Item 8. Financial Statements and Supplementary Data
The following audited consolidated financial statements are set forth in
this Annual Report of Form 10-K on the following pages:
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders
and the Board of Directors of ENB Financial Corp
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of ENB Financial
Corp and subsidiaries (the “Company”) as of December 31, 2022 and 2021; the related consolidated statements of income, comprehensive
(loss) income, changes in stockholders’ equity, and cash flows for the years then ended; and the related notes to the consolidated
financial statements (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows
for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for
Opinion
These
financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on
the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting
Oversight Board (United States) (PCAOB) and are required to be independent, with respect to the Company, in accordance with U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted
our audits in accordance with the standards of the PCAOB. Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial
reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion.
Our audits
included performing procedures to assess the risks of material misstatement
of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating
the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis for our opinion.
Critical
Audit Matters
The critical
audit matters communicated below are matters arising from the current period audit of
the financial statements that were communicated or required to be communicated to the Audit Committee and that: (1) relate to accounts
or disclosures that are material to the financial statements; and (2) involve our especially challenging, subjective, or complex judgments.
The communication of critical audit matters does not alter, in any way, our opinion on the financial statements, taken as a whole, and
we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts
or disclosures to which they relate.
Allowance
for Loan Losses (ALL)
Description
of the Matter
The
Company’s loan portfolio totaled $1.2 billion as of December 31, 2022, and the associated
ALL was $14.2 million. As discussed in Notes A and C to the consolidated financial statements, determining the amount of the ALL requires
significant judgment about the collectability of loans, which includes an assessment of quantitative factors such as historical loss experience
within each risk category of loans and testing of certain commercial loans for impairment. Management applies additional qualitative adjustments
to reflect the inherent losses that exist in the loan portfolio at the balance sheet date that are not reflected in the historical loss
experience. Qualitative adjustments are made based upon changes in lending policies and practices, national and local economic trends
and conditions, trends in the nature and volume of the loan portfolio, experience, ability, and depth of lending staff and management,
levels of and trends in delinquency, non-accruals, and charge- offs, changes in quality of credit risk and oversight of Board of Directors,
changes in underlying value of collateral, concentrations of credit, and external factors such as competition, law, and regulations.
We
identified these qualitative adjustments within the ALL as critical audit matters because they involve a high degree of
subjectivity. In turn, auditing management’s judgments regarding the qualitative factors applied in the ALL calculation
involved a high degree of subjectivity.
How We Addressed
the Matter in Our Audit
We gained an understanding of the Company’s process for establishing the ALL,
including the qualitative adjustments made to the ALL. We evaluated the design and tested the operating effectiveness of controls over
the Company’s ALL process, which included, among others, management’s review and approval controls designed to assess the
need and level of qualitative adjustments to the ALL, as well as the reliability of the data utilized to support management’s assessment.
To test the qualitative adjustments, we evaluated the appropriateness of management’s
methodology and assessed whether all relevant risks were reflected in the ALL and the need to consider qualitative adjustments.
Allowance
for Loan Losses (ALL)
How We Addressed
the Matter in Our Audit
Regarding the measurement of the qualitative adjustments, we evaluated the completeness,
accuracy, and relevance of the data and inputs utilized in management’s estimate. For example, we compared the inputs and data to
the Company’s historical loan performance data and third-party macroeconomic data. Furthermore, we analyzed the changes in the components
of the qualitative reserves relative to changes in external market factors, the Company’s loan portfolio, and asset quality trends,
which included the evaluation of management’s ability to capture and assess relevant data from both external sources and internal
reports.
We also utilized internal credit review specialists with knowledge to evaluate
the appropriateness of management’s risk-rating processes, to ensure that the risk ratings applied to the commercial loan portfolio
were reasonable.
We have served
as the Company’s auditor since 2005.
S.R. Snodgrass,
P.C.
King of Prussia,
Pennsylvania
March 20, 2023
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER
SHARE DATA)
| |
December 31, | | |
December 31, | |
| |
2022 | | |
2021 | |
| |
$ | | |
$ | |
ASSETS | |
| | | |
| | |
Cash and due from banks | |
| 28,935 | | |
| 19,930 | |
Interest-bearing deposits in other banks | |
| 8,637 | | |
| 138,519 | |
| |
| | | |
| | |
Total cash and cash equivalents | |
| 37,572 | | |
| 158,449 | |
| |
| | | |
| | |
Securities available for sale (at fair value) | |
| 529,142 | | |
| 558,093 | |
Equity securities (at fair value) | |
| 9,118 | | |
| 8,982 | |
| |
| | | |
| | |
Loans held for sale | |
| 5,927 | | |
| 3,194 | |
| |
| | | |
| | |
Loans (net of unearned income) | |
| 1,191,117 | | |
| 920,904 | |
| |
| | | |
| | |
Less: Allowance for credit losses | |
| 14,151 | | |
| 12,931 | |
| |
| | | |
| | |
Net loans | |
| 1,176,966 | | |
| 907,973 | |
| |
| | | |
| | |
Premises and equipment | |
| 25,333 | | |
| 24,476 | |
Regulatory stock | |
| 6,670 | | |
| 5,380 | |
Bank owned life insurance | |
| 34,805 | | |
| 35,414 | |
Other assets | |
| 33,183 | | |
| 15,269 | |
| |
| | | |
| | |
Total assets | |
| 1,858,716 | | |
| 1,717,230 | |
| |
| | | |
| | |
LIABILITIES AND STOCKHOLDERS' EQUITY | |
| | | |
| | |
| |
| | | |
| | |
Liabilities: | |
| | | |
| | |
Deposits: | |
| | | |
| | |
Noninterest-bearing | |
| 672,342 | | |
| 686,278 | |
Interest-bearing | |
| 966,616 | | |
| 825,935 | |
| |
| | | |
| | |
Total deposits | |
| 1,638,958 | | |
| 1,512,213 | |
| |
| | | |
| | |
Short-term debt | |
| 16,000 | | |
| — | |
Long-term debt | |
| 58,039 | | |
| 44,206 | |
Subordinated debt | |
| 39,396 | | |
| 19,680 | |
Other liabilities | |
| 8,988 | | |
| 3,843 | |
| |
| | | |
| | |
Total liabilities | |
| 1,761,381 | | |
| 1,579,942 | |
| |
| | | |
| | |
Stockholders' equity: | |
| | | |
| | |
Common stock, par value $0.10 | |
| | | |
| | |
Shares: Authorized 24,000,000 | |
| | | |
| | |
Issued 5,739,114 and Outstanding 5,635,533 as of 12/31/22 and 5,583,957 as of 12/31/21 | |
| 574 | | |
| 574 | |
Capital surplus | |
| 4,437 | | |
| 4,520 | |
Retained earnings | |
| 142,677 | | |
| 131,856 | |
Accumulated other comprehensive (loss) income net of tax | |
| (48,292 | ) | |
| 3,441 | |
Less: Treasury stock cost on 103,581 shares as of 12/31/22 | |
| (2,061 | ) | |
| (3,103 | ) |
| |
| | | |
| | |
Total stockholders' equity | |
| 97,335 | | |
| 137,288 | |
| |
| | | |
| | |
Total liabilities and stockholders' equity | |
| 1,858,716 | | |
| 1,717,230 | |
See Notes to the Consolidated Financial Statements
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
| |
Year Ended December 31, |
| |
2022 | |
2021 |
| |
$ | |
$ |
Interest and dividend income: | |
| | | |
| | |
Interest and fees on loans | |
| 41,944 | | |
| 34,246 | |
Interest on securities available for sale | |
| | | |
| | |
Taxable | |
| 9,048 | | |
| 4,881 | |
Tax-exempt | |
| 4,214 | | |
| 3,975 | |
Interest on deposits at other banks | |
| 172 | | |
| 91 | |
Dividend income | |
| 581 | | |
| 398 | |
| |
| | | |
| | |
Total interest and dividend income | |
| 55,959 | | |
| 43,591 | |
| |
| | | |
| | |
Interest expense: | |
| | | |
| | |
Interest on deposits | |
| 2,750 | | |
| 1,143 | |
Interest on borrowings | |
| 2,626 | | |
| 1,877 | |
| |
| | | |
| | |
Total interest expense | |
| 5,376 | | |
| 3,020 | |
| |
| | | |
| | |
Net interest income | |
| 50,583 | | |
| 40,571 | |
| |
| | | |
| | |
Provision for loan losses | |
| 1,300 | | |
| 475 | |
Net interest income after provision for loan losses | |
| 49,283 | | |
| 40,096 | |
| |
| | | |
| | |
Other income: | |
| | | |
| | |
Trust and investment services income | |
| 2,643 | | |
| 2,362 | |
Service fees | |
| 2,938 | | |
| 2,512 | |
Commissions | |
| 3,663 | | |
| 3,702 | |
Gains on sale of debt securities, net | |
| 42 | | |
| 730 | |
(Losses) gains on equity securities, net | |
| (32 | ) | |
| 324 | |
Gains on sale of mortgages | |
| 1,302 | | |
| 5,526 | |
Earnings on bank-owned life insurance | |
| 1,583 | | |
| 880 | |
Other income | |
| 1,425 | | |
| 1,845 | |
| |
| | | |
| | |
Total other income | |
| 13,564 | | |
| 17,881 | |
| |
| | | |
| | |
Operating expenses: | |
| | | |
| | |
Salaries and employee benefits | |
| 27,324 | | |
| 24,465 | |
Occupancy | |
| 2,846 | | |
| 2,621 | |
Equipment | |
| 1,240 | | |
| 1,053 | |
Advertising & marketing | |
| 1,083 | | |
| 992 | |
Computer software & data processing | |
| 5,591 | | |
| 4,420 | |
Shares tax | |
| 1,380 | | |
| 1,282 | |
Professional services | |
| 2,743 | | |
| 2,099 | |
Other expense | |
| 3,722 | | |
| 3,509 | |
| |
| | | |
| | |
Total operating expenses | |
| 45,929 | | |
| 40,441 | |
| |
| | | |
| | |
Income before income taxes | |
| 16,918 | | |
| 17,536 | |
| |
| | | |
| | |
Provision for federal income taxes | |
| 2,287 | | |
| 2,620 | |
