  

 

* Total gains (losses) reported for other real estate and foreclosed assets includes charge-offs, valuation write downs, and net losses taken during the periods reported.

XML 45 R34.htm IDEA: XBRL DOCUMENT v3.5.0.2
Fair Value of Financial Instruments (Tables)
9 Months Ended
Sep. 30, 2016
Financial Instruments, Owned, at Fair Value [Abstract]  
Schedule of summary of the carrying amounts and fair values of financial instruments
                September 30, 2016  
                Fair Value Measurements  
                Quoted Prices              
                in Active           Net  
                Markets for     Other     Significant  
    September 30, 2016     Identical     Observable     Unobservable  
    Carrying     Fair     Assets     Inputs     Inputs  
(in thousands)   Amount     Value     (Level 1)     (Level 2)     (Level 3)  
Assets:                                        
Cash and due from banks   $ 19,106     $ 19,106     $ 19,106     $ 0     $ 0  
Federal funds sold and overnight interest-bearing deposits     19,788       19,788       19,788       0       0  
Investment in available-for-sale securities     221,824       221,824       0       221,824       0  
Loans, net     938,301       939,573       0       0       939,573  
Investment in FHLB stock     4,593       4,593       0       4,593       0  
Mortgage servicing rights     2,370       2,370       0       0       2,370  
Cash surrender value - life insurance     2,396       2,396       0       2,396       0  
Accrued interest receivable     4,624       4,624       4,624       0       0  
    $ 1,213,002     $ 1,214,274     $ 43,518     $ 228,813     $ 941,943  
Liabilities:                                        
Deposits:                                        
Non-interest bearing demand   $ 229,987     $ 229,987     $ 229,987     $ 0     $ 0  
Savings, interest checking and money market     477,945       477,945       477,945       0       0  
Time deposits     310,099       309,188       0       0       309,188  
Federal funds purchased and securities sold under agreements to repurchase     28,504       28,504       28,504       0       0  
Subordinated notes     49,486       31,970       0       31,970       0  
Federal Home Loan Bank advances     79,000       79,510       0       79,510       0  
Accrued interest payable     408       408       408       0       0  
    $ 1,175,429     $ 1,157,512     $ 736,844     $ 111,480     $ 309,188  
 
                December 31, 2015  
                Fair Value Measurements  
                Quoted Prices              
                in Active           Net  
                Markets for     Other     Significant  
    December 31, 2015     Identical     Observable     Unobservable  
    Carrying     Fair     Assets     Inputs     Inputs  
(in thousands)   amount     value     (Level 1)     (Level 2)     (Level 3)  
Assets:                                        
Cash and due from banks   $ 20,484     $ 20,484     $ 20,484     $ 0     $ 0  
Federal funds sold and overnight interest-bearing deposits     7,893       7,893       7,893       0       0  
Investment in available-for-sale securities     235,054       235,054       0       235,054       0  
Loans, net     856,476       854,775       0       0       854,775  
Investment in FHLB stock     3,390       3,390       0       3,390       0  
Mortgage servicing rights     2,847       2,847       0       0       2,847  
Cash surrender value - life insurance     2,348       2,348       0       2,348       0  
Accrued interest receivable     4,853       4,853       4,853       0       0  
    $ 1,133,345     $ 1,131,644     $ 33,230     $ 240,792     $ 857,622  
Liabilities:                                        
Deposits:                                        
Non-interest bearing demand   $ 208,035     $ 208,035     $ 208,035     $ 0     $ 0  
Savings, interest checking and money market     441,080       441,080       441,080       0       0  
Time deposits     298,082       298,323       0       0       298,323  
Federal funds purchased and securities sold under agreements to repurchase     56,834       56,834       56,834       0       0  
Subordinated notes     49,486       40,821       0       40,821       0  
Federal Home Loan Bank advances     50,000       52,340       0       52,340       0  
Accrued interest payable     382       382       382       0       0  
    $ 1,103,899     $ 1,097,815     $ 706,331     $ 93,161     $ 298,323  
XML 46 R35.htm IDEA: XBRL DOCUMENT v3.5.0.2
Repurchase Reserve Liability (Tables)
9 Months Ended
Sep. 30, 2016
Repurchase Reserve Liability [Abstract]  
Schedule of repurchase reserve liability
    Three Months Ended September 30,     Nine Months Ended September 30,  
(in thousands)   2016     2015     2016     2015  
Balance at beginning of year   $ 160     $ 160     $ 160     $ 160  
Provision for repurchase liability     0       0       2       40  
Reimbursement of expenses     0       0       (2 )     (40 )
Balance at end of year   $ 160     $ 160     $ 160     $ 160  
XML 47 R36.htm IDEA: XBRL DOCUMENT v3.5.0.2
Commitments and Contingencies (Tables)
9 Months Ended
Sep. 30, 2016
Commitments and Contingencies Disclosure [Abstract]  
Schedule of contractual amount of off-balance-sheet financial instruments
    September 30,     December 31,  
(in thousands)   2016     2015  
Commitments to extend credit   $ 233,005     $ 161,306  
Commitments to originate residential first and second mortgage loans     3,273       3,175  
Standby letters of credit     1,608       1,466  
Total     237,886       165,947  
XML 48 R37.htm IDEA: XBRL DOCUMENT v3.5.0.2
Summary of Significant Accounting Policies (Detail Textuals)
9 Months Ended
Sep. 30, 2016
Accounting Policies [Abstract]  
Special stock dividend, payment date Jul. 01, 2016
Special stock dividend, rate percent 4.00%
Special stock dividend, record date Jun. 15, 2016
XML 49 R38.htm IDEA: XBRL DOCUMENT v3.5.0.2
Loans and Allowance for Loan Losses (Details) - USD ($)
$ in Thousands
Sep. 30, 2016
Dec. 31, 2015
Loans and Leases Receivable Disclosure [Line Items]    
Total loans $ 947,771 $ 865,080
Commercial, financial, and agricultural    
Loans and Leases Receivable Disclosure [Line Items]    
Total loans 172,274 149,091
Residential real estate | Construction    
Loans and Leases Receivable Disclosure [Line Items]    
Total loans 17,066 16,895
Residential real estate | Mortgage    
Loans and Leases Receivable Disclosure [Line Items]    
Total loans 256,786 256,086
Commercial real estate | Construction    
Loans and Leases Receivable Disclosure [Line Items]    
Total loans 48,743 33,943
Commercial real estate | Mortgage    
Loans and Leases Receivable Disclosure [Line Items]    
Total loans 423,779 385,869
Installment and other consumer    
Loans and Leases Receivable Disclosure [Line Items]    
Total loans $ 29,123 $ 23,196
XML 50 R39.htm IDEA: XBRL DOCUMENT v3.5.0.2
Loans and Allowance for Loan Losses (Details 1) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2016
Sep. 30, 2015
Sep. 30, 2016
Sep. 30, 2015
Summary of the allowance for loan losses        
Balance at beginning of period $ 9,392 $ 9,986 $ 8,604 $ 9,099
Additions:        
Provision for loan losses 300 0 975 250
Deductions:        
Loans charged off 362 884 1,116 1,444
Less recoveries on loans (140) (144) (1,007) (1,341)
Net loans charged off 222 740 109 103
Balance at end of period 9,470 9,246 9,470 9,246
Commercial, financial, and agricultural        
Summary of the allowance for loan losses        
Balance at beginning of period 2,996 3,124 2,153 1,779
Additions:        
Provision for loan losses (94) 439 710 1,319
Deductions:        
Loans charged off 157 591 295 741
Less recoveries on loans (26) (28) (203) (643)
Net loans charged off 131 563 92 98
Balance at end of period 2,771 3,000 2,771 3,000
Residential real estate | Construction        
Summary of the allowance for loan losses        
Balance at beginning of period 63 17 59 171
Additions:        
Provision for loan losses (4) (27) 0 (475)
Deductions:        
Loans charged off 0 0 0 0
Less recoveries on loans 0 (28) 0 (322)
Net loans charged off 0 (28) 0 (322)
Balance at end of period 59 18 59 18
Residential real estate | Mortgage        
Summary of the allowance for loan losses        
Balance at beginning of period 2,293 2,332 2,439 2,527
Additions:        
Provision for loan losses (152) (233) 66 (277)
Deductions:        
Loans charged off 92 87 474 298
Less recoveries on loans (31) (45) (49) (105)
Net loans charged off 61 42 425 193
Balance at end of period 2,080 2,057 2,080 2,057
Commercial real estate | Construction        
Summary of the allowance for loan losses        
Balance at beginning of period 249 414 644 466
Additions:        
Provision for loan losses 44 137 (852) 90
Deductions:        
Loans charged off 0 0 1 5
Less recoveries on loans 0 0 (502) 0
Net loans charged off 0 0 (501) 5
Balance at end of period 293 551 293 551
Commercial real estate | Mortgage        
Summary of the allowance for loan losses        
Balance at beginning of period 3,411 3,870 2,935 3,846
Additions:        
Provision for loan losses 450 (503) 944 (598)
Deductions:        
Loans charged off 27 126 137 159
Less recoveries on loans (36) (5) (128) (157)
Net loans charged off (9) 121 9 2
Balance at end of period 3,870 3,246 3,870 3,246
Installment Loans to Individuals        
Summary of the allowance for loan losses        
Balance at beginning of period 284 185 273 270
Additions:        
Provision for loan losses 50 66 106 66
Deductions:        
Loans charged off 86 80 209 241
Less recoveries on loans (47) (38) (125) (114)
Net loans charged off 39 42 84 127
