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Table of Contents


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.  20549

FORM 10-Q
 
ý
Quarterly Report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934

for the Quarterly Period Ended June 30, 2017. 
o
Transition report pursuant to Section 13 or 15 (d) of the Exchange Act

For the Transition Period from                    to                   .

No. 0-17077
(Commission File Number)

PENNS WOODS BANCORP, INC.
(Exact name of Registrant as specified in its charter) 
PENNSYLVANIA
 
23-2226454
(State or other jurisdiction of
 
(I.R.S. Employer
incorporation or organization)
 
Identification No.)
 
300 Market Street, P.O. Box 967 Williamsport, Pennsylvania
 
17703-0967
(Address of principal executive offices)
 
(Zip Code)
 

(570) 322-1111
Registrant’s telephone number, including area code

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 ý 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 (§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 ý 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 the definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one):

 
Large accelerated filer o
 
                 Accelerated filer x
  Non-accelerated filer o
 
   Small reporting company o
 
 
Emerging growth company o

If an emerging growth company, indicate by check mark if registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  YES o NO ý

On August 1, 2017 there were 4,688,226 shares of the Registrant’s common stock outstanding.

Table of Contents


PENNS WOODS BANCORP, INC.

INDEX TO QUARTERLY REPORT ON FORM 10-Q

 
 
Page
 
 
Number
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

2
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Part I.  FINANCIAL INFORMATION
Item 1.  Financial Statements
PENNS WOODS BANCORP, INC.
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
 
 
June 30,
 
December 31,
(In Thousands, Except Share Data)
 
2017
 
2016
ASSETS:
 
 

 
 

Noninterest-bearing balances
 
$
26,223

 
$
26,766

Interest-bearing balances in other financial institutions
 
11,979

 
16,905

Total cash and cash equivalents
 
38,202

 
43,671

 
 
 
 
 
Investment securities, available for sale, at fair value
 
138,504

 
133,492

Investment securities, trading
 
213

 
58

Loans held for sale
 
1,683

 
1,953

Loans
 
1,139,085

 
1,093,681

Allowance for loan losses
 
(13,109
)
 
(12,896
)
Loans, net
 
1,125,976

 
1,080,785

Premises and equipment, net
 
25,497

 
24,275

Accrued interest receivable
 
3,641

 
3,672

Bank-owned life insurance
 
27,670

 
27,332

Goodwill
 
17,104

 
17,104

Intangibles
 
1,623

 
1,799

Deferred tax asset
 
8,139

 
8,397

Other assets
 
7,112

 
6,052

TOTAL ASSETS
 
$
1,395,364

 
$
1,348,590

 
 
 
 
 
LIABILITIES:
 
 

 
 

Interest-bearing deposits
 
$
851,056

 
$
791,937

Noninterest-bearing deposits
 
300,054

 
303,277

Total deposits
 
1,151,110

 
1,095,214

 
 
 
 
 
Short-term borrowings
 
15,737

 
13,241

Long-term borrowings
 
75,998

 
85,998

Accrued interest payable
 
414

 
455

Other liabilities
 
13,665

 
15,433

TOTAL LIABILITIES
 
1,256,924

 
1,210,341

 
 
 
 
 
SHAREHOLDERS’ EQUITY:
 
 

 
 

Preferred stock, no par value, 3,000,000 shares authorized; no shares issued
 
—

 
—

Common stock, par value $8.33, 15,000,000 shares authorized; 5,008,192 and 5,007,109 shares issued
 
41,735

 
41,726

Additional paid-in capital
 
50,117

 
50,075

Retained earnings
 
62,952

 
61,610

Accumulated other comprehensive loss:
 
 

 
 

Net unrealized loss on available for sale securities
 
(16
)
 
(639
)
Defined benefit plan
 
(4,233
)
 
(4,289
)
Treasury stock at cost, 320,150 and 272,452 shares
 
(12,115
)
 
(10,234
)
TOTAL SHAREHOLDERS’ EQUITY
 
138,440

 
138,249

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
 
$
1,395,364

 
$
1,348,590

 
See accompanying notes to the unaudited consolidated financial statements.

3
Table of Contents


PENNS WOODS BANCORP, INC.
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(In Thousands, Except Per Share Data)
 
2017
 
2016
 
2017
 
2016
INTEREST AND DIVIDEND INCOME:
 
 

 
 

 
 

 
 

Loans, including fees
 
$
11,109

 
$
10,466

 
$
21,736

 
$
20,821

Investment securities:
 
 

 
 

 
 

 
 

Taxable
 
570

 
601

 
1,112

 
1,223

Tax-exempt
 
323

 
398

 
621

 
874

Dividend and other interest income
 
207

 
204

 
422

 
477

TOTAL INTEREST AND DIVIDEND INCOME
 
12,209

 
11,669

 
23,891

 
23,395

INTEREST EXPENSE:
 
 

 
 

 
 

 
 

Deposits
 
1,008

 
881

 
1,910

 
1,716

Short-term borrowings
 
4

 
8

 
8

 
34

Long-term borrowings
 
373

 
492

 
813

 
983

TOTAL INTEREST EXPENSE
 
1,385

 
1,381

 
2,731

 
2,733

NET INTEREST INCOME
 
10,824

 
10,288

 
21,160

 
20,662

PROVISION FOR LOAN LOSSES
 
215

 
258

 
545

 
608

NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES
 
10,609

 
10,030

 
20,615

 
20,054

NON-INTEREST INCOME:
 
 

 
 

 
 

 
 

Service charges
 
559

 
561

 
1,087

 
1,093

Net securities (losses) gains, available for sale
 
(12
)
 
486

 
185

 
921

Net securities gains, trading
 
—

 
6

 
2

 
46

Bank-owned life insurance
 
161

 
161

 
333

 
345

Gain on sale of loans
 
503

 
566

 
861

 
1,033

Insurance commissions
 
99

 
200

 
290

 
405

Brokerage commissions
 
361

 
272

 
692

 
527

Debit Card Fees
 
501

 
433

 
935

 
964

Other
 
591

 
493

 
1,029

 
841

TOTAL NON-INTEREST INCOME
 
2,763

 
3,178

 
5,414

 
6,175

NON-INTEREST EXPENSE:
 
 

 
 

 
 

 
 

