UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2014
or
o 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: 000-52598
KENTUCKY BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
Kentucky |
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61-0993464 |
(State or other jurisdiction of |
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(I.R.S. Employer Identification No.) |
incorporation or organization) |
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P.O. Box 157, Paris, Kentucky |
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40362-0157 |
(Address of principal executive offices) |
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(Zip Code) |
Registrant’s telephone number, including area code: (859) 987-1795
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
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 (Section 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). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o |
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Accelerated filer o |
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Non-accelerated filer x |
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Smaller reporting company o |
(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
Number of shares of Common Stock outstanding as of April 30, 2014: 2,721,142.
KENTUCKY BANCSHARES, INC.
Part |
I |
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Financial Information |
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3 | |
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5 | |
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6 | |
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7 | |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
32 | ||
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42 | |||
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43 | |||
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43 | ||||
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44 | |||
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45 |
KENTUCKY BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS (unaudited)
(in thousands, except per share data)
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3/31/2014 |
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12/31/2013 |
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Assets |
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Cash and due from banks |
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$ |
21,508 |
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$ |
22,650 |
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Federal funds sold |
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369 |
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510 |
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Cash and cash equivalents |
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21,877 |
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23,160 |
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Securities available for sale |
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236,364 |
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230,396 |
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Trading Assets |
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5,108 |
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— |
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Mortgage loans held for sale |
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149 |
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223 |
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Loans |
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474,012 |
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468,655 |
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Allowance for loan losses |
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(5,616 |
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(5,441 |
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Net loans |
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468,396 |
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463,214 |
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Federal Home Loan Bank stock |
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5,981 |
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6,731 |
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Real estate owned, net |
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3,256 |
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3,379 |
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Bank premises and equipment, net |
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16,710 |
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16,709 |
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Interest receivable |
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3,484 |
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3,618 |
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Mortgage servicing rights |
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1,303 |
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1,344 |
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Goodwill |
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13,117 |
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13,117 |
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Other intangible assets |
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279 |
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317 |
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Other assets |
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6,630 |
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8,371 |
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Total assets |
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$ |
782,654 |
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$ |
770,579 |
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Liabilities and Stockholders’ Equity |
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Deposits |
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Non-interest bearing |
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$ |
165,675 |
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$ |
152,052 |
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Time deposits, $100,000 and over |
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96,553 |
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96,264 |
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Other interest bearing |
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365,776 |
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369,084 |
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Total deposits |
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628,004 |
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617,400 |
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Repurchase agreements and other borrowings |
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11,402 |
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12,867 |
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Long-term Federal Home Loan Bank advances |
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57,380 |
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57,847 |
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Subordinated debentures |
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7,217 |
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7,217 |
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Interest payable |
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709 |
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736 |
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Other liabilities |
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5,992 |
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6,839 |
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Total liabilities |
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710,704 |
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702,906 |
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Stockholders’ equity |
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Preferred stock, 300,000 shares authorized and unissued |
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— |
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— |
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Common stock, no par value; 10,000,000 shares authorized; 2,721,114 and 2,717,434 shares issued and outstanding on March 31, 2014 and December 31, 2013 |
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12,580 |
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12,570 |
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Retained earnings |
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61,245 |
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60,229 |
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Accumulated other comprehensive income/(loss) |
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(1,875 |
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(5,126 |
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Total stockholders’ equity |
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71,950 |
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67,673 |
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Total liabilities & stockholders’ equity |
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$ |
782,654 |
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$ |
770,579 |
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See Accompanying Notes
KENTUCKY BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (unaudited)
(in thousands, except per share amounts)
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Three Months Ending |
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3/31/2014 |
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3/31/2013 |
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INTEREST INCOME: |
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Loans, including fees |
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$ |
5,761 |
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$ |
5,726 |
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Securities |
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Taxable |
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675 |
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479 |
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Tax exempt |
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733 |
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668 |
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Trading assets |
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37 |
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— |
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Other |
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76 |
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83 |
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Total interest income |
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7,282 |
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6,956 |
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INTEREST EXPENSE: |
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Deposits |
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539 |
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590 |
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Repurchase agreements and other borrowings |
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23 |
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7 |
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Federal Home Loan Bank advances |
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314 |
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166 |
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Subordinated debentures |
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57 |
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59 |
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Total interest expense |
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933 |
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822 |
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Net interest income |
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6,349 |
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6,134 |
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Provision for loan losses |
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100 |
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450 |
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Net interest income after provision |
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6,249 |
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5,684 |
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NON-INTEREST INCOME: |
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Service charges |
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1,011 |
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1,020 |
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Loan service fee income, net |
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29 |
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(52 |
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Trust department income |
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222 |
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177 |
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Gain on sale of available for sale securities, net |
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188 |
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289 |
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Gain on trading assets |
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71 |
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— |
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Gain on sale of mortgage loans |
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157 |
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626 |
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Brokerage income |
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80 |
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68 |
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Debit card interchange income |
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479 |
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448 |
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Other |
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32 |
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27 |
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Total other income |
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2,269 |
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2,603 |
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NON-INTEREST EXPENSE: |
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Salaries and employee benefits |
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3,602 |
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3,290 |
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Occupancy expenses |
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848 |
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718 |
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Repossession expenses, net |
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(2 |
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67 |
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FDIC Insurance |
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128 |
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132 |
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Legal and professional fees |
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136 |
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153 |
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Data processing |
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337 |
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348 |
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Debit card expenses |
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234 |
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223 |
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Amortization |
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37 |
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57 |
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Advertising and marketing |
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209 |
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184 |
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Taxes other than payroll, property and income |
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225 |
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225 |
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Telephone |
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89 |
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67 |
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Postage |
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72 |
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75 |
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Loan fees |
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77 |
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123 |
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Other |
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462 |
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514 |
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Total other expenses |
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6,454 |
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6,176 |
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Income before taxes |
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2,064 |
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2,111 |
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Income taxes |
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293 |
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402 |
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Net income |
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$ |
1,771 |
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$ |
1,709 |
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Other Comprehensive Income, net of tax: |
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Change in Unrealized Gains (losses) on Securities |
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3,251 |
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(1,252 |
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Comprehensive Income |
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$ |
5,022 |
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$ |
457 |
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Earnings per share |
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Basic |
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$ |
0.66 |
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$ |
0.63 |
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Diluted |
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0.66 |
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0.63 |
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Dividends per share |
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0.25 |
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0.24 |
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See Accompanying Notes
KENTUCKY BANCSHARES, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (unaudited)
(in thousands, except share information)
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Accumulated |
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Other |
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Total |
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—Common Stock(1)— |
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Retained |
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Comprehensive |
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Stockholders’ |
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Shares |
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Amount |
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Earnings |
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Income/(Loss) |
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Equity |
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Balances, January 1, 2014 |
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2,717,434 |
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$ |
12,570 |
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$ |
60,229 |
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$ |
(5,126 |
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$ |
67,673 |
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Common stock issued, including tax benefit, net |
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7,475 |
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— |
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— |
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— |
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— |
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Stock based compensation expense |
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— |
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27 |
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— |
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— |
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27 |
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Common stock purchased and retired |
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(3,795 |
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(17 |
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(74 |
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— |
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(91 |
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Net change in unrealized gain (loss) on securities available for sale, net of tax and reclassifications |
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— |
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— |
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— |
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3,251 |
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3,251 |
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Net income |
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— |
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— |
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1,771 |
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— |
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1,771 |
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Dividends declared - $0.25 per share |
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— |
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— |
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(681 |
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— |
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(681 |
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Balances, March 31, 2014 |
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2,721,114 |
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$ |
12,580 |
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$ |
61,245 |
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$ |
(1,875 |
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$ |
71,950 |
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(1)Common Stock has no par value; amount includes Additional Paid-in Capital
See Accompanying Notes
KENTUCKY BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(in thousands)
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Three Months Ending |
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3/31/2014 |
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3/31/2013 |
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Cash Flows From Operating Activities |
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Net Income |
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$ |
1,771 |
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$ |
1,709 |
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Adjustments to reconcile net income to net cash provided by operating activities: |
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Depreciation and amortization |
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441 |
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513 |
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Securities amortization (accretion), net |
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150 |
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319 |
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Stock based compensation expense |
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27 |
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24 |
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Provision for loan losses |
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100 |
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450 |
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Securities available for sale gains, net |
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(188 |
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(289 |
) | ||
Trading assets gains, net |
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(71 |
) |
— |
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Interest income earned on trading assets |
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(37 |
) |
— |
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Originations of loans held for sale |
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(5,715 |
) |
(16,075 |
) | ||
Proceeds from sale of loans |
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5,946 |
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17,053 |
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Losses (gains) on other real estate |
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(46 |
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(5 |
) | ||
Gain on sale of mortgage loans |
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(157 |
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(626 |
) | ||
Changes in: |
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Interest receivable |
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134 |
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100 |
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Other assets |
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1,694 |
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87 |
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Interest payable |
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(27 |
) |
— |
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Other liabilities |
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(2,522 |
) |
197 |
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Net cash from operating activities |
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1,500 |
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3,457 |
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Cash Flows From Investing Activities |
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Purchases of securities available for sale |
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(20,089 |
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(48,776 |
) | ||
Proceeds from principal payments, sales, maturities and calls of securities |
|
19,086 |
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16,625 |
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Initial purchase of trading assets |
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(5,000 |
) |
— |
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Net change in loans |
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(5,423 |
) |
6,716 |
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Proceeds from sale of Federal Home Loan Bank stock |
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750 |
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— |
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Purchases of bank premises and equipment |
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(316 |
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(378 |
) | ||
Proceeds from the sale of other real estate |
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309 |
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33 |
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Net cash from investing activities |
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(10,683 |
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(25,780 |
) | ||
Cash Flows From Financing Activities: |
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Net change in deposits |
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10,604 |
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3,928 |
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Net change in repurchase agreements and other borrowings |
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(1,465 |
) |
4,647 |
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Short-term advances from Federal Home Loan Bank |
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10,000 |
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— |
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Payment on short-term Federal Home Loan Bank advances |
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(10,000 |
) |
— |
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Long-term advances from Federal Home Loan Bank |
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1,635 |
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— |
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Payments on long-term Federal Home Loan Bank advances |
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(2,102 |
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(1,611 |
) | ||
Payments on note payable |
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— |
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(200 |
) | ||
Purchase of common stock |
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(91 |
) |
(38 |
) | ||
Dividends paid |
|
(681 |
) |
(654 |
) | ||
Net cash from financing activities |
|
7,900 |
|
6,072 |
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Net change in cash and cash equivalents |
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(1,283 |
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(16,251 |
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Cash and cash equivalents at beginning of period |
|
23,160 |
|
31,764 |
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Cash and cash equivalents at end of period |
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$ |
21,877 |
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$ |
15,513 |
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Supplemental disclosures of cash flow information |
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Cash paid during the year for: |
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Interest expense |
|
$ |
960 |
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$ |
822 |
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Income taxes |
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— |
|
375 |
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Supplemental disclosures of non-cash investing activities |
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Real estate acquired through foreclosure |
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$ |
141 |
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$ |
65 |
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See Accompanying Notes
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The financial information presented as of any date other than December 31 has been prepared from the Company’s books and records without audit. The accompanying consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Certain financial information that is normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America, but is not required for interim reporting purposes, has been condensed or omitted. There have been no significant changes to the Company’s accounting and reporting policies as disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of such financial statements, have been included. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year.
For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013.
Basis of Presentation: The consolidated financial statements include the accounts of Kentucky Bancshares, Inc. (the “Company”, “we”, “our” or “us”), its wholly-owned subsidiary, Kentucky Bank (the “Bank”), and the Bank’s wholly-owned subsidiary, KB Special Assets Unit, LLC. Intercompany transactions and balances have been eliminated in consolidation.
Nature of Operations: The Bank operates under a state bank charter and provides full banking services, including trust services, to customers located in Bourbon, Clark, Elliott, Fayette, Harrison, Jessamine, Rowan, Madison, Scott, Woodford and adjoining counties in Kentucky. Management continues to consider opportunities for branch expansion and will also consider acquisition opportunities that help advance its strategic objectives. As a state bank, the Bank is subject to regulation by the Kentucky Department of Financial Institutions and the Federal Deposit Insurance Corporation (“FDIC”). The Company, a bank holding company, is regulated by the Federal Reserve.
Estimates in the Financial Statements: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates and such differences could be material to the financial statements. The allowance for loan losses, loss contingencies, mortgage servicing rights, real estate owned, goodwill and fair value of financial instruments are particularly subject to change.
Trading Assets: The Company engages in trading activities for its own account. Securities that are held principally for resale in the near term are recorded at fair value with changes in fair value included in earnings. Interest and dividends are included in net interest income.
Loss Contingencies: Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated.
Pension Matter: The Company terminated the Kentucky Bancshares, Inc. Retirement Plan and Trust (the “Plan”) in a standard termination, with a termination date of December 31, 2008. Prior to such termination, the Pension Protection Act of 2006 (“PPA”) had amended Internal Revenue Code (“IRC”) Section 417(e)(3) in part by changing the definition of “applicable interest rate” in a manner that in most cases (when combined with other changes to IRC Section 417(e)(3)) would result in a decrease in the value of a participant’s or beneficiary’s plan benefits under pension plans such as the Company’s Plan with the new definition applicable (for most plans, including the Plan) to lump sums with annuity starting dates in or after the 2008 plan year. The Plan had determined in mid-2008 to comply with IRC Section 417(e)(3), as amended by PPA, by using the assumptions governing minimum lump sums, rather than by using the pre-PPA minimum lump sum assumptions, and operated the Plan in compliance with that decision. As permitted by the IRC, the Plan was amended on February 24, 2009 (after the termination of the Plan on December 31, 2008) to formalize that decision in accordance with Section 1107 of PPA.