| |
| | | |
| | |
Net income | |
| 14,631 | | |
| 14,916 | |
| |
| | | |
| | |
Earnings per share of common stock | |
| 2.62 | | |
| 2.68 | |
| |
| | | |
| | |
Cash dividends paid per share | |
| 0.68 | | |
| 0.67 | |
| |
| | | |
| | |
Weighted average shares outstanding | |
| 5,588,656 | | |
| 5,567,950 | |
See Notes to the Consolidated Financial Statements
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(DOLLARS IN THOUSANDS)
| |
Year Ended December 31, |
| |
2022 | |
2021 |
| |
$ | |
$ |
| |
| |
|
Net income | |
| 14,631 | | |
| 14,916 | |
| |
| | | |
| | |
Other comprehensive (loss) income , net of tax: | |
| | | |
| | |
Net change in unrealized (losses) gains: | |
| | | |
| | |
| |
| | | |
| | |
Securities available for sale not other-than-temporarily impaired: | |
| | | |
| | |
| |
| | | |
| | |
Unrealized losses arising during the period | |
| (65,443 | ) | |
| (4,986 | ) |
Income tax effect | |
| 13,743 | | |
| 1,046 | |
| |
| (51,700 | ) | |
| (3,940 | ) |
| |
| | | |
| | |
Gains recognized in earnings | |
| (42 | ) | |
| (730 | ) |
Income tax effect | |
| 9 | | |
| 153 | |
| |
| (33 | ) | |
| (577 | ) |
| |
| | | |
| | |
Other comprehensive loss, net of tax | |
| (51,733 | ) | |
| (4,517 | ) |
| |
| | | |
| | |
Comprehensive (Loss) Income | |
| (37,102 | ) | |
| 10,399 | |
See Notes to the Consolidated Financial Statements
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER
SHARE DATA)
| |
| |
| |
| |
Accumulated | |
| |
|
| |
| |
| |
| |
Other | |
| |
Total |
| |
Common | |
Capital | |
Retained | |
Comprehensive | |
Treasury | |
Stockholders' |
| |
Stock | |
Surplus | |
Earnings | |
Income (Loss) | |
Stock | |
Equity |
| |
$ | |
$ | |
$ | |
$ | |
$ | |
$ |
| |
| |
| |
| |
| |
| |
|
Balances, December 31, 2020 | |
| 574 | | |
| 4,444 | | |
| 120,670 | | |
| 7,958 | | |
| (3,430 | ) | |
| 130,216 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net income | |
| — | | |
| — | | |
| 14,916 | | |
| — | | |
| — | | |
| 14,916 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Other comprehensive loss, net of tax | |
| — | | |
| — | | |
| — | | |
| (4,517 | ) | |
| — | | |
| (4,517 | ) |
| |
| | | |
| | | |
| — | | |
| | | |
| | | |
| | |
Treasury stock purchased - 22,900 shares | |
| — | | |
| — | | |
| — | | |
| — | | |
| (482 | ) | |
| (482 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Treasury stock issued - 40,626 shares | |
| — | | |
| 76 | | |
| — | | |
| — | | |
| 809 | | |
| 885 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Cash dividends paid, $0.67 per share | |
| — | | |
| — | | |
| (3,730 | ) | |
| — | | |
| — | | |
| (3,730 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balances, December 31, 2021 | |
| 574 | | |
| 4,520 | | |
| 131,856 | | |
| 3,441 | | |
| (3,103 | ) | |
| 137,288 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net income | |
| — | | |
| — | | |
| 14,631 | | |
| — | | |
| — | | |
| 14,631 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Other comprehensive loss, net of tax | |
| — | | |
| — | | |
| — | | |
| (51,733 | ) | |
| — | | |
| (51,733 | ) |
| |
| | | |
| | | |
| — | | |
| | | |
| | | |
| | |
Stock-based compensation expense | |
| | | |
| 11 | | |
| | | |
| | | |
| | | |
| 11 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Treasury stock purchased -6,456 shares | |
| — | | |
| — | | |
| — | | |
| — | | |
| (116 | ) | |
| (116 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Treasury stock issued - 58,032 shares | |
| — | | |
| (94 | ) | |
| — | | |
| — | | |
| 1,158 | | |
| 1,064 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Cash dividends paid, $0.68 per share | |
| — | | |
| — | | |
| (3,810 | ) | |
| — | | |
| — | | |
| (3,810 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balances, December 31, 2022 | |
| 574 | | |
| 4,437 | | |
| 142,677 | | |
| (48,292 | ) | |
| (2,061 | ) | |
| 97,335 | |
See Notes to the Consolidated Financial Statements
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
| |
Year Ended December 31, |
| |
2022 | |
2021 |
| |
$ | |
$ |
Cash flows from operating activities: | |
| | | |
| | |
Net income | |
| 14,631 | | |
| 14,916 | |
Adjustments to reconcile net income to net cash provided by operating
activities: | |
| | | |
| | |
Net amortization of securities premiums and discounts and loan fees | |
| 5,233 | | |
| 3,945 | |
Increase in interest receivable | |
| (1,403 | ) | |
| (608 | ) |
Increase (decrease) in interest payable | |
| 346 | | |
| (71 | ) |
Provision for loan losses | |
| 1,300 | | |
| 475 | |
Gain on sale of debt securities, net | |
| (42 | ) | |
| (730 | ) |
Loss (gain) on equity securities, net | |
| 32 | | |
| (324 | ) |
Gains on sale of mortgages | |
| (1,302 | ) | |
| (5,526 | ) |
Loans originated for sale | |
| (30,160 | ) | |
| (97,578 | ) |
Proceeds from sales of loans | |
| 28,729 | | |
| 102,939 | |
Earnings on bank-owned life insurance | |
| (1,583 | ) | |
| (880 | ) |
Depreciation of premises and equipment and amortization of software | |
| 1,629 | | |
| 1,560 | |
Deferred income tax | |
| (65 | ) | |
| (15 | ) |
Amortization of deferred fees on subordinated debt | |
| 116 | | |
| 79 | |
Stock-based compensation expense | |
| 11 | | |
| — | |
Other assets and other liabilities, net | |
| 4,144 | | |
| (4,926 | ) |
Net cash provided by operating activities | |
| 21,616 | | |
| 13,256 | |
| |
| | | |
| | |
Cash flows from investing activities: | |
| | | |
| | |
Securities avaiable for sale: | |
| | | |
| | |
Proceeds from maturities, calls, and repayments | |
| 53,714 | | |
| 74,972 | |
Proceeds from sales | |
| 28,590 | | |
| 79,019 | |
Purchases | |
| (123,854 | ) | |
| (245,788 | ) |
Equity securities: | |
| | | |
| | |
Proceeds from sales | |
| 151 | | |
| 460 | |
Purchases | |
| (319 | ) | |
| (2,013 | ) |
Purchase of regulatory bank stock | |
| (1,982 | ) | |
| (556 | ) |
Redemptions of regulatory bank stock | |
| 692 | | |
| 1,283 | |
Purchase of bank-owned life inurance | |
| — | | |
| (4,888 | ) |
Net increase in loans | |
| (270,468 | ) | |
| (96,204 | ) |
Purchases of premises and equipment, net | |
| (2,192 | ) | |
| (1,036 | ) |
Purchase of computer software | |
| (141 | ) | |
| (486 | ) |
Net cash used for investing activities | |
| (315,809 | ) | |
| (195,237 | ) |
| |
| | | |
| | |
Cash flows from financing activities: | |
| | | |
| | |
Net increase in demand, NOW, and savings accounts | |
| 106,852 | | |
| 264,554 | |
Net increase (decrease) in time deposits | |
| 19,893 | | |
| (5,152 | ) |
Net increase in short-term borrowings | |
| 16,000 | | |
| — | |
Proceeds from long-term debt | |
| 13,833 | | |
| — | |
Repayments of long-term debt | |
| — | | |
| (10,584 | ) |
Proceeds from issuance of subordinated debt | |
| 19,600 | | |
| — | |
Dividends paid | |
| (3,810 | ) | |
| (3,730 | ) |
Proceeds from sale of treasury stock | |
| 1,064 | | |
| 885 | |
Treasury stock purchased | |
| (116 | ) | |
| (482 | ) |
Net cash provided by financing activities | |
| 173,316 | | |
| 245,491 | |
(Decrease) Increase in cash and cash equivalents | |
| (120,877 | ) | |
| 63,510 | |
Cash and cash equivalents at beginning of period | |
| 158,449 | | |
| 94,939 | |
Cash and cash equivalents at end of period | |
| 37,572 | | |
| 158,449 | |
| |
| | | |
| | |
Supplemental disclosures of cash flow information: | |
| | | |
| | |
Interest paid | |
| 5,030 | | |
| 3,089 | |
Income taxes paid | |
| 1,900 | | |
| 2,875 | |
| |
| | | |
| | |
Supplemental disclosure of non-cash investing and financing activities: | |
| | | |
| | |
| |
| — | | |
| — | |
Fair value adjustments for securities available for sale | |
| 65,485 | | |
| 5,716 | |
Recognition of lease operating right-of-use assets | |
| 2,811 | | |
| 80 | |
Recognition of operating lease liabilities | |
| 2,811 | | |
| 80 | |
Death benefits receivable on BOLI | |
| 2,075 | | |
| — | |
See Notes to the Consolidated Financial Statements
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
ENB Financial Corp, through its wholly owned subsidiary, Ephrata National
Bank, provides financial services to Northern Lancaster County and surrounding communities. ENB Financial Corp, a bank holding company,
was formed on July 1, 2008, to become the parent company of Ephrata National Bank, which existed as a stand-alone national bank since
its formation on April 11, 1881. The Corporation’s wholly owned subsidiary, Ephrata National Bank, offers a full array of banking
services including loan and deposit products for both personal and commercial customers, as well as trust and investment services, through
thirteen full-service office locations. The Bank has one subsidiary, ENB Insurance, which is a full-service insurance agency that offers
a broad range of insurance products to commercial and personal clients. ENB Insurance is managed separately from the banking and related
financial services that the Corporation offers.
Basis of Presentation
The consolidated financial statements of ENB Financial Corp and its subsidiary,
Ephrata National Bank, (collectively “the Corporation”) conform to U.S. generally accepted accounting principles (GAAP). The
preparation of these statements requires that management make estimates and assumptions that affect the reported amount of assets and
liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported
amounts of revenues and expenses during the reporting period. Material estimates of the Corporation, including the allowance for credit
losses, the fair market value of financial instruments, and deferred tax assets or liabilities, are evaluated regularly by management.
Actual results could differ from the reported estimates given different conditions or assumptions.
The accounting and reporting policies followed by the Corporation conform
with U.S. GAAP and to general practices within the banking industry. All significant intercompany transactions have been eliminated in
consolidation. The following is a summary of the more significant policies.
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents are identified
as cash and due from banks and include cash on hand, collection items, amounts due from banks, and interest bearing deposits in other
banks with maturities of less than 90 days.