Balance at end of period 295 209 295 209
Unallocated        
Summary of the allowance for loan losses        
Balance at beginning of period 96 44 101 40
Additions:        
Provision for loan losses 6 121 1 125
Deductions:        
Loans charged off 0 0 0 0
Less recoveries on loans 0 0 0 0
Net loans charged off 0 0 0 0
Balance at end of period $ 102 $ 165 $ 102 $ 165
XML 51 R40.htm IDEA: XBRL DOCUMENT v3.5.0.2
Loans and Allowance for Loan Losses (Details 2) - USD ($)
$ in Thousands
Sep. 30, 2016
Jun. 30, 2016
Dec. 31, 2015
Sep. 30, 2015
Jun. 30, 2015
Dec. 31, 2014
Allowance for loan losses:            
Individually evaluated for impairment $ 1,302   $ 1,540      
Collectively evaluated for impairment 8,168   7,064      
Total 9,470 $ 9,392 8,604 $ 9,246 $ 9,986 $ 9,099
Loans outstanding:            
Individually evaluated for impairment 9,242   10,268      
Collectively evaluated for impairment 938,529   854,812      
Total 947,771   865,080      
Commercial, financial, and agricultural            
Allowance for loan losses:            
Individually evaluated for impairment 632   285      
Collectively evaluated for impairment 2,139   1,868      
Total 2,771 2,996 2,153 3,000 3,124 1,779
Loans outstanding:            
Individually evaluated for impairment 1,811   1,005      
Collectively evaluated for impairment 170,463   148,086      
Total 172,274   149,091      
Residential real estate | Construction            
Allowance for loan losses:            
Individually evaluated for impairment 0   0      
Collectively evaluated for impairment 59   59      
Total 59 63 59 18 17 171
Loans outstanding:            
Individually evaluated for impairment 0   0      
Collectively evaluated for impairment 17,066   16,895      
Total 17,066   16,895      
Residential real estate | Mortgage            
Allowance for loan losses:            
Individually evaluated for impairment 386   955      
Collectively evaluated for impairment 1,694   1,484      
Total 2,080 2,293 2,439 2,057 2,332 2,527
Loans outstanding:            
Individually evaluated for impairment 5,195   5,936      
Collectively evaluated for impairment 251,591   250,150      
Total 256,786   256,086      
Commercial real estate | Construction            
Allowance for loan losses:            
Individually evaluated for impairment 8   15      
Collectively evaluated for impairment 285   629      
Total 293 249 644 551 414 466
Loans outstanding:            
Individually evaluated for impairment 51   102      
Collectively evaluated for impairment 48,692   33,841      
Total 48,743   33,943      
Commercial real estate | Mortgage            
Allowance for loan losses:            
Individually evaluated for impairment 262   266      
Collectively evaluated for impairment 3,608   2,669      
Total 3,870 3,411 2,935 3,246 3,870 3,846
Loans outstanding:            
Individually evaluated for impairment 2,068   3,081      
Collectively evaluated for impairment 421,711   382,788      
Total 423,779   385,869      
Installment and other consumer            
Allowance for loan losses:            
Individually evaluated for impairment 14   19      
Collectively evaluated for impairment 281   254      
Total 295 284 273 209 185 270
Loans outstanding:            
Individually evaluated for impairment 117   144      
Collectively evaluated for impairment 29,006   23,052      
Total 29,123   23,196      
Unallocated            
Allowance for loan losses:            
Individually evaluated for impairment 0   0      
Collectively evaluated for impairment 102   101      
Total 102 $ 96 101 $ 165 $ 44 $ 40
Loans outstanding:            
Individually evaluated for impairment 0   0      
Collectively evaluated for impairment 0   0      
Total $ 0   $ 0      
XML 52 R41.htm IDEA: XBRL DOCUMENT v3.5.0.2
Loans and Allowance for Loan Losses (Details 3) - USD ($)
$ in Thousands
Sep. 30, 2016
Dec. 31, 2015
Categories of impaired loans    
Non-accrual loans $ 3,587 $ 4,418
Performing TDRs 5,655 5,850
Total impaired loans $ 9,242 $ 10,268
XML 53 R42.htm IDEA: XBRL DOCUMENT v3.5.0.2
Loans and Allowance for Loan Losses (Details 4) - USD ($)
$ in Thousands
Sep. 30, 2016
Dec. 31, 2015
Sep. 30, 2015
Financing Receivable, Impaired [Line Items]      
Recorded Investment, With no related allowance recorded $ 2,132 $ 4,539  
Unpaid Principal Balance, With no related allowance recorded 2,273 4,734  
Recorded Investment, With an allowance recorded 7,110 5,729 $ 6,800
Unpaid Principal Balance, With an allowance recorded 7,580 6,073  
Specific Reserves, With an allowance recorded 1,302 1,540 $ 2,000
Total impaired loans, Recorded Investment 9,242 10,268  
Total impaired loans, Unpaid Principal Balance 9,853 10,807  
Commercial, financial, and agricultural      
Financing Receivable, Impaired [Line Items]      
Recorded Investment, With no related allowance recorded 787 448  
Unpaid Principal Balance, With no related allowance recorded 927 450  
Recorded Investment, With an allowance recorded 1,024 557  
Unpaid Principal Balance, With an allowance recorded 1,059 572  
Specific Reserves, With an allowance recorded 632 285  
Real estate - residential      
Financing Receivable, Impaired [Line Items]      
Recorded Investment, With no related allowance recorded 1,345 1,645  
Unpaid Principal Balance, With no related allowance recorded 1,346 1,712  
Recorded Investment, With an allowance recorded 3,850 4,291  
Unpaid Principal Balance, With an allowance recorded 3,914 4,320  
Specific Reserves, With an allowance recorded 386 955  
Real estate - commercial      
Financing Receivable, Impaired [Line Items]      
Recorded Investment, With no related allowance recorded   2,446  
Unpaid Principal Balance, With no related allowance recorded   2,572  
Recorded Investment, With an allowance recorded 2,068 635  
Unpaid Principal Balance, With an allowance recorded 2,404 884  
Specific Reserves, With an allowance recorded 262 266  
Real estate - commercial | Construction      
Financing Receivable, Impaired [Line Items]      
Recorded Investment, With an allowance recorded 51 102  
Unpaid Principal Balance, With an allowance recorded 56 115  
Specific Reserves, With an allowance recorded 8 15  
Consumer      
Financing Receivable, Impaired [Line Items]      
Recorded Investment, With an allowance recorded 117 144  
Unpaid Principal Balance, With an allowance recorded 147 182  
Specific Reserves, With an allowance recorded $ 14 $ 19  
XML 54 R43.htm IDEA: XBRL DOCUMENT v3.5.0.2
Loans and Allowance for Loan Losses (Details 5) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2016
Sep. 30, 2015
Sep. 30, 2016
Sep. 30, 2015
With no related allowance recorded:        
With no related allowance recorded, Average Recorded Investment $ 3,677 $ 8,700 $ 3,900 $ 19,048
With no related allowance recorded, Interest Recognized For The Period 35 28 98 163
With an allowance recorded:        
With an allowance recorded, Average Recorded Investment 5,370 7,082 5,569 7,555
With an allowance recorded, Interest Recognized For The Period 20 35 148 98
Total average recorded investment 9,047 15,782 9,469 26,603
Total interest income recognized during the period 55 63 246 261
Commercial, financial, and agricultural        
With no related allowance recorded:        
With no related allowance recorded, Average Recorded Investment 460 3,416 491 4,033
With no related allowance recorded, Interest Recognized For The Period (9) 6 18 33
With an allowance recorded:        
With an allowance recorded, Average Recorded Investment 1,398 787 924 1,389
With an allowance recorded, Interest Recognized For The Period (13) 5 9 18
Real estate - residential        
With no related allowance recorded:        
With no related allowance recorded, Average Recorded Investment 2,050 2,326 1,640 2,924
With no related allowance recorded, Interest Recognized For The Period 27 5 63 26
With an allowance recorded:        
With an allowance recorded, Average Recorded Investment 2,992 4,850 3,741 4,713
With an allowance recorded, Interest Recognized For The Period 20 30 78 80
Real estate - residential | Construction        
With no related allowance recorded:        
With no related allowance recorded, Average Recorded Investment 0 0 0 1,101
With no related allowance recorded, Interest Recognized For The Period 0 0 0 0
With an allowance recorded:        
With an allowance recorded, Average Recorded Investment 0 0 0 0
With an allowance recorded, Interest Recognized For The Period 0 0 0 0
Real estate - commercial        
With no related allowance recorded:        
With no related allowance recorded, Average Recorded Investment 1,167 2,958 1,769 8,978
With no related allowance recorded, Interest Recognized For The Period 17 17 17 103
With an allowance recorded:        
With an allowance recorded, Average Recorded Investment 811 1,228 717 1,216
With an allowance recorded, Interest Recognized For The Period 14 0 61 0
Real estate - commercial | Construction        
With no related allowance recorded:        
With no related allowance recorded, Average Recorded Investment 0 0 0 2,002
With no related allowance recorded, Interest Recognized For The Period 0 0 0 0
With an allowance recorded:        
With an allowance recorded, Average Recorded Investment 51 55 64 28
With an allowance recorded, Interest Recognized For The Period 0 0 0 0
Consumer        
With no related allowance recorded:        
With no related allowance recorded, Average Recorded Investment 0 0 0 10
With no related allowance recorded, Interest Recognized For The Period 0 0 0 1
With an allowance recorded:        
With an allowance recorded, Average Recorded Investment 118 162 123 209
With an allowance recorded, Interest Recognized For The Period $ (1) $ 0 $ 0 $ 0