Salaries and employee benefits
 
4,608

 
4,346

 
9,378

 
8,926

Occupancy
 
614

 
545

 
1,252

 
1,086

Furniture and equipment
 
664

 
679

 
1,313

 
1,380

Software amortization
 
242

 
272

 
515

 
629

Pennsylvania shares tax
 
230

 
220

 
468

 
478

Professional fees
 
550

 
436

 
987

 
777

Federal Deposit Insurance Corporation deposit insurance
 
150

 
236

 
320

 
468

Debit card expenses
 
151

 
159

 
310

 
286

Marketing
 
204

 
185

 
375

 
395

Intangible amortization
 
86

 
100

 
176

 
187

Other
 
1,564

 
1,488

 
2,954

 
3,115

TOTAL NON-INTEREST EXPENSE
 
9,063

 
8,666

 
18,048

 
17,727

INCOME BEFORE INCOME TAX PROVISION
 
4,309

 
4,542

 
7,981

 
8,502

INCOME TAX PROVISION
 
1,223

 
1,152

 
2,209

 
2,034

NET INCOME
 
$
3,086

 
$
3,390

 
$
5,772

 
$
6,468

EARNINGS PER SHARE - BASIC AND DILUTED
 
$
0.65

 
$
0.72

 
$
1.22

 
$
1.37

WEIGHTED AVERAGE SHARES OUTSTANDING - BASIC AND DILUTED
 
4,711,332

 
4,733,251

 
4,723,003

 
4,736,878

DIVIDENDS DECLARED PER SHARE
 
$
0.47

 
$
0.47

 
$
0.94

 
$
0.94


See accompanying notes to the unaudited consolidated financial statements.

4
Table of Contents




PENNS WOODS BANCORP, INC.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(UNAUDITED)
 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(In Thousands)
 
2017
 
2016
 
2017
 
2016
Net Income
 
$
3,086

 
$
3,390

 
$
5,772

 
$
6,468

Other comprehensive income:
 
 

 
 

 
 

 
 

Change in unrealized gain on available for sale securities
 
389

 
1,265

 
1,128

 
3,316

Tax effect
 
(132
)
 
(430
)
 
(382
)
 
(1,127
)
Net realized loss (gain) on available for sale securities included in net income
 
12

 
(486
)
 
(185
)
 
(921
)
Tax effect
 
(4
)
 
165

 
62

 
312

   Amortization of unrecognized pension loss
 
40

 
39

 
84

 
78

        Tax effect
 
(10
)
 
(13
)
 
(28
)
 
(27
)
Total other comprehensive income
 
295

 
540

 
679

 
1,631

Comprehensive income
 
$
3,381

 
$
3,930

 
$
6,451

 
$
8,099

 
See accompanying notes to the unaudited consolidated financial statements.

5
Table of Contents


PENNS WOODS BANCORP, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY
(UNAUDITED)
 
 
 
COMMON STOCK
 
ADDITIONAL
PAID-IN CAPITAL
 
RETAINED EARNINGS
 
ACCUMULATED OTHER
COMPREHENSIVE LOSS
 
TREASURY STOCK
 
TOTAL
SHAREHOLDERS’ EQUITY
(In Thousands, Except Per Share Data)
 
SHARES
 
AMOUNT
 
 
 
 
 
Balance, December 31, 2015
 
5,004,984

 
$
41,708

 
$
49,992

 
$
58,038

 
$
(3,799
)
 
$
(9,660
)
 
$
136,279

Net income
 
 

 
 

 
 

 
6,468

 
 

 
 

 
6,468

Other comprehensive income
 
 

 
 

 
 

 
 

 
1,631

 
 

 
1,631

Dividends declared, ($0.94 per share)
 
 

 
 

 
 

 
(4,452
)
 
 

 
 

 
(4,452
)
Common shares issued for employee stock purchase plan
 
1,052

 
9

 
33

 
 

 
 

 
 

 
42

Purchase of treasury stock (14,600 shares)
 
 
 
 
 
 
 
 
 
 
 
(574
)
 
(574
)
Balance, June 30, 2016
 
5,006,036

 
$
41,717

 
$
50,025

 
$
60,054

 
$
(2,168
)
 
$
(10,234
)
 
$
139,394


 
 
COMMON STOCK
 
ADDITIONAL
PAID-IN CAPITAL
 
RETAINED EARNINGS
 
ACCUMULATED OTHER
COMPREHENSIVE LOSS
 
TREASURY STOCK
 
TOTAL
SHAREHOLDERS’ EQUITY
(In Thousands, Except Per Share Data)
 
SHARES
 
AMOUNT
 
 
 
 
 
Balance, December 31, 2016
 
5,007,109

 
$
41,726

 
$
50,075

 
$
61,610

 
$
(4,928
)
 
$
(10,234
)
 
$
138,249

Net income
 
 

 
 

 
 

 
5,772

 
 

 
 

 
5,772

Other comprehensive income
 
 

 
 

 
 

 
 

 
679

 
 

 
679

Dividends declared, ($0.94 per share)
 
 

 
 

 
 

 
(4,430
)
 
 

 
 

 
(4,430
)
Common shares issued for employee stock purchase plan
 
1,083

 
9

 
42

 
 

 
 

 
 

 
51

Purchase of treasury stock (47,698 shares)
 
 
 
 
 
 
 
 
 
 
 
(1,881
)
 
(1,881
)
Balance, June 30, 2017
 
5,008,192

 
$
41,735

 
$
50,117

 
$
62,952

 
$
(4,249
)
 
$
(12,115
)
 
$
138,440

 
See accompanying notes to the unaudited consolidated financial statements.