Securities Available for Sale
The Corporation classifies its entire portfolio of debt securities as
available for sale securities, which the Corporation reports at fair value. Any unrealized valuation gains or losses on the debt
portfolio are reported as a separate component of stockholders' equity, net of deferred income taxes. The constant yield method is
used for the amortization of premiums and the accretion of discounts for all of the Corporation’s securities with the
exception of collateralized mortgage obligations (CMOs), mortgage-backed securities (MBS) and asset-backed securities (ABS). The
constant yield method maintains a stable yield on the instrument through its maturity. For CMOs, ABS and MBS, a two-step/proration
method is used for amortization and accretion. The first step is a proration based on the current pay down. This component ensures
that the book price stays level with par. The second step amortizes or accretes the remaining premium or discount to the calculated
final amortization or accretion date based on the current three-month constant prepayment rates. Net gains or losses realized on
sales or calls of securities are reported as gains or losses on security transactions during the year of sale, using the specific
identification method.
Equity Securities
Equity securities includes common stocks of public companies that the Corporation
has the intent and ability to hold for an indeterminate amount of time. Such securities are reported at fair value with changes
in unrealized holding gains and losses recognized through earnings on a monthly basis.
Other Than Temporary Impairment (“OTTI”)
Management monitors all of the Corporation’s securities for OTTI
on a monthly basis and determines whether any impairment should be recorded. A number of factors are considered in determining whether
a security is impaired, including, but not limited to, the following:
| ● | Percentage of unrealized losses, |
| ● | Period of time the security has had unrealized losses, |
| ● | Maturity date of the instrument if a debt instrument, |
| ● | The intent to sell the security or whether it is more likely than not that the Corporation would be required to sell the security
before its anticipated recovery in market value, |
| ● | Amount of projected credit losses based on current cash flow analysis, default and severity rates, and |
| ● | Market dynamics impacting the market for and liquidity of the security. |
Management will more closely evaluate those securities that have unrealized
losses of 10% or more and have had unrealized losses for more than twelve months. If management determines that the declines in value
of the security are not temporary, or if management does not have the ability to hold the security until maturity, which is the case with
equity securities, then management will record impairment on the security. For debt securities evaluated for impairment, management will
determine what portion of the unrealized valuation loss is attributed to projected or known loss of principal, and what portion is attributed
to market pricing not reflective of the true value of the security, based on current cash flow analysis. Management will generally record
impairment equivalent to the projected or known loss of principal, known as the credit loss. The other portion of the fair market value
loss is attributed to market factors and it is management’s opinion that these fair value losses are temporary and not permanent.
All impairment is recorded as a loss on securities and is included in the Corporation’s Consolidated Statements of Income.
Loans Held for Investment
Loans receivable, that management has the intent and ability to hold for
the foreseeable future, or until maturity or payoff, generally are reported at the outstanding principal balances, reduced by any charge-offs
and net of any deferred loan origination fees or costs. Net loan origination fees and costs are deferred and recognized as an adjustment
of yield over the contractual life of the loan.
Interest accrues daily on outstanding loan balances. Generally, the accrual
of interest discontinues when the ability to collect the loan becomes doubtful or when a loan becomes more than 90 days past due as to
principal and interest. These loans are referred to as non-accrual loans. Management may elect to continue the accrual of interest based
on the expectation of future payments and/or the sufficiency of the underlying collateral.
Loans Held for Sale
Loans originated and intended for sale on the secondary market are carried
at the lower of cost or fair value in the aggregate. Net unrealized losses, if any, are recognized through a valuation allowance by charges
to income. In general, fixed-rate residential mortgage loans originated by the Corporation and held for sale are carried in the aggregate
at the lower of cost or market. The Corporation originates loans for immediate sale with servicing retained and servicing released to
several investors. However, the vast majority of the sold mortgages are sold to the Federal Home Loan Bank of Pittsburgh (FHLB) and Fannie
Mae, with servicing retained. As a result, the Corporation has a growing portfolio of mortgages that are serviced on behalf of FHLB
and Fannie Mae. In addition, the Corporation originates FHA, VA, and USDA mortgages which are originated for immediate sale to various
investors on a service-released basis.
Allowance for Credit Losses
The allowance for credit losses is maintained at a level considered by
management to be adequate to provide for known and inherent risks in the loan portfolio at the Consolidated Balance Sheets dates. The
monthly provision or credit for loan losses is an expense or a reduction of expense which increases or decreases the allowance, and charge-offs,
net of recoveries, decrease the allowance. The Corporation performs ongoing credit reviews of the loan portfolio and considers current
economic conditions, historical loan loss experience, and other factors in determining the adequacy of the reserve balance. Loans determined
to be uncollectible are charged to the allowance during the period in which such determination is made.
In calculating the allowance, management will begin by compiling the balance
of loans by credit quality for each loan segment in order that allocations can be made in aggregate based on historic losses and qualitative
factors. Prior to calculating these aggregate allocations, management will individually evaluate commercial and commercial real estate
loans for impairment. A loan is impaired when it is probable that a creditor will be unable to collect all principal and interest due
according to the contractual terms of the loan agreement. All other loan types such as residential mortgages, home equity loans and lines
of credit, and all other consumer loans, are not individually evaluated for impairment and are therefore allocated for in aggregate. These
loans are considered to be large groups of smaller-balance homogenous loans and are measured for impairment collectively. Loans that experience
insignificant payment delays, which are defined as 90 days or less, generally are not classified as impaired.
Management determines the
significance of payment delays on a case-by-case basis, taking into consideration all circumstances concerning the loan, the creditworthiness
and payment history of the borrower, the length of the payment delay, and the amount of shortfall in relation to the principal and interest
owed. For loans deemed to be impaired, management will provide a specific allocation.
This loan balance is then subtracted from the total loan balances being allocated for in the aggregate. The remaining balances, along
with the full loan balances for the other loan types are then multiplied by an adjusted loss ratio, which is the sum of both the historical
loss ratio and a qualitative factor adjustment. Generally both the historical loss ratio and the qualitative factor adjustment will increase
as the credit rating of the loan deteriorates. The credit ratings begin with unclassified loans, which represent the best internal credit
rating, also referred to as a “pass” credit and then continue with declining grades of special mention, substandard, doubtful,
and loss. Special mention loans are no longer deemed to be a “pass” credit and require additional management attention. They
are essentially placed on “watched” status and attempts are made to improve the credit to an unclassified status. If the credit
would deteriorate further it would then be a substandard credit, which for regulatory purposes, is deemed to be a classified loan. Doubtful
and loss credit grades represent further credit deterioration and are also considered classified loans.
For each loan type, all of these credit rating categories are broken out
with adjusted loss ratios. The loan balance is then multiplied by the adjusted loss ratio to produce the required allowance. The allowances
are totaled and added to any specific allocations on impaired loans to arrive at the total allowance for credit losses for the Corporation.
Management tracks and assigns a historical loss percentage for each loan
rating category within each loan type. A rolling three-year historical loss ratio, calculated on a quarterly basis, with a 60%, 30%, and
10% weighting for the past three years is used. In this manner the historical loss percentage is heavily weighted to the current loss
environment, but has sufficient weighting assigned to prior periods to avoid unnecessary volatile fluctuations based on just one period’s
data.
Management currently utilizes nine qualitative factors that are adjusted
based on changes in the lending environment and economic conditions. The qualitative factors include the following:
| ● | levels of and trends in delinquencies, non-accruals, and charge-offs, |
| ● | trends in the nature and volume of the loan portfolio, |
| ● | changes in lending policies and procedures, |
| ● | experience, ability, and depth of lending personnel and management oversight, |
| ● | national and local economic trends, |
| ● | concentrations of credit, |
| ● | external factors such as competition, legal, and regulatory requirements, |
| ● | changes in the quality of loan review and Board oversight, |
| ● | changes in the value of underlying collateral. |
The number of qualitative factors can change. Factors can be added for
new risks or taken away if the risk no longer applies. Each loan type will have its own risk profile and management will evaluate and
adjust each qualitative factor for each loan type quarterly, if necessary. For example, if one area of the loan portfolio is experiencing
sharp increases in growth, it is likely the qualitative factor for trends in the loan portfolio would be increased for that loan type.
As levels of delinquencies and non-accrual loans decline for any segment of the loan portfolio it is likely that factor would be reduced.
In terms of the Corporation’s loan portfolio, the commercial and
industrial loans and commercial real estate loans are deemed to have more risk than the consumer real estate loans and other consumer
loans in the portfolio. The commercial loans not secured by real estate are highly dependent on their financial condition and therefore
are more dependent on economic conditions. The commercial loans secured by real estate are also dependent on economic conditions but generally
have stronger forms of collateral. Commercial real estate lending is highly impacted by the value of collateral so these commercial loans
carry a higher qualitative factor for changes in collateral value. While the Corporation’s CRE loans have performed well historically,
other commercial loans and commercial mortgage loans have historically been responsible for the majority of the Corporation’s delinquencies,
non-accrual loans, and charge-offs, so both of these categories carry higher qualitative factors than consumer real estate loans and other
consumer loans. The Corporation has historically experienced very low levels of consumer real estate and consumer loan charge-offs so
these qualitative factors are set lower than the commercial real estate and commercial and industrial loans.
Impaired and Non-Accrual Loans
The definition of “impaired loans” is not the same as the definition
of “non-accrual loans,” although the two categories overlap. Generally, a non-accrual loan will always be considered impaired
due to payment delinquency or uncertain collection, but there are cases where an impaired loan is not considered non-accrual. The primary
factors considered by management in determining impairment include payment status and collateral value, but could also include debt service
coverage, financial health of the business, and other external factors that could impact the ability of the borrower to fully repay the
loan. The amount of impairment for these types of loans is determined by the difference between the present value of the expected cash
flows related to the loan using the original interest rate and its recorded value or, as a practical expedient in the case of collateral-dependent
loans, the difference between the fair value of the collateral and the recorded amount of the loan. When foreclosure is probable, impairment
is measured based on the fair value of the collateral on a discounted basis, relative to the loan amount.
Management will place a business or commercial loan on non-accrual status
when it is determined that the loan is impaired, or when the loan is 90 days past due. These customers will generally be placed on non-accrual
status at the end of each quarter. Consumer loans over 90 days delinquent are generally charged off, or in the case of residential real
estate loans the Corporation will seek to bring the customer current or pursue foreclosure options. When the borrower is on non-accrual,
the Corporation will reverse any accrued interest on the books and will discontinue recognizing any interest income until the borrower
is placed back on accrual status or fully pays off the loan balance plus any accrued interest. Payments received by the customer while
the loan is on non-accrual are fully applied against principal. The Corporation maintains records of the full amount of interest that
is owed by the borrower. A non-accrual loan will generally only be placed back on accrual status after the borrower has become current
and has demonstrated six consecutive months of non-delinquency.