XML 55 R44.htm IDEA: XBRL DOCUMENT v3.5.0.2
Loans and Allowance for Loan Losses (Details 6) - USD ($)
$ in Thousands
Sep. 30, 2016
Dec. 31, 2015
Aging information for the Company's past due and non-accrual loans    
Financing Receivable, Recorded Investment, 90 Days Past Due and Still Accruing $ 61 $ 6
Financing Receivable, Recorded Investment, Nonaccrual Status 3,587 4,418
Loans 947,771 865,080
Current or Less Than 30 Days Past Due    
Aging information for the Company's past due and non-accrual loans    
Financing receivable, recorded investment, past due 941,320 857,045
30 - 89 Days Past Due    
Aging information for the Company's past due and non-accrual loans    
Financing receivable, recorded investment, past due 2,803 3,611
Commercial, financial, and agricultural    
Aging information for the Company's past due and non-accrual loans    
Financing Receivable, Recorded Investment, 90 Days Past Due and Still Accruing 0 1
Financing Receivable, Recorded Investment, Nonaccrual Status 1,157 308
Loans 172,274 149,091
Commercial, financial, and agricultural | Current or Less Than 30 Days Past Due    
Aging information for the Company's past due and non-accrual loans    
Financing receivable, recorded investment, past due 170,674 148,597
Commercial, financial, and agricultural | 30 - 89 Days Past Due    
Aging information for the Company's past due and non-accrual loans    
Financing receivable, recorded investment, past due 443 185
Residential real estate | Construction    
Aging information for the Company's past due and non-accrual loans    
Financing Receivable, Recorded Investment, 90 Days Past Due and Still Accruing 0 0
Financing Receivable, Recorded Investment, Nonaccrual Status 0 0
Loans 17,066 16,895
Residential real estate | Construction | Current or Less Than 30 Days Past Due    
Aging information for the Company's past due and non-accrual loans    
Financing receivable, recorded investment, past due 16,815 16,895
Residential real estate | Construction | 30 - 89 Days Past Due    
Aging information for the Company's past due and non-accrual loans    
Financing receivable, recorded investment, past due 251 0
Residential real estate | Mortgage    
Aging information for the Company's past due and non-accrual loans    
Financing Receivable, Recorded Investment, 90 Days Past Due and Still Accruing 60 0
Financing Receivable, Recorded Investment, Nonaccrual Status 1,704 2,322
Loans 256,786 256,086
Residential real estate | Mortgage | Current or Less Than 30 Days Past Due    
Aging information for the Company's past due and non-accrual loans    
Financing receivable, recorded investment, past due 253,884 251,253
Residential real estate | Mortgage | 30 - 89 Days Past Due    
Aging information for the Company's past due and non-accrual loans    
Financing receivable, recorded investment, past due 1,138 2,511
Commercial real estate | Construction    
Aging information for the Company's past due and non-accrual loans    
Financing Receivable, Recorded Investment, 90 Days Past Due and Still Accruing   0
Financing Receivable, Recorded Investment, Nonaccrual Status 51 102
Loans 48,743 33,943
Commercial real estate | Construction | Current or Less Than 30 Days Past Due    
Aging information for the Company's past due and non-accrual loans    
Financing receivable, recorded investment, past due 48,692 33,776
Commercial real estate | Construction | 30 - 89 Days Past Due    
Aging information for the Company's past due and non-accrual loans    
Financing receivable, recorded investment, past due 0 65
Commercial real estate | Mortgage    
Aging information for the Company's past due and non-accrual loans    
Financing Receivable, Recorded Investment, 90 Days Past Due and Still Accruing 0 0
Financing Receivable, Recorded Investment, Nonaccrual Status 559 1,542
Loans 423,779 385,869
Commercial real estate | Mortgage | Current or Less Than 30 Days Past Due    
Aging information for the Company's past due and non-accrual loans    
Financing receivable, recorded investment, past due 422,409 383,684
Commercial real estate | Mortgage | 30 - 89 Days Past Due    
Aging information for the Company's past due and non-accrual loans    
Financing receivable, recorded investment, past due 811 643
Installment and other consumer    
Aging information for the Company's past due and non-accrual loans    
Financing Receivable, Recorded Investment, 90 Days Past Due and Still Accruing 1 5
Financing Receivable, Recorded Investment, Nonaccrual Status 116 144
Loans 29,123 23,196
Installment and other consumer | Current or Less Than 30 Days Past Due    
Aging information for the Company's past due and non-accrual loans    
Financing receivable, recorded investment, past due 28,846 22,840
Installment and other consumer | 30 - 89 Days Past Due    
Aging information for the Company's past due and non-accrual loans    
Financing receivable, recorded investment, past due $ 160 $ 207
XML 56 R45.htm IDEA: XBRL DOCUMENT v3.5.0.2
Loans and Allowance for Loan Losses (Details 7) - USD ($)
$ in Thousands
Sep. 30, 2016
Dec. 31, 2015
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment    
Financing receivable $ 947,771 $ 865,080
Watch    
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment    
Financing receivable 75,634 57,906
Substandard    
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment    
Financing receivable 1,803 5,716
Performing TDRs    
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment    
Financing receivable 5,655 5,850
Non-accrual    
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment    
Financing receivable 3,587 4,418
Total    
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment    
Financing receivable 86,679 73,890
Commercial, financial, and agricultural    
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment    
Financing receivable 172,274 149,091
Commercial, financial, and agricultural | Watch    
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment    
Financing receivable 9,858 8,663
Commercial, financial, and agricultural | Substandard    
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment    
Financing receivable 140 421
Commercial, financial, and agricultural | Performing TDRs    
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment    
Financing receivable 654 697
Commercial, financial, and agricultural | Non-accrual    
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment    
Financing receivable 1,157 308
Commercial, financial, and agricultural | Total    
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment    
Financing receivable 11,809 10,089
Residential real estate | Construction    
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment    
Financing receivable 17,066 16,895
Residential real estate | Construction | Watch    
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment    
Financing receivable 662 1,267
Residential real estate | Construction | Substandard    
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment    
Financing receivable 0 0
Residential real estate | Construction | Performing TDRs    
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment    
Financing receivable 0 0
Residential real estate | Construction | Non-accrual    
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment    
Financing receivable 0 0
Residential real estate | Construction | Total    
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment    
Financing receivable 662 1,267
Residential real estate | Mortgage    
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment    
Financing receivable 256,786 256,086
Residential real estate | Mortgage | Watch    
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment    
Financing receivable 18,078 22,191
Residential real estate | Mortgage | Substandard    
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment    
Financing receivable 1,201 3,737
Residential real estate | Mortgage | Performing TDRs    
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment    
Financing receivable 3,492 3,615
Residential real estate | Mortgage | Non-accrual    
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment    
Financing receivable 1,704 2,322
Residential real estate | Mortgage | Total    
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment    
Financing receivable 24,475 31,865
Real estate - commercial | Construction    
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment    
Financing receivable 48,743 33,943
Real estate - commercial | Construction | Watch    
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment    
Financing receivable 1,167 1,296
Real estate - commercial | Construction | Substandard    
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment    
Financing receivable 0 37
Real estate - commercial | Construction | Performing TDRs    
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment    
Financing receivable 0 0
Real estate - commercial | Construction | Non-accrual    
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment    
Financing receivable 51 102
Real estate - commercial | Construction | Total    
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment    
Financing receivable 1,218 1,435
Real estate - commercial | Mortgage    
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment    
Financing receivable 423,779 385,869
Real estate - commercial | Mortgage | Watch    
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment    
Financing receivable 45,869 24,303
Real estate - commercial | Mortgage | Substandard    
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment    
Financing receivable 462 1,485
Real estate - commercial | Mortgage | Performing TDRs    