6
Table of Contents


PENNS WOODS BANCORP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED) 
 
 
Six Months Ended June 30,
(In Thousands)
 
2017
 
2016
OPERATING ACTIVITIES:
 
 

 
 

Net Income
 
$
5,772

 
$
6,468

Adjustments to reconcile net income to net cash provided by operating activities:
 
 

 
 

Depreciation and amortization
 
1,389

 
1,596

Amortization of intangible assets
 
176

 
187

Provision for loan losses
 
545

 
608

Accretion and amortization of investment security discounts and premiums
 
465

 
439

Net securities gains, available for sale
 
(185
)
 
(921
)
Originations of loans held for sale
 
(26,087
)
 
(30,946
)
Proceeds of loans held for sale
 
27,218

 
31,387

Gain on sale of loans
 
(861
)
 
(1,033
)
Net securities gains, trading
 
(2
)
 
(46
)
Proceeds from the sale of trading securities
 
332

 
3,439

Purchases of trading securities
 
(485
)
 
(3,320
)
Earnings on bank-owned life insurance
 
(333
)
 
(345
)
Decrease in deferred tax asset
 
(63
)
 
776

Other, net
 
(3,461
)
 
(2,822
)
Net cash provided by operating activities
 
4,420

 
5,467

INVESTING ACTIVITIES:
 
 

 
 

Proceeds from sales of available for sale securities
 
9,130

 
36,007

Proceeds from calls and maturities of available for sale securities
 
5,388

 
13,591

Purchases of available for sale securities
 
(18,434
)
 
(17,730
)
Net increase in loans
 
(46,226
)
 
(9,130
)
Acquisition of premises and equipment
 
(2,004
)
 
(1,235
)
Proceeds from the sale of foreclosed assets
 
587

 
433

Purchase of bank-owned life insurance
 
(30
)
 
(27
)
Proceeds from redemption of regulatory stock
 
2,134

 
2,311

Purchases of regulatory stock
 
(2,566
)
 
(1,813
)
Net cash (used for) provided by investing activities
 
(52,021
)
 
22,407

FINANCING ACTIVITIES:
 
 

 
 

Net increase in interest-bearing deposits
 
59,119

 
59,068

Net decrease in noninterest-bearing deposits
 
(3,223
)
 
(6,081
)
Repayment of long-term borrowings
 
(10,000
)
 
—

Net increase (decrease) in short-term borrowings
 
2,496

 
(29,198
)
Dividends paid
 
(4,430
)
 
(4,452
)
Issuance of common stock
 
51

 
42

Purchases of treasury stock
 
(1,881
)
 
(574
)
Net cash provided by financing activities
 
42,132

 
18,805

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
 
(5,469
)
 
46,679

CASH AND CASH EQUIVALENTS, BEGINNING
 
43,671

 
22,796

CASH AND CASH EQUIVALENTS, ENDING
 
$
38,202

 
$
69,475

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
 
 

 
 

Interest paid
 
$
2,772

 
$
2,703

Income taxes paid
 
2,350

 
2,750

Transfer of loans to foreclosed real estate
 
490

 
83

 
See accompanying notes to the unaudited consolidated financial statements.

7
Table of Contents


PENNS WOODS BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
Note 1.  Basis of Presentation
 
The consolidated financial statements include the accounts of Penns Woods Bancorp, Inc. (the “Company”) and its wholly-owned subsidiaries: Woods Investment Company, Inc., Woods Real Estate Development Company, Inc., Luzerne Bank, and Jersey Shore State Bank (Jersey Shore State Bank and Luzerne Bank are referred to together as the “Banks”) and Jersey Shore State Bank’s wholly-owned subsidiary, The M Group, Inc. D/B/A The Comprehensive Financial Group (“The M Group”).  All significant inter-company balances and transactions have been eliminated in the consolidation.

The interim financial statements are unaudited, but in the opinion of management reflect all adjustments necessary for the fair presentation of results for such periods.  The results of operations for any interim period are not necessarily indicative of results for the full year.  These financial statements should be read in conjunction with the financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.

The accounting policies followed in the presentation of interim financial results are the same as those followed on an annual basis.  These policies are presented on pages 39 through 48 of the Form 10-K for the year ended December 31, 2016.

In reference to the attached financial statements, all adjustments are of a normal recurring nature pursuant to Rule 10-01(b) (8) of Regulation S-X.
 
Note 2.  Accumulated Other Comprehensive Loss

The changes in accumulated other comprehensive loss by component shown net of tax as of June 30, 2017 and 2016 were as follows:
 
 
Three Months Ended June 30, 2017
 
Three Months Ended June 30, 2016
(In Thousands)
 
Net Unrealized Loss
on Available
for Sale Securities
 
Defined
Benefit 
Plan
 
Total
 
Net Unrealized Gain
on Available
for Sale Securities
 
Defined
Benefit 
Plan
 
Total
Beginning balance
 
$
(281
)
 
$
(4,263
)

$
(4,544
)
 
$
1,324

 
$
(4,032
)
 
$
(2,708
)
Other comprehensive income before reclassifications
 
257


—


257

 
835

 
—

 
835

Amounts reclassified from accumulated other comprehensive loss
 
8


30


38

 
(321
)
 
26

 
(295
)
Net current-period other comprehensive income
 
265


30


295

 
514

 
26

 
540

Ending balance
 
$
(16
)

$
(4,233
)

$
(4,249
)
 
$
1,838

 
$
(4,006
)
 
$
(2,168
)
 
 
Six Months Ended June 30, 2017
 
Six Months Ended June 30, 2016
(In Thousands)
 
Net Unrealized Loss
on Available
for Sale Securities
 
Defined
Benefit 
Plan
 
Total
 
Net Unrealized Gain on Available
for Sale Securities
 
Defined
Benefit 
Plan
 
Total
Beginning balance
 
$
(639
)
 
$
(4,289
)
 
$
(4,928
)
 
$
258

 
$
(4,057
)
 
$
(3,799
)
Other comprehensive income before reclassifications
 
746

 
—

 
746

 
2,189

 
—

 
2,189

Amounts reclassified from accumulated other comprehensive loss
 
(123
)
 
56

 
(67
)
 
(609
)
 
51

 
(558
)
Net current-period other comprehensive income
 
623

 
56

 
679

 
1,580

 
51

 
1,631

Ending balance
 
$
(16
)
 
$
(4,233
)
 
$
(4,249
)
 
$
1,838

 
$
(4,006
)
 
$
(2,168
)



8
Table of Contents


The reclassifications out of accumulated other comprehensive loss shown, net of tax and parenthesis indicating debits to net income, as of June 30, 2017 and 2016 were as follows:
Details about Accumulated Other Comprehensive Loss Components
 
Amount Reclassified from Accumulated Other Comprehensive Loss
 
Affected Line Item
 in the Consolidated 
Statement of Income
 
Three Months Ended June 30, 2017
 
Three Months Ended June 30, 2016
 
Net unrealized (loss) gain on available for sale securities
 
$
(12
)
 
$
486

 
Net securities (losses) gains, available for sale
Income tax effect
 
4

 
(165
)
 
Income tax provision
Total reclassifications for the period
 
$
(8
)
 
$
321

 
 
 
 
 
 
 
 
 
Net unrecognized pension costs
 
$
(45
)
 