The Internal Revenue Service issued a favorable determination as to the Plan termination in July 2010. Subsequent to Plan termination and distributions to Plan participants, the Plan was selected for audit by the Pension Benefit Guaranty Corporation (“PBGC”). The PBGC asserted that the February, 2009 amendment to the Plan violated PBGC Regulation Section 4041.8(a) because the amendment served to lower benefits to Plan beneficiaries. The PBGC filed a Complaint in May 2013 in United States District Court (Eastern District of Kentucky) to require the Company to make additional distributions to Plan beneficiaries. On March 17, 2014, the United States District Court (Eastern District of Kentucky) issued an Opinion and Order entering judgment in favor of the PBGC and ruling that the Company must comply with the PBGC’s determination respecting the Plan. The Company is appraising its options with respect to this judgment, including an appeal of the decision. However, in light of the court’s opinion, the Company accrued approximately $1.6 million as of December 31, 2013 for this matter. The accrued balance for this matter remains $1.6 million at March 31, 2014. Moreover, in the event the subject court decision is not overturned, the Company believes it has claims for further contribution towards payment of this liability from professionals who assisted the Company in the termination of the Plan.
Reclassifications: Some items in the prior year financial statements were reclassified to conform to the current presentation. Reclassifications had no effect on prior period net income or stockholders’ equity.
Adoption of New Accounting Standards
ASU 2014-01- Investments—Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Qualified Affordable Housing Projects (a consensus of the FASB Emerging Issues Task Force): In January 2014, Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2014-01, Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Qualified Affordable Housing Projects (a consensus of the FASB Emerging Issues Task Force). The ASU permits reporting entities to make an accounting policy election to account for their investments in qualified affordable housing projects using the proportional amortization method if certain conditions are met. Under the proportional amortization method, an entity amortizes the initial cost of the investment in proportion to the tax credits and other tax benefits received and recognize the net investment performance in the income statement as a component of income tax expense. Additionally, a reporting entity should disclose information that enables users of its financial statement to understand the nature of its investments in qualified affordable housing projects, and the effect of the measurement of its investments in qualified affordable housing projects and the related tax credits on its financial position and results of operations. The new guidance is effective for annual periods, and interim reporting periods within those annual periods, beginning after December 15, 2014. The adoption of this guidance will not have a material impact on the Company’s consolidated financial statements, but may impact the presentation of the Company’s investments in qualified affordable housing projects. Additionally, the adoption of this guidance will require additional disclosures.
2. SECURITIES
SECURITIES AVAILABLE FOR SALE
Period-end securities are as follows:
(in thousands)
|
|
|
|
Gross |
|
Gross |
|
|
| ||||
|
|
Amortized |
|
Unrealized |
|
Unrealized |
|
Fair |
| ||||
|
|
Cost |
|
Gains |
|
Losses |
|
Value |
| ||||
Available for Sale |
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
| ||||
March 31, 2014 |
|
|
|
|
|
|
|
|
| ||||
U.S. government agencies |
|
$ |
74,612 |
|
$ |
14 |
|
$ |
(3,264 |
) |
$ |
71,362 |
|
States and political subdivisions |
|
91,008 |
|
2,805 |
|
(1,138 |
) |
92,675 |
| ||||
Mortgage-backed - residential |
|
73,315 |
|
118 |
|
(1,397 |
) |
72,036 |
| ||||
Equity securities |
|
270 |
|
21 |
|
— |
|
291 |
| ||||
Total |
|
$ |
239,205 |
|
$ |
2,958 |
|
$ |
(5,799 |
) |
$ |
236,364 |
|
|
|
|
|
|
|
|
|
|
| ||||
December 31, 2013 |
|
|
|
|
|
|
|
|
| ||||
U.S. government agencies |
|
$ |
73,930 |
|
$ |
51 |
|
$ |
(4,695 |
) |
$ |
69,286 |
|
States and political subdivisions |
|
91,043 |
|
1,614 |
|
(2,474 |
) |
90,183 |
| ||||
Mortgage-backed - residential |
|
72,920 |
|
44 |
|
(2,326 |
) |
70,638 |
| ||||
Equity securities |
|
270 |
|
19 |
|
— |
|
289 |
| ||||
Total |
|
$ |
238,163 |
|
$ |
1,728 |
|
$ |
(9,495 |
) |
$ |
230,396 |
|
The amortized cost and fair value of securities at March 31, 2014 by contractual maturity are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Securities not due at a single maturity are shown separately. Further discussion concerning Fair Value Measurement can be found in Note 8.
(in thousands)
|
|
Amortized |
|
Fair |
| ||
|
|
Cost |
|
Value |
| ||
|
|
|
|
|
| ||
Due in one year or less |
|
$ |
623 |
|
$ |
625 |
|
Due after one year through five years |
|
8,638 |
|
8,714 |
| ||
Due after five years through ten years |
|
84,800 |
|
83,131 |
| ||
Due after ten years |
|
71,559 |
|
71,567 |
| ||
|
|
165,620 |
|
164,037 |
| ||
Mortgage-backed - residential |
|
73,315 |
|
72,036 |
| ||
Equity |
|
270 |
|
291 |
| ||
|
|
|
|
|
| ||
Total |
|
$ |
239,205 |
|
$ |
236,364 |
|
Proceeds from sales of securities during the first three months of 2014 and 2013 were $16.5 million and $10.5 million. Gross gains of $309 thousand and $289 thousand and gross losses of $121 thousand and $0 were realized on those sales, respectively. The tax provision related to these realized net gains was $64 thousand and $98 thousand, respectively.
Securities with unrealized losses March 31, 2014 and at December 31, 2013 not recognized in income are as follows:
March 31, 2014
|
|
Less than 12 Months |
|
12 Months or More |
|
Total |
| ||||||||||||
|
|
Fair |
|
Unrealized |
|
Fair |
|
Unrealized |
|
Fair |
|
Unrealized |
| ||||||
Description of Securities |
|
Value |
|
Loss |
|
Value |
|
Loss |
|
Value |
|
Loss |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
U.S. Government agencies |
|
$ |
46,111 |
|
$ |
(1,908 |
) |
$ |
19,524 |
|
$ |
(1,356 |
) |
$ |
65,635 |
|
$ |
(3,264 |
) |
States and municipals |
|
12,701 |
|
(459 |
) |
7,763 |
|
(679 |
) |
20,464 |
|
(1,138 |
) | ||||||
Mortgage-backed - residential |
|
45,918 |
|
(1,017 |
) |
6,737 |
|
(380 |
) |
52,655 |
|
(1,397 |
) | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total temporarily impaired |
|
$ |
104,730 |
|
$ |
(3,384 |
) |
$ |
34,024 |
|
$ |
(2,415 |
) |
$ |
138,754 |
|
$ |
(5,799 |
) |
December 31, 2013
|
|
Less than 12 Months |
|
12 Months or More |
|
Total |
| ||||||||||||
|
|
Fair |
|
Unrealized |
|
Fair |
|
Unrealized |
|
Fair |
|
Unrealized |
| ||||||
Description of Securities |
|
Value |
|
Loss |
|
Value |
|
Loss |
|
Value |
|
Loss |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
U.S. Government agencies |
|
$ |
57,203 |
|
$ |
(3,813 |
) |
$ |
8,117 |
|
$ |
(883 |
) |
$ |
65,320 |
|
$ |
(4,695 |
) |
States and municipals |
|
32,289 |
|
(2,106 |
) |
2,879 |
|
(368 |
) |
35,168 |
|
(2,474 |
) | ||||||
Mortgage-backed - residential |
|
62,126 |
|
(2,326 |
) |
— |
|
— |
|
62,126 |
|
(2,326 |
) | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total temporarily impaired |
|
$ |
151,618 |
|
$ |
(8,244 |
) |
$ |
10,997 |
|
$ |
(1,251 |
) |
$ |
162,614 |
|
$ |
(9,495 |
) |
The Company evaluates securities for other than temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. In analyzing an issuer’s financial condition, we may consider many factors including, (1) whether the securities are issued by the federal government or its agencies, (2) whether downgrades by bond rating agencies have occurred, (3) the results of reviews of the issuer’s financial condition and near-term prospects, (4) the length of time and the extent to which the fair value has been less than cost, and (5) whether we intend to sell the investment security or more likely than not will be required to sell the investment security before its anticipated recovery.
Unrealized losses on securities included in the tables above have not been recognized into income because (1) all rated securities are investment grade and are of high credit quality, (2) management does not intend to sell and it is more likely than not that management would not be required to sell the securities prior to their anticipated recovery, (3) management believes the decline in fair value is largely due to changes in interest rates and (4) management believes the declines in fair value are temporary. The Company believes the fair value is expected to recover as the securities approach maturity.
TRADING ASSETS
The trading assets of $5.1 million are primarily comprised of municipal securities which are held for a very short period of time.
3. LOANS
Loans at period-end are as follows:
(in thousands)
|
|
3/31/14 |
|
12/31/13 |
| ||
|
|
|
|
|
| ||
Commercial |
|
$ |
31,774 |
|
$ |
34,654 |
|
Real estate construction |
|
11,837 |
|
11,177 |
| ||
Real estate mortgage: |
|
|
|
|
| ||
1-4 family residential |
|
195,957 |
|
194,388 |
| ||
Multi-family residential |
|
19,028 |
|
16,420 |
| ||
Non-farm & non-residential |
|
129,952 |
|
126,791 |
| ||
Agricultural |
|
68,476 |
|
68,002 |
| ||
Consumer |
|
16,788 |
|
17,065 |
| ||
Other |
|
200 |
|
158 |
| ||
Total |
|
$ |
474,012 |
|
$ |
468,655 |
|
Activity in the allowance for loan losses for the three month periods indicated was as follows:
|
|
Three Months Ended March 31, 2014 |
| |||||||||||||
|
|
(in thousands) |
| |||||||||||||
|
|
Beginning |
|
|
|
|
|
|
|
Ending |
| |||||
|
|
Balance |
|
Charge-offs |
|
Recoveries |
|
Provision |
|
Balance |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Commercial |
|
$ |
230 |
|
$ |
200 |
|
$ |
— |
|
$ |
178 |
|
$ |
208 |
|
Real estate Construction |
|
358 |
|
— |
|
4 |
|
(33 |
) |
329 |
| |||||
Real estate mortgage: |
|
|
|
|
|
|
|
|
|
|
| |||||
1-4 family residential |
|
2,169 |
|
63 |
|
12 |
|
(7 |
) |
2,111 |
| |||||
Multi-family residential |
|
427 |
|
— |
|
— |
|
(26 |
) |
401 |
| |||||
Non-farm & non-residential |
|
564 |
|
— |
|
367 |
|
(1 |
) |
930 |
| |||||
Agricultural |
|
578 |
|
— |
|
24 |
|
(49 |
) |
553 |
| |||||
Consumer |
|
548 |
|
77 |
|
18 |
|
61 |
|
550 |
| |||||
Other |
|
51 |
|
97 |
|
87 |
|
(30 |
) |
11 |
| |||||
Unallocated |
|
516 |
|
— |
|
— |
|
7 |
|
523 |
| |||||
|
|
$ |
5,441 |
|
$ |
437 |
|
$ |
512 |
|
$ |
100 |
|
$ |
5,616 |
|
|
|
Three Months Ended March 31, 2013 |
| |||||||||||||
|
|
(in thousands) |
| |||||||||||||
|
|
Beginning |
|
|
|
|
|
|
|
Ending |
| |||||
|
|
Balance |
|
Charge-offs |
|
Recoveries |
|
Provision |
|
Balance |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Commercial |
|
$ |
150 |
|
$ |
6 |
|
$ |
28 |
|
$ |
(37 |
) |
$ |
135 |
|
Real estate Construction |
|
918 |
|
578 |
|
5 |
|
152 |
|
497 |
| |||||
Real estate mortgage: |
|
|
|
|
|
|
|
|
|
|
| |||||
1-4 family residential |
|
1,989 |
|
125 |
|
26 |
|
84 |
|
1,974 |
| |||||
Multi-family residential |
|
414 |
|
— |
|
— |
|
79 |
|
493 |
| |||||
Non-farm & non-residential |
|
628 |
|
— |
|
8 |
|
(25 |
) |
611 |
| |||||
Agricultural |
|
845 |
|
86 |
|
2 |
|
(14 |
) |
747 |
| |||||
Consumer |
|
517 |
|
148 |
|
11 |
|
131 |
|
511 |
| |||||
Other |
|
54 |
|
137 |
|
126 |
|
56 |
|
99 |
| |||||
Unallocated |
|
532 |
|
— |
|
— |
|
24 |
|
556 |
| |||||
|
|
$ |
6,047 |
|
$ |
1,080 |
|
$ |
206 |
|
$ |
450 |
|
$ |
5,623 |
|
The following tables present the balance in the allowance for loan losses and the recorded investment (excluding accrued interest receivable amounting to $2.0 million as of March 31, 2014 and $2.3 million at December 31, 2013) in loans by portfolio segment and based on impairment method as of March 31, 2014 and December 31, 2013:
As of March 31, 2014