Allowance for Off-Balance Sheet Extensions of Credit
The Corporation maintains an allowance for off-balance sheet extensions
of credit, which would include any unadvanced amount on lines of credit and any letters of credit provided to borrowers. The allowance
is carried as a liability and is included in other liabilities on the Corporation’s Consolidated Balance Sheets. The liability was
$1,017,000 as of December 31, 2022, and $910,000 as of December 31, 2021. As the unadvanced portion of lines of credit increases, this
provision will increase.
Management follows the same methodology as the allowance for credit losses
when calculating the allowance for off-balance sheet extensions of credit, with the exception of multiplying the unadvanced total by a
high/low balance variance to arrive at the expected unadvanced portion that could be drawn upon at any time, or the amount at risk. The
unadvanced amounts for each loan segment are broken down by credit classification. A historical loss ratio and qualitative factor are
calculated for each credit classification by loan type. The historical loss ratio and qualitative factor are combined to produce an adjusted
loss ratio, which is multiplied by the amount at risk for each credit classification within each loan segment to arrive at an allocation.
The allocations are summed to arrive at the total allowance for off-balance sheet extensions of credit.
Other Real Estate Owned (OREO)
OREO represents properties acquired through customer loan defaults. These
properties are recorded at the lower of cost or fair value less projected disposal costs at acquisition date. Fair value is determined
by current appraisals. Costs associated with holding OREO are charged to operational expense. OREO is a component of other assets on the
Corporation’s Consolidated Balance Sheets. The Corporation had no OREO as of December 31, 2022, or December 31, 2021.
Mortgage Servicing Rights (MSRs)
The Corporation has agreements for the express purpose of selling
residential mortgage loans on the secondary market, referred to as mortgage servicing rights. The Corporation maintains all
servicing rights for loans currently sold through FHLB and Fannie Mae. The Corporation had $2,030,000 of MSRs as of December 31,
2022, compared to $1,768,000 as of December 31, 2021. The value of MSRs increased during 2022 as valuation of new assets outpaced
amortization on existing assets. The value of newly originated MSRs is determined by estimating the life of the mortgage and how
long the Corporation will have access to the servicing income stream to determine the relative fair value. The Corporation utilizes
a third party that calculates the MSR valuation on a quarterly basis. A longer estimated life would increase the MSR valuation,
while a shorter estimated life would decrease the value of the MSR. Management records the MSR value based on the third-party
reporting. Ultimately the value of the MSRs would be at what level a willing buyer and seller would exchange the MSRs. MSRs are
amortized in proportion to the estimated servicing income over the estimated life of the servicing portfolio.
Impairment is evaluated based on the fair value of the rights, portfolio
interest rates, and prepayment characteristics. MSRs are a component of other assets on the Consolidated Balance Sheets.
The following chart provides the activity of the Corporation’s mortgage
servicing rights for the years ended December 31, 2022 and 2021.
MORTGAGE SERVICING RIGHTS
(DOLLARS IN THOUSANDS)
| |
December 31, |
| |
2022 | |
2021 |
| |
$ | |
$ |
| |
| |
|
Beginning Balance | |
| 1,768 | | |
| 1076 | |
Additions | |
| 344 | | |
| 877 | |
Amortization | |
| (22 | ) | |
| (48 | ) |
Disposals | |
| (60 | ) | |
| (137 | ) |
| |
| | | |
| | |
Ending Balance | |
| 2,030 | | |
| 1,768 | |
Premises and Equipment
Land is carried at cost. Premises and equipment are carried at cost, less
accumulated depreciation. Book depreciation is computed using straight-line methods over the estimated useful lives of generally fifteen
to thirty-nine years for buildings and improvements and four to ten years for furniture and equipment. Maintenance and repairs of property
and equipment are charged to operational expense as incurred, while major improvements are capitalized. Net gains or losses upon disposition
are included in other income or operational expense, as applicable.
Transfer of Assets
Transfers of financial assets are accounted for as sales when control over
the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated
from the Company, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge
or exchange the transferred assets, and (3) the Company does not maintain effective control over the transferred assets through an agreement
to repurchase them before their maturity.
Bank-Owned Life Insurance (BOLI)
BOLI is carried by the Corporation at the cash surrender value of the underlying
policies. Income earned on the policies is based on any increase in cash surrender value less the cost of the insurance, which varies
according to age and health of the insured. The life insurance policies owned by the Corporation had a cash surrender value of $34,805,000
and $35,414,000 as of December 31, 2022, and 2021, respectively. The decrease in BOLI cash surrender value was primarily due to the death
of two participants during 2022 which resulted in death benefits received and a decrease in the value of the policies.
Leases
The Company has operating leases for several
branch locations and office space. Generally, the underlying lease agreements do not contain any material residual value guarantees
or material restrictive covenants. The Company may also lease certain office equipment under operating leases. Many of the
Company’s leases include both lease (e.g., minimum rent payments) and non-lease components (e.g., common-area or other
maintenance costs). The Company accounts for each component separately based on the standalone price of each component. In addition,
there are several operating leases with lease terms of less than one year and therefore, we have elected the practical expedient to
exclude these short-term leases from our right of use assets and lease liabilities.
Most leases include one or more options to renew.
The exercise of lease renewal options is typically at the sole discretion of management and is based on whether the extension options
are reasonably certain to be exercised after giving proper consideration to all facts and circumstances of the lease. If management determines
that the Company is reasonably certain to exercise the extension option(s), the additional term is included in the calculation of the
lease liability.
As most of the leases do not provide an implicit rate, the Company uses the
fully collateralized FHLB borrowing rate, commensurate with the lease terms based on the information available at the lease commencement
date in determining the present value of the lease payments.
Advertising Costs
The Corporation expenses advertising costs as incurred.
Income Taxes
An asset and liability approach is followed for financial accounting and
reporting for income taxes. Accordingly, a net deferred tax asset or liability is recorded in the consolidated financial statements for
the tax effects of temporary differences, which are items of income and expense reported in different periods for income tax and financial
reporting purposes. Deferred tax expense is determined by the change in the assets or liabilities related to deferred income taxes. As
changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes.
Earnings per Share
Basic earnings per share represents income available to common stockholders
divided by the weighted average number of common shares outstanding during the period less any unvested restricted shares. Diluted earnings
per share reflects additional common shares that would have been outstanding if dilutive potential common shares had been issued, as well
as any adjustment to income that would result from the assumed issuance. Potential common shares that may be issued by the Company relate
solely to outstanding stock options and are determined using the treasury stock method. Treasury shares are not deemed outstanding for
earnings per share calculations.
Comprehensive Income (Loss)
The Corporation is required to present comprehensive
income (loss) in a full set of general-purpose consolidated financial statements for all periods presented. Other comprehensive income
(loss) consists of unrealized holding gains and losses on the available for sale securities portfolio.
Segment Disclosure
U.S. generally accepted accounting principles establish standards for the
manner in which public business enterprises report information about segments in the annual financial statements and requires that those
enterprises report selected information about operating segments in interim financial reports issued to shareholders. It also establishes
standards for related disclosures regarding financial products and services, geographic areas, and major customers. The Corporation has
only one operating segment consisting of its banking and fiduciary operations.
Retirement Plans
The Corporation provides an optional 401(k) plan, in which employees may
elect to defer pre-tax salary dollars, subject to the maximum annual Internal Revenue Service contribution amounts. The Corporation
will match 50% of employee contributions up to 5%, limiting the match to 2.5%.
As part of the 401(k) Plan, the Corporation also has a noncontributory
Profit Sharing Plan which covers substantially all employees. The Corporation provides a 3% non-elective contribution to all employees
and contributes a 2% elective contribution to all employees aged 21 or older who work 1,000 or greater
hours in a calendar year and have completed at least one full year of employment.
Trust Assets and Income
Assets held by ENB’s Wealth Solutions Group in a fiduciary or
agency capacity for customers are not included in the Corporation’s Consolidated Balance Sheets since these items are not
assets of the Corporation. Trust income is reported in the Corporation’s Consolidated Statements of Income under other
income.
Revenue from Contracts with Customers
The Company records revenue from contracts with customers in accordance
with Accounting Standards Topic 606, Revenue from Contracts with Customers (Topic 606). Under Topic 606, the Corporation must identify
contracts with customers, identify the performance obligations in the contract, determine the transaction price, allocate the transaction
price to the performance obligations in the contract, and recognize revenue when the Corporation satisfies a performance obligation. Significant
revenue has not been recognized in the current reporting period that results from performance obligations satisfied in previous periods.
The Corporation’s primary sources of revenue are derived from
interest and dividends earned on loans, investment securities, and other financial instruments that are not within the scope of
Topic 606. The Corporation has evaluated the nature of its contracts with customers and determined that further disaggregation of
revenue from contracts with customers into more granular categories beyond what is presented in the Consolidated Statements of
Income was not necessary. The Corporation generally fully satisfies its performance obligations on its contracts with customers as
services are rendered and the transaction prices are typically fixed; charged either on a periodic basis or based on activity.
Because performance obligations are satisfied as services are rendered and the transaction prices are fixed, there is little
judgment involved in applying Topic 606 that significantly affects the determination of the amount and timing of revenue from
contracts with customers.
Reclassification of Comparative Amounts
Certain comparative amounts for the prior year have
been reclassified to conform to current-year classifications. Such reclassifications had no material effect on net income or stockholders’
equity.
Recently Issued Accounting Standards
In June 2016, the Financial Accounting Standards Board
(“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments – Credit Losses: Measurement
of Credit Losses on Financial Instruments, which changes the impairment model for most financial assets. This standard, along with several
other subsequent codification updates, replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects
expected credit losses that are expected to occur over the remaining life of a financial asset and requires consideration of a broader
range of reasonable and supportable information to inform credit loss estimates. The amendments in this update require a financial asset
(or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The new
current expected credit losses model (“CECL”) will apply to the allowance for loan losses, available-for-sale and held-to-maturity
debt securities, purchased financial assets with credit deterioration and certain off-balance sheet credit exposures.
The Corporation has finalized the methodology determination, software models,
quantitative framework, and policies and procedures for how to determine expected credit losses under the new guidance. Management is
finalizing the qualitative component of the CECL calculation, reviewing internal procedures, policies, assumptions, and is working with
an independent third-party consultant to validate system models.