$
(39
)
 
Salaries and employee benefits
Income tax effect
 
15

 
13

 
Income tax provision
Total reclassifications for the period
 
$
(30
)
 
$
(26
)
 
 
Details about Accumulated Other Comprehensive Loss Components
 
Amount Reclassified from Accumulated Other Comprehensive Loss
 
Affected Line Item
 in the Consolidated 
Statement of Income
 
Six months ended June 30, 2017
 
Six months ended June 30, 2016
 
Net unrealized gain on available for sale securities
 
$
185

 
$
921

 
Net securities gains, available for sale
Income tax effect
 
(62
)
 
(312
)
 
Income tax provision
Total reclassifications for the period
 
$
123

 
$
609

 
 
 
 
 
 
 
 
 
Net unrecognized pension costs
 
$
(84
)
 
$
(78
)
 
Salaries and employee benefits
Income tax effect
 
28

 
27

 
Income tax provision
Total reclassifications for the period
 
$
(56
)
 
$
(51
)
 
 



Note 3.  Recent Accounting Pronouncements

In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606). The amendments in this Update defer the effective date of ASU 2014-09 for all entities by one year. Public business entities, certain not-for-profit entities, and certain employee benefit plans should apply the guidance in ASU 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. All other entities should apply the guidance in ASU 2014-09 to annual reporting periods beginning after December 15, 2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019. The Company is evaluating the effect of adopting this new accounting Update.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. This Update applies to all entities that hold financial assets or owe financial liabilities and is intended to provide more useful information on the recognition, measurement, presentation, and disclosure of financial instruments. Among other things, this Update (a) requires equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income; (b) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; (c) eliminates the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public business entities; (d) eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; (e) requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; (f) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements; and (g) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. For all other entities, including not-for-profit entities and employee benefit plans within the scope of Topics 960 through 965 on plan accounting, the amendments in this Update are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. All entities that are not public business entities may adopt the amendments in this Update earlier as of the fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.


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In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The standard requires lessees to recognize the assets and liabilities that arise from leases on the balance sheet.  A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term.  A short-term lease is defined as one in which (a) the lease term is 12 months or less and (b) there is not an option to purchase the underlying asset that the lessee is reasonably certain to exercise. For short-term leases, lessees may elect to recognize lease payments over the lease term on a straight-line basis. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2018, and interim periods within those years. For all other entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2019, and for interim periods within fiscal years beginning after December 15, 2020. The amendments should be applied at the beginning of the earliest period presented using a modified retrospective approach with earlier application permitted as of the beginning of an interim or annual reporting period. The Company is currently assessing the practical expedients it may elect at adoption, but does not anticipate the amendments will have a significant impact on the financial statements. Based on the Company’s preliminary analysis of its current portfolio, the impact to the Company’s balance sheet is estimated to result in less than a 1 percent increase in assets and liabilities. The Company also anticipates additional disclosures to be provided at adoption.
In March 2016, the FASB issued ASU 2016-05, Derivatives and Hedging (Topic 815). The amendments in this Update apply to all reporting entities for which there is a change in the counterparty to a derivative instrument that has been designated as a heading instrument under Topic 815. The standards in this Update clarify that a change in the counterparty to a derivative instrument that has been designated as the hedging instrument under Topic 815 does not, in and of itself, require designation of that hedging relationship provided that all other hedge accounting criteria continue to be met. For public business entities, the amendments in this Update are effective for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. For all other entities, the amendments in this Update are effective for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within fiscal years beginning after December 15, 2018. An entity has an option to apply the amendments in this Update on either a prospective basis or a modified retrospective basis. Early adoption is permitted, including adoption in an interim period. This Update is not expected to have a significant impact on the Company’s financial statements.

In March 2016, the FASB issued ASU 2016-06, Derivatives and Hedging (Topic 815). The amendments apply to all entities that are issuers of or investors in debt instruments (or hybrid financial instruments that are determined to have a debt host) with embedded call (put) options. The amendments in this Update clarify the requirements for assessing whether contingent call (put) options that can accelerate the payment of principal on debt instruments are clearly and closely related to their debt host. An entity performing the assessment under the amendments in this Update is required to assess the embedded call (put) options solely in accordance with the four-step decision sequence. For public business entities, the amendments in this Update are effective for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. For entities other than public business entities, the amendments in this Update are effective for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within fiscal years beginning after December 15, 2018. Early adoption is permitted, including adoption in an interim period. This Update is not expected to have a significant impact on the Company’s financial statements.

In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606). The amendments in this Update affect entities with transactions included within the scope of Topic 606, which includes entities that enter into contracts with customers to transfer goods or services (that are an output of the entity’s ordinary activities) in exchange for consideration. The amendments in this Update do not change the core principle of the guidance in Topic 606; they simply clarify the implementation guidance on principal versus agent considerations. The amendments in this Update are intended to improve the operability and understandability of the implementation guidance on principal versus agent considerations. The amendments in this Update affect the guidance in ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which is not yet effective. The effective date and transition requirements for the amendments in this Update are the same as the effective date and transition requirements of Update 2014-09. ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, defers the effective date of Update 2014-09 by one year. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606). The amendments in this Update affect entities with transactions included within the scope of Topic 606, which includes entities that enter into contracts with customers to transfer goods or services in exchange for consideration. The amendments in this Update do not change the core principle for revenue recognition in Topic 606. Instead, the amendments provide (1) more detailed guidance in a few areas and (2) additional implementation guidance and examples based on feedback the FASB received from its stakeholders. The amendments are expected to reduce the degree of judgment necessary to comply with Topic 606, which the FASB expects will reduce the potential for diversity arising in practice and reduce the cost and complexity of applying the guidance. The amendments in this Update affect the guidance in ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which is not yet effective.