(in thousands)
|
|
Individually |
|
Collectively |
|
|
| |||
|
|
Evaluated for |
|
Evaluated for |
|
|
| |||
|
|
Impairment |
|
Impairment |
|
Total |
| |||
|
|
|
|
|
|
|
| |||
Allowance for Loan Losses: |
|
|
|
|
|
|
| |||
Commercial |
|
$ |
— |
|
$ |
208 |
|
$ |
208 |
|
Real estate construction |
|
— |
|
329 |
|
329 |
| |||
Real estate mortgage: |
|
|
|
|
|
|
| |||
1-4 family residential |
|
130 |
|
1,981 |
|
2,111 |
| |||
Multi-family residential |
|
76 |
|
325 |
|
401 |
| |||
Non-farm & non-residential |
|
380 |
|
550 |
|
930 |
| |||
Agricultural |
|
260 |
|
293 |
|
553 |
| |||
Consumer |
|
— |
|
550 |
|
550 |
| |||
Other |
|
— |
|
11 |
|
11 |
| |||
Unallocated |
|
— |
|
523 |
|
523 |
| |||
|
|
$ |
846 |
|
$ |
4,770 |
|
$ |
5,616 |
|
Loans: |
|
|
|
|
|
|
| |||
Commercial |
|
$ |
— |
|
$ |
31,774 |
|
$ |
31,774 |
|
Real estate construction |
|
— |
|
11,837 |
|
11,837 |
| |||
Real estate mortgage: |
|
|
|
|
|
|
| |||
1-4 family residential |
|
1,771 |
|
194,186 |
|
195,957 |
| |||
Multi-family residential |
|
275 |
|
18,753 |
|
19,028 |
| |||
Non-farm & non-residential |
|
3,169 |
|
126,783 |
|
129,952 |
| |||
Agricultural |
|
5,201 |
|
63,275 |
|
68,476 |
| |||
Consumer |
|
— |
|
16,788 |
|
16,788 |
| |||
Other |
|
— |
|
200 |
|
200 |
| |||
|
|
$ |
10,416 |
|
$ |
463,596 |
|
$ |
474,012 |
|
As of December 31, 2013
(in thousands)
|
|
Individually |
|
Collectively |
|
|
| |||
|
|
Evaluated for |
|
Evaluated for |
|
|
| |||
|
|
Impairment |
|
Impairment |
|
Total |
| |||
|
|
|
|
|
|
|
| |||
Allowance for Loan Losses: |
|
|
|
|
|
|
| |||
Commercial |
|
$ |
— |
|
$ |
230 |
|
$ |
230 |
|
Real estate construction |
|
— |
|
358 |
|
358 |
| |||
Real estate mortgage: |
|
|
|
|
|
|
| |||
1-4 family residential |
|
228 |
|
1,941 |
|
2,169 |
| |||
Multi-family residential |
|
76 |
|
351 |
|
427 |
| |||
Non-farm & non-residential |
|
110 |
|
454 |
|
564 |
| |||
Agricultural |
|
298 |
|
280 |
|
578 |
| |||
Consumer |
|
— |
|
548 |
|
548 |
| |||
Other |
|
— |
|
51 |
|
51 |
| |||
Unallocated |
|
— |
|
516 |
|
516 |
| |||
|
|
$ |
712 |
|
$ |
4,729 |
|
$ |
5,441 |
|
Loans: |
|
|
|
|
|
|
| |||
Commercial |
|
$ |
— |
|
$ |
34,654 |
|
$ |
34,654 |
|
Real estate construction |
|
— |
|
11,177 |
|
11,177 |
| |||
Real estate mortgage: |
|
|
|
|
|
|
| |||
1-4 family residential |
|
2,873 |
|
191,515 |
|
194,388 |
| |||
Multi-family residential |
|
274 |
|
16,146 |
|
16,420 |
| |||
Non-farm & non-residential |
|
2,716 |
|
124,075 |
|
126,791 |
| |||
Agricultural |
|
7,673 |
|
60,329 |
|
68,002 |
| |||
Consumer |
|
— |
|
17,065 |
|
17,065 |
| |||
Other |
|
— |
|
158 |
|
158 |
| |||
|
|
$ |
13,536 |
|
$ |
455,119 |
|
$ |
468,655 |
|
The following table presents loans individually evaluated for impairment by class of loans as of March 31, 2014 (in thousands):
|
|
|
|
|
|
|
|
|
|
Year to Date |
|
Year to Date |
| ||||||
|
|
Unpaid |
|
|
|
Allowance for |
|
Average |
|
Interest |
|
Cash Basis |
| ||||||
|
|
Principal |
|
Recorded |
|
Loan Losses |
|
Recorded |
|
Income |
|
Interest |
| ||||||
|
|
Balance |
|
Investment |
|
Allocated |
|
Investment |
|
Recognized |
|
Recognized |
| ||||||
With no related allowance recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Commercial |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
Real estate construction |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
| ||||||
Real estate mortgage: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
1-4 family residential |
|
911 |
|
911 |
|
— |
|
396 |
|
— |
|
— |
| ||||||
Multi-family residential |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
| ||||||
Non-farm & non-residential |
|
— |
|
— |
|
— |
|
401 |
|
— |
|
— |
| ||||||
Agricultural |
|
446 |
|
446 |
|
— |
|
1,413 |
|
4 |
|
4 |
| ||||||
Consumer |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
| ||||||
Other |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
| ||||||
With an allowance recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Commercial |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
| ||||||
Real estate construction |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
| ||||||
Real estate mortgage: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
1-4 family residential |
|
860 |
|
860 |
|
130 |
|
1,470 |
|
6 |
|
6 |
| ||||||
Multi-family residential |
|
275 |
|
275 |
|
76 |
|
275 |
|
4 |
|
4 |
| ||||||
Non-farm & non-residential |
|
3,169 |
|
3,169 |
|
380 |
|
2,541 |
|
25 |
|
25 |
| ||||||
Agricultural |
|
4,755 |
|
4,755 |
|
260 |
|
4,801 |
|
— |
|
— |
| ||||||
Consumer |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
| ||||||
Other |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
| ||||||
Total |
|
$ |
10,416 |
|
$ |
10,416 |
|
$ |
846 |
|
$ |
11,297 |
|
$ |
39 |
|
$ |
39 |
|
The recorded investment in loans excludes accrued interest receivable and loan origination fees, net due to immateriality.
The following table presents loans individually evaluated for impairment by class of loans as of December 31, 2013 (in thousands):
|
|
Unpaid |
|
|
|
Allowance for |
|
Average |
|
Interest |
|
Cash Basis |
| ||||||
|
|
Principal |
|
Recorded |
|
Loan Losses |
|
Recorded |
|
Income |
|
Interest |
| ||||||
|
|
Balance |
|
Investment |
|
Allocated |
|
Investment |
|
Recognized |
|
Recognized |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
With no related allowance recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Commercial |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
Real estate construction |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
| ||||||
Real estate mortgage: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
1-4 family residential |
|
824 |
|
793 |
|
— |
|
1,217 |
|
28 |
|
28 |
| ||||||
Multi-family residential |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
| ||||||
Non-farm & non-residential |
|
1,650 |
|
803 |
|
— |
|
1,471 |
|
81 |
|
81 |
| ||||||
Agricultural |
|
2,912 |
|
2,826 |
|
— |
|
2,802 |
|
123 |
|
123 |
| ||||||
Consumer |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
| ||||||
Other |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
| ||||||
With an allowance recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Commercial |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
| ||||||
Real estate construction |
|
— |
|
— |
|
— |
|
607 |
|
— |
|
— |
| ||||||
Real estate mortgage |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
1-4 family residential |
|
2,080 |
|
2,080 |
|
228 |
|
1,349 |
|
96 |
|
96 |
| ||||||
Multi-family residential |
|
274 |
|
274 |
|
76 |
|
443 |
|
3 |
|
3 |
| ||||||
Non-farm & non-residential |
|
1,913 |
|
1,913 |
|
110 |
|
1,938 |
|
79 |
|
79 |
| ||||||
Agricultural |
|
4,847 |
|
4,847 |
|
298 |
|
4,864 |
|
287 |
|
287 |
| ||||||
Consumer |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
| ||||||
Other |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
| ||||||
Total |
|
$ |
14,501 |
|
$ |
13,536 |
|
$ |
712 |
|
$ |
14,691 |
|
$ |
697 |
|
$ |
697 |
|
The recorded investment in loans excludes accrued interest receivable and loan origination fees, net due to immateriality.
The following table presents loans individually evaluated for impairment by class of loans as of March 31, 2013 (in thousands):
|
|
|
|
Year to Date |
|
Year to Date |
| |||
|
|
Average |
|
Interest |
|
Cash Basis |
| |||
|
|
Recorded |
|
Income |
|
Interest |
| |||
|
|
Investment |
|
Recognized |
|
Recognized |
| |||
With no related allowance recorded: |
|
|
|
|
|
|
| |||
Commercial |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
Real estate construction |
|
— |
|
— |
|
— |
| |||
Real estate mortgage: |
|
|
|
|
|
|
| |||
1-4 family residential |
|
1,570 |
|
19 |
|
19 |
| |||
Multi-family residential |
|
— |
|
— |
|
— |
| |||
Non-farm & non-residential |
|
2,044 |
|
20 |
|
20 |
| |||
Agricultural |
|
2,789 |
|
5 |
|
5 |
| |||
Consumer |
|
— |
|
— |
|
— |
| |||
Other |
|
— |
|
— |
|
— |
| |||
With an allowance recorded: |
|
|
|
|
|
|
| |||
Commercial |
|
— |
|
— |
|
— |
| |||
Real estate construction |
|
1,517 |
|
— |
|
|
| |||
Real estate mortgage: |
|
|
|
|
|
|
| |||
1-4 family residential |
|
1,263 |
|
14 |
|
14 |
| |||
Multi-family residential |
|
570 |
|
3 |
|
3 |
| |||
Non-farm & non-residential |
|
2,188 |
|
20 |
|
20 |
| |||
Agricultural |
|
5,082 |
|
50 |
|
50 |
| |||
Consumer |
|
— |
|
— |
|
— |
| |||
Other |
|
— |
|
— |
|
— |
| |||
Total |
|
$ |
17,023 |
|
$ |
131 |
|
$ |
131 |
|
The recorded investment in loans excludes accrued interest receivable and loan origination fees, net due to immateriality.
The following tables present the recorded investment in nonaccrual, loans past due over 90 days still on accrual and accruing troubled debt restructurings by class of loans as of March 31, 2014 and December 31, 2013:
|
|
|
|
Loans Past Due |
|
|
| |||
|
|
|
|
Over 90 Days |
|
Accruing |
| |||
As of March 31, 2014 |
|
|
|
Still |
|
Troubled Debt |
| |||
(in thousands) |
|
Nonaccrual |
|
Accruing |
|
Restructurings |
| |||
|
|
|
|
|
|
|
| |||
Commercial |
|
$ |
299 |
|
$ |
— |
|
$ |
— |
|
Real estate construction |
|
— |
|
— |
|
— |
| |||
Real estate mortgage: |
|
|
|
|
|
|
| |||
1-4 family residential |
|
2,059 |
|
634 |
|
490 |
| |||
Multi-family residential |
|
274 |
|
— |
|
— |
| |||
Non-farm & non-residential |
|
970 |
|
— |
|
1,865 |
| |||
Agricultural |
|
217 |
|
232 |
|
4,530 |
| |||
Consumer |
|
1 |
|
1 |
|
— |
| |||
|
|
|
|
|
|
|
| |||
Total |
|
$ |
3,820 |
|
$ |
867 |
|
$ |
6,885 |
|
|
|
|
|
Loans Past Due |
|
|
| |||
|
|
|
|
Over 90 Days |
|
Accruing |
| |||
As of December 31, 2013 |
|
|
|
Still |
|
Troubled Debt |
| |||
(in thousands) |
|
Nonaccrual |
|
Accruing |
|
Restructurings |
| |||
|
|
|
|
|
|
|
| |||
Commercial |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
Real estate construction |
|
— |
|
— |
|
— |
| |||
Real estate mortgage: |
|
|
|
|
|
|
| |||
1-4 family residential |
|
1,171 |
|
314 |
|
493 |
| |||
Multi-family residential |
|
275 |
|
— |
|
— |
| |||
Non-farm & non-residential |
|
803 |
|
— |
|
1,878 |
| |||
Agricultural |
|
717 |
|
232 |
|
4,530 |
| |||
Consumer |
|
8 |
|
8 |
|
— |
| |||
|
|
|
|
|
|
|
| |||
Total |
|
$ |
2,974 |
|
$ |
554 |
|
$ |
6,901 |
|
Nonaccrual loans secured by real estate make up 92.1% of the total nonaccruals at March 31, 2014.
Nonaccrual loans and loans past due 90 days still on accrual include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans.
A loan is considered impaired when, based on current information and events, it is probable that a creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement. All amounts due according to the contractual terms means that both the contractual interest payments and the contractual principal payments of a loan will be collected as scheduled in the loan agreement. Nonaccrual loans are loans for which payments in full of principal or interest is not expected or which principal or interest has been in default for a period of 90 days or more unless the asset is both well secured and in the process of collection. Other impaired loans may be loans showing signs of weakness or interruptions in cash flow, but ultimately are current or less than 90 days past due with respect to principal and interest and for which we anticipate full payment of principal and interest but not in accordance with contractual terms.
Additional factors considered by management in determining impairment and non-accrual status include payment status, collateral value, availability of current financial information, and the probability of collecting all contractual principal and interest payments.
During the first three months of 2014, $141 thousand in impaired loans were transferred to other real estate owned. Additionally, $437 thousand in loan balances were charged off during the first three months of 2014 and $512 thousand in prior-year loan charge offs were recovered.