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment    
Financing receivable 1,509 1,538
Real estate - commercial | Mortgage | Non-accrual    
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment    
Financing receivable 559 1,542
Real estate - commercial | Mortgage | Total    
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment    
Financing receivable 48,399 28,868
Installment and other consumer    
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment    
Financing receivable 29,123 23,196
Installment and other consumer | Watch    
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment    
Financing receivable 0 186
Installment and other consumer | Substandard    
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment    
Financing receivable 0 36
Installment and other consumer | Performing TDRs    
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment    
Financing receivable 0 0
Installment and other consumer | Non-accrual    
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment    
Financing receivable 116 144
Installment and other consumer | Total    
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment    
Financing receivable $ 116 $ 366
XML 57 R46.htm IDEA: XBRL DOCUMENT v3.5.0.2
Loans and Allowance for Loan Losses (Details 8)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2016
USD ($)
Security
Sep. 30, 2015
USD ($)
Security
Sep. 30, 2016
USD ($)
Security
Sep. 30, 2015
USD ($)
Security
Loans that were modified as TDRs        
Number of Contracts | Security 6 0 7 10
Pre- Modification $ 330 $ 0 $ 408 $ 2,033
Post- Modification $ 328 $ 0 $ 406 $ 1,841
Commercial, financial, and agricultural        
Loans that were modified as TDRs        
Number of Contracts | Security 2 0 2 3
Pre- Modification $ 32 $ 0 $ 32 $ 250
Post- Modification $ 32 $ 0 $ 32 $ 240
Residential real estate | Mortgage        
Loans that were modified as TDRs        
Number of Contracts | Security 4 0 5 3
Pre- Modification $ 298 $ 0 $ 376 $ 510
Post- Modification $ 296 $ 0 $ 374 $ 464
Commercial real estate | Mortgage        
Loans that were modified as TDRs        
Number of Contracts | Security     0 4
Pre- Modification     $ 0 $ 1,273
Post- Modification     $ 0 $ 1,137
XML 58 R47.htm IDEA: XBRL DOCUMENT v3.5.0.2
Loans and Allowance for Loan Losses (Detail Textuals)
1 Months Ended 3 Months Ended 9 Months Ended
Mar. 31, 2016
Sep. 30, 2016
USD ($)
Security
Mar. 31, 2016
Sep. 30, 2015
USD ($)
Security
Sep. 30, 2016
USD ($)
Security
Sep. 30, 2015
USD ($)
Security
Dec. 31, 2015
USD ($)
Loans and Leases Receivable Disclosure [Line Items]              
Carrying amount of loans pledged as collateral to the Federal Home Loan Bank   $ 472,900,000     $ 472,900,000    
Fair value amount of loans pledged as collateral to the Federal Home Loan Bank   388,300,000     388,300,000    
Look back period 3 years   5 years        
Impaired loans individually evaluated for impairment   9,242,000     9,242,000   $ 10,268,000
Impaired loans were evaluated based on the fair value of the loan's collateral   4,700,000     4,700,000   6,400,000
Specific allowance related to impaired loans   1,302,000   $ 2,000,000 1,302,000 $ 2,000,000 1,540,000
Impaired loans with no reserve allocation   $ 2,132,000     $ 2,132,000   $ 4,539,000
Impaired loans required no reserve allocation, percentage   23.00%     23.00%   44.00%
Interest income recognized on impaired loans   $ 55,000   $ 63,000 $ 246,000 $ 261,000  
Troubled debt restructurings   6,300,000     6,300,000   $ 6,400,000
Amount of specific reserves related to TDRs which were allocated to the allowance for loan losses   $ 445,000     $ 445,000   910,000
Number of contracts modified | Security   6   0 7 10  
Performing TDRs              
Loans and Leases Receivable Disclosure [Line Items]              
Troubled debt restructurings   $ 5,700,000     $ 5,700,000   5,900,000
Nonperforming TDRs              
Loans and Leases Receivable Disclosure [Line Items]              
Troubled debt restructurings   $ 597,000     $ 597,000   $ 527,000
XML 59 R48.htm IDEA: XBRL DOCUMENT v3.5.0.2
Other Real Estate and Repossessed Assets (Details) - USD ($)
$ in Thousands
Sep. 30, 2016
Jun. 30, 2016
Dec. 31, 2015
Sep. 30, 2015
Jun. 30, 2015
Dec. 31, 2014
Summary of real estate and other assets acquired in settlement of loans            
Repossessed assets $ 28   $ 0      
Total 17,698 $ 18,462 19,225 $ 18,381 $ 15,749 $ 15,140
Less valuation allowance for other real estate owned (3,260) $ (3,208) (3,233) (3,233) $ (3,233) $ (3,255)
Total other real estate and repossessed assets 14,438   15,992 $ 15,148    
Commercial            
Summary of real estate and other assets acquired in settlement of loans            
Real estate acquired through foreclosure 831   1,445      
Commercial real estate | Construction            
Summary of real estate and other assets acquired in settlement of loans            
Real estate acquired through foreclosure 12,380   12,380      
Commercial real estate | Mortgage            
Summary of real estate and other assets acquired in settlement of loans            
Real estate acquired through foreclosure 3,439   4,923      
Residential real estate | Mortgage            
Summary of real estate and other assets acquired in settlement of loans            
Real estate acquired through foreclosure $ 1,020   $ 477      
XML 60 R49.htm IDEA: XBRL DOCUMENT v3.5.0.2
Other Real Estate and Repossessed Assets (Details 1) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2016
Sep. 30, 2015
Sep. 30, 2016
Sep. 30, 2015
Schedule of real estate acquired in settlement of loans        
Balance at beginning of period $ 18,462 $ 15,749 $ 19,225 $ 15,140
Additions 386 3,032 2,020 4,549
Proceeds from sales (1,214) (407) (3,613) (1,443)
Charge-offs against the valuation allowance for other real estate owned, net (48) 0 (149) (16)
Net gain on sales 112 7 215 151
Total other real estate and repossessed assets 17,698 18,381 17,698 18,381
Less valuation allowance for other real estate owned (3,260) (3,233) (3,260) (3,233)
Balance at end of period $ 14,438 $ 15,148 $ 14,438 $ 15,148
XML 61 R50.htm IDEA: XBRL DOCUMENT v3.5.0.2
Other Real Estate and Repossessed Assets (Details 2) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2016
Sep. 30, 2015
Sep. 30, 2016
Sep. 30, 2015
Summary of activity in valuation allowance for other real estate owned in settlement of loans        
Balance, beginning of period $ 3,208 $ 3,233 $ 3,233 $ 3,255
Provision for other real estate owned 100 0 176 (6)
Charge-offs (48) 0 (149) (16)
Balance, end of period $ 3,260 $ 3,233 $ 3,260 $ 3,233
XML 62 R51.htm IDEA: XBRL DOCUMENT v3.5.0.2
Other Real Estate and Repossessed Assets (Detail Textuals) - USD ($)
Sep. 30, 2016
Dec. 31, 2015
Other Real Estate [Abstract]    
Consumer mortgage loans in process of foreclosure $ 141,000 $ 390,000
XML 63 R52.htm IDEA: XBRL DOCUMENT v3.5.0.2
Investment Securities (Details) - USD ($)
$ in Thousands
Sep. 30, 2016
Dec. 31, 2015
Amortized cost and fair value of debt securities    
Maturity 1 Year or Less [1] $ 6,365 $ 26,402
Maturity 1-5 Years [1] 163,934 175,147
Maturity 5-10 Years [1] 44,855 31,884
Maturity After 10 Years [1] 5,342 2,575
Total Amortized Cost 220,496 236,008
Gross Unrealized Gains 1,718 1,060
Gross Unrealized Losses (390) (2,014)
Fair value 221,824 235,054
U.S. government and federal agency obligations    
Amortized cost and fair value of debt securities    
Maturity 1 Year or Less [1] 0  
Maturity 1-5 Years [1] 0  
Maturity 5-10 Years [1] 10,954  
Maturity After 10 Years [1] 2,494  
Total Amortized Cost 13,448  
Gross Unrealized Gains 13  
Gross Unrealized Losses (121)  
Fair value 13,340  
Government sponsored enterprises    
Amortized cost and fair value of debt securities    
Maturity 1 Year or Less [1] 3,010 23,067
Maturity 1-5 Years [1] 30,595 50,538
Maturity 5-10 Years [1] 0 0
Maturity After 10 Years [1] 0 0
Total Amortized Cost 33,605 73,605
Gross Unrealized Gains 82 127
Gross Unrealized Losses (10) (235)
Fair value 33,677 73,497
Obligations of states and political subdivisions    
Amortized cost and fair value of debt securities    
Maturity 1 Year or Less [1] 2,315 1,827
Maturity 1-5 Years [1] 16,672 16,975
Maturity 5-10 Years [1] 16,112 12,593
Maturity After 10 Years [1] 1,332 829
Total Amortized Cost 36,431 32,224
Gross Unrealized Gains 436 493
Gross Unrealized Losses (100) (11)
Fair value 36,767 32,706
Mortgage-backed securities    
Amortized cost and fair value of debt securities    
Maturity 1 Year or Less [1] 1,040 1,508
Maturity 1-5 Years [1] 116,667 107,634
Maturity 5-10 Years [1] 17,789 19,291
Maturity After 10 Years [1] 1,516 1,746
Total Amortized Cost 137,012 130,179
Gross Unrealized Gains 1,187 440
Gross Unrealized Losses (159) (1,768)
Fair value 138,040 128,851
Mortgage-backed securities | Residential - government agencies    
Amortized cost and fair value of debt securities    
Maturity 1 Year or Less [1] 1,040 1,508
Maturity 1-5 Years [1] 115,679 106,648
Maturity 5-10 Years [1] 17,789 19,291
Maturity After 10 Years [1] 1,516 1,746
Total Amortized Cost 136,024 129,193
Gross Unrealized Gains 1,159 432
Gross Unrealized Losses (159) (1,768)
Fair value 137,024 127,857
Mortgage-backed securities | Commercial - government agencies    
Amortized cost and fair value of debt securities    
Maturity 1 Year or Less [1] 0 0
Maturity 1-5 Years [1] 988 986
Maturity 5-10 Years [1] 0 0
Maturity After 10 Years [1] 0 0
Total Amortized Cost 988 986
Gross Unrealized Gains 28 8
Gross Unrealized Losses 0 0
Fair value $ 1,016 $ 994
[1] Expected maturities may differ from contractual maturities because borrowers have the right to call or prepay obligations with or without prepayment penalties.