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The effective date and transition requirements for the amendments in this Update are the same as the effective date and transition requirements in Topic 606 (and any other Topic amended by Update 2014-09). ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, defers the effective date of Update 2014-09 by one year. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

In May 2016, the FASB issued ASU 2016-12, Revenue from Contracts with Customers (Topic 606), which among other things clarifies the objective of the collectability criterion in Topic 606, as well as certain narrow aspects of Topic 606. The amendments in this Update affect the guidance in ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which is not yet effective. The effective date and transition requirements for the amendments in this Update are the same as the effective date and transition requirements for Topic 606 (and any other Topic amended by Update 2014-09). ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, defers the effective date of Update 2014-09 by one year. This Update is not expected to have a significant impact on the Company’s financial statements

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments, which changes the impairment model for most financial assets. This Update is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. The underlying premise of the Update is that financial assets measured at amortized cost should be presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis. The allowance for credit losses should reflect management’s current estimate of credit losses that are expected to occur over the remaining life of a financial asset. The income statement will be effected for the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have taken place during the period. ASU 2016-13 is effective for annual and interim periods beginning after December 15, 2019, and early adoption is permitted for annual and interim periods beginning after December 15, 2018. With certain exceptions, transition to the new requirements will be through a cumulative effect adjustment to opening retained earnings as of the beginning of the first reporting period in which the guidance is adopted. We expect to recognize a one-time cumulative effect adjustment to the allowance for loan losses as of the beginning of the first reporting period in which the new standard is effective, but cannot yet determine the magnitude of any such one-time adjustment or the overall impact of the new guidance on the consolidated financial statements.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, which addresses eight specific cash flow issues with the objective of reducing diversity in practice. Among these include recognizing cash payments for debt prepayment or debt extinguishment as cash outflows for financing activities; cash proceeds received from the settlement of insurance claims should be classified on the basis of the related insurance coverage; and cash proceeds received from the settlement of bank-owned life insurance policies should be classified as cash inflows from investing activities while the cash payments for premiums on bank-owned policies may be classified as cash outflows for investing activities, operating activities, or a combination of investing and operating activities. The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects early adoption must adopt all of the amendments in the same period. The amendments in this Update should be applied using a retrospective transition method to each period presented. If it is impracticable to apply the amendments retrospectively for some of the issues, the amendments for those issues would be applied prospectively as of the earliest date practicable. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s statement of cash flows.

In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740), which requires recognition of current and deferred income taxes resulting from an intra-entity transfer of any asset (excluding inventory) when the transfer occurs. Consequently, the amendments in this Update eliminate the exception for an intra-entity transfer of an asset other than inventory. The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2017, including interim periods within those annual reporting periods. For all other entities, the amendments are effective for annual reporting periods beginning after December 15, 2018, and interim reporting periods within annual periods beginning after December 15, 2019. Early adoption is permitted for all entities as of the beginning of an annual reporting period for which financial statements (interim or annual) have not been issued or made available for issuance. That is, earlier adoption should be in the first interim period if an entity issues interim financial statements. The amendments in this Update should be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. This Update is not expected to have a significant impact on the Company’s financial statements.

In October 2016, the FASB issued ASU 2016-17, Consolidation (Topic 810), which amends the consolidation guidance on how a reporting entity that is the single decision maker of a VIE should treat indirect interests in the entity held through related parties

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that are under common control with the reporting entity when determining whether it is the primary beneficiary of that VIE. The primary beneficiary of a VIE is the reporting entity that has a controlling financial interest in a VIE and, therefore, consolidates the VIE. A reporting entity has an indirect interest in a VIE if it has a direct interest in a related party that, in turn, has a direct interest in the VIE. Under the amendments, a single decision maker is not required to consider indirect interests held through related parties that are under common control with the single decision maker to be the equivalent of direct interests in their entirety. Instead, a single decision maker is required to include those interests on a proportionate basis consistent with indirect interests held through other related parties. This Update is not expected to have a significant impact on the Company’s financial statements.

In October 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230), which requires that a statement of cash flows explains the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The amendments in this Update should be applied using a retrospective transition method to each period presented. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s statement of cash flows.

In December 2016, the FASB issued ASU 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers. This Update, among others things, clarifies that guarantee fees within the scope of Topic 460, Guarantees, (other than product or service warranties) are not within the scope of Topic 606. The effective date and transition requirements for ASU 2016-20 are the same as the effective date and transition requirements for the new revenue recognition guidance. For public entities with a calendar year-end, the new guidance is effective in the quarter and year beginning January 1, 2018. For all other entities with a calendar year-end, the new guidance is effective in the year ending December 31, 2019, and interim periods in 2020. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805), Clarifying the Definition of a Business, which provides a more robust framework to use in determining when a set of assets and activities (collectively referred to as a “set”) is a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. This screen reduces the number of transactions that need to be further evaluated. Public business entities should apply the amendments in this Update to annual periods beginning after December 15, 2017, including interim periods within those periods. All other entities should apply the amendments to annual periods beginning after December 15, 2018, and interim periods within annual periods beginning after December 15, 2019. The amendments in this Update should be applied prospectively on or after the effective date. This Update is not expected to have a significant impact on the Company’s financial statements.

In January 2017, the FASB issued ASU 2017-03, Accounting Changes and Error Corrections (Topic 250) and Investments-Equity Method and Joint Ventures (Topic 323), Amendments to SEC Paragraphs Pursuant to Staff Announcements at the September 22, 2016 and November 17, 2016 EITF Meetings. This Update adds an SEC paragraph to the Codification following an SEC Staff Announcement about applying Staff Accounting Bulletin (SAB) Topic 11.M. Specifically, this announcement applies to ASU 2014-09, Revenue from Contracts with Customers (Topic 606); ASU 2016-02, Leases (Topic 842); and ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. A registrant should evaluate Updates that have not yet been adopted to determine the appropriate financial statement disclosures about the potential material effects of those Updates on the financial statements when adopted. If a registrant does not know or cannot reasonably estimate the impact that adoption of the Updates referenced in this announcement are expected to have on the financial statements, then in addition to making a statement to that effect, that registrant should consider additional qualitative financial statement disclosures to assist the reader in assessing the significance of the impact that the standard will have on the financial statements of the registrant when adopted. In this regard, the SEC staff expects the additional qualitative disclosures to include a description of the effect of the accounting policies that the registrant expects to apply, if determined, and a comparison to the registrant’s current accounting policies. Also, a registrant should describe the status of its process to implement the new standards and the significant implementation matters yet to be addressed. The amendments in this Update are effective immediately.

In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment. To simplify the subsequent measurement of goodwill, the FASB eliminated Step 2 from the goodwill impairment test. In computing the implied fair value of goodwill under Step 2, an entity had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities) following the procedure that would be required in determining

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the fair value of assets acquired and liabilities assumed in a business combination. Instead, under the amendments in this Update, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting units fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. A public business entity that is a U.S. Securities and Exchange Commission (“SEC”) filer should adopt the amendments in this Update for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. A public business entity that is not an SEC filer should adopt the amendments in this Update for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2020. All other entities, including not-for-profit entities, that are adopting the amendments in this Update should do so for their annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2021. This Update is not expected to have a significant impact on the Company’s financial statements.