The following tables present the aging of the recorded investment in past due and non-accrual loans as of March 31, 2014 and December 31, 2013 by class of loans:
|
|
30-59 |
|
60-89 |
|
Loans Past Due |
|
|
|
Total |
|
|
| ||||||
As of March 31, 2014 |
|
Days |
|
Days |
|
Over 90 Days |
|
|
|
Past Due & |
|
Loans Not |
| ||||||
(in thousands) |
|
Past Due |
|
Past Due |
|
Still Accruing |
|
Non-accrual |
|
Non-accrual |
|
Past Due |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Commercial |
|
$ |
147 |
|
$ |
— |
|
$ |
— |
|
$ |
299 |
|
$ |
446 |
|
$ |
31,328 |
|
Real estate construction |
|
— |
|
— |
|
— |
|
— |
|
— |
|
11,837 |
| ||||||
Real estate mortgage: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
1-4 family residential |
|
2,328 |
|
49 |
|
634 |
|
2,059 |
|
5,070 |
|
190,887 |
| ||||||
Multi-family residential |
|
— |
|
— |
|
— |
|
274 |
|
274 |
|
18,754 |
| ||||||
Non-farm & non-residential |
|
194 |
|
— |
|
— |
|
970 |
|
1,164 |
|
128,788 |
| ||||||
Agricultural |
|
340 |
|
— |
|
232 |
|
217 |
|
789 |
|
67,687 |
| ||||||
Consumer |
|
82 |
|
26 |
|
1 |
|
1 |
|
110 |
|
16,678 |
| ||||||
Other |
|
— |
|
— |
|
— |
|
— |
|
— |
|
200 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total |
|
$ |
3,091 |
|
$ |
75 |
|
$ |
867 |
|
$ |
3,820 |
|
$ |
7,853 |
|
$ |
466,159 |
|
|
|
30-59 |
|
60-89 |
|
Greater than |
|
|
|
Total |
|
|
| ||||||
As of December 31, 2013 |
|
Days |
|
Days |
|
90 Days |
|
|
|
Past Due & |
|
Loans Not |
| ||||||
(in thousands) |
|
Past Due |
|
Past Due |
|
Past Due |
|
Non-accrual |
|
Non-accrual |
|
Past Due |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Commercial |
|
$ |
49 |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
49 |
|
$ |
34,605 |
|
Real estate construction |
|
175 |
|
— |
|
— |
|
— |
|
175 |
|
11,002 |
| ||||||
Real estate mortgage: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
1-4 family residential |
|
1,981 |
|
1,285 |
|
314 |
|
1,171 |
|
4,751 |
|
189,637 |
| ||||||
Multi-family residential |
|
— |
|
— |
|
— |
|
275 |
|
275 |
|
16,145 |
| ||||||
Non-farm & non-residential |
|
503 |
|
— |
|
— |
|
803 |
|
1,306 |
|
125,485 |
| ||||||
Agricultural |
|
155 |
|
— |
|
232 |
|
717 |
|
1,104 |
|
66,898 |
| ||||||
Consumer |
|
102 |
|
27 |
|
8 |
|
8 |
|
145 |
|
16,920 |
| ||||||
Other |
|
— |
|
— |
|
— |
|
— |
|
— |
|
158 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total |
|
$ |
2,965 |
|
$ |
1,312 |
|
$ |
554 |
|
$ |
2,974 |
|
$ |
7,805 |
|
$ |
460,850 |
|
Troubled Debt Restructurings:
The Company has allocated $413 thousand in specific reserves to customers whose loan terms have been modified in troubled debt restructurings as of March 31, 2014. The Company allocated $428 thousand for specific reserves to customers whose loan terms had been modified in troubled debt restructuring as of December 31, 2013. The Company has not committed to lend additional amounts as of March 31, 2014 and December 31, 2013 to customers with outstanding loans that are classified as troubled debt restructurings. There were no troubled debt restructuring for which there was a payment default within twelve months following the modification during the periods ending March 31, 2014 and 2013.
No loans were modified as troubled debt restructurings during the three months ending March 31, 2014 and 2013.
Credit Quality Indicators:
The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis is performed on a quarterly basis. The Company uses the following definitions for risk ratings:
Special Mention. Loans classified as special mention have one or more potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.
Substandard. Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined and documented weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.
Doubtful. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.
Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans.
As of March 31, 2014 and December 31, 2013, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:
As of March 31, 2014 |
|
|
|
Special |
|
|
|
|
| ||||
(in thousands) |
|
Pass |
|
Mention |
|
Substandard |
|
Doubtful |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Commercial |
|
$ |
29,977 |
|
$ |
1,241 |
|
$ |
556 |
|
$ |
— |
|
Real estate construction |
|
10,360 |
|
1,477 |
|
— |
|
— |
| ||||
Real estate mortgage: |
|
|
|
|
|
|
|
|
| ||||
1-4 family residential |
|
178,074 |
|
10,372 |
|
7,486 |
|
25 |
| ||||
Multi-family residential |
|
17,018 |
|
1,564 |
|
446 |
|
— |
| ||||
Non-farm & non-residential |
|
124,648 |
|
3,872 |
|
1,432 |
|
— |
| ||||
Agricultural |
|
54,631 |
|
12,290 |
|
1,555 |
|
— |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Total |
|
$ |
414,708 |
|
$ |
30,816 |
|
$ |
11,475 |
|
$ |
25 |
|
As of December 31, 2013 |
|
|
|
Special |
|
|
|
|
| ||||
(in thousands) |
|
Pass |
|
Mention |
|
Substandard |
|
Doubtful |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Commercial |
|
$ |
32,771 |
|
$ |
1,587 |
|
$ |
296 |
|
$ |
— |
|
Real estate construction |
|
9,660 |
|
1,517 |
|
— |
|
— |
| ||||
Real estate mortgage: |
|
|
|
|
|
|
|
|
| ||||
1-4 family residential |
|
176,553 |
|
10,346 |
|
7,489 |
|
— |
| ||||
Multi-family residential |
|
14,392 |
|
1,579 |
|
449 |
|
— |
| ||||
Non-farm & non-residential |
|
120,195 |
|
5,327 |
|
1,269 |
|
— |
| ||||
Agricultural |
|
56,713 |
|
7,297 |
|
3,992 |
|
— |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
410,284 |
|
$ |
27,653 |
|
$ |
13,495 |
|
$ |
— |
|
For consumer loans, the Company evaluates the credit quality based on the aging of the recorded investment in loans, which was previously presented. Non-performing consumer loans are loans which are greater than 90 days past due or on non-accrual status, and total $2 thousand at March 31, 2014 and $16 thousand at December 31, 2013.
4. REAL ESTATE OWNED
Activity in real estate owned, net was as follows:
|
|
Three Months Ended |
| ||||
|
|
2014 |
|
2013 |
| ||
|
|
(in thousands) |
| ||||
|
|
|
|
|
| ||
Beginning of year |
|
$ |
3,379 |
|
$ |
4,168 |
|
Additions |
|
141 |
|
82 |
| ||
Sales |
|
(277 |
) |
(28 |
) | ||
Additions to valuation allowance, net |
|
— |
|
— |
| ||
Recovery from sale in valuation allowance |
|
13 |
|
— |
| ||
|
|
|
|
|
| ||
End of period |
|
$ |
3,256 |
|
$ |
4,222 |
|
Activity in the valuation allowance was as follows:
|
|
Three Months Ended |
| ||||
|
|
2014 |
|
2013 |
| ||
|
|
(in thousands) |
| ||||
|
|
|
|
|
| ||
Beginning of year |
|
$ |
1,524 |
|
$ |
1,668 |
|
Additions to valuation allowance, net |
|
— |
|
— |
| ||
Recovery from sale |
|
(13 |
) |
— |
| ||
|
|
|
|
|
| ||
End of period |
|
$ |
1,511 |
|
$ |
1,668 |
|
Expenses related to foreclosed assets include:
|
|
Three Months Ended |
| ||||
|
|
2014 |
|
2013 |
| ||
|
|
(in thousands) |
| ||||
|
|
|
|
|
| ||
Net loss (gain) on sales |
|
$ |
(46 |
) |
$ |
(5 |
) |
|
|
|
|
|
| ||
Additions to valuation allowance, net |
|
— |
|
— |
| ||
Operating expenses (receipts), net of rental income |
|
(2 |
) |
67 |
| ||
|
|
|
|
|
| ||
Repossession expenses, net |
|
(2 |
) |
67 |
| ||
|
|
|
|
|
| ||
End of period |
|
$ |
(48 |
) |
$ |
62 |
|
5. EARNINGS PER SHARE
Basic earnings per common share is net income divided by the weighted average number of common shares outstanding during the period. Diluted earnings per common share includes the dilutive effect of additional potential common shares issuable under stock options.
The factors used in the earnings per share computation follow:
|
|
Three Months Ended |
| ||||
|
|
March 31 |
| ||||
|
|
2014 |
|
2013 |
| ||
|
|
(in thousands) |
| ||||
|
|
|
|
|
| ||
Basic Earnings Per Share |
|
|
|
|
| ||
Net Income |
|
$ |
1,771 |
|
$ |
1,709 |
|
Weighted average common shares outstanding |
|
2,702 |
|
2,703 |
| ||
Basic earnings per share |
|
$ |
0.66 |
|
$ |
0.63 |
|
|
|
|
|
|
| ||
Diluted Earnings Per Share |
|
|
|
|
| ||
Net Income |
|
$ |
1,771 |
|
$ |
1,709 |
|
Weighted average common shares outstanding |
|
2,702 |
|
2,703 |
| ||
Add dilutive effects of assumed vesting of stock grants |
|
— |
|
— |
| ||
Weighted average common and dilutive potential common shares outstanding |
|
2,702 |
|
2,703 |
| ||
Diluted earnings per share |
|
$ |
0.66 |
|
$ |
0.63 |
|
Stock options for 12,725 shares of common stock for the three months ended March 31, 2014 and 19,500 shares of common stock for three months ended March 31, 2013 were excluded from diluted earnings per share because their impact was antidilutive.
6. STOCK COMPENSATION
We have four stock based compensation plans as described below.
Two Stock Option Plans
Under our now expired 1999 Employee Stock Option Plan (the “1999 Plan”), we granted certain officers and key employees stock option awards which vest and become fully exercisable at the end of five years and provide for issuance of up to 100,000 options. Under the now expired 1993 Non-Employee Directors Stock Ownership Incentive Plan (together with the 1999 Plan, the “Stock Option Plans”), we also granted certain directors stock option awards which vest and become fully exercisable immediately and provide for issuance of up to 20,000 options. For each Stock Option Plan, the exercise price of each option, which has a ten year life, was equal to the market price of our stock on the date of grant.
The combined summary of activity for 2014 in the expired Stock Option Plans follows:
|
|
|
|
|
|
Weighted |
|
|
| ||
|
|
|
|
Weighted |
|
Average |
|
|
| ||
|
|
|
|
Average |
|
Remaining |
|
Aggregate |
| ||
|
|
|
|
Exercise |
|
Contractual |
|
Intrinsic |
| ||
|
|
Shares |
|
Price |
|
Term |
|
Value |
| ||
Outstanding, beginning of year |
|
19,100 |
|
$ |
31.50 |
|
|
|
|
| |
Granted |
|
— |
|
— |
|
|
|
|
| ||
Forfeited or expired |
|
(6,375 |
) |
33.56 |
|
|
|
|
| ||
Exercised |
|
— |
|
— |
|
|
|
|
| ||
Outstanding, end of period |
|
12,725 |
|
$ |
30.46 |
|
13.9 months |
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
| ||
Vested and expected to vest |
|
12,725 |
|
$ |
30.46 |
|
13.9 months |
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
| ||
Exercisable, end of period |
|
12,725 |
|
$ |
30.46 |
|
13.9 months |
|
$ |
— |
|
As of March 31, 2014, there was no unrecognized compensation cost related to nonvested stock options granted under either Stock Option Plan. Since both Stock Option Plans have expired, no additional options can be granted under either of these plans.
2005 Restricted Stock Grant Plan
On May 10, 2005, our stockholders approved a restricted stock grant plan. Total shares issuable under the plan are 50,000. We issued 7,475 shares during 2014 and 6,065 shares during 2013. There were no shares forfeited during the first three months of 2014 or 2013. As of March 31, 2014, the restricted stock grant plan allows for additional restricted stock share awards of up to 4,995 shares.
A summary of changes in the Company’s nonvested shares for the year follows:
|
|
|
|
Weighted-Average |
|
Fair |
| ||
|
|
|
|
Grant-Date |
|
Value |
| ||
Nonvested Shares |
|
Shares |
|
Fair Value |
|
Per Share |
| ||
|
|
|
|
|
|
|
| ||
Nonvested at January 1, 2014 |
|
15,565 |
|
$ |
280,016 |
|
$ |
17.99 |
|
Granted |
|
7,475 |
|
181,194 |
|
24.24 |
| ||
Vested |
|
(4,756 |
) |
(84,518 |
) |
17.77 |
| ||
Forfeited |
|
— |
|
— |
|
— |
| ||
|
|
|
|
|
|
|
| ||
Nonvested at March 31, 2014 |
|
18,284 |
|
$ |
376,692 |
|
$ |
20.60 |
|
As of March 31, 2014, there was $353,484 of total unrecognized compensation cost related to nonvested shares granted under the restricted stock grant plan. The cost is expected to be recognized over a weighted-average period of 5 years.
2009 Stock Award Plan
On May 13, 2009, our stockholders approved a stock award plan that provides for the granting of both incentive and nonqualified stock options and other share based awards. Total shares issuable under the plan are 150,000. We issued no stock grants during the first three months of 2014 and 900 shares during the first three months of 2013. As of March 31, 2014, 149,100 shares are still available for issuance.
A summary of changes in the Company’s nonvested shares for the year follows:
|
|
|
|
Weighted-Average |
|
Fair |
| ||
|
|
|
|
Grant-Date |
|
Value |
| ||
Nonvested Shares |
|
Shares |
|
Fair Value |
|
Per Share |
| ||
|
|
|
|
|
|
|
| ||
Nonvested at January 1, 2014 |
|
900 |
|
$ |
20,880 |
|
$ |
23.20 |
|
Granted |
|
— |
|
— |
|
— |
| ||
Vested |
|
(180 |
) |
(4,176 |
) |
23.20 |
| ||
Forfeited |
|
— |
|
— |
|
— |
| ||
|
|
|
|
|
|
|
| ||
Nonvested at March 31, 2014 |
|
720 |
|
$ |
16,704 |
|
$ |
23.20 |
|
As of March 31, 2014, there was $16,356 of total unrecognized compensation cost related to nonvested shares granted under the restricted stock grant plan. The cost is expected to be recognized over a weighted-average period of 5 years.
7. OTHER BORROWINGS
The Company has a $5 million revolving promissory note which is scheduled to mature July 27, 2014. The Company has no outstanding balances related to this promissory note at March 31, 2014.
8. FAIR VALUE MEASUREMENTS
ASC Topic 820, “Fair Value Measurements and Disclosures”, defines fair value, establishes a framework for measuring fair value, and sets forth disclosures about fair value measurements. ASC Topic 825, “Financial Instruments”, allows entities to choose to measure certain financial assets and liabilities at fair value. The Company has not elected the fair value option for any financial assets or liabilities.
ASC Topic 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. It also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. This Topic describes three levels of inputs that may be used to measure fair value:
Level 1 — Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.
Level 2 — Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
Level 3 — Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.
The Company used the following methods and significant assumptions to estimate the fair value:
Investment Securities and Trading Assets: The fair values for available for sale investment securities and trading assets are determined by quoted market prices, if available (Level 1). For securities where quoted prices are not available, fair values are calculated based on market prices of similar securities (Level 2). For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators (Level 3).
Impaired Loans: The fair value of impaired loans with specific allocations of the allowance for loan losses is generally based on recent third party real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value.