In January 2020, the FASB issued ASU 2020-04, Reference
Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, March 2020, to provide temporary
optional expedients and exceptions to the U.S. GAAP guidance on contract modifications and hedge accounting to ease the financial reporting
burdens of the expected market transition from LIBOR and other interbank offered rates to alternative reference rates, such as the Secured
Overnight Financing Rate. Entities can elect not to apply certain modification accounting requirements to contracts affected by what the
guidance calls “reference rate reform” if certain criteria are met. An entity that makes this election would not have to remeasure
the contracts at the modification date or reassess a previous accounting determination. Also, entities can elect various optional expedients
that would allow them to continue applying hedge accounting for hedging relationships affected by reference rate reform if certain criteria
are met, and can make a one-time election to sell and/or reclassify held-to-maturity debt securities that reference an interest rate affected
by reference rate reform. The amendments in this ASU are effective for all entities upon issuance through December 31, 2022. In December
2022, the FASB issued ASU 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848, which extends
the sunset (or expiration) date of Accounting Standards Codification (ASC) Topic 848 to December 31, 2024. This gives reporting entities
two additional years to apply the accounting relief provided under ASC Topic 848 for matters related to reference rate reform. ASU 2022-06
is effective for all reporting entities immediately upon issuance and must be applied on a prospective basis. This Update is not expected
to have a significant impact on the Company’s financial statements.
In January 2021, the FASB issued ASU 2021-01, Reference
Rate Reform (Topic 848), which provides optional temporary guidance for entities transitioning away from the London Interbank Offered
Rate (LIBOR) and other interbank offered rates (IBORs) to new references rates so that derivatives affected by the discounting transition
are explicitly eligible for certain optional expedients and exceptions within Topic 848. ASU 2021-01 clarifies that the derivatives affected
by the discounting transition are explicitly eligible for certain optional expedients and exceptions in Topic 848. ASU 2021-01 is effective
immediately for all entities. Entities may elect to apply the amendments on a full retrospective basis as of any date from the beginning
of an interim period that includes or is subsequent to March
12, 2020, or on a prospective basis to new
modifications from any date within an interim period that includes or is subsequent to the date of the issuance of a final update, up
to the date that financial statements are available to be issued. The amendments in this update do not apply to contract modifications
made, as well as new hedging relationships entered into, after December 31, 2022, and to existing hedging relationships evaluated for
effectiveness for periods after December 31, 2022, except for certain hedging relationships existing as of December 31, 2022, that apply
certain optional expedients in which the accounting effects are recorded through the end of the hedging relationship. This Update is
not expected to have a significant impact on the Company’s financial statements.
In March 2022, the FASB issued ASU 2022-01, Derivatives
and Hedging (ASC 815): Fair Value Hedging - Portfolio Layer Method. ASC 815 currently permits only prepayable financial assets and
one or more beneficial interests secured by a portfolio of prepayable financial instruments to be included in a last-of-layer closed portfolio.
The amendments in this Update allow non-prepayable financial assets to also be included in a closed portfolio hedged using the portfolio
layer method. That expanded scope permits an entity to apply the same portfolio hedging method to both prepayable and non-prepayable financial
assets, thereby allowing consistent accounting for similar hedges. The guidance is effective for public business entities for fiscal years,
and interim periods within those fiscal years, beginning after December 15, 2022. This Update is not expected to have a significant impact
on the Company’s financial statements.
NOTE B - SECURITIES
(DOLLARS IN THOUSANDS)
DEBT SECURITIES
The amortized cost and fair value of debt securities
held at December 31, 2022, and 2021, are as follows:
| |
| |
Gross | |
Gross | |
|
| |
Amortized | |
Unrealized | |
Unrealized | |
Fair |
| |
Cost | |
Gains | |
Losses | |
Value |
| |
$ | |
$ | |
$ | |
$ |
| |
| |
| |
| |
|
December 31, 2022 | |
| | | |
| | | |
| | | |
| | |
U. S. Treasuries | |
| 35,737 | | |
| — | | |
| (3,080 | ) | |
| 32,657 | |
U.S. government agencies | |
| 27,605 | | |
| — | | |
| (2,818 | ) | |
| 24,787 | |
U.S. agency mortgage-backed securities | |
| 49,939 | | |
| — | | |
| (4,632 | ) | |
| 45,307 | |
U.S. agency collateralized mortgage obligations | |
| 30,193 | | |
| — | | |
| (2,703 | ) | |
| 27,490 | |
Non-agency MBS/CMO | |
| 53,900 | | |
| — | | |
| (3,650 | ) | |
| 50,250 | |
Asset-backed securities | |
| 76,110 | | |
| 16 | | |
| (2,892 | ) | |
| 73,234 | |
Corporate bonds | |
| 76,685 | | |
| 10 | | |
| (7,064 | ) | |
| 69,631 | |
Obligations of states and political subdivisions | |
| 240,102 | | |
| 10 | | |
| (34,326 | ) | |
| 205,786 | |
Total securities available for sale | |
| 590,271 | | |
| 36 | | |
| (61,165 | ) | |
| 529,142 | |
| |
| | | |
| | | |
| | | |
| | |
December 31, 2021 | |
| | | |
| | | |
| | | |
| | |
U. S. Treasuries | |
| 14,821 | | |
| 14 | | |
| (22 | ) | |
| 14,813 | |
U.S. government agencies | |
| 29,613 | | |
| 50 | | |
| (642 | ) | |
| 29,021 | |
U.S. agency mortgage-backed securities | |
| 51,964 | | |
| 502 | | |
| (478 | ) | |
| 51,988 | |
U.S. agency collateralized mortgage obligations | |
| 30,917 | | |
| 241 | | |
| (81 | ) | |
| 31,077 | |
Asset-backed securities | |
| 100,998 | | |
| 605 | | |
| (384 | ) | |
| 101,219 | |
Corporate bonds | |
| 82,617 | | |
| 420 | | |
| (528 | ) | |
| 82,509 | |
Obligations of states and political subdivisions | |
| 242,807 | | |
| 5,848 | | |
| (1,189 | ) | |
| 247,466 | |
Total securities available for sale | |
| 553,737 | | |
| 7,680 | | |
| (3,324 | ) | |
| 558,093 | |
The amortized cost and fair value of debt
securities available for sale at December 31, 2022, by contractual maturity, are shown below. Actual maturities may differ from contractual
maturities due to certain call or prepayment provisions.
CONTRACTUAL MATURITY OF DEBT SECURITIES
(DOLLARS IN THOUSANDS)
| |
Amortized | |
|
| |
Cost | |
Fair Value |
| |
$ | |
$ |
Due in one year or less | |
| 20,212 | | |
| 19,938 | |
Due after one year through five years | |
| 96,643 | | |
| 88,443 | |
Due after five years through ten years | |
| 99,529 | | |
| 86,492 | |
Due after ten years | |
| 373,887 | | |
| 334,269 | |
Total debt securities | |
| 590,271 | | |
| 529,142 | |
Securities available for sale with a par value of $116,179,000 and $94,283,000
at December 31, 2022 and 2021, respectively, were pledged or restricted for public funds, borrowings, or other purposes as required by
law. The fair market value of these pledged securities was $107,071,000 at December 31, 2022, and $96,521,000 at December 31, 2021.
Proceeds from active sales of debt securities available for sale, along
with the associated gross realized gains and gross realized losses, are shown below. Realized gains and losses are computed on the basis
of specific identification.
PROCEEDS FROM SALES OF SECURITIES AVAILABLE FOR SALE
(DOLLARS IN THOUSANDS)
| |
Securities Available for Sale |
| |
2022 | |
2021 |
| |
$ | |
$ |
Proceeds from sales | |
| 28,590 | | |
| 79,019 | |
Gross realized gains | |
| 191 | | |
| 809 | |
Gross realized losses | |
| 149 | | |
| 79 | |
Information pertaining to securities with gross unrealized losses at December
31, 2022, and December 31, 2021, aggregated by investment category and length of time that individual securities have been in a continuous
loss position follows:
TEMPORARY IMPAIRMENTS OF SECURITIES
(DOLLARS IN THOUSANDS)
| |
Less than 12 months | |
More than 12 months | |
Total |
| |
| |
Gross | |
| |
Gross | |
| |
Gross |
| |
Fair | |
Unrealized | |
Fair | |
Unrealized | |
Fair | |
Unrealized |
| |
Value | |
Losses | |
Value | |
Losses | |
Value | |
Losses |
| |
$ | |
$ | |
$ | |
$ | |
$ | |
$ |
As of December 31, 2022 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
U.S. Treasuries | |
| 19,721 | | |
| (1,169 | ) | |
| 12,936 | | |
| (1,911 | ) | |
| 32,657 | | |
| (3,080 | ) |
U.S. government agencies | |
| 1,953 | | |
| (52 | ) | |
| 21,634 | | |
| (2,766 | ) | |
| 23,587 | | |
| (2,818 | ) |
U.S. agency mortgage-backed securities | |
| 24,667 | | |
| (1,653 | ) | |
| 20,640 | | |
| (2,979 | ) | |
| 45,307 | | |
| (4,632 | ) |
U.S. agency collateralized mortgage obligations | |
| 9,984 | | |
| (500 | ) | |
| 17,453 | | |
| (2,203 | ) | |
| 27,437 | | |
| (2,703 | ) |
Non-Agency MBS/CMO | |
| 50,250 | | |
| (3,650 | ) | |
| — | | |
| — | | |
| 50,250 | | |
| (3,650 | ) |
Asset-backed securities | |
| 29,283 | | |
| (1,028 | ) | |
| 42,032 | | |
| (1,864 | ) | |
| 71,315 | | |
| (2,892 | ) |
Corporate bonds | |
| 15,197 | | |
| (1,230 | ) | |
| 43,417 | | |
| (5,834 | ) | |
| 58,614 | | |
| (7,064 | ) |
Obligations of states & political subdivisions | |
| 103,200 | | |
| (10,949 | ) | |
| 100,575 | | |
| (23,377 | ) | |
| 203,775 | | |
| (34,326 | ) |
Total temporarily impaired securities | |
| 254,255 | | |
| (20,231 | ) | |
| 258,687 | | |
| (40,934 | ) | |
| 512,942 | | |
| (61,165 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
As of December 31, 2021 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
U.S. Treasuries | |
| 4,959 | | |
| (22 | ) | |
| — | | |
| — | | |
| 4,959 | | |
| (22 | ) |
U.S. government agencies | |
| 16,386 | | |
| (519 | ) | |
| 7,375 | | |
| (123 | ) | |
| 23,761 | | |
| (642 | ) |
U.S. agency mortgage-backed securities | |
| 24,090 | | |
| (468 | ) | |
| 2,458 | | |
| (10 | ) | |
| 26,548 | | |
| (478 | ) |
U.S. agency collateralized mortgage obligations | |
| 14,206 | | |
| (66 | ) | |
| 2,965 | | |
| (15 | ) | |
| 17,171 | | |
| (81 | ) |
Asset-backed securities | |
| 50,466 | | |
| (338 | ) | |
| 2,826 | | |
| (46 | ) | |
| 53,292 | | |
| (384 | ) |
Corporate bonds | |
| 44,907 | | |
| (528 | ) | |
| — | | |
| — | | |
| 44,907 | | |
| (528 | ) |
Obligations of states & political subdivisions | |
| 70,021 | | |
| (1,043 | ) | |
| 6,023 | | |
| (146 | ) | |
| 76,044 | | |
| (1,189 | ) |
Total temporarily impaired securities | |
| 225,035 | | |
| (2,984 | ) | |
| 21,647 | | |
| (340 | ) | |
| 246,682 | | |
| (3,324 | ) |
In the debt security portfolio, there are 359 positions carrying unrealized
losses as of December 31, 2022. There were no instruments considered to be other-than-temporarily impaired at December 31, 2022.