In February 2017, the FASB issued ASU 2017-05, Other Income-Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20). The amendments in this Update clarify what constitutes a financial asset within the scope of Subtopic 610-20. The amendments also clarify that entities should identify each distinct nonfinancial asset or in substance nonfinancial asset that is promised to a counterparty and to derecognize each asset when the counterparty obtains control. There is also additional guidance provided for partial sales of a nonfinancial asset and when derecognition, and the related gain or loss, should be recognized. The amendments in this Update are effective at the same time as the amendments in Update 2014-09. Therefore, for public entities, the amendments are effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. For all other entities, the amendments in this Update are effective for annual reporting periods beginning after December 15, 2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019. This Update is not expected to have a significant impact on the Company’s financial statements.

In March 2017, the FASB issued ASU 2017-07, Compensation-Retirement Benefits (Topic 715). The amendments in this Update require that an employer report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost as defined in paragraphs 715-30-35-4 and 715-60-35-9 are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented. If a separate line item or items are used to present the other components of net benefit cost, that line item or items must be appropriately described. If a separate line item or items are not used, the line item or items used in the income statement to present the other components of net benefit cost must be disclosed. This Update is not expected to have a significant impact on the Company’s financial statements.

In March 2017, the FASB issued ASU 2017-08, Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20). The amendments in this Update shorten the amortization period for certain callable debt securities held at a premium. Specifically, the amendments require the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. For public business entities, the amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity should apply the amendments in this Update on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. Additionally, in the period of adoption, an entity should provide disclosures about a change in accounting principle. This Update is not expected to have a significant impact on the Company’s financial statements.

In May 2017, the FASB issued ASU 2017-09, Compensation - Stock Compensation (Topic 718), which affects any entity that changes the terms or conditions of a share-based payment award.  This Update amends the definition of modification by qualifying that modification accounting does not apply to changes to outstanding share-based payment awards that do not affect the total fair value, vesting requirements, or equity/liability classification of the awards.  The amendments in this Update are effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted, including adoption in any interim period, for (1) public business entities for reporting periods for which financial statements have not yet been issued and (2) all other entities for reporting periods for which financial statements have not yet been made available for issuance. The amendments in this Update should be applied prospectively to an award modified on or after the adoption date. This Update is not expected to have a significant impact on the Company’s financial statements.

In May 2017, the FASB issued ASU 2017-10, Service Concession Arrangements (Topic 853), which applies to the accounting by operating entities for service concession arrangements within the scope of Topic 853. The amendments in this Update clarify that the grantor (government), rather than the third-party drivers, is the customer of the operation services in all cases for service concession arrangements within the scope of Topic 853. For an entity that has not adopted Topic 606 before the issuance of this Update, the effective date and transition requirements for the amendments in this Update generally are the same as the effective

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date and transition requirements for Topic 606 (and any other Topic amended by ASU 2014-09, Revenue from Contracts with Customers (Topic 606)). ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, deferred the effective date of Update 2014-09 by one year. This Update is not expected to have a significant impact on the Company’s financial statements.

In July 2017, the FASB issued ASU 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), and Derivative and Hedging (Topic 815). The amendments in Part I of this Update change the classification analysis of certain equity-linked financial instruments (or embedded features) with down-round features. When determining whether certain financial instruments should be classified as liabilities or equity instruments, a down-round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s own stock. The amendments also clarify existing disclosure requirements for equity-classified instruments. As a result, a freestanding equity-linked financial instrument (or embedded conversion option) no longer would be accounted for as a derivative liability at fair value as a result of the existence of a down-round feature. For freestanding equity classified financial instruments, the amendments require entities that present earnings per share (“EPS”) in accordance with Topic 260 to recognize the effect of the down-round feature when it is triggered. That effect is treated as a dividend and as a reduction of income available to common shareholders in basic EPS. Convertible instruments with embedded conversion options that have down- round features are now subject to the specialized guidance for contingent beneficial conversion features (in Subtopic 470-20, Debt-Debt with Conversion and Other Options), including related EPS guidance (in Topic 260). The amendments in Part II of this Update recharacterize the indefinite deferral of certain provisions of Topic 480 that now are presented as pending content in the Accounting Standards Codification, to a scope exception. Those amendments do not have an accounting effect. For public business entities, the amendments in Part I of this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. For all other entities, the amendments in Part I of this Update are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted for all entities, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The amendments in Part I of this Update should be applied either retrospectively to outstanding financial instruments with a down-round feature by means of a cumulative-effect adjustment to the statement of financial position as of the beginning of the first fiscal year and interim period(s) in which the pending content that links to this paragraph is effective or retrospectively to outstanding financial instruments with a down-round feature for each prior reporting period presented in accordance with the guidance on accounting changes in paragraphs 250-10-45-5 through 45-10. The amendments in Part II of this Update do not require any transition guidance because those amendments do not have an accounting effect. This Update is not expected to have a significant impact on the Company’s financial statements.


Note 4. Per Share Data

There are no convertible securities which would affect the denominator in calculating basic and dilutive earnings per share. There were a total of 96,500 stock options, with an average exercise price of $43.61, outstanding on June 30, 2017. These options were excluded, on a weighted average basis, in the computation of diluted earnings per share for the period due to the average market price of common shares of $43.26 being in excess of the exercise price of the options. There were a total of 31,000 stock options outstanding for the same period end in 2016 that had an average exercise price of $42.03 and were excluded from the computation of diluted earnings per share because the average market price of common shares was $40.06 for the period. Net income as presented on the consolidated statement of income will be used as the numerator.  The following table sets forth the composition of the weighted average common shares (denominator) used in the basic and dilutive earnings per share computation.
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2017
 
2016
 
2017
 
2016
Weighted average common shares outstanding - basic
 
4,711,332

 
4,733,251

 
4,723,003

 
4,736,878

Dilutive effect of outstanding stock options
 
—

 
—

 
—

 
—

Weighted average common shares outstanding - diluted
 
4,711,332

 
4,733,251

 
4,723,003

 
4,736,878

 









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Note 5. Investment Securities
 
The amortized cost, gross unrealized gains and losses, and fair values of investment securities available for sale at June 30, 2017 and December 31, 2016 are as follows:
 