Other Real Estate Owned: The fair value of certain commercial and residential real estate properties classified as other real estate owned (OREO) are generally based on third party appraisals of the property, resulting in a Level 3 classification. In cases where the carrying amount exceeds the fair value, less costs to sell, an impairment loss is recognized.
Mortgage Servicing Rights: Fair value is based on market prices for comparable mortgage servicing contracts, when available, or alternatively based on a valuation model that calculates the present value of estimated future net servicing income, resulting in a Level 3 classification.
Assets and Liabilities Measured on a Recurring Basis
Available for sale investment securities and trading assets are the Company’s only balance sheet items that meet the disclosure requirements for instruments measured at fair value on a recurring basis. Disclosures are as follows in the tables below.
Fair Value Measurements at March 31, 2014 Using (In thousands):
|
|
|
|
Quoted Prices |
|
|
|
|
| ||||
|
|
|
|
In Active |
|
|
|
|
| ||||
|
|
|
|
Markets for |
|
Significant Other |
|
Significant |
| ||||
|
|
|
|
Identical |
|
Observable |
|
Unobservable |
| ||||
|
|
Fair |
|
Assets |
|
Inputs |
|
Inputs |
| ||||
Description |
|
Value |
|
(Level 1) |
|
(Level 2) |
|
(Level 3) |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
U. S. government agencies |
|
$ |
71,362 |
|
$ |
— |
|
$ |
71,362 |
|
$ |
— |
|
States and municipals |
|
92,675 |
|
— |
|
92,675 |
|
— |
| ||||
Mortgage-backed - residential |
|
72,036 |
|
— |
|
72,036 |
|
— |
| ||||
Equity securities |
|
291 |
|
291 |
|
— |
|
— |
| ||||
Trading Assets |
|
5,108 |
|
5,108 |
|
— |
|
— |
| ||||
Total |
|
$ |
241,472 |
|
$ |
5,399 |
|
$ |
236,073 |
|
$ |
— |
|
Available for Sale Investment Securities Fair Value Measurements at December 31, 2013 Using (In thousands):
|
|
|
|
Quoted Prices |
|
|
|
|
| ||||
|
|
|
|
In Active |
|
|
|
|
| ||||
|
|
|
|
Markets for |
|
Significant Other |
|
Significant |
| ||||
|
|
|
|
Identical |
|
Observable |
|
Unobservable |
| ||||
|
|
Fair |
|
Assets |
|
Inputs |
|
Inputs |
| ||||
Description |
|
Value |
|
(Level 1) |
|
(Level 2) |
|
(Level 3) |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
U. S. government agencies |
|
$ |
69,286 |
|
$ |
— |
|
$ |
69,286 |
|
$ |
— |
|
States and municipals |
|
90,183 |
|
— |
|
90,183 |
|
— |
| ||||
Mortgage-backed - residential |
|
70,638 |
|
— |
|
70,638 |
|
— |
| ||||
Equity securities |
|
289 |
|
289 |
|
— |
|
— |
| ||||
Total |
|
$ |
230,396 |
|
$ |
289 |
|
$ |
230,107 |
|
$ |
— |
|
The Company held no trading assets at December 31, 2013. Also, there were no transfers between level 1 and level 2 during 2014 or 2013.
Assets measured at fair value on a non-recurring basis are summarized below:
(In thousands)
|
|
Fair Value Measurements at March 31, 2014 Using: |
| ||||||||
|
|
|
|
Quoted Prices |
|
|
|
|
| ||
|
|
|
|
In Active |
|
|
|
Other |
| ||
|
|
|
|
Markets for |
|
Significant |
|
Significant |
| ||
|
|
|
|
Identical |
|
Observable |
|
Unobservable |
| ||
|
|
Carrying |
|
Assets |
|
Inputs |
|
Inputs |
| ||
Description |
|
Value |
|
(Level 1) |
|
(Level 2) |
|
(Level 3) |
| ||
|
|
|
|
|
|
|
|
|
| ||
Impaired loans: |
|
|
|
|
|
|
|
|
| ||
Real Estate Mortgage: |
|
|
|
|
|
|
|
|
| ||
1-4 family residential |
|
$ |
300 |
|
— |
|
— |
|
$ |
300 |
|
Multi-family residential |
|
199 |
|
— |
|
— |
|
199 |
| ||
Non-farm & non-residential |
|
1,022 |
|
— |
|
— |
|
1,022 |
| ||
Agricultural |
|
220 |
|
|
|
|
|
220 |
| ||
Other real estate owned: |
|
|
|
|
|
|
|
|
| ||
Residential |
|
1,246 |
|
— |
|
— |
|
1,246 |
| ||
|
|
|
|
|
|
|
|
|
| ||
Loan servicing rights |
|
175 |
|
— |
|
— |
|
175 |
| ||
(In thousands)
|
|
Fair Value Measurements at December 31, 2013 Using: |
| ||||||||
|
|
|
|
Quoted Prices |
|
|
|
|
| ||
|
|
|
|
In Active |
|
|
|
Other |
| ||
|
|
|
|
Markets for |
|
Significant |
|
Significant |
| ||
|
|
|
|
Identical |
|
Observable |
|
Unobservable |
| ||
|
|
Carrying |
|
Assets |
|
Inputs |
|
Inputs |
| ||
Description |
|
Value |
|
(Level 1) |
|
(Level 2) |
|
(Level 3) |
| ||
Impaired loans: |
|
|
|
|
|
|
|
|
| ||
Real Estate Mortgage: |
|
|
|
|
|
|
|
|
| ||
1-4 family residential |
|
$ |
1,420 |
|
— |
|
— |
|
$ |
1,420 |
|
Multi-family residential |
|
199 |
|
— |
|
— |
|
199 |
| ||
Non-farm & non-residential |
|
36 |
|
— |
|
— |
|
36 |
| ||
Agricultural |
|
275 |
|
— |
|
— |
|
275 |
| ||
|
|
|
|
|
|
|
|
|
| ||
Other real estate owned: |
|
|
|
|
|
|
|
|
| ||
Residential |
|
1,361 |
|
— |
|
— |
|
1,361 |
| ||
Loan servicing rights |
|
201 |
|
— |
|
— |
|
201 |
| ||
Impaired loans, which are measured for impairment using the fair value of the collateral for collateral dependent loans, had a carrying amount of $1.7 million, which includes a valuation allowance of $555 thousand at March 31, 2014. During the first three months of 2014, one new loan became impaired resulting in an additional provision for loan losses of $282 thousand. The total allowance for specific impaired loans increased $134 thousand for the three months ending March 31, 2014 and decreased $454 thousand for the three months ending March 31, 2013.
Other real estate owned, which is measured at fair value less costs to sell, had a net carrying amount of $1.2 million, which is made up of the outstanding balance of $2.7 million, net of a valuation allowance of $1.5 million at March 31, 2014. The Company recorded no write-downs of other real estate owned properties for the three months ending both March 31, 2014 and 2013.
Loan servicing rights, which are carried at the lower of cost or fair value, were carried at their fair value of $175 thousand, which is made up of the outstanding balance of $229 thousand, net of a valuation allowance of $54 thousand at March 31, 2014, resulting in a net recovery of prior write-downs of $5 thousand for the three months ending March 31, 2014 and write-downs of $73 thousand for the three months ending March 31, 2013. At December 31, 2013, loan servicing rights were carried at their fair value of $201 thousand, which is made up of the outstanding balance of $260 thousand, net of a valuation allowance of $59 thousand.
The following table presents quantitative information about level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis at March 31, 2014 and December 31, 2013:
March 31, 2014
(In thousands)
|
|
|
|
|
|
|
|
Range |
|
|
Fair |
|
Valuation |
|
Unobservable |
|
(Weighted |
|
|
Value |
|
Technique(s) |
|
Input(s) |
|
Average) |
Impaired loans |
|
|
|
|
|
|
|
|
Real estate mortgage: |
|
|
|
|
|
|
|
|
1-4 family residential |
|
300 |
|
sales comparison |
|
adjustment for |
|
0%-99% |
|
|
|
|
|
|
differences |
|
(11%) |
|
|
|
|
|
|
between the |
|
|
|
|
|
|
|
|
comparable sales |
|
|
Multi-family residential |
|
199 |
|
sales comparison |
|
adjustment for |
|
12%-32% |
|
|
|
|
|
|
differences |
|
(16%) |
|
|
|
|
|
|
between the |
|
|
|
|
|
|
|
|
comparable sales |
|
|
Non-farm & non-residential |
|
1,022 |
|
sales comparison |
|
adjustment for |
|
0%-61% |
|
|
|
|
|
|
differences |
|
(20%) |
|
|
|
|
|
|
between the |
|
|
|
|
|
|
|
|
comparable sales |
|
|
Agricultural: |
|
220 |
|
sales comparison |
|
adjustment for |
|
5%-44% |
|
|
|
|
|
|
differences |
|
(24%) |
|
|
|
|
|
|
between the |
|
|
|
|
|
|
|
|
comparable sales |
|
|
Other real estate owned: |
|
|
|
|
|
|
|
|
Residential |
|
1,246 |
|
sales comparison |
|
adjustment for |
|
0%-17% |
|
|
|
|
|
|
differences |
|
(6%) |
|
|
|
|
|
|
between the |
|
|
|
|
|
|
|
|
comparable sales |
|
|
|
|
|
|
income approach |
|
capitalization rate |
|
8%-8% |
|
|
|
|
|
|
|
|
(8%) |
Loan Servicing Rights |
|
175 |
|
discounted cash flow |
|
constant prepayment |
|
7%-19% |
|
|
|
|
|
|
rates |
|
(9%) |
December 31, 2013
(In thousands)
|
|
|
|
|
|
|
|
Range |
|
|
Fair |
|
Valuation |
|
Unobservable |
|
(Weighted |
|
|
Value |
|
Technique(s) |
|
Input(s) |
|
Average) |
Impaired loans |
|
|
|
|
|
|
|
|
Real estate mortgage: |
|
|
|
|
|
|
|
|
1-4 family residential |
|
1,420 |
|
sales comparison |
|
adjustment for |
|
0%-99% |
|
|
|
|
|
|
differences |
|
(14%) |
|
|
|
|
|
|
between the |
|
|
|
|
|
|
|
|
comparable sales |
|
|
Multi-family residential |
|
199 |
|
sales comparison |
|
adjustment for |
|
12%-32% |
|
|
|
|
|
|
differences |
|
(22%) |
|
|
|
|
|
|
between the |
|
|
|
|
|
|
|
|
comparable sales |
|
|
Non-farm & non-residential |
|
36 |
|
sales comparison |
|
adjustment for |
|
0%-61% |
|
|
|
|
|
|
differences |
|
(31%) |
|
|
|
|
|
|
between the |
|
|
|
|
|
|
|
|
comparable sales |
|
|
Agricultural |
|
275 |
|
sales comparison |
|
adjustment for |
|
5%-44% |
|
|
|
|
|
|
differences |
|
(20%) |
|
|
|
|
|
|
between the |
|
|
|
|
|
|
|
|
comparable sales |
|
|
Other real estate owned: |
|
|
|
|
|
|
|
|
Residential |
|
1,361 |
|
sales comparison |
|
adjustment for |
|
0%-33% |
|
|
|
|
|
|
differences |
|
(4%) |
|
|
|
|
|
|
between the |
|
|
|
|
|
|
|
|
comparable sales |
|
|
|
|
|
|
income approach |
|
capitalization rate |
|
8%-8% |
|
|
|
|
|
|
|
|
(8%) |
Loan Servicing Rights |
|
201 |
|
discounted cash |
|
constant prepayment |
|
7%-23% |
|
|
|
|
flow |
|
rates |
|
(10%) |
Fair Value of Financial Instruments
The carrying amounts and estimated fair values of financial instruments, at March 31, 2014 and December 31, 2013 are as follows:
March 31, 2014:
(in thousands)
|
|
Carrying |
|
|
|
|
|
|
|
|
| |||||
|
|
Value |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
| |||||
Financial assets |
|
|
|
|
|
|
|
|
|
|
| |||||
Cash and cash equivalents |
|
$ |
21,877 |
|
$ |
21,877 |
|
$ |
— |
|
$ |
— |
|
$ |
21,877 |
|
Securities |
|
236,364 |
|
291 |
|
236,073 |
|
— |
|
236,364 |
| |||||
Trading Assets |
|
5,108 |
|
5,108 |
|
— |
|
|
|
5,108 |
| |||||
Mortgage loans held for sale |
|
149 |
|
— |
|
151 |
|
— |
|
151 |
| |||||
Loans, net |
|
468,396 |
|
— |
|
— |
|
468,085 |
|
468,085 |
| |||||
FHLB Stock |
|
5,981 |
|
— |
|
— |
|
— |
|
N/A |
| |||||
Interest receivable |
|
3,484 |
|
— |
|
1,464 |
|
2,020 |
|
3,484 |
| |||||
Financial liabilities |
|
|
|
|
|
|
|
|
|
|
| |||||
Deposits |
|
$ |
628,004 |
|
$ |
442,065 |
|
$ |
187,894 |
|
$ |
— |
|
$ |
629,959 |
|
Securities sold under agreements to repurchase and other borrowings |
|
11,402 |
|
— |
|
11,546 |
|
— |
|
11,546 |
| |||||
FHLB advances |
|
57,380 |
|
— |
|
53,066 |
|
— |
|
53,066 |
| |||||
Subordinated Debentures |
|
7,217 |
|
— |
|
— |
|
7,217 |
|
7,217 |
| |||||
Interest payable |
|
709 |
|
— |
|
700 |
|
9 |
|
709 |
|
December 31, 2013:
(in thousands)
|
|
Carrying |
|
|
|
|
|
|
|
|
| |||||
|
|
Value |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
| |||||
Financial assets |
|
|
|
|
|
|
|
|
|
|
| |||||
Cash and cash equivalents |
|
$ |
23,160 |
|
$ |
23,160 |
|
$ |
— |
|
$ |
— |
|
$ |
23,160 |
|
Securities |
|
230,396 |
|
289 |
|
230,107 |
|
— |
|
230,396 |
| |||||
Mortgage loans held for sale |
|
223 |
|
— |
|
229 |
|
— |
|
229 |
| |||||
Loans, net |
|
463,214 |
|
— |
|
— |
|
459,796 |
|
459,796 |
| |||||
FHLB Stock |
|
6,731 |
|
— |
|
— |
|
— |
|
N/A |
| |||||
Interest receivable |
|
3,618 |
|
— |
|
1,315 |
|
2,303 |
|
3,618 |
| |||||
Financial liabilities |
|
|
|
|
|
|
|
|
|
|
| |||||
Deposits |
|
$ |
617,400 |
|
$ |
428,239 |
|
$ |
191,523 |
|
$ |
— |
|
$ |
619,762 |
|
Securities sold under agreements to repurchase and other borrowings |
|
12,867 |
|
— |
|
13,013 |
|
— |
|
13,013 |
| |||||
FHLB advances |
|
57,847 |
|
— |
|
52,220 |
|
— |
|
52,220 |
| |||||
Subordinated Debentures |
|
7,217 |
|
— |
|
— |
|
7,217 |
|
7,217 |
| |||||
Interest Payable |
|
736 |
|
|
|
727 |
|
9 |
|
736 |
|
The methods and assumptions, not previously presented, used to estimate fair values are described as follows:
Cash and Cash Equivalents - The carrying amounts of cash and short-term instruments approximate fair values and are classified as Level 1.