The Corporation evaluates fixed income positions for other-than-temporary
impairment at least on a quarterly basis, and more frequently when economic and market concerns warrant such evaluation. U.S. generally
accepted accounting principles provide for the bifurcation of OTTI into two categories: (a) the amount of the total OTTI related to a
decrease in cash flows expected to be collected from the debt security (the credit loss), which is recognized in earnings, and (b) the
amount of total OTTI related to all other factors, which is recognized, net of taxes, as a component of accumulated other comprehensive
income (loss).
EQUITY SECURITIES
The following tables summarize the amortized cost, gross
unrealized gains and losses, and fair value of equity securities held at December 31, 2022 and December 31, 2021.
| |
| |
Gross | |
Gross | |
|
(DOLLARS IN THOUSANDS) | |
Amortized | |
Unrealized | |
Unrealized | |
Fair |
| |
Cost | |
Gains | |
Losses | |
Value |
| |
$ | |
$ | |
$ | |
$ |
December 31, 2022 | |
| | | |
| | | |
| | | |
| | |
CRA-qualified mutual funds | |
| 7,345 | | |
| — | | |
| — | | |
| 7,345 | |
Bank stocks | |
| 1,685 | | |
| 162 | | |
| (74 | ) | |
| 1,773 | |
Total equity securities | |
| 9,030 | | |
| 162 | | |
| (74 | ) | |
| 9,118 | |
| |
| |
Gross | |
Gross | |
|
(DOLLARS IN THOUSANDS) | |
Amortized | |
Unrealized | |
Unrealized | |
Fair |
| |
Cost | |
Gains | |
Losses | |
Value |
| |
$ | |
$ | |
$ | |
$ |
December 31, 2021 | |
| | | |
| | | |
| | | |
| | |
CRA-qualified mutual funds | |
| 7,240 | | |
| — | | |
| — | | |
| 7,240 | |
Bank stocks | |
| 1,570 | | |
| 184 | | |
| (12 | ) | |
| 1,742 | |
Total equity securities | |
| 8,810 | | |
| 184 | | |
| (12 | ) | |
| 8,982 | |
The following table presents the net gains and losses on the Corporation’s
equity investments recognized in earnings during the year ended December 31, 2022 and 2021, and the portion of unrealized gains and losses
for the periods that relates to equity investments held as of December 31, 2022 and 2021.
NET GAINS AND LOSSES ON EQUITY INVESTMENTS RECOGNIZED IN EARNINGS
(DOLLARS IN THOUSANDS)
| |
Year Ended | |
Year Ended |
| |
December 31, 2022 | |
December 31, 2021 |
| |
$ | |
$ |
| |
| |
|
Net gains (losses) recognized in equity securities during the period | |
| (32 | ) | |
| 324 | |
| |
| | | |
| | |
Less: Net gains realized on the sale of equity securities during the period | |
| (52 | ) | |
| (99 | ) |
| |
| | | |
| | |
Unrealized gains (losses) recognized in equity securities held at reporting date | |
| (84 | ) | |
| 225 | |
Proceeds from the sale of equity securities totaled $151,000 during 2022
and $460,000 during 2021.
NOTE C - LOANS AND ALLOWANCE FOR CREDIT LOSSES
The following table presents the Corporation’s loan portfolio by
category of loans for 2022 and 2021.
LOAN PORTFOLIO
(DOLLARS IN THOUSANDS)
| |
December 31, |
| |
2022 | |
2021 |
| |
$ | |
$ |
Commercial real estate | |
| | | |
| | |
Commercial mortgages | |
| 210,823 | | |
| 177,396 | |
Agriculture mortgages | |
| 221,167 | | |
| 203,725 | |
Construction | |
| 86,793 | | |
| 19,639 | |
Total commercial real estate | |
| 518,783 | | |
| 400,760 | |
| |
| | | |
| | |
Consumer real estate (a) | |
| | | |
| | |
1-4 family residential mortgages | |
| 410,301 | | |
| 317,037 | |
Home equity loans | |
| 11,937 | | |
| 11,181 | |
Home equity lines of credit | |
| 98,349 | | |
| 75,698 | |
Total consumer real estate | |
| 520,587 | | |
| 403,916 | |
| |
| | | |
| | |
Commercial and industrial | |
| | | |
| | |
Commercial and industrial | |
| 87,528 | | |
| 65,615 | |
Tax-free loans | |
| 28,664 | | |
| 23,009 | |
Agriculture loans | |
| 27,122 | | |
| 20,717 | |
Total commercial and industrial | |
| 143,314 | | |
| 109,341 | |
| |
| | | |
| | |
Consumer | |
| 5,769 | | |
| 5,132 | |
| |
| | | |
| | |
| |
| | | |
| | |
Gross loans prior to deferred costs and allowance for loan losses | |
| 1,188,453 | | |
| 919,149 | |
| |
| | | |
| | |
Deferred loan costs, net | |
| 2,664 | | |
| 1,755 | |
Allowance for credit losses | |
| (14,151 | ) | |
| (12,931 | ) |
Total net loans | |
| 1,176,966 | | |
| 907,973 | |
(a) | Real estate loans serviced for others, which are not included in the Consolidated Balance Sheets, totaled $298,375,000 and $289,263,000 as
of December 31, 2022, and 2021, respectively. |
The Corporation grades commercial credits differently than consumer credits.
The following tables represent all of the Corporation’s commercial credit exposures by internally assigned grades as of December
31, 2022 and 2021. The grading analysis estimates the capability of the borrower to repay the contractual obligations under the loan agreements
as scheduled or at all. The Corporation's internal commercial credit risk grading system is based on experiences with similarly graded
loans.
The Corporation's internally assigned grades for commercial
credits are as follows:
| ● | Pass – loans which are protected by the current net worth and paying capacity of the obligor or
by the value of the underlying collateral. |
| ● | Special Mention – loans where a potential weakness or risk exists, which could cause a more serious
problem if not corrected. |
| ● | Substandard – loans that have a well-defined weakness based on objective evidence and characterized
by the distinct possibility that the Corporation will sustain some loss if the deficiencies are not corrected. |
| ● | Doubtful – loans classified as doubtful have all the weaknesses inherent in a substandard asset.
In addition, these weaknesses make collection or liquidation in full highly questionable and improbable, based on existing circumstances. |
| ● | Loss – loans classified as a loss are considered uncollectible, or of such value that continuance
as an asset is not warranted. |
COMMERCIAL CREDIT EXPOSURE
CREDIT RISK PROFILE BY INTERNALLY ASSIGNED GRADE
(DOLLARS IN THOUSANDS)
| |
| |
| |
| |
Commercial | |
| |
| |
|
| |
Commercial | |
Agriculture | |
| |
and | |
Tax-free | |
Agriculture | |
|
December 31, 2022 | |
Mortgages | |
Mortgages | |
Construction | |
Industrial | |
Loans | |
Loans | |
Total |
| |
$ | |
$ | |
$ | |
$ | |
$ | |
$ | |
$ |
Grade: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Pass | |
| 209,534 | | |
| 214,905 | | |
| 83,240 | | |
| 85,977 | | |
| 28,664 | | |
| 26,749 | | |
| 649,069 | |
Special Mention | |
| — | | |
| 1,966 | | |
| 3,553 | | |
| 893 | | |
| — | | |
| 132 | | |
| 6,544 | |
Substandard | |
| 1,289 | | |
| 4,296 | | |
| — | | |
| 658 | | |
| — | | |
| 241 | | |
| 6,484 | |
Doubtful | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Loss | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Total | |
| 210,823 | | |
| 221,167 | | |
| 86,793 | | |
| 87,528 | | |
| 28,664 | | |
| 27,122 | | |
| 662,097 | |
COMMERCIAL CREDIT EXPOSURE
CREDIT RISK PROFILE BY INTERNALLY ASSIGNED GRADE
(DOLLARS IN THOUSANDS)
| |
| |
| |
| |
Commercial | |
| |
| |
|
| |
Commercial | |
Agriculture | |
| |
and | |
Tax-free | |
Agriculture | |
|
December 31, 2021 | |
Mortgages | |
Mortgages | |
Construction | |
Industrial | |
Loans | |
Loans | |
Total |
| |
$ | |
$ | |
$ | |
$ | |
$ | |
$ | |
$ |
Grade: | |
| |
| |
| |
| |
| |
| |
|
Pass | |
| 172,540 | | |
| 192,943 | | |
| 13,544 | | |
| 57,214 | | |
| 23,009 | | |
| 19,980 | | |
| 479,230 | |
Special Mention | |
| 2,443 | | |
| 2,542 | | |
| 6,095 | | |
| 4,657 | | |
| — | | |
| 90 | | |
| 15,827 | |
Substandard | |
| 2,413 | | |
| 8,240 | | |
| — | | |