 
June 30, 2017
 
 
 
 
Gross
 
Gross
 
 
 
 
Amortized
 
Unrealized
 
Unrealized
 
Fair
(In Thousands)
 
Cost
 
Gains
 
Losses
 
Value
Available for sale (AFS):
 
 

 
 

 
 

 
 

Mortgage-backed securities
 
$
4,649

 
$
83

 
$
(106
)
 
$
4,626

State and political securities
 
69,091

 
1,006

 
(130
)
 
69,967

Other debt securities
 
53,671

 
135

 
(1,650
)
 
52,156

Total debt securities
 
127,411

 
1,224

 
(1,886
)
 
126,749

Financial institution equity securities
 
9,818

 
679

 
—

 
10,497

Non-financial institution equity securities
 
1,300

 
—

 
(42
)
 
1,258

Total equity securities
 
11,118

 
679

 
(42
)
 
11,755

Total investment securities AFS
 
$
138,529

 
$
1,903

 
$
(1,928
)
 
$
138,504


 
 
December 31, 2016
 
 
 
 
Gross
 
Gross
 
 
 
 
Amortized
 
Unrealized
 
Unrealized
 
Fair
(In Thousands)
 
Cost
 
Gains
 
Losses
 
Value
Available for sale (AFS):
 
 

 
 

 
 

 
 

Mortgage-backed securities
 
$
9,295

 
$
182

 
$
(164
)
 
$
9,313

Asset-backed securities
 
109

 
—

 
—

 
109

State and political securities
 
60,777

 
666

 
(509
)
 
60,934

Other debt securities
 
53,046

 
137

 
(2,065
)
 
51,118

Total debt securities
 
123,227

 
985

 
(2,738
)
 
121,474

Financial institution equity securities
 
9,566

 
969

 
—

 
10,535

Non-financial institution equity securities
 
1,667

 
—

 
(184
)
 
1,483

Total equity securities
 
11,233

 
969

 
(184
)
 
12,018

Total investment securities AFS
 
$
134,460

 
$
1,954

 
$
(2,922
)
 
$
133,492

 
The amortized cost and fair values of trading investment securities at June 30, 2017 and December 31, 2016 are as follows.

 
 
June 30, 2017
 
 
 
 
Gross
 
Gross
 
 
 
 
Amortized
 
Unrealized
 
Unrealized
 
Fair
(In Thousands)
 
Cost
 
Gains
 
Losses
 
Value
Trading:
 
 
 
 
 
 
 
 
Financial institution equity securities
 
$
61

 
$
1

 
$
—

 
$
62

Non-financial institution equity securities
 
157

 
—

 
(6
)
 
151

Total trading securities
 
$
218

 
$
1

 
$
(6
)
 
$
213



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December 31, 2016
 
 
 
 
Gross
 
Gross
 
 
 
 
Amortized
 
Unrealized
 
Unrealized
 
Fair
(In Thousands)
 
Cost
 
Gains
 
Losses
 
Value
Trading:
 
 
 
 
 
 
 
 
Financial institution equity securities
 
$
—

 
$
—

 
$
—

 
$
—

Non-financial institution equity securities
 
$
56

 
$
2

 
$
—

 
$
58

Total trading securities
 
$
56

 
$
2

 
$
—

 
$
58


Total net trading gains of $0 and $2,000 for the three and six month periods ended June 30, 2017 compared to net trading gains of $6,000 and $46,000 for the three and six month periods ended June 30, 2016 were included in the Consolidated Statement of Income.

The following tables show the Company’s gross unrealized losses and fair value, aggregated by investment category and length of time, that the individual securities have been in a continuous unrealized loss position, at June 30, 2017 and December 31, 2016.

 
 
June 30, 2017
 
 
Less than Twelve Months
 
Twelve Months or Greater
 
Total
 
 
 
 
Gross
 
 
 
Gross
 
 
 
Gross
 
 
Fair
 
Unrealized
 
Fair
 
Unrealized
 
Fair
 
Unrealized
(In Thousands)
 
Value
 
Losses
 
Value
 
Losses
 
Value
 
Losses
Available for sale (AFS):
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage-backed securities
 
$
3,415

 
$
(106
)
 
$
—

 
$
—

 
$
3,415

 
$
(106
)
State and political securities
 
12,175

 
(130
)
 
—

 
—

 
12,175

 
(130
)
Other debt securities
 
30,906

 
(914
)
 
11,297

 
(736
)
 
42,203

 
(1,650
)
Total debt securities
 
46,496

 
(1,150
)
 
11,297

 
(736
)
 
57,793

 
(1,886
)
Financial institution equity securities
 
—

 
—

 
—

 
—

 
—

 
—

Non-financial institution equity securities
 
1,258

 
(42
)
 
—

 
—

 
1,258

 
(42
)
Total equity securities
 
1,258

 
(42
)
 
—

 
—

 
1,258

 
(42
)
Total investment securities AFS
 
$
47,754

 
$
(1,192
)
 
$
11,297

 
$
(736
)
 
$
59,051

 
$
(1,928
)

 
 
December 31, 2016
 
 
Less than Twelve Months
 
Twelve Months or Greater
 
Total
 
 
 
 
Gross
 
 
 
Gross
 
 
 
Gross
 
 
Fair
 
Unrealized
 
Fair
 
Unrealized
 
Fair
 
Unrealized
(In Thousands)
 
Value
 
Losses
 
Value
 
Losses
 
Value
 
Losses
Available for sale (AFS):
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage-backed securities
 
$
3,572

 
$
(106
)
 
$
3,627

 
$
(58
)
 
$
7,199

 
$
(164
)
State and political securities
 
26,113

 
(509
)
 
—

 
—

 
26,113

 
(509
)
Other debt securities
 
28,140

 
(1,179
)
 
12,240

 
(886
)
 
40,380

 
(2,065
)
Total debt securities
 
57,825

 
(1,794
)
 
15,867

 
(944
)
 
73,692

 
(2,738
)
Financial institution equity securities
 
—

 
—

 
—

 
—

 
—

 
—

Non-financial institution equity securities
 
727

 
(140
)
 
756

 
(44
)
 
1,483

 
(184
)
Total equity securities
 
727

 
(140
)
 
756

 
(44
)
 
1,483

 
(184
)
Total investment securities AFS
 
$
58,552

 
$
(1,934
)
 
$
16,623

 
$
(988
)
 
$
75,175

 
$
(2,922
)
 
At June 30, 2017 there were a total of 54 securities in a continuous unrealized loss position for less than twelve months and 7 individual securities that were in a continuous unrealized loss position for twelve months or greater.