FHLB Stock - It is not practical to determine the fair value of FHLB stock due to restrictions placed on its transferability.
Loans - Fair values of loans, excluding loans held for sale, are estimated as follows: For variable rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values resulting in a Level 3 classification. Fair values for other loans are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality resulting in a Level 3 classification. Impaired loans are valued at the lower of cost or fair value as described previously. The methods used to estimate the fair value of loans do not necessarily represent an exit price.
The fair value of loans held for sale is estimated based upon binding contracts and quotes from third party investors resulting in a Level 2 classification.
Deposits - The fair values disclosed for demand deposits (e.g., interest and non-interest checking, passbook savings, and certain types of money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amount) resulting in a Level 1 classification. The carrying amounts of variable rate, fixed-term money market accounts and certificates of deposit approximate their fair values at the reporting date resulting in a Level 1 classification. Fair values for fixed rate certificates of deposit are estimated using a discounted cash flows calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits resulting in a Level 2 classification.
Securities Sold Under Agreements to Repurchase and Other Borrowings - The carrying amounts of borrowings under repurchase agreements approximate their fair values resulting in a Level 2 classification.
The carrying amount of the Company’s variable rate borrowings approximate their fair values resulting in a Level 2 classification.
FHLB Advances and Subordinated Debentures - The fair values of the Company’s FHLB advances are estimated using discounted cash flow analyses based on the current borrowing rates for similar types of borrowing arrangements resulting in a Level 2 classification.
The fair values of the Company’s Subordinated Debentures are estimated using discounted cash flow analyses based on the current borrowing rates for similar types of borrowing arrangements resulting in a Level 3 classification.
Accrued Interest Receivable/Payable - The carrying amounts of accrued interest approximate fair value resulting in a Level 2 or Level 3 classification based on the level of the related asset/liability.
Off-balance Sheet Instruments - Fair values for off-balance sheet, credit-related financial instruments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standing. The fair value of off-balance sheet instruments is not material.
9. CHANGES IN ACCUMULATED OTHER COMPREHENSIVE INCOME BY COMPONENT
Changes in Accumulated Other Comprehensive Income by Component (1) (unaudited)
(in thousands)
|
|
Unrealized |
| ||||
|
|
Gains and Losses on |
| ||||
|
|
Available for Sale |
| ||||
|
|
Securities |
| ||||
|
|
For the Three Months Ending March 31 |
| ||||
|
|
2014 |
|
2013 |
| ||
Beginning Balance |
|
$ |
(5,126 |
) |
$ |
4,283 |
|
Unrealized holding gains (losses) for the period, net of tax |
|
3,375 |
|
(1,061 |
) | ||
Reclassification adjustment for: |
|
|
|
|
| ||
Securities gains realized in income, net |
|
(188 |
) |
(289 |
) | ||
Income taxes |
|
(64 |
) |
(98 |
) | ||
|
|
(124 |
) |
(191 |
) | ||
Net current period other comprehensive income |
|
3,251 |
|
(1,252 |
) | ||
Ending balance |
|
$ |
(1,875 |
) |
$ |
3,031 |
|
(1) All amounts are net of tax.
The following is significant amounts reclassified out of each component of accumulated other comprehensive Income (Loss) for the three months ending March 31, 2014 and 2013:
March 31, 2014
Details about |
|
Amount |
|
Affected Line Item |
| |
Accumulated Other |
|
Reclassified From |
|
in the Statement |
| |
Comprehensive |
|
Accumulated Other |
|
Where Net |
| |
Income Components |
|
Comprehensive Income |
|
Income is Presented |
| |
Unrealized gains and losses on available-for-sale securities |
|
$ |
(188 |
) |
Securities gains, net |
|
|
|
64 |
|
Provision for income taxes |
| |
|
|
(124 |
) |
Net of tax |
| |
March 31, 2013
Details about |
|
Amount |
|
Affected Line Item |
| |
Accumulated Other |
|
Reclassified From |
|
in the Statement |
| |
Comprehensive |
|
Accumulated Other |
|
Where Net |
| |
Income Components |
|
Comprehensive Income |
|
Income is Presented |
| |
Unrealized gains and losses on available-for-sale securities |
|
$ |
(289 |
) |
Securities gains, net |
|
|
|
98 |
|
Provision for income taxes |
| |
|
|
(191 |
) |
Net of tax |
| |
Item 2 — MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
The following discussion provides information about the financial condition and results of operations of the Company and its subsidiaries as of the dates and periods indicated. This discussion and analysis should be read in conjunction with the unaudited consolidated financial statements and Notes thereto appearing elsewhere in this report and the Management’s Discussion and Analysis in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013.
This discussion contains forward-looking statements under the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the federal securities laws. These statements are not historical facts, but rather statements based on our current expectations regarding our business strategies and their intended results and our future performance. Forward-looking statements are preceded by terms such as “expects,” “believes,” “anticipates,” “intends,” “estimates,” “potential,” “may,” and similar expressions.
Although we believe that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could be inaccurate, and therefore, there can be no assurance that the forward-looking statements included herein will prove to be accurate. Factors that could cause actual results to differ from the results discussed in the forward-looking statements include, but are not limited to: economic conditions (both generally and more specifically in the markets, including the tobacco market and the thoroughbred horse industry, in which we and our Bank operate); competition for our subsidiary’s customers from other providers of financial and mortgage services; government legislation, regulation and monetary policy (which changes from time to time and over which we have no control); changes in interest rates (both generally and more specifically mortgage interest rates); material unforeseen changes in the liquidity, results of operations, or financial condition of our subsidiary’s customers; adequacy of the allowance for losses on loans and the level of future provisions for losses on loans; and other risks detailed in our filings with the Securities and Exchange Commission, all of which are difficult to predict and many of which are beyond our control.
As a result of the uncertainties and the assumptions on which this discussion and the forward-looking statements are based, actual future operations and results in the future may differ materially from those indicated herein.
You should not place undue reliance on any forward-looking statements made by us or on our behalf. Our forward-looking statements are made as of the date of this report, and we undertake no obligation to republish revised forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.
Summary
The Company recorded net income of $1.77 million, or $0.66 basic earnings and diluted earnings per share for the first three months ending March 31, 2014 compared to $1.70 million or $0.63 basic earnings and diluted earnings per share for the three month period ended March 31, 2013. The first three months earnings reflect an increase of 3.6% compared to the same time period in 2013. The increase in earnings is mostly attributed to a decrease of $350 thousand in the provision for loan losses, an increase of $215 thousand in net interest income, a decrease of $109 thousand in income tax expense, an increase of $81 thousand in loan service fee income, an increase of $71 thousand in the gains on securities held for trading and a decrease of $69 thousand in net repossession expense. These positive changes to net income during 2014 were partially offset by a decrease of $469 thousand in the gains on the sale of mortgage loans, a decrease of $101 thousand in the gains on the sale of securities, an increase of $312 thousand in salaries & benefits expense and an increase of $130 thousand in occupancy expense.
Return on average assets was 0.91% for the three months ending March 31, 2014 and 0.96% for the three months ending March 31, 2013. Return on average equity was 10.0% for the three month period ending March 31, 2014 and 9.2% for the three month period ending March 31, 2013.
In January 2014, the Bank invested $5.0 million in trading securities which are shown as trading assets on the balance sheet. This is the first quarter in which the Bank has held trading assets. The decision was made to invest in these assets after much due diligence and consideration to the fact that management believed the Company could earn a higher return on this investment, compared to other investments, with minimized additional risk due to the short-term attributes of the assets. The assets are primarily comprised of municipal securities which are held for a very short period of time and generate additional profits primarily by taking gains on short-term differences in price. At March 31, 2014, trading assets totaled $5.1 million, which represents income on the investment of $108 thousand during the first quarter of 2014.
Gross Loans increased $5.3 million from $468.7 million on December 31, 2013 to $474.0 million on March 31, 2014. The overall increase in loans is attributed to an increase of $1.6 million in 1-4 family residential properties, an increase of $3.2 million in non-farm and non-residential properties, an increase of $2.6 million in multi-family residential properties, an increase of $660 thousand in real estate construction loans and an increase of $474 thousand in agricultural loans. Commercial loan balances decreased $2.9 million and consumer loan balances decreased $277 thousand.
Total deposits increased from $617.4 million on December 31, 2013 to $628.0 million on March 31, 2014, an increase of $10.6 million. Non-interest bearing demand deposit accounts increased $13.6 million from December 31, 2013 to March 31, 2014. Time deposits $100 thousand and over increased $289 thousand and other interest bearing deposit accounts decreased $3.3 million from December 31, 2013 to March 31, 2014. Public fund accounts decreased $9.4 million from December 31, 2013 to March 31, 2014. Public fund accounts typically decrease during the first three quarters of the year and increase during the last quarter of the year due to tax monies collected during the fourth quarter and then withdrawn from the Bank in the following months.
Borrowings from the Federal Home Loan Bank decreased $467 thousand from December 31, 2013 to March 31, 2014.
Net Interest Income
Net interest income is the difference between interest income earned on interest-earning assets and the interest expense paid on interest-bearing liabilities.
Net interest income was $6.3 million for the three months ending March 31, 2014 compared to $6.1 million for the three months ending March 31, 2013, an increase of 3.5%. The interest spread, excluding tax equivalent adjustments was 3.41% for the first three months of 2014 and down from 3.97% reported for the same period in 2013, a decrease of 56 basis points. Rates have remained fairly low in the past year. For the first three months ending March 31, 2014, the cost of total deposits was 0.35% compared to 0.40% for the same time period in 2013. Increasing non-interest bearing deposit accounts and lower rates on certificates of deposit accounts have helped to lower the cost of deposits.
For the first three months, the yield on assets decreased from 4.24% in 2013 to 3.94% in 2014, excluding tax equivalent adjustments. The yield on loans decreased 52 basis points in the first three months of 2014 compared to 2013 from 5.44% to 4.92%. The yield on securities increased 11 basis points in the first three months of 2014 compared to 2013 from 2.29% in 2013 to 2.40% in 2014. The cost of liabilities was 0.53% both in 2013 and 2014. Year to date average loans, excluding overdrafts, increased $48.0 million, or 11.3% from March 31, 2013 to March 31, 2014. Loan interest income increased $35 thousand for the first three months of 2014 compared to the first three months of 2013. Year to date average total deposits increased from March 31, 2013 to March 31, 2014, up $27.2 million or 4.5%. Year to date average interest bearing deposits increased $14.9 million, or 3.3%, from March 31, 2013 to March 31, 2014. Deposit interest expense decreased $51 thousand for the first three months of 2014 compared to the same period in 2013. Year to date average borrowings increased $48.7 million, or 63.8% from March 31, 2013 to March 31, 2014. Interest expense on borrowed funds increased $162 thousand for the first three months of 2014 compared to the same period in 2013.
The volume rate analysis for the three months ending March 31, 2014 which follows indicates that $2.4 million of the increase in interest income is attributable to an increase in loan volume and $203 thousand of the increase in interest income is attributable to an increase in the volume of our security portfolio. Further, a decrease in loan rates caused a decrease of $2.4 million to interest income while an increase in rates in our security portfolio contributed an increase of $95 thousand to interest income. The net effect to interest income was an increase of $326 thousand for the first three months of 2014 compared to the same time period in 2013. The average rate of the Company’s total outstanding deposits and borrowing liabilities decreased from 0.68% in 2013 to 0.35% in 2014. Based on the volume rate analysis that follows, the lower level of interest rates contributed to a decrease of $670 thousand in interest expense, while the change in volume was responsible for a $781 thousand increase in interest expense. As a result, the increase in net interest income for the first three months in 2014 is mostly attributed to growth in the Company’s loan and security portfolios.
The accompanying analysis of changes in net interest income in the following table shows the relationships of the volume and rate portions of these changes in 2014. Changes in interest income and expenses due to both rate and volume are allocated on a pro rata basis.