XML 64 R53.htm IDEA: XBRL DOCUMENT v3.5.0.2
Investment Securities (Details 1) - USD ($)
$ in Thousands
Sep. 30, 2016
Dec. 31, 2015
Fair Value    
Less than 12 months $ 67,661 $ 102,205
12 months or more 3,376 45,296
Total 71,037 147,501
Unrealized Losses    
Less than 12 months (340) (848)
12 months or more (50) (1,166)
Total (390) (2,014)
U.S. government and federal agency obligations    
Fair Value    
Less than 12 months 11,827  
12 months or more 0  
Total 11,827  
Unrealized Losses    
Less than 12 months (121)  
12 months or more 0  
Total (121)  
Government sponsored enterprises    
Fair Value    
Less than 12 months 9,001 43,539
12 months or more 0 1,002
Total 9,001 44,541
Unrealized Losses    
Less than 12 months (10) (222)
12 months or more 0 (13)
Total (10) (235)
Obligations of states and political subdivisions    
Fair Value    
Less than 12 months 15,202 2,571
12 months or more 0 718
Total 15,202 3,289
Unrealized Losses    
Less than 12 months (100) (6)
12 months or more 0 (5)
Total (100) (11)
Mortgage-backed securities | Residential - government agencies    
Fair Value    
Less than 12 months 31,631 56,095
12 months or more 3,376 43,576
Total 35,007 99,671
Unrealized Losses    
Less than 12 months (109) (620)
12 months or more (50) (1,148)
Total $ (159) $ (1,768)
XML 65 R54.htm IDEA: XBRL DOCUMENT v3.5.0.2
Investment Securities (Details 2) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2016
Sep. 30, 2015
Sep. 30, 2016
Sep. 30, 2015
Investments Debt And Equity Securities [Abstract]        
Gains realized on sales $ 133 $ 0 $ 623 $ 8
Losses realized on sales (21) 0 (21) 0
Other-than-temporary impairment recognized 0 0 0 0
Investment securities gains $ 112 $ 0 $ 602 $ 8
XML 66 R55.htm IDEA: XBRL DOCUMENT v3.5.0.2
Investment Securities (Detail Textuals)
9 Months Ended 12 Months Ended
Sep. 30, 2016
USD ($)
Security
Dec. 31, 2015
USD ($)
Security
Investments Debt And Equity Securities [Abstract]    
Available for sale securities, restricted $ 9,200,000 $ 8,000,000
Available for sale securities, pledged $ 183,200,000 $ 182,700,000
Number of securities consisted in portfolio | Security 282 316
Number of securities in loss position | Security 76 111
Unrealized loss included in other comprehensive $ 71,000,000 $ 147,500,000
Loss position for 12 months or longer 3,376,000 45,296,000
Gross Unrealized Losses $ 390,000 $ 2,000,000
XML 67 R56.htm IDEA: XBRL DOCUMENT v3.5.0.2
Intangible Assets (Details) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2016
Sep. 30, 2015
Sep. 30, 2016
Sep. 30, 2015
Changes in mortgage servicing rights        
Balance at beginning of period     $ 2,847  
Changes in fair value:        
Balance at end of period $ 2,370   2,370  
Mortgage servicing rights (MSRs)        
Changes in mortgage servicing rights        
Balance at beginning of period 2,511 $ 2,727 2,847 $ 2,762
Originated mortgage servicing rights 96 76 213 303
Changes in fair value:        
Due to change in model inputs and assumptions [1] (52) 136 (197) 223
Other changes in fair value [2] (185) (165) (493) (514)
Balance at end of period $ 2,370 $ 2,774 $ 2,370 $ 2,774
[1] The change in fair value resulting from changes in valuation inputs or assumptions used in the valuation model reflects the change in discount rates and prepayment speed assumptions primarily due to changes in interest rates.
[2] Other changes in fair value reflect changes due to customer payments and passage of time.
XML 68 R57.htm IDEA: XBRL DOCUMENT v3.5.0.2
Intangible Assets (Details 1) - Mortgage servicing rights (MSRs)
9 Months Ended
Sep. 30, 2016
Sep. 30, 2015
Assumptions used in estimating the fair value of mortgage service rights    
Weighted average constant prepayment rate (as a percent) 13.20% 10.06%
Weighted average note rate (as a percent) 3.88% 3.92%
Weighted average discount rate (as a percent) 9.20% 9.35%
Weighted average expected life (in years) 4 years 9 months 18 days 5 years 9 months 18 days
XML 69 R58.htm IDEA: XBRL DOCUMENT v3.5.0.2
Intangible Assets (Detail Textuals) - Mortgage servicing rights (MSRs) - USD ($)
3 Months Ended 9 Months Ended
Sep. 30, 2016
Sep. 30, 2015
Sep. 30, 2016
Sep. 30, 2015
Dec. 31, 2015
Finite-Lived Intangible Assets [Line Items]          
Mortgage loans serviced for others $ 299,700,000 $ 311,800,000 $ 299,700,000 $ 311,800,000 $ 312,100,000
Mortgage loan servicing fees reported as other non-interest income $ 233,000 $ 206,000 $ 654,000 $ 648,000  
XML 70 R59.htm IDEA: XBRL DOCUMENT v3.5.0.2
Federal Funds Purchased and Securities Sold Under Agreements to Repurchase (Details) - USD ($)
$ in Thousands
Sep. 30, 2016
Dec. 31, 2015
Federal Funds Purchased and Securities Sold under Agreements to Repurchase [Abstract]    
Federal funds purchased $ 0 $ 0
Repurchase agreements 28,504 56,834
Total $ 28,504 $ 56,834
XML 71 R60.htm IDEA: XBRL DOCUMENT v3.5.0.2
Federal Funds Purchased and Securities Sold Under Agreements to Repurchase (Details 1) - USD ($)
$ in Thousands
Sep. 30, 2016
Dec. 31, 2015
Transfer of Certain Financial Assets Accounted for as Secured Borrowings [Line Items]    
Federal Funds Purchased and Securities Sold under Agreements to Repurchase $ 28,504 $ 56,834
Government sponsored enterprises    
Transfer of Certain Financial Assets Accounted for as Secured Borrowings [Line Items]    
Federal Funds Purchased and Securities Sold under Agreements to Repurchase 3,381 46,819
Mortgage-backed securities    
Transfer of Certain Financial Assets Accounted for as Secured Borrowings [Line Items]    
Federal Funds Purchased and Securities Sold under Agreements to Repurchase 25,123 10,015
Overnight and continuous    
Transfer of Certain Financial Assets Accounted for as Secured Borrowings [Line Items]    
Federal Funds Purchased and Securities Sold under Agreements to Repurchase 28,504 56,834
Overnight and continuous | Government sponsored enterprises    
Transfer of Certain Financial Assets Accounted for as Secured Borrowings [Line Items]    
Federal Funds Purchased and Securities Sold under Agreements to Repurchase 3,381 46,819
Overnight and continuous | Mortgage-backed securities    
Transfer of Certain Financial Assets Accounted for as Secured Borrowings [Line Items]    
Federal Funds Purchased and Securities Sold under Agreements to Repurchase 25,123 10,015
Less than 90 days    
Transfer of Certain Financial Assets Accounted for as Secured Borrowings [Line Items]    
Federal Funds Purchased and Securities Sold under Agreements to Repurchase 0 0
Less than 90 days | Government sponsored enterprises    
Transfer of Certain Financial Assets Accounted for as Secured Borrowings [Line Items]    
Federal Funds Purchased and Securities Sold under Agreements to Repurchase 0 0
Less than 90 days | Mortgage-backed securities    
Transfer of Certain Financial Assets Accounted for as Secured Borrowings [Line Items]    
Federal Funds Purchased and Securities Sold under Agreements to Repurchase 0 0
Greater than 90 days    
Transfer of Certain Financial Assets Accounted for as Secured Borrowings [Line Items]    
Federal Funds Purchased and Securities Sold under Agreements to Repurchase 0 0
Greater than 90 days | Government sponsored enterprises    
Transfer of Certain Financial Assets Accounted for as Secured Borrowings [Line Items]    
Federal Funds Purchased and Securities Sold under Agreements to Repurchase 0 0
Greater than 90 days | Mortgage-backed securities    
Transfer of Certain Financial Assets Accounted for as Secured Borrowings [Line Items]    
Federal Funds Purchased and Securities Sold under Agreements to Repurchase $ 0 $ 0
XML 72 R61.htm IDEA: XBRL DOCUMENT v3.5.0.2
Income Taxes (Details Textuals) - USD ($)
3 Months Ended 9 Months Ended
Sep. 30, 2016
Sep. 30, 2015
Sep. 30, 2016
Sep. 30, 2015
Income Tax Disclosure [Abstract]        
Effective income tax rate reconciliation, percent 34.70% 35.20% 33.80% 34.60%
Capital losses carry forwards $ 219,000   $ 219,000  
Deferred tax asset, valuation reserve $ 83,000   $ 83,000  
XML 73 R62.htm IDEA: XBRL DOCUMENT v3.5.0.2
Stockholders' Equity (Details) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2016
Sep. 30, 2015
Sep. 30, 2016
Sep. 30, 2015
Unrealized Gain (Loss) on Securities        
Accumulated Other Comprehensive Income (Loss)        
Balance at beginning of period [1]     $ (591) $ 214
Other comprehensive income (loss), before reclassifications [1]     2,884 1,012
Amounts reclassified from accumulated other comprehensive income (loss) [1]     (602) (8)
Current period other comprehensive income, before tax [1]     2,282 1,004
Income tax expense [1]     (867) (382)
Current period other comprehensive income, net of tax [1]     1,415 622
Balance at end of period [1] $ 824 $ 836 824 836
Unrecognized Net Pension and Postretirement Costs        
Accumulated Other Comprehensive Income (Loss)        
Balance at beginning of period [2]     (1,427) (1,442)
Other comprehensive income (loss), before reclassifications [2]     59 108
Amounts reclassified from accumulated other comprehensive income (loss) [2]     0 0
Current period other comprehensive income, before tax [2]     59 108
Income tax expense [2]     (23) (40)
Current period other comprehensive income, net of tax [2]     36 68
Balance at end of period [2] (1,391) (1,374) (1,391) (1,374)
Accumulated Other Comprehensive (Loss) Income        
Accumulated Other Comprehensive Income (Loss)        
Balance at beginning of period     (2,018) (1,228)
Other comprehensive income (loss), before reclassifications     2,943 1,120
Amounts reclassified from accumulated other comprehensive income (loss)     (602) (8)
Current period other comprehensive income, before tax     2,341 1,112
Income tax expense     (890) (422)
Current period other comprehensive income, net of tax     1,451 690
Balance at end of period (567) (538) (567) (538)
Balance at beginning of period     (2,018)  
Current period other comprehensive income, net of tax (351) $ 1,017 1,451 $ 690
Balance at end of period $ (567)   $ (567)  
[1] The pre-tax amounts reclassified from accumulated other comprehensive income (loss) are included in gain on sale of investment securities in the consolidated statements of income.