16
Table of Contents


The Company reviews its position quarterly and has determined that, at June 30, 2017, the declines outlined in the above table represent temporary declines and the Company does not intend to sell and does not believe it will be required to sell these securities before recovery of their cost basis, which may be at maturity.  The Company has concluded that the unrealized losses disclosed above are not other than temporary but are the result of interest rate changes, sector credit ratings changes, or company-specific ratings changes that are not expected to result in the non-collection of principal and interest during the period.

The amortized cost and fair value of debt securities at June 30, 2017, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities since borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

(In Thousands)
 
Amortized Cost
 
Fair Value
Due in one year or less
 
$
2,140

 
$
2,140

Due after one year to five years
 
46,434

 
45,944

Due after five years to ten years
 
63,600

 
63,222

Due after ten years
 
15,237

 
15,443

Total
 
$
127,411

 
$
126,749


Total gross proceeds from sales of securities available for sale for the three and six months ended June 30, 2017 were $6,478,000 and $9,130,000, a decrease from the 2016 totals of $16,168,000 and $36,007,000.

The following table represents gross realized gains and losses within the available for sale portfolio:
 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(In Thousands)
 
2017
 
2016
 
2017
 
2016
Gross realized gains:
 
 

 
 

 
 

 
 

Mortgage-backed securities
 
$
24

 
$
6

 
69

 
6

State and political securities
 
15

 
339

 
29

 
638

Other debt securities
 
—

 
226

 
—

 
258

Financial institution equity securities
 
—

 
—

 
288

 
82

  Non-financial institution equity securities
 
—

 
—

 
—

 
144

Total gross realized gains
 
$
39

 
$
571

 
$
386

 
$
1,128

 
 
 
 
 
 
 
 
 
Gross realized losses:
 
 

 
 

 
 

 
 

U.S. Government and agency securities
 
$
—

 
$
3

 
$
—

 
$
3

Mortgage-backed securities
 
—

 
—

 
—

 
—

Asset-backed securities
 
—

 
—

 
—

 
—

State and political securities
 
—

 
—

 
—

 
—

Other debt securities
 
51

 
82

 
51

 
163

Financial institution equity securities
 
—

 
—

 
—

 
—

  Non-financial institution equity securities
 
—

 
—

 
150

 
41

Total gross realized losses
 
$
51

 
$
85

 
$
201

 
$
207













17
Table of Contents


The following table represents gross realized gains and losses within the trading portfolios:

 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(In Thousands)
 
2017
 
2016
 
2017
 
2016
Gross realized gains:
 
 

 
 

 
 

 
 

Financial institution equity securities
 
$
—

 
$
—

 
$
—

 
$
6

  Non-financial institution equity securities
 
6

 
9

 
8

 
68

Total gross realized gains
 
$
6

 
$
9

 
$
8

 
$
74

 
 
 
 
 
 
 
 
 
Gross realized losses:
 
 

 
 

 
 

 
 

Financial institution equity securities
 
$
—

 
$
3

 
$
—

 
$
16

  Non-financial institution equity securities
 
6

 
—

 
6

 
12

Total gross realized losses
 
$
6

 
$
3

 
$
6

 
$
28


There were no impairment charges included in gross realized losses for the three and six months ended June 30, 2017 and 2016, respectively.

Investment securities with a carrying value of approximately $103,864,000 and $95,199,000 at June 30, 2017 and December 31, 2016, respectively, were pledged to secure certain deposits, repurchase agreements, and for other purposes as required by law.


Note 6. Loans

Management segments the Banks' loan portfolio to a level that enables risk and performance monitoring according to similar risk characteristics.  Loans are segmented based on the underlying collateral characteristics.  Categories include commercial, financial, and agricultural, real estate, and installment loans to individuals.  Real estate loans are further segmented into three categories: residential, commercial, and construction.

The following table presents the related aging categories of loans, by segment, as of June 30, 2017 and December 31, 2016:
 
 
 
June 30, 2017
 
 
 
 
Past Due
 
Past Due 90
 
 
 
 
 
 
 
 
30 To 89
 
Days Or More
 
Non-
 
 
(In Thousands)
 
Current
 
Days
 
& Still Accruing
 
Accrual
 
Total
Commercial, financial, and agricultural
 
$
147,297

 
$
424

 
$
9

 
$
564

 
$
148,294

Real estate mortgage:
 
 

 
 

 
 

 
 

 
 

Residential
 
566,188

 
2,509

 
67

 
1,932

 
570,696

Commercial
 
307,285

 
632

 
1,152

 
8,649

 
317,718

Construction
 
33,986

 
18

 
101

 
—

 
34,105

Installment loans to individuals
 
68,862

 
637

 
—

 
24

 
69,523

 
 
1,123,618

 
$
4,220

 
$
1,329

 
$
11,169

 
1,140,336

Net deferred loan fees and discounts
 
(1,251
)
 
 

 
 

 
 

 
(1,251
)
Allowance for loan losses
 
(13,109
)
 
 

 
 

 
 

 
(13,109
)
Loans, net
 
$
1,109,258

 
 

 
 

 
 

 
$
1,125,976



18
Table of Contents


 
 
December 31, 2016
 
 
 
 
Past Due
 
Past Due 90
 
 
 
 
 
 
 
 
30 To 89
 
Days Or More
 
Non-
 
 
(In Thousands)
 
Current
 
Days
 
& Still Accruing
 
Accrual
 
Total
Commercial, financial, and agricultural
 
$
145,179

 
$
785

 
$
14

 
$
132

 
$
146,110

Real estate mortgage:
 
 

 
 

 
 

 
 

 
 

Residential
 
553,053

 
9,112

 
587

 
1,988

 
564,740

Commercial
 
296,537

 
786

 
268

 
8,591

 
306,182

Construction
 
33,879

 
771

 
—

 
—

 
34,650

Installment loans to individuals
 
43,008

 
202

 
1

 
45

 
43,256

 
 
1,071,656

 
$
11,656

 
$
870

 
$
10,756

 
1,094,938

Net deferred loan fees and discounts
 
(1,257
)
 
 

 
 

 
 

 
(1,257
)
Allowance for loan losses
 
(12,896
)