Changes in Interest Income and Expense
(in thousands)
|
|
Three Months Ending |
| |||||||
|
|
2014 vs. 2013 |
| |||||||
|
|
Increase (Decrease) Due to Change in |
| |||||||
|
|
Volume |
|
Rate |
|
Net Change |
| |||
INTEREST INCOME |
|
|
|
|
|
|
| |||
Loans |
|
$ |
2,396 |
|
$ |
(2,361 |
) |
$ |
35 |
|
Investment Securities |
|
203 |
|
95 |
|
298 |
| |||
Other |
|
(4 |
) |
(3 |
) |
(7 |
) | |||
Total Interest Income |
|
2,595 |
|
(2,269 |
) |
326 |
| |||
INTEREST EXPENSE |
|
|
|
|
|
|
| |||
Deposits |
|
|
|
|
|
|
| |||
Demand |
|
26 |
|
(46 |
) |
(20 |
) | |||
Savings |
|
28 |
|
(25 |
) |
3 |
| |||
Negotiable Certificates of |
|
|
|
|
|
|
| |||
Deposit and Other |
|
|
|
|
|
|
| |||
Time Deposits |
|
(7 |
) |
(27 |
) |
(34 |
) | |||
Securities sold under agreements to repurchase and other borrowings |
|
82 |
|
(68 |
) |
14 |
| |||
Federal Home Loan |
|
|
|
|
|
|
| |||
Bank advances |
|
652 |
|
(504 |
) |
148 |
| |||
Total Interest Expense |
|
781 |
|
(670 |
) |
111 |
| |||
Net Interest Income |
|
$ |
1,814 |
|
$ |
(1,599 |
) |
$ |
215 |
|
Non-Interest Income
Non-interest income decreased $334 thousand for the three months ending March 31, 2014, compared to the same period in 2013, to $2.3 million. The decrease for the three month period ending March 31, 2014 was primarily due to a decrease of $469 thousand in gains on the sale of mortgage loans and a decrease of $101 thousand in gains on the sale of securities. Favorable variances to non-interest income included an increase of $81 thousand in loan service fee income and an increase of $71 thousand in gains on trading assets.
The gain on the sale of mortgage loans decreased from $626 thousand in the first three months of 2013 to $157 thousand during the first three months of 2014, a decrease of $469 thousand. The volume of loans originated to sell during the first three months of 2014 decreased $10.4 million compared to the same time period in 2013. The volume of mortgage loan originations and sales is generally inverse to rate changes. A change in the mortgage loan rate environment can have a significant impact on the related gain on sale of mortgage loans. Loan service fee income, net of amortization expense, was $29 thousand for the three months ending March 31, 2014 compared to $(52) thousand for the three months ending March 31, 2013, an increase of $81 thousand. During the first three months of 2014, the adjustment to the carrying value of the mortgage servicing right was a positive net amount of $5 thousand, as the fair value of this asset increased. For the three months ending March 31, 2013, the carrying value of the mortgage servicing right was written down a net amount of $73 thousand, as the fair value of this asset decreased.
Non-Interest Expense
Total non-interest expenses increased $278 thousand for the three month period ending March 31, 2014 compared to the same period in 2013.
For the comparable three month periods, salaries and benefits increased $312 thousand, an increase of 9.5%. The increase is attributed to additional personnel hired during 2013 for expanding into two new markets and normal pay increases at the beginning of 2014. The number of full time equivalent employees at March 31, 2014 was 207 compared to 205 one year ago.
Occupancy expenses increased $130 thousand to $848 million for the first three months of 2014 compared to the same time period in 2013. Rent expense increased $46 thousand due to entering two new markets within the past year and leasing branch facilities in both markets. Depreciation expense increased $37 thousand during the first three months ending March 31, 2014 compared to the same time period one year ago. In addition, computer maintenance expense increased $24 thousand and building maintenance expense increased $21 thousand for the first three months ending March 31, 2014 compared to the same time period in 2013.
Legal and professional fees decreased $17 thousand for the first three months ending March 31, 2014 compared to the same time period in 2013. Repossession expenses decreased $69 thousand for the first three months ending March 31, 2014 compared to the same time period in 2013. Repossession expenses are reported net of rental income earned on repossessed properties. Repossession expenses were lower in the first three months of 2014 when compared to the same time period in 2013 due to the Company selling many of the properties included in other real estate owned. FDIC insurance expense decreased $4 thousand for the three months ending March 31, 2014 compared to the same time period in 2013.
Income Taxes
The effective tax rate for the three months ending March 31, 2014 was 14.2% compared to 19.0% in 2013. These effective tax rates are less than the statutory rate as a result of the Company investing in tax-free securities, loans and other investments which generate tax credits for the Company. Tax-exempt interest income increased $28 thousand for the first three months of 2014 compared to the first three months of 2013. Also, for the first three months of 2014, the Company had tax credits totaling $139 thousand for investments made in low income housing projects which represented an increase of $94 thousand compared to similar tax credits for the first three months of 2013.
As part of normal business, the Bank typically makes tax free loans to select municipalities in our market and invests in selected tax free securities, primarily in the Commonwealth of Kentucky. In making these investments, the Company considers the overall impact to managing our net interest margin, credit worthiness of the underlying issuer and the favorable impact on our tax position. For the three months ending March 31, 2014, the Company averaged $89.0 million in tax free securities and $16.5 million in tax free loans. As of March 31, 2014, the weighted average remaining maturity for the tax free securities is 132 months, while the weighted average remaining maturity for the tax free loans is 175 months.
Liquidity and Funding
Liquidity is the ability to meet current and future financial obligations. The Company’s primary sources of funds consist of deposit inflows, loan repayments, maturities and sales of investment securities and FHLB borrowings.
Liquidity risk is the possibility that we may not be able to meet our cash requirements in an orderly manner. Management of liquidity risk includes maintenance of adequate cash and sources of cash to fund operations and to meet the needs of borrowers, depositors and creditors. Excess liquidity has a negative impact on earnings as a result of the lower yields on short-term assets.
Cash and cash equivalents were $21.9 million as of March 31, 2014 compared to $23.2 million at December 31, 2013. The decrease in cash and cash equivalents is attributed to a decrease of $1.1 million in cash and due from banks. In addition to cash and cash equivalents, the securities portfolio provides an important source of liquidity. Securities available for sale totaled $236.4 million at March 31, 2014 compared to $230.4 million at December 31, 2013. Securities classified as trading assets totaled $5.1 million at March 31, 2014 and $0 at December 31,2013. The securities available for sale and those which are considered to be trading assets are available to meet liquidity needs on a continuing basis. However, we expect our customers’ deposits to be adequate to meet our funding demands.
Generally, we rely upon net cash inflows from financing activities, supplemented by net cash inflows from operating activities, to provide cash used in our investing activities. As is typical of many financial institutions, significant financing activities include deposit gathering and the use of short-term borrowings, such as federal funds purchased and securities sold under repurchase agreements along with long-term debt. Our primary investing activities include purchasing investment securities and loan originations.
For the first three months of 2014, deposits increased $10.6 million. The Company’s investment portfolio increased $11.1 million and the Company’s loan portfolio increased $5.4 million. The borrowed funds the Company have with the Federal Home Loan Bank decreased $467 thousand and the Company had no outstanding federal funds purchased at March 31, 2014 or December 31, 2013.
Management is aware of the challenge of funding sustained loan growth. Therefore, in addition to deposits, other sources of funds, such as Federal Home Loan Bank advances, may be used. We rely on Federal Home Loan Bank advances for both liquidity and asset/liability management purposes. These advances are used primarily to fund long-term fixed rate residential mortgage loans. As of March 31, 2014, we have sufficient collateral to borrow an additional $79 million from the Federal Home Loan Bank. In addition, as of March 31, 2014, $31 million is available in overnight borrowing through various correspondent banks and the Company has access to $267 million in brokered deposits. In light of this, management believes there is sufficient liquidity to meet all reasonable borrower, depositor and creditor needs in the present economic environment.
Capital Requirements
The Company and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of the Company’s and the Bank’s assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Company and Bank capital amounts and classifications are also subject to qualitative judgments by regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios (set forth in the following table) of Total and Tier I capital (as defined in the applicable banking regulations) to risk-weighted assets (as defined), and of Tier I capital to average assets (as defined). Management believes, as of March 31, 2014 and December 31, 2013, that the Company and the Bank meet all capital adequacy requirements to which they are subject.
The most recent notification from the FDIC categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Bank must maintain minimum Total risk-based, Tier I risk-based and Tier I leverage ratios as set forth in the following table. There are no conditions or events since that notification that management believes have changed the institution’s category.
In July 2013, the FDIC and the other federal bank regulatory agencies issued a final rule that will revise their leverage and risk-based capital requirements and the method of calculating risk-weighted assets to make them consistent with agreements that were reached by the Basel Committee on Banking Supervision and certain provisions of the Dodd-Frank Act. Among other things, the rule establishes a new common equity Tier 1 minimum capital requirement (4.5% of risk-weighted assets), increases the minimum Tier 1 capital to risk-based assets requirement (from 4% to 6% of risk-weighted assets) and assigns a higher risk weight (150%) to exposures that are more than 90 days past due or are on nonaccrual status and to certain commercial real estate facilities that finance the acquisition, development or construction of real property. The final rule also requires unrealized gains and losses on certain “available-for-sale” securities holdings to be included for purposes of calculating regulatory capital requirement unless a one-time opt-in or opt-out is exercised. The rule limits a banking organization’s capital distributions and certain discretionary bonus payments if the banking organization does not hold a “capital conservation buffer” consisting of 2.5% of common equity Tier 1 capital to risk-weighted assets in addition to the amount necessary to meet its minimum risk-based capital requirements. The final rule becomes effective for the Bank on January 1, 2015. In accordance with the final rule, the capital conservation buffer requirement will be phased in beginning January 1, 2016 and ending January 1, 2019, when the full capital conservation buffer requirement will be effective.
The Company’s and the Bank’s actual amounts and ratios are presented in the table below:
|
|
|
|
|
|
|
| |||||||||
|
|
|
|
|
|
To Be Well |
| |||||||||
|
|
|
|
|
|
Capitalized |
| |||||||||
|
|
|
|
|
|
Under Prompt |
| |||||||||
|
|
|
|
For Capital |
|
Corrective |
| |||||||||
|
|
Actual |
|
Adequacy Purposes |
|
Action Provisions |
| |||||||||
|
|
Amount |
|
Ratio |
|
Amount |
|
Ratio |
|
Amount |
|
Ratio |
| |||
|
|
(Dollars in Thousands) |
| |||||||||||||
March 31, 2014 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Total Capital (to Risk-Weighted Assets) |
|
$ |
73,217 |
|
14.1 |
% |
$ |
41,584 |
|
8 |
% |
$ |
N/A |
|
N/A |
|
Tier I Capital (to Risk-Weighted Assets) |
|
67,520 |
|
13.0 |
|
20,792 |
|
4 |
|
N/A |
|
N/A |
| |||
Tier I Capital (to Average Assets) |
|
67,520 |
|
8.7 |
|
31,012 |
|
4 |
|
N/A |
|
N/A |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Bank Only |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Total Capital (to Risk-Weighted Assets) |
|
$ |
72,083 |
|
13.9 |
% |
$ |
41,561 |
|
8 |
% |
$ |
51,951 |
|
10 |
% |
Tier I Capital (to Risk-Weighted Assets) |
|
66,386 |
|
12.8 |
|
20,781 |
|
4 |
|
31,171 |
|
6 |
| |||
Tier I Capital (to Average Assets) |
|
66,386 |
|
8.6 |
|
31,002 |
|
4 |
|
38,753 |
|
5 |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
December 31, 2013 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Total Capital (to Risk-Weighted Assets) |
|
$ |
71,993 |
|
14.1 |
% |
$ |
40,872 |
|
8 |
% |
N/A |
|
N/A |
| |
Tier I Capital (to Risk-Weighted Assets) |
|
66,468 |
|
13.0 |
|
20,436 |
|
4 |
|
N/A |
|
N/A |
| |||
Tier I Capital (to Average Assets) |
|
66,468 |
|
8.8 |
|
30,079 |
|
4 |
|
N/A |
|
N/A |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Bank Only |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Total Capital (to Risk-Weighted Assets) |
|
$ |
70,827 |
|
13.9 |
% |
$ |
40,859 |
|
8 |
% |
$ |
51,073 |
|
10 |
% |
Tier I Capital (to Risk-Weighted Assets) |
|
65,302 |
|
12.8 |
|
20,429 |
|
4 |
|
30,644 |
|
6 |
| |||
Tier I Capital (to Average Assets) |
|
65,302 |
|
8.7 |
|
30,070 |
|
4 |
|
37,588 |
|
5 |
|
Non-Performing Assets
As of March 31, 2014, our non-performing assets totaled $14.8 million or 1.89% of assets compared to $13.8 million or 1.79% of assets at December 31, 2013 (See table below.) The Company experienced an increase of $846 thousand in non-accrual loans from December 31, 2013 to March 31, 2014. As of March 31, 2014, non-accrual loans include $2.1 million in loans secured by 1-4 family properties, $970 thousand in loans secured by non-farm and non-residential properties, $299 thousand in commercial loans, $275 thousand in loans secured by multi-family residential properties, $217 thousand in loans secured by agricultural properties and $1 thousand in consumer loans. Real estate loans composed 92.3% of the non-performing loans as of March 31, 2014 and 99.8% as of December 31, 2013. Forgone interest income on non-accrual loans totaled $59 thousand for the first three months of 2014 compared to forgone interest of $273 thousand for the same time period in 2013. Accruing loans that are contractually 90 days or more past due as of March 31, 2014 totaled $867 thousand compared to $554 thousand at December 31, 2013, an increase of $313 thousand. The total nonperforming and restructured loans increased $1.1 million from December 31, 2013 to March 31, 2014, resulting in an increase in the ratio of nonperforming and restructured loans to loans of 22 basis points to 2.44%. In addition, the amount the Company has recorded as other real estate owned decreased $123 thousand from December 31, 2013 to March 31, 2014. As of March 31, 2014, the amount recorded as other real estate owned totaled $3.3 million compared to $3.4 million at December 31, 2013. During the first three months of 2014, $141 thousand was added to Other Real Estate properties while $264 thousand in other real estate properties were sold. The allowance as a percentage of non-performing and restructured loans and other real estate owned decreased slightly from 39% at December 31, 2013 to 38% at March 31, 2014.