[2] The pre-tax amounts reclassified from accumulated other comprehensive income (loss) are included in the computation of net periodic pension cost.
XML 74 R63.htm IDEA: XBRL DOCUMENT v3.5.0.2
Employee Benefit Plans (Details) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2016
Sep. 30, 2015
Sep. 30, 2016
Sep. 30, 2015
Summary of employee benefits charged to operating expenses        
Payroll taxes $ 251 $ 261 $ 883 $ 860
Medical plans 415 491 1,414 1,462
401k match and profit sharing 201 225 585 720
Pension plan 307 348 920 1,044
Other 56 56 118 99
Total employee benefits $ 1,230 $ 1,381 $ 3,920 $ 4,185
XML 75 R64.htm IDEA: XBRL DOCUMENT v3.5.0.2
Employee Benefit Plans (Details 1) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2016
Sep. 30, 2015
Sep. 30, 2016
Sep. 30, 2015
Components of net pension cost        
Pension expense - three and nine months ended September 30, (actual) $ 307 $ 348 $ 920 $ 1,044
Pension        
Components of net pension cost        
Service cost - benefits earned during the year     1,179 1,325
Interest costs on projected benefit obligations     956 838
Expected return on plan assets     (1,057) (957)
Expected administrative expenses     70 40
Amortization of prior service cost     79 79
Amortization of unrecognized net loss     0 66
Net periodic pension expense     1,227 1,391
Pension expense - three and nine months ended September 30, (actual) $ 307 $ 348 $ 920 $ 1,044
XML 76 R65.htm IDEA: XBRL DOCUMENT v3.5.0.2
Employee Benefit Plans (Detail Textuals) - Pension - USD ($)
1 Months Ended 9 Months Ended
Apr. 15, 2016
Sep. 30, 2016
Defined Benefit Plan Disclosure    
Contribution to the defined benefit plan for the current plan year $ 772,000  
Employer match (as a percent)   3.00%
Defined benefit plan contributions by employer percent   6.00%
XML 77 R66.htm IDEA: XBRL DOCUMENT v3.5.0.2
Stock Compensation (Details)
$ / shares in Units, $ in Thousands
9 Months Ended
Sep. 30, 2016
USD ($)
$ / shares
shares
Number of shares  
Outstanding, December 31, 2015 (in shares) | shares 65,270
Granted (in shares) | shares 0
Exercised (in shares) | shares 0
Forfeited or expired (in shares) | shares (20,812)
Outstanding, September 30, 2016 (in shares) | shares 44,458
Exercisable, September 30, 2016 (in shares) | shares 43,189
Weighted average exercise price  
Outstanding, December 31, 2015 (in dollars per share) | $ / shares $ 20.68
Granted (in dollars per share) | $ / shares 0.00
Exercised (in dollars per share) | $ / shares 0.00
Forfeited or expired (in dollars per share) | $ / shares 21.89
Outstanding, September 30, 2016 (in dollars per share) | $ / shares 20.11
Exercisable, September 30, 2016 (in dollars per share) | $ / shares $ 20.25
Weighted average Contractual Term (in years)  
Outstanding, September 30, 2016 1 year 3 months
Exercisable, September 30, 2016 1 year 2 months 19 days
Aggregate Intrinsic Value  
Outstanding, September 30, 2016 | $ $ 0
Exercisable, September 30, 2016 | $ $ 0
XML 78 R67.htm IDEA: XBRL DOCUMENT v3.5.0.2
Stock Compensation (Detail Textuals) - USD ($)
3 Months Ended 9 Months Ended
Sep. 30, 2016
Sep. 30, 2015
Sep. 30, 2016
Sep. 30, 2015
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]        
Grant of options to purchase (in shares) 553,361   553,361  
Special stock dividend, rate percent     4.00%  
Date of dividend payment     Jul. 01, 2016  
Stock based compensation expense $ 5,000 $ 1,000 $ 16,000 $ 5,000
Total unrecognized compensation expense related to non-vested stock awards $ 4,000   $ 4,000  
Weighted average period is expected to be recognized 6 months 4 days   6 months 4 days  
Maximum        
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]        
Weighted average period is expected to be recognized     5 years  
Minimum        
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]        
Weighted average period is expected to be recognized     4 years  
XML 79 R68.htm IDEA: XBRL DOCUMENT v3.5.0.2
Earnings per Share (Details) - USD ($)
$ / shares in Units, $ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2016
Sep. 30, 2015
Sep. 30, 2016
Sep. 30, 2015
Basic earnings per share:        
Net income available to shareholders $ 1,884 $ 2,539 $ 5,294 $ 6,605
Basic earnings per share (in dollars per share) $ 0.33 $ 0.45 $ 0.94 $ 1.17
Diluted earnings per share:        
Net income available to shareholders $ 1,884 $ 2,539 $ 5,294 $ 6,605
Average shares outstanding 5,632,362 5,660,499 5,643,190 5,660,499
Effect of dilutive stock options 0 0 0 0
Average shares outstanding including dilutive stock options 5,632,362 5,660,499 5,643,190 5,660,499
Diluted earnings per share (in dollars per share) $ 0.33 $ 0.45 $ 0.94 $ 1.17
XML 80 R69.htm IDEA: XBRL DOCUMENT v3.5.0.2
Earnings per Share (Details 1) - shares
9 Months Ended 12 Months Ended
Sep. 30, 2016
Sep. 30, 2015
Dec. 31, 2015
Schedule Of Common Stock Outstanding [Roll Forward]      
Outstanding, beginning of period 5,441,190 5,233,986 5,233,986
Issuance of stock: 4% stock dividend 217,155 209,359 209,359
Purchase of treasury stock (30,033) 0 (2,155)
Outstanding, end of period 5,628,312 5,443,344 5,441,190
XML 81 R70.htm IDEA: XBRL DOCUMENT v3.5.0.2
Earnings per Share (Detail Textuals)
9 Months Ended
Sep. 30, 2016
Earnings Per Share [Abstract]  
Special stock dividend, payment date Jul. 01, 2016
Common stock, dividend rate, percentage 4.00%
Special stock dividend, record date Jun. 15, 2016
XML 82 R71.htm IDEA: XBRL DOCUMENT v3.5.0.2
Earnings per Share (Detail Textuals 1) - USD ($)
$ / shares in Units, $ in Millions
3 Months Ended 9 Months Ended 12 Months Ended
Sep. 30, 2016
Sep. 30, 2015
Sep. 30, 2016
Sep. 30, 2015
Dec. 31, 2015
Aug. 06, 2015
Earnings Per Share [Abstract]            
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount 44,458 44,458 69,106 69,106    
Share repurchase plan, Authorized amount           $ 2.0
Number of common stock repurchased     30,033 0 2,155  
Average price per share of common stock repurchased     $ 14.50      
Value used to purchase shares under the plan           $ 1.5
XML 83 R72.htm IDEA: XBRL DOCUMENT v3.5.0.2
Fair Value Measurements (Details) - USD ($)
$ in Thousands
Sep. 30, 2016
Dec. 31, 2015
Assets:    
Available for sale debt securities, fair value $ 221,824 $ 235,054
Mortgage servicing rights, fair value 2,370 2,847
Quoted Prices in Active Markets for Identical Assets (Level 1)    
Assets:    
Available for sale debt securities, fair value 0 0
Mortgage servicing rights, fair value 0 0
Other Observable Inputs (Level 2)    
Assets:    
Available for sale debt securities, fair value 221,824 235,054
Mortgage servicing rights, fair value 0 0
Significant Unobservable Inputs (Level 3)    
Assets:    
Available for sale debt securities, fair value 0 0
Mortgage servicing rights, fair value 2,370 2,847
Recurring    
Assets:    
Assets, Total 224,194 237,901
Recurring | U.S. government and federal agency obligations    
Assets:    
Available for sale debt securities, fair value 13,340  
Recurring | Government sponsored enterprises    
Assets:    
Available for sale debt securities, fair value 33,677 73,497
Recurring | Obligations of states and political subdivisions    
Assets:    
Available for sale debt securities, fair value 36,767 32,706
Recurring | Mortgage-backed securities    
Assets:    
Available for sale debt securities, fair value 138,040  
Recurring | Mortgage servicing rights    
Assets:    
Mortgage servicing rights, fair value 2,370 2,847
Recurring | Mortgage and asset-backed securities    
Assets:    
Available for sale debt securities, fair value   128,851
Recurring | Quoted Prices in Active Markets for Identical Assets (Level 1)    
Assets:    
Assets, Total 0 0
Recurring | Quoted Prices in Active Markets for Identical Assets (Level 1) | U.S. government and federal agency obligations    
Assets:    
Available for sale debt securities, fair value 0  
Recurring | Quoted Prices in Active Markets for Identical Assets (Level 1) | Government sponsored enterprises    
Assets:    
Available for sale debt securities, fair value 0 0
Recurring | Quoted Prices in Active Markets for Identical Assets (Level 1) | Obligations of states and political subdivisions    
Assets:    
Available for sale debt securities, fair value 0 0
Recurring | Quoted Prices in Active Markets for Identical Assets (Level 1) | Mortgage-backed securities    
Assets:    
Available for sale debt securities, fair value 0  
Recurring | Quoted Prices in Active Markets for Identical Assets (Level 1) | Mortgage servicing rights    
Assets:    
Mortgage servicing rights, fair value 0 0
Recurring | Quoted Prices in Active Markets for Identical Assets (Level 1) | Mortgage and asset-backed securities    
Assets:    
Available for sale debt securities, fair value   0
Recurring | Other Observable Inputs (Level 2)    
Assets:    
Assets, Total 221,824 235,054