| 3,744 | | |
| — | | |
| 647 | | |
| 15,044 | |
Doubtful | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Loss | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Total | |
| 177,396 | | |
| 203,725 | | |
| 19,639 | | |
| 65,615 | | |
| 23,009 | | |
| 20,717 | | |
| 510,101 | |
For consumer loans, the Corporation evaluates credit
quality based on whether the loan is considered performing or non-performing. A consumer loan is considered non-performing when it is
over 90 days past due. Management will generally charge off consumer loans more than 120 days past due for closed end loans and over
180 days for open-end consumer loans. The following table presents the balances of consumer loans by classes of the loan portfolio based
on payment performance as of December 31, 2022 and 2021:
CONSUMER CREDIT EXPOSURE
CREDIT RISK PROFILE BY PAYMENT PERFORMANCE
(DOLLARS IN THOUSANDS)
| |
1-4 Family | |
| |
Home Equity | |
| |
|
December 31, 2022 | |
Residential | |
Home Equity | |
Lines of | |
| |
|
| |
Mortgages | |
Loans | |
Credit | |
Consumer | |
Total |
Payment performance: | |
$ | |
$ | |
$ | |
$ | |
$ |
Performing | |
| 409,854 | | |
| 11,598 | | |
| 98,349 | | |
| 5,738 | | |
| 525,539 | |
Non-performing | |
| 447 | | |
| 339 | | |
| — | | |
| 30 | | |
| 816 | |
Total | |
| 410,301 | | |
| 11,937 | | |
| 98,349 | | |
| 5,768 | | |
| 526,355 | |
CONSUMER CREDIT EXPOSURE
CREDIT RISK PROFILE BY PAYMENT PERFORMANCE
(DOLLARS IN THOUSANDS)
| |
1-4 Family | |
| |
Home Equity | |
| |
|
December 31, 2021 | |
Residential | |
Home Equity | |
Lines of | |
| |
|
| |
Mortgages | |
Loans | |
Credit | |
Consumer | |
Total |
Payment performance: | |
$ | |
$ | |
$ | |
$ | |
$ |
Performing | |
| 316,722 | | |
| 11,181 | | |
| 75,659 | | |
| 5,132 | | |
| 408,694 | |
Non-performing | |
| 315 | | |
| — | | |
| 39 | | |
| — | | |
| 354 | |
Total | |
| 317,037 | | |
| 11,181 | | |
| 75,698 | | |
| 5,132 | | |
| 409,048 | |
The following tables present an age analysis of the Corporation’s
past due loans, segregated by loan portfolio class, as of December 31, 2022 and 2021:
AGING OF LOANS RECEIVABLE
(DOLLARS IN THOUSANDS)
| |
| |
| |
| |
| |
| |
| |
Loans |
| |
| |
| |
Greater | |
| |
| |
| |
Receivable > |
| |
30-59 Days | |
60-89 Days | |
than 90 | |
Total Past | |
| |
Total Loans | |
90 Days and |
December 31, 2022 | |
Past Due | |
Past Due | |
Days | |
Due | |
Current | |
Receivable | |
Accruing |
| |
$ | |
$ | |
$ | |
$ | |
$ | |
$ | |
$ |
Commercial real estate | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Commercial mortgages | |
| — | | |
| — | | |
| 554 | | |
| 554 | | |
| 210,269 | | |
| 210,823 | | |
| — | |
Agriculture mortgages | |
| — | | |
| — | | |
| 2,787 | | |
| 2,787 | | |
| 218,380 | | |
| 221,167 | | |
| — | |
Construction | |
| — | | |
| — | | |
| — | | |
| — | | |
| 86,793 | | |
| 86,793 | | |
| — | |
Consumer real estate | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
1-4 family residential mortgages | |
| 905 | | |
| — | | |
| 447 | | |
| 1,352 | | |
| 408,949 | | |
| 410,301 | | |
| 139 | |
Home equity loans | |
| 17 | | |
| — | | |
| 339 | | |
| 356 | | |
| 11,581 | | |
| 11,937 | | |
| — | |
Home equity lines of credit | |
| 165 | | |
| 16 | | |
| — | | |
| 181 | | |
| 98,168 | | |
| 98,349 | | |
| — | |
Commercial and industrial | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Commercial and industrial | |
| — | | |
| — | | |
| 190 | | |
| 190 | | |
| 87,338 | | |
| 87,528 | | |
| — | |
Tax-free loans | |
| — | | |
| — | | |
| — | | |
| — | | |
| 28,664 | | |
| 28,664 | | |
| — | |
Agriculture loans | |
| — | | |
| — | | |
| — | | |
| — | | |
| 27,122 | | |
| 27,122 | | |
| — | |
Consumer | |
| 9 | | |
| 5 | | |
| 30 | | |
| 44 | | |
| 5,725 | | |
| 5,769 | | |
| 30 | |
Total | |
| 1,096 | | |
| 21 | | |
| 4,347 | | |
| 5,464 | | |
| 1,182,989 | | |
| 1,188,453 | | |
| 169 | |
AGING OF LOANS RECEIVABLE
(DOLLARS IN THOUSANDS)
| |
| |
| |
| |
| |
| |
| |
Loans |
December 31, 2021 | |
| |
| |
Greater | |
| |
| |
| |
Receivable > |
| |
30-59 Days | |
60-89 Days | |
than 90 | |
Total Past | |
| |
Total Loans | |
90 Days and |
| |
Past Due | |
Past Due | |
Days | |
Due | |
Current | |
Receivable | |
Accruing |
| |
$ | |
$ | |
$ | |
$ | |
$ | |
$ | |
$ |
Commercial real estate | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Commercial mortgages | |
| 22 | | |
| — | | |
| 184 | | |
| 206 | | |
| 177,190 | | |
| 177,396 | | |
| — | |
Agriculture mortgages | |
| 232 | | |
| — | | |
| 1,838 | | |
| 2,070 | | |
| 201,655 | | |
| 203,725 | | |
| — | |
Construction | |
| — | | |
| — | | |
| — | | |
| — | | |
| 19,639 | | |
| 19,639 | | |
| — | |
Consumer real estate | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
1-4 family residential mortgages | |
| 1,464 | | |
| 68 | | |
| 315 | | |
| 1,847 | | |
| 315,190 | | |
| 317,037 | | |
| 276 | |
Home equity loans | |
| 19 | | |
| — | | |
| — | | |
| 19 | | |
| 11,162 | | |
| 11,181 | | |
| — | |
Home equity lines of credit | |
| — | | |
| — | | |
| 39 | | |
| 39 | | |
| 75,659 | | |
| 75,698 | | |
| 39 | |
Commercial and industrial | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Commercial and industrial | |
| 43 | | |
| — | | |
| 395 | | |
| 438 | | |
| 65,177 | | |
| 65,615 | | |
| 10 | |
Tax-free loans | |
| — | | |
| — | | |
| — | | |
| — | | |
| 23,009 | | |
| 23,009 | | |
| — | |
Agriculture loans | |
| — | | |
| 9 | | |
| 110 | | |
| 119 | | |
| 20,598 | | |
| 20,717 | | |
| — | |
Consumer | |
| 22 | | |
| — | | |
| — | | |
| 22 | | |
| 5,110 | | |
| 5,132 | | |
| — | |
Total | |
| 1,802 | | |
| 77 | | |
| 2,881 | | |
| 4,760 | | |
| 914,389 | | |
| 919,149 | | |
| 325 | |
As of December 31, 2022, and 2021, all of the Corporation’s non-homogeneous
loans on non-accrual status were also considered impaired.
The following table presents non-accrual loans by classes of the loan portfolio
as of December 31:
NON-ACCRUAL LOANS BY LOAN CLASS
(DOLLARS IN THOUSANDS)
| |
2022 | |
2021 |
| |
$ | |
$ |
Commercial real estate | |
| | | |
| | |
Commercial mortgages | |
| 554 | | |
| 184 | |
Agriculture mortgages | |
| 2,787 | | |
| 1,838 | |
Construction | |
| — | | |
| — | |
Consumer real estate | |
| | | |
| | |
1-4 family residential mortgages | |
| 308 | | |
| 39 | |
Home equity loans | |
| 339 | | |
| — | |
Home equity lines of credit | |
| — | | |
| — | |
Commercial and industrial | |
| | | |
| | |
Commercial and industrial | |
| 190 | | |
| 385 | |
Tax-free loans | |
| — | | |
| — | |
Agriculture loans | |
| — | | |
| 110 | |
Consumer | |
| — | | |
| — | |
Total | |
| 4,178 | | |
| 2,556 | |
No loan modifications were made during 2022 or 2021 that would be considered
a troubled debt restructuring (TDR). A modification of the payment terms to a loan customer are considered a TDR if a concession was made
to a borrower that is experiencing financial difficulty. A concession is generally defined as more favorable payment or credit terms granted
to a borrower in an effort to improve the likelihood of the lender collecting principal in its entirety. Concessions usually are in the
form of interest only for a period of time, or a lower interest rate offered in an effort to enable the borrower to continue to make normally
scheduled payments. Included in the impaired loan portfolio is one loan to a commercial borrower that is being reported as a TDR. The
balance of this TDR loan was $442,000 as of December 31, 2022. This TDR is not non-accrual.