Nonperforming and Restructured Assets
|
|
3/31/14 |
|
12/31/13 |
| ||
|
|
(in thousands) |
| ||||
|
|
|
|
|
| ||
Non-accrual Loans |
|
$ |
3,820 |
|
$ |
2,974 |
|
Accruing Loans which are Contractually past due 90 days or more |
|
867 |
|
554 |
| ||
Accruing Troubled Debt Restructurings |
|
6,885 |
|
6,901 |
| ||
Total Nonperforming and Restructured Loans |
|
11,572 |
|
10,429 |
| ||
Other Real Estate |
|
3,256 |
|
3,379 |
| ||
Total Nonperforming and Restructured Loans and Other Real Estate |
|
$ |
14,828 |
|
$ |
13,808 |
|
Nonperforming and Restructured Loans as a Percentage of Loans |
|
2.44 |
% |
2.22 |
% | ||
Nonperforming and Restructured Loans and Other Real Estate as a Percentage of Total Assets |
|
1.89 |
% |
1.79 |
% | ||
Allowance as a Percentage of Period-end Loans |
|
1.18 |
% |
1.16 |
% | ||
Allowance as a Percentage of Non-performing and Restructured Loans and Other Real Estate |
|
38 |
% |
39 |
% |
We maintain a “watch list” of agricultural, commercial, real estate mortgage, and real estate construction loans and review those loans on a regular basis. Generally, assets are designated as “watch list” loans to ensure more frequent monitoring. If we determine that there is serious doubt as to performance in accordance with original terms of the contract, then the loan is generally downgraded and often placed on non-accrual status. We review and evaluate nonaccrual loans, past due loans, and loans graded substandard or worse on a regular basis to determine if the loan should be evaluated for impairment and whether specific allocations are needed.
Provision for Loan Losses
The loan loss provision for the first three months of 2014 was $100 thousand compared to $450 thousand for the first three months of 2013. The decrease in the total loan loss provision during the first three months of 2014 compared to the same time period in 2013 is attributed to overall improved quality of the Bank’s loan portfolio and having a significant recovery of $367 thousand for a loan that was charged off in a prior year. Management evaluates the loan portfolio by reviewing the historical loss rate for each respective loan type and assigns risk multiples to certain categories to account for qualitative factors including current economic conditions. The average loss rates are reviewed for trends in the analysis, as well as comparisons to peer group loss rates. Management makes allocations within the allowance for loan losses for specifically classified loans regardless of loan amount, collateral or loan type. Loan categories are evaluated utilizing subjective factors in addition to the historical loss calculations to determine a loss allocation for each of those types. As this analysis, or any similar analysis, is an imprecise measure of loss, the allowance is subject to ongoing adjustments. Therefore, management will often take into account other significant factors that may be necessary or prudent in order to reflect probable incurred losses in the total loan portfolio.
Nonperforming loans and restructured loans increased $1.1 million since December 31, 2013 to $11.6 million as of March 31, 2014. Other real estate properties owned decreased $123 thousand over this same time period. Additions to Other real estate properties totaled $141 thousand while sales totaled $264 thousand.
The March 31, 2014 unallocated allowance of $523 thousand increased slightly from the December 31, 2013 balance of $516 thousand.
Net charge-offs were $(75) thousand for the three months ending March 31, 2014 and $874 thousand for the three months ending March 31, 2013. During the first quarter of 2014, the Company recorded a recovery of $367 for one loan which was previously charged-off. Future levels of charge-offs will be determined by the particular facts and circumstances surrounding individual loans. Further, the growth the Company has experienced in our loan portfolio, particularly in 1-4 family residential loans, is attributed to passing grade loans and do not require additional reserves as of March 31, 2014. Based on the above information, management believes the current loan loss allowance is sufficient to meet probable incurred loan losses.
|
|
Three Months Ended March 31 |
| ||||
|
|
(in thousands) |
| ||||
Loan Losses |
|
2014 |
|
2013 |
| ||
Balance at Beginning of Period |
|
$ |
5,441 |
|
$ |
6,047 |
|
Amounts Charged-off: |
|
|
|
|
| ||
Commercial |
|
200 |
|
6 |
| ||
Real Estate Construction |
|
— |
|
578 |
| ||
1-4 family residential |
|
63 |
|
125 |
| ||
Multi-family residential |
|
— |
|
— |
| ||
Non-farm & non-residential |
|
— |
|
— |
| ||
Agricultural |
|
— |
|
86 |
| ||
Consumer and other |
|
174 |
|
285 |
| ||
Total Charged-off Loans |
|
437 |
|
1,080 |
| ||
Recoveries on Amounts Previously Charged-off: |
|
|
|
|
| ||
Commercial |
|
— |
|
28 |
| ||
Real Estate Construction |
|
4 |
|
5 |
| ||
1-4 family residential |
|
12 |
|
26 |
| ||
Multi-family residential |
|
— |
|
— |
| ||
Non-farm & non-residential |
|
367 |
|
8 |
| ||
Agricultural |
|
24 |
|
2 |
| ||
Consumer and other |
|
105 |
|
137 |
| ||
Total Recoveries |
|
512 |
|
206 |
| ||
Net Charge-offs (Recoveries) |
|
(75 |
) |
874 |
| ||
Provision for Loan Losses |
|
100 |
|
450 |
| ||
Balance at End of Period |
|
5,616 |
|
5,623 |
| ||
Loans |
|
|
|
|
| ||
Average |
|
474,505 |
|
426,333 |
| ||
At March 31 |
|
474,012 |
|
422,320 |
| ||
As a Percentage of Average Loans: |
|
|
|
|
| ||
Net Charge-offs (Recoveries) for the period |
|
(0.02 |
)% |
0.21 |
% | ||
Provision for Loan Losses for the period |
|
0.02 |
% |
0.11 |
% | ||
Allowance as a Multiple of Net Charge-offs (Recoveries) annualized |
|
(18.7 |
) |
1.6 |
| ||
Item 3 — QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Asset/Liability management control is designed to ensure safety and soundness, maintain liquidity and regulatory capital standards, and achieve acceptable net interest income. Management considers interest rate risk to be the most significant market risk since a bank’s net income is largely dependent on net interest income. Our exposure to market risk is reviewed on a regular basis by the Asset/Liability Committee. Interest rate risk is the potential of economic losses due to future interest rate changes. These economic losses can be reflected as a loss of future net interest income and/or a loss of current fair market values. The objective is to measure the effect on net interest income and to adjust the balance sheet to minimize the inherent risk, while at the same time, maximize income.
Management realizes certain risks are inherent and that the goal is to identify and minimize the risks. The primary tools used by management are interest rate shock and economic value of equity (EVE) simulations. The Company has $5.1 million in market risk sensitive instruments which are held for trading purposes. These assets are held for a very short period of time and are used to generate profits on short-term differences in price. Using interest rate shock simulations, the following table depicts the change in net interest income resulting from 100 and 300 basis point changes in rates on the Company’s interest earning assets and interest bearing liabilities. The projections are based on balance sheet growth assumptions and repricing opportunities for new, maturing and adjustable rate amounts. As of March 31, 2014, the projected percentage changes are within limits approved by our Board of Directors (“Board”). Although management does analyze and monitor the projected percentage change in a declining interest rate environment, due to the current rate environment many of the current deposit rates cannot decline an additional 100 basis points. Therefore, management places more emphasis in the rising rate environment scenarios. Similar to prior periods, this period’s volatility is slightly higher in each rate shock simulation when compared to the same period a year ago. The projected net interest income report summarizing our interest rate sensitivity as of March 31, 2014 is as follows:
PROJECTED NET INTEREST INCOME
(dollars in thousands)
|
|
|
|
Level |
|
|
|
|
| ||||
Change in basis points: |
|
- 100 |
|
Rates |
|
+ 100 |
|
+ 300 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Year One (4/14 - 3/15) |
|
|
|
|
|
|
|
|
| ||||
Net interest income |
|
$ |
24,497 |
|
$ |
25,298 |
|
$ |
25,517 |
|
$ |
25,483 |
|
Net interest income dollar change |
|
(801 |
) |
N/A |
|
219 |
|
186 |
| ||||
Net interest income percentage change |
|
-3.2 |
% |
N/A |
|
0.9 |
% |
0.7 |
% | ||||
Board approved limit |
|
>-4.0 |
% |
N/A |
|
>-4.0 |
% |
>-10.0 |
% | ||||
The projected net interest income report summarizing the Company’s interest rate sensitivity as of March 31, 2013 is as follows:
PROJECTED NET INTEREST INCOME
(dollars in thousands)
|
|
|
|
Level |
|
|
|
|
| ||||
Change in basis points: |
|
- 100 |
|
Rates |
|
+ 100 |
|
+ 300 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Year One (4/13 - 3/14) |
|
|
|
|
|
|
|
|
| ||||
Net interest income |
|
$ |
23,436 |
|
$ |
24,450 |
|
$ |
24,903 |
|
$ |
25,049 |
|
Net interest income dollar change |
|
(1,014 |
) |
N/A |
|
453 |
|
598 |
| ||||
Net interest income percentage change |
|
-4.1 |
% |
N/A |
|
1.9 |
% |
2.4 |
% | ||||
Board approved limit |
|
>-4.0 |
% |
N/A |
|
>-4.0 |
% |
>-10.0 |
% | ||||
Projections from March 31, 2014, year one reflected a decline in net interest income of 3.2% with a 100 basis point decline compared to the 4.1% decline in 2013. The 100 basis point increase in rates reflected a 0.9% increase in net interest income in 2014 compared to an increase of 1.9% in 2013.
EVE applies discounting techniques to future cash flows to determine the present value of assets, liabilities, and therefore equity. Based upon applying these techniques to the March 31, 2014 balance sheet, a 100 basis point increase in rates results in a 9.4% decrease in EVE. A 100 basis point decrease in rates results in a 2.9% decrease in EVE. These are within the Board approved limits.
Item 4 — CONTROLS AND PROCEDURES
As of the end of the period covered by this report, our management, including the Chief Executive Officer and the Chief Financial Officer, carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective, in all material respects, to ensure that information required to be disclosed in the reports the Company files and submits under the Exchange Act is recorded, processed, summarized and reported as and when required.
We also conducted an evaluation of internal control over financial reporting to determine whether any changes occurred during the quarter covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Based on this evaluation, there has been no such change during the quarter covered by this report.
Our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
ISSUER PURCHASES OF EQUITY SECURITIES
|
|
(a) |
|
|
|
(c) Total Number |
|
(d) Maximum Number |
| |
|
|
Total |
|
(b) |
|
of Shares (or Units) |
|
(or Approximate Dollar |
| |
|
|
Number of |
|
Average |
|
Purchased as Part |
|
Value) of Shares (or |
| |
|
|
Shares (or |
|
Price Paid |
|
of Publicly |
|
Units) that May Yet Be |
| |
|
|
Units) |
|
Per Share |
|
Announced Plans |
|
Purchased Under the |
| |
Period |
|
Purchased |
|
(or Unit) |
|
Or Programs |
|
Plans or Programs |
| |
|
|
|
|
|
|
|
|
|
| |
1/1/14 – 1/31/14 |
|
165 |
|
$ |
24.00 |
|
165 |
|
87,559 shares |
|
|
|
|
|
|
|
|
|
|
| |
2/1/14 – 2/28/14 |
|
3,630 |
|
24.21 |
|
3,630 |
|
83,929 shares |
| |
|
|
|
|
|
|
|
|
|
| |
3/1/14 – 3/31/14 |
|
— |
|
— |
|
— |
|
83,929 shares |
| |
|
|
|
|
|
|
|
|
|
| |
Total |
|
3,795 |
|
$ |
24.20 |
|
3,795 |
|
83,929 shares |
|
On October 25, 2000, we announced that our Board approved a stock repurchase program and authorized the Company to purchase up to 100,000 shares of its outstanding common stock. On November 11, 2002, the Board approved and authorized the Company’s repurchase of an additional 100,000 shares. On May 20, 2008, the Board of Directors approved and authorized the Company to purchase an additional 100,000 shares. On May 17, 2011, the Board approved and authorized the Company’s repurchase of an additional 100,000 shares. Shares will be purchased from time to time in the open market depending on market prices and other considerations. Through March 31, 2014, 316,071 shares have been purchased.
2.1 |
|
Agreement and Plan of Merger with Peoples Bancorp of Sandy Hook is incorporated by reference to Exhibit 2.1 of the Registrant’s Current Report of Form 8-K dated and filed February 24, 2006. |
|
|
|
3.1 |
|
Amended and Restated Articles of Incorporation of the Registrant are incorporated by reference to Exhibit 3.1 of the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ending March 31, 2000 and filed May 15, 2000. |
|
|
|
3.2 |
|
Bylaws of the Registrant are incorporated by reference to Exhibit 3.1 of the Registrant’s Quarterly Report of Form 10-Q for the quarterly period ending June 30, 2000 and filed August 14, 2000. |
|
|
|
3.3 |
|
Articles of Amendment to Amended and Restated Articles of Incorporation of the Registrant are incorporated by reference to Exhibit 3.3 of the Registrant’s Annual Report of Form 10-K for the period ending December 31, 2005 and filed March 29, 2006. |
|
|
|
31.1 |
|
Certifications of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
31.2 |
|
Certifications of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
32 |
|
Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
101* |
|
The following financial information from Kentucky Bancshares, Inc. Quarterly Report on Form 10-Q for the period ended March 31, 2014, filed with the SEC on April 13, 2014, formatted in Extensible Business Reporting Language (XBRL): (i) Consolidated Balance Sheets at March 31, 2014 and December 31, 2013, (ii) Consolidated Statements of Income and Comprehensive Income for the three months ended March 31, 2014 and March 31, 2013, (iii) Consolidated Statement of Stockholders’ Equity for the three months ended March 31, 2014, (iv) Consolidated Statements of Cash Flows for the three months ended March 31, 2014 and March 31, 2013 and (v) Notes to Consolidated Financial Statements. |
*Pursuant to Rule 406T of Regulation S-T, the XBRL related information in Exhibit 101 to this Quarterly Report on Form 10-Q shall not be deemed to be “filed” for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Exchange Act of 1934, or otherwise subject to the liability of those sections, and shall not be deemed part of a registration statement, prospectus or other document filed under the Securities Act of 1933 or the Exchange Act of 1934, except as shall be expressly set forth by specific reference in such filings.
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.
|
|
|
KENTUCKY BANCSHARES, INC. |
|
|
|
|
Date |
5/13/14 |
|
/s/Louis Prichard |
|
|
|
Louis Prichard, President and C.E.O. |
|
|
|
|
Date |
5/13/14 |
|
/s/Gregory J. Dawson |
|
|
|
Gregory J. Dawson, Chief Financial Officer |