Recurring | Other Observable Inputs (Level 2) | U.S. government and federal agency obligations    
Assets:    
Available for sale debt securities, fair value 13,340  
Recurring | Other Observable Inputs (Level 2) | Government sponsored enterprises    
Assets:    
Available for sale debt securities, fair value 33,677 73,497
Recurring | Other Observable Inputs (Level 2) | Obligations of states and political subdivisions    
Assets:    
Available for sale debt securities, fair value 36,767 32,706
Recurring | Other Observable Inputs (Level 2) | Mortgage-backed securities    
Assets:    
Available for sale debt securities, fair value 138,040  
Recurring | Other Observable Inputs (Level 2) | Mortgage servicing rights    
Assets:    
Mortgage servicing rights, fair value 0 0
Recurring | Other Observable Inputs (Level 2) | Mortgage and asset-backed securities    
Assets:    
Available for sale debt securities, fair value   128,851
Recurring | Significant Unobservable Inputs (Level 3)    
Assets:    
Assets, Total 2,370 2,847
Recurring | Significant Unobservable Inputs (Level 3) | U.S. government and federal agency obligations    
Assets:    
Available for sale debt securities, fair value 0  
Recurring | Significant Unobservable Inputs (Level 3) | Government sponsored enterprises    
Assets:    
Available for sale debt securities, fair value 0 0
Recurring | Significant Unobservable Inputs (Level 3) | Obligations of states and political subdivisions    
Assets:    
Available for sale debt securities, fair value 0 0
Recurring | Significant Unobservable Inputs (Level 3) | Mortgage-backed securities    
Assets:    
Available for sale debt securities, fair value 0  
Recurring | Significant Unobservable Inputs (Level 3) | Mortgage servicing rights    
Assets:    
Mortgage servicing rights, fair value $ 2,370 2,847
Recurring | Significant Unobservable Inputs (Level 3) | Mortgage and asset-backed securities    
Assets:    
Available for sale debt securities, fair value   $ 0
XML 84 R73.htm IDEA: XBRL DOCUMENT v3.5.0.2
Fair Value Measurements (Details 1) - Recurring - Significant Unobservable Inputs (Level 3) - Mortgage servicing rights - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2016
Sep. 30, 2015
Sep. 30, 2016
Sep. 30, 2015
Fair value of assets        
Balance at beginning of period $ 2,511 $ 2,727 $ 2,847 $ 2,762
Total gains or losses (realized/unrealized): Included in earnings (237) (29) (690) (291)
Total gains or losses (realized/unrealized): Included in other comprehensive income 0 0 0 0
Purchases 0 0 0 0
Sales 0 0 0 0
Issues 96 76 213 303
Settlements 0 0 0 0
Balance at end of period $ 2,370 $ 2,774 $ 2,370 $ 2,774
XML 85 R74.htm IDEA: XBRL DOCUMENT v3.5.0.2
Fair Value Measurements (Details 2) - Recurring - Significant Unobservable Inputs (Level 3) - Mortgage servicing rights
9 Months Ended
Sep. 30, 2016
Sep. 30, 2015
Quantitative Information    
Weighted average constant prepayment rate 13.20% 10.06%
Weighted average note rate (as a percent) 3.88% 3.92%
Weighted average discount rate 9.20% 9.35%
Weighted average expected life (in years) 4 years 9 months 18 days 5 years 9 months 18 days
XML 86 R75.htm IDEA: XBRL DOCUMENT v3.5.0.2
Fair Value Measurements (Details 3) - Nonrecurring - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2016
Sep. 30, 2015
Sep. 30, 2016
Sep. 30, 2015
Total Gains (Losses)        
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]        
Gains (losses) on impaired loans [1] $ (153) $ (695) $ (920) $ (1,000)
Gains (losses) on other real estate owned and repossessed assets [1] 21 (80) 70 112
Total Fair Value        
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]        
Impaired loans 5,808 4,818 5,808 4,818
Other real estate owned and repossessed assets 14,438 15,148 14,438 15,148
Quoted Prices in Active Markets for Identical Assets (Level 1)        
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]        
Impaired loans 0 0 0 0
Other real estate owned and repossessed assets 0 0 0 0
Other Observable Inputs (Level 2)        
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]        
Impaired loans 0 0 0 0
Other real estate owned and repossessed assets 0 0 0 0
Significant Unobservable Inputs (Level 3)        
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]        
Impaired loans 5,808 4,818 5,808 4,818
Other real estate owned and repossessed assets 14,438 15,148 14,438 15,148
Commercial, financial, and agricultural | Total Gains (Losses)        
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]        
Gains (losses) on impaired loans [1] 0 (540) (359) (561)
Commercial, financial, and agricultural | Total Fair Value        
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]        
Impaired loans 392 462 392 462
Commercial, financial, and agricultural | Quoted Prices in Active Markets for Identical Assets (Level 1)        
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]        
Impaired loans 0 0 0 0
Commercial, financial, and agricultural | Other Observable Inputs (Level 2)        
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]        
Impaired loans 0 0 0 0
Commercial, financial, and agricultural | Significant Unobservable Inputs (Level 3)        
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]        
Impaired loans 392 462 392 462
Commercial real estate | Construction | Total Gains (Losses)        
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]        
Gains (losses) on impaired loans [1] 0 0 0 0
Commercial real estate | Construction | Total Fair Value        
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]        
Impaired loans 43 45 43 45
Commercial real estate | Construction | Quoted Prices in Active Markets for Identical Assets (Level 1)        
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]        
Impaired loans 0 0 0 0
Commercial real estate | Construction | Other Observable Inputs (Level 2)        
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]        
Impaired loans 0 0 0 0
Commercial real estate | Construction | Significant Unobservable Inputs (Level 3)        
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]        
Impaired loans 43 45 43 45
Commercial real estate | Mortgage | Total Gains (Losses)        
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]        
Gains (losses) on impaired loans [1] (71) (89) (248) (118)
Commercial real estate | Mortgage | Total Fair Value        
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]        
Impaired loans 1,806 572 1,806 572
Commercial real estate | Mortgage | Quoted Prices in Active Markets for Identical Assets (Level 1)        
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]        
Impaired loans 0 0 0 0
Commercial real estate | Mortgage | Other Observable Inputs (Level 2)        
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]        
Impaired loans 0 0 0 0
Commercial real estate | Mortgage | Significant Unobservable Inputs (Level 3)        
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]        
Impaired loans 1,806 572 1,806 572
Residential real estate | Mortgage | Total Gains (Losses)        
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]        
Gains (losses) on impaired loans [1] (80) (61) (295) (267)
Residential real estate | Mortgage | Total Fair Value        
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]        
Impaired loans 3,464 3,618 3,464 3,618
Residential real estate | Mortgage | Quoted Prices in Active Markets for Identical Assets (Level 1)        
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]        
Impaired loans 0 0 0 0
Residential real estate | Mortgage | Other Observable Inputs (Level 2)        
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]        
Impaired loans 0 0 0 0
Residential real estate | Mortgage | Significant Unobservable Inputs (Level 3)        
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]        
Impaired loans 3,464 3,618 3,464 3,618
Consumer | Total Gains (Losses)        
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]        
Gains (losses) on impaired loans [1] (2) (5) (18) (54)
Consumer | Total Fair Value        
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]        
Impaired loans 103 121 103 121
Consumer | Quoted Prices in Active Markets for Identical Assets (Level 1)        
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]        
Impaired loans 0 0 0 0
Consumer | Other Observable Inputs (Level 2)        
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]        
Impaired loans 0 0 0 0
Consumer | Significant Unobservable Inputs (Level 3)        
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]        
Impaired loans $ 103 $ 121 $ 103 $ 121
[1] Total gains (losses) reported for other real estate and foreclosed assets includes charge-offs, valuation write downs, and net losses taken during the periods reported.
XML 87 R76.htm IDEA: XBRL DOCUMENT v3.5.0.2
Fair Value Measurements (Detail Textuals) - USD ($)
3 Months Ended 9 Months Ended
Sep. 30, 2016
Sep. 30, 2015
Sep. 30, 2016
Sep. 30, 2015
Dec. 31, 2015
Fair Value Disclosures [Abstract]          
Gains included in earnings attributable to change in unrealized gains or losses $ 52,000 $ 197,000 $ 136,000 $ 223,000  
Impaired loans with a specific allowance 7,110,000 6,800,000 7,110,000 6,800,000 $ 5,729,000
Specific allowance related to impaired loans 1,302,000 2,000,000 1,302,000 2,000,000 $ 1,540,000
Impaired financing receivable charge offs $ 153,000 $ 695,000 $ 920,000 $ 1,000,000  
XML 88 R77.htm IDEA: XBRL DOCUMENT v3.5.0.2
Fair Value of Financial Instruments (Details) - USD ($)
$ in Thousands
Sep. 30, 2016
Dec. 31, 2015
Assets:    
Cash and due from banks $ 19,106 $ 20,484
Federal funds sold and overnight interest-bearing deposits 19,788 7,893
Investment in available-for-sale securities, at fair value 221,824 235,054
Mortgage servicing rights 2,370 2,847
Accrued interest receivable 4,624 4,853
Deposits:    
Non-interest bearing demand 229,987 208,035
Savings, interest checking and money market 477,945 441,080
Accrued interest payable 408 382
Carrying Amount    
Assets:    
Cash and due from banks 19,106 20,484
Federal funds sold and overnight interest-bearing deposits 19,788 7,893
Investment in available-for-sale securities, at fair value 221,824 235,054
Loans, net 938,301 856,476
Investment in FHLB stock 4,593 3,390
Mortgage servicing rights 2,370 2,847
Cash surrender value - life insurance 2,396 2,348
Accrued interest receivable 4,624 4,853
Assets, Total 1,213,002 1,133,345
Deposits:    
Non-interest bearing demand 229,987 208,035
Savings, interest checking and money market 477,945 441,080
Time deposits 310,099 298,082
Federal funds purchased and securities sold under agreements to repurchase 28,504 56,834
Subordinated notes 49,486 49,486
Federal Home Loan Bank advances 79,000 50,000
Accrued interest payable 408 382
Liabilities, Total 1,175,429 1,103,899
Fair Value    
Assets:    
Cash and due from banks 19,106 20,484
Federal funds sold and overnight interest-bearing deposits 19,788 7,893
Investment in available-for-sale securities, at fair value 221,824 235,054
Loans, net 939,573 854,775
Investment in FHLB stock 4,593 3,390
Mortgage servicing rights 2,370 2,847
Cash surrender value - life insurance 2,396 2,348
Accrued interest receivable 4,624 4,853
Assets, Total 1,214,274 1,131,644
Deposits:    
Non-interest bearing demand 229,987 208,035
Savings, interest checking and money market 477,945 441,080
Time deposits 309,188 298,323
Federal funds purchased and securities sold under agreements to repurchase 28,504 56,834
Subordinated notes 31,970 40,821
Federal Home Loan Bank advances 79,510 52,340
Accrued interest payable 408 382
Liabilities, Total 1,157,512 1,097,815
Quoted Prices in Active Markets for Identical Assets (Level 1)    
Assets:    
Cash and due from banks 19,106 20,484
Federal funds sold and overnight interest-bearing deposits 19,788 7,893
Investment in available-for-sale securities, at fair value 0 0
Loans, net 0 0
Investment in FHLB stock 0 0
Mortgage servicing rights 0 0
Cash surrender value - life insurance 0 0
Accrued interest receivable 4,624 4,853
Assets, Total 43,518 33,230
Deposits:    
Non-interest bearing demand 229,987 208,035
Savings, interest checking and money market 477,945 441,080
Time deposits 0 0
Federal funds purchased and securities sold under agreements to repurchase 28,504 56,834
Subordinated notes 0 0
Federal Home Loan Bank advances 0 0
Accrued interest payable 408 382
Liabilities, Total 736,844 706,331
Other Observable Inputs (Level 2)    
Assets:    
Cash and due from banks 0 0
Federal funds sold and overnight interest-bearing deposits 0 0
Investment in available-for-sale securities, at fair value 221,824 235,054
Loans, net 0 0
Investment in FHLB stock 4,593 3,390
Mortgage servicing rights 0 0
Cash surrender value - life insurance 2,396 2,348
Accrued interest receivable 0 0
Assets, Total 228,813 240,792
Deposits:    
Non-interest bearing demand 0 0
Savings, interest checking and money market 0 0
Time deposits 0 0
Federal funds purchased and securities sold under agreements to repurchase 0 0
Subordinated notes 31,970 40,821
Federal Home Loan Bank advances 79,510 52,340
Accrued interest payable 0 0
Liabilities, Total 111,480 93,161
Net Significant Unobservable Inputs (Level 3)    
Assets:    
Cash and due from banks 0 0
Federal funds sold and overnight interest-bearing deposits 0 0
Investment in available-for-sale securities, at fair value 0 0
Loans, net 939,573 854,775
Investment in FHLB stock 0 0
Mortgage servicing rights 2,370 2,847
Cash surrender value - life insurance 0 0
Accrued interest receivable 0 0
Assets, Total 941,943 857,622
Deposits:    
Non-interest bearing demand 0 0
Savings, interest checking and money market 0 0
Time deposits 309,188 298,323
Federal funds purchased and securities sold under agreements to repurchase 0 0
Subordinated notes 0 0
Federal Home Loan Bank advances 0 0
Accrued interest payable 0 0
Liabilities, Total $ 309,188 $ 298,323
XML 89 R78.htm IDEA: XBRL DOCUMENT v3.5.0.2
Repurchase Reserve Liability (Detail) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2016
Sep. 30, 2015
Sep. 30, 2016
Sep. 30, 2015
Assets Sold Under Agreements To Repurchase [Roll Forward]        
Balance at beginning of year $ 160 $ 160 $ 160 $ 160
Provision for repurchase liability 0 0 2 40
Reimbursement of expenses 0 0 (2) (40)
Balance at end of year $ 160 $ 160 $ 160 $ 160
XML 90 R79.htm IDEA: XBRL DOCUMENT v3.5.0.2
Repurchase Reserve Liability (Detail Textuals)
9 Months Ended 12 Months Ended
Sep. 30, 2016
USD ($)
Security
Dec. 31, 2015
USD ($)
Security
Jun. 30, 2016
USD ($)
Sep. 30, 2015
USD ($)
Jun. 30, 2015
USD ($)
Dec. 31, 2014
USD ($)
Repurchase Reserve Liability [Abstract]            
Repurchase reserve liability $ 160,000 $ 160,000 $ 160,000 $ 160,000 $ 160,000 $ 160,000
Number of loans sold to the secondary market | Security 2,909 3,024        
Balance of loans sold to the secondary market $ 299,700,000 $ 312,100,000        
Loss on repurchase $ 2,000 $ 40,000        
XML 91 R80.htm IDEA: XBRL DOCUMENT v3.5.0.2
Commitments and Contingencies (Details) - USD ($)
$ in Thousands
Sep. 30, 2016
Dec. 31, 2015
Contractual amount of off-balance-sheet financial instruments    
Total contractual amount of off-balance-sheet financial instruments $ 237,886 $ 165,947
Commitments to extend credit    
Contractual amount of off-balance-sheet financial instruments    
Total contractual amount of off-balance-sheet financial instruments 233,005 161,306
Commitments to originate residential first and second mortgage loans    
Contractual amount of off-balance-sheet financial instruments    
Total contractual amount of off-balance-sheet financial instruments 3,273 3,175
Standby letters of credit    
Contractual amount of off-balance-sheet financial instruments    
Total contractual amount of off-balance-sheet financial instruments $ 1,608 $ 1,466
XML 92 R81.htm IDEA: XBRL DOCUMENT v3.5.0.2
Commitments and Contingencies (Detail Textuals)
9 Months Ended
Sep. 30, 2016
USD ($)
Contractual amount of off-balance-sheet financial instruments  
Amounts accrued for estimated losses for the financial instruments $ 0
Minimum  
Contractual amount of off-balance-sheet financial instruments  
Remaining term of standby letters of credit 1 month
Maximum  
Contractual amount of off-balance-sheet financial instruments  
Remaining term of standby letters of credit 5 years
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