The following table summarizes information in regards
to impaired loans by loan portfolio class as of December 31, 2022:
IMPAIRED LOAN ANALYSIS
(DOLLARS IN THOUSANDS)
| |
Recorded
Investment | |
Unpaid
Principal
Balance | |
Related
Allowance | |
Average
Recorded
Investment | |
Interest
Income
Recognized |
| |
$ | |
$ | |
$ | |
$ | |
$ |
| |
| |
| |
| |
| |
|
With no related allowance recorded: | |
| | | |
| | | |
| | | |
| | | |
| | |
Commercial real estate | |
| | | |
| | | |
| | | |
| | | |
| | |
Commercial mortgages | |
| 1,201 | | |
| 1,271 | | |
| — | | |
| 779 | | |
| — | |
Agriculture mortgages | |
| 3,229 | | |
| 3,348 | | |
| — | | |
| 3,350 | | |
| 24 | |
Construction | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Total commercial real estate | |
| 4,430 | | |
| 4,619 | | |
| — | | |
| 4,129 | | |
| 24 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Commercial and industrial | |
| | | |
| | | |
| | | |
| | | |
| | |
Commercial and industrial | |
| 190 | | |
| 199 | | |
| — | | |
| 160 | | |
| — | |
Tax-free loans | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Agriculture loans | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Total commercial and industrial | |
| 190 | | |
| 199 | | |
| — | | |
| 160 | | |
| — | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Total with no related allowance | |
| 4,620 | | |
| 4,818 | | |
| — | | |
| 4,289 | | |
| 24 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
With an allowance recorded: | |
| | | |
| | | |
| | | |
| | | |
| | |
Commercial real estate | |
| | | |
| | | |
| | | |
| | | |
| | |
Commercial mortgages | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Agriculture mortgages | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Construction | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Total commercial real estate | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Commercial and industrial | |
| | | |
| | | |
| | | |
| | | |
| | |
Commercial and industrial | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Tax-free loans | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Agriculture loans | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Total commercial and industrial | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Total with a related allowance | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Total by loan class: | |
| | | |
| | | |
| | | |
| | | |
| | |
Commercial real estate | |
| | | |
| | | |
| | | |
| | | |
| | |
Commercial mortgages | |
| 1,201 | | |
| 1,271 | | |
| — | | |
| 779 | | |
| — | |
Agriculture mortgages | |
| 3,229 | | |
| 3,348 | | |
| — | | |
| 3,350 | | |
| 24 | |
Construction | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Total commercial real estate | |
| 4,430 | | |
| 4,619 | | |
| — | | |
| 4,129 | | |
| 24 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Commercial and industrial | |
| | | |
| | | |
| | | |
| | | |
| | |
Commercial and industrial | |
| 190 | | |
| 199 | | |
| — | | |
| 160 | | |
| — | |
Tax-free loans | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Agriculture loans | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Total commercial and industrial | |
| 190 | | |
| 199 | | |
| — | | |
| 160 | | |
| — | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Total | |
| 4,620 | | |
| 4,818 | | |
| — | | |
| 4,289 | | |
| 24 | |
The following table summarizes information in regards
to impaired loans by loan portfolio class as of December 31, 2021:
IMPAIRED LOAN ANALYSIS
(DOLLARS IN THOUSANDS)
| |
Recorded
Investment | |
Unpaid
Principal
Balance | |
Related
Allowance | |
Average
Recorded
Investment | |
Interest
Income
Recognized |
| |
$ | |
$ | |
$ | |
$ | |
$ |
| |
| |
| |
| |
| |
|
With no related allowance recorded: | |
| | | |
| | | |
| | | |
| | | |
| | |
Commercial real estate | |
| | | |
| | | |
| | | |
| | | |
| | |
Commercial mortgages | |
| 223 | | |
| 263 | | |
| — | | |
| 2,153 | | |
| 106 | |
Agriculture mortgages | |
| 2,055 | | |
| 2,066 | | |
| — | | |
| 1,313 | | |
| 54 | |
Construction | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Total commercial real estate | |
| 2,278 | | |
| 2,329 | | |
| — | | |
| 3,466 | | |
| 160 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Commercial and industrial | |
| | | |
| | | |
| | | |
| | | |
| | |
Commercial and industrial | |
| 385 | | |
| 438 | | |
| — | | |
| 419 | | |
| — | |
Tax-free loans | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Agriculture loans | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Total commercial and industrial | |
| 385 | | |
| 438 | | |
| — | | |
| 419 | | |
| — | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Total with no related allowance | |
| 2,663 | | |
| 2,767 | | |
| — | | |
| 3,885 | | |
| 160 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
With an allowance recorded: | |
| | | |
| | | |
| | | |
| | | |
| | |
Commercial real estate | |
| | | |
| | | |
| | | |
| | | |
| | |
Commercial mortgages | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Agriculture mortgages | |
| 551 | | |
| 559 | | |
| 37 | | |
| 144 | | |
| — | |
Construction | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Total commercial real estate | |
| 551 | | |
| 559 | | |
| 37 | | |
| 144 | | |
| — | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Commercial and industrial | |
| | | |
| | | |
| | | |
| | | |
| | |
Commercial and industrial | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Tax-free loans | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Agriculture loans | |
| 110 | | |
| 111 | | |
| 110 | | |
| 26 | | |
| — | |
Total commercial and industrial | |
| 110 | | |
| 111 | | |
| 110 | | |
| 26 | | |
| — | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Total with a related allowance | |
| 661 | | |
| 670 | | |
| 147 | | |
| 170 | | |
| — | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Total by loan class: | |
| | | |
| | | |
| | | |
| | | |
| | |
Commercial real estate | |
| | | |
| | | |
| | | |
| | | |
| | |
Commercial mortgages | |
| 223 | | |
| 263 | | |
| — | | |
| 2,153 | | |
| 106 | |
Agriculture mortgages | |
| 2,606 | | |
| 2,625 | | |
| 37 | | |
| 1,457 | | |
| 54 | |
Construction | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Total commercial real estate | |
| 2,829 | | |
| 2,888 | | |
| 37 | | |
| 3,610 | | |
| 160 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Commercial and industrial | |
| | | |
| | | |
| | | |
| | | |
| | |
Commercial and industrial | |
| 385 | | |
| 438 | | |
| — | | |
| 419 | | |
| — | |
Tax-free loans | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Agriculture loans | |
| 110 | | |
| 111 | | |
| 110 | | |
| 26 | | |
| — | |
Total commercial and industrial | |
| 495 | | |
| 549 | | |
| 110 | | |
| 445 | | |
| — | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Total | |
| 3,324 | | |
| 3,437 | | |
| 147 | | |
| 4,055 | | |
| 160 | |
The following table details activity in the allowance for credit losses
by portfolio segment for the year ended December 31, 2022:
ALLOWANCE FOR CREDIT LOSSES AND RECORDED INVESTMENT IN LOANS RECEIVABLE
(DOLLARS IN THOUSANDS)
| |
| |
| |
Commercial | |
| |
| |
|
| |
Commercial | |
Consumer | |
and | |
| |
| |
|
| |
Real Estate | |
Real Estate | |
Industrial | |
Consumer | |
Unallocated | |
Total |
| |
$ | |
$ | |
$ | |
$ | |
$ | |
$ |
Allowance for credit losses: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Beginning balance | |
| 6,263 | | |
| 3,834 | | |
| 2,112 | | |
| 87 | | |
| 635 | | |
| 12,931 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Charge-offs | |
| (84 | ) | |
| — | | |
| (44 | ) | |
| (19 | ) | |
| — | | |
| (147 | ) |
Recoveries | |
| 10 | | |
| 10 | | |
| 42 | | |
| 5 | | |
| — | | |
| 67 | |
Provision | |
| (115 | ) | |
| 1,598 | | |
| 41 | | |
| (6 | ) | |
| (218 | ) | |
| 1,300 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Ending balance | |
| 6,074 | | |
| 5,442 | | |
| 2,151 | | |
| 67 | | |
| 417 | | |
| 14,151 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Ending balance: individually evaluated for impairment | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Ending balance: collectively evaluated for impairment | |
| 6,074 | | |
| 5,442 | | |
| 2,151 | | |
| 67 | | |
| 417 | | |
| 14,151 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Loans receivable: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Ending balance | |
| 518,783 | | |
| 520,587 | | |
| 143,314 | | |
| 5,769 | | |
| | | |
| 1,188,453 | |
Ending balance: individually evaluated for impairment | |
| 4,430 | | |
| — | | |
| 190 | | |
| — | | |
| | | |
| 4,620 | |
Ending balance: collectively evaluated for impairment | |
| 514,353 | | |
| 520,587 | | |
| 143,124 | | |
| 5,769 | | |
| | | |
| 1,183,833 | |
The dollar amount of the allowance only changed significantly for the consumer real estate sector, showing an increase of $1.6 million from December 31, 2021 to December 31, 2022. The changes in allowance for the other loan sectors were minimal. The higher provision in the consumer real estate sector was primarily caused by growth within this segment of the loan portfolio during 2022. In the two years prior to 2022, most residential mortgage loans were being generated and sold on the secondary market. With the rapid increase in mortgage rates during 2022, most residential mortgage originations were in the form of adjustable rate mortgages which were held on the Corporation’s balance sheet. Net charge-offs were minimal during the year ended December 31, 2022, so the provision expense was primarily related to loan portfolio growth.
The December 31, 2022 ending balance of the allowance was up $1,220,000,
or 9.4%, from December 31, 2021, and the allowance as a percentage of total loans was 1.19% as of December 31, 2022, and 1.40% as of December
31, 2021.
The following table details activity in the allowance for credit losses
by portfolio segment for the year ended December 31, 2021:
ALLOWANCE FOR CREDIT LOSSES AND RECORDED INVESTMENT IN LOANS RECEIVABLE
(DOLLARS IN THOUSANDS)
| |
| |
| |
Commercial | |
| |
| |
|
| |
Commercial | |
Consumer | |
and | |
| |
| |
|
| |
Real Estate | |
Real Estate | |
Industrial | |
Consumer | |
Unallocated | |
Total |
| |
$ | |
$ | |
$ | |
$ | |
$ | |
$ |
Allowance for credit losses: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Beginning balance | |
| 6,329 | | |
| 3,449 | | |
| 1,972 | | |
| 52 | | |
| 525 | | |
| 12,327 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Charge-offs | |
| — | | |
| (20 | ) | |
| — | | |
| (35 | ) | |
| — | | |
| (55 | ) |
Recoveries | |
| 109 | | |
| 2 | | |
| 56 | | |
| 17 | | |
| — | | |
| 184 | |
Provision (credit) | |
| (175 | ) | |
| 403 | | |
| 84 | | |
| 53 | | |
| 110 | | |
| 475 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Ending balance | |
| 6,263 | | |
| 3,834 | | |
| 2,112 | | |
| 87 | | |
| 635 | | |
| 12,931 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Ending balance: individually evaluated for impairment | |
| 37 | | |
| — | | |
| 110 | | |
| — | | |
| — | | |
| 147 | |
Ending balance: collectively evaluated for impairment | |
| 6,226 | | |
| 3,834 | | |
| 2,002 | | |
| 87 | | |
| 635 | | |
| 12,784 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Loans receivable: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Ending balance | |
| 400,760 | | |
| 403,916 | | |
| 109,341 | | |
| 5,132 | | |
| | | |
| 919,149 | |
Ending balance: individually evaluated for impairment | |
| 2,829 | | |
| — | | |
| 495 | | |
| — | | |
| | | |
| 3,324 | |
Ending balance: collectively evaluated for impairment | |
| 397,931 | | |
| 403,916 | | |
| 108,846 | | |
| 5,132 | | |
| | | |
| 915,825 | |
The dollar amount of the allowance increased for all loan segments except
commercial real estate between December 31, 2020, and December 31, 2021. The lower provision in the commercial real estate sector was
due to a specific allocation of $1.1 million made during 2020 for a customer with ongoing business concerns. This loan paid off in 2021
resulting in a reversal of this specific allocation. The higher provisions across the other categories were primarily caused by growth
within these segments of the loan portfolio. Recoveries exceeded charge-offs during the year ended December 31, 2021, so the provision
expense was primarily related to loan portfolio growth and minor increases in qualitative factors.
NOTE D – PREMISES AND EQUIPMENT
(DOLLARS IN THOUSANDS)
The major classes of the Corporation’s premises and equipment and
accumulated depreciation are as follows:
| |
December 31, |
| |
2022 | |
2021 |
| |
$ | |
$ |
Land | |
|
5,043 |
| |
|
5,043 |
|
Buildings and improvements | |
| 30,780 | | |
| 30,265 | |
Furniture and equipment | |
| 10,330 | | |
| 10,864 | |
Construction in process | |
| 1,298 | | |
| 369 | |
Total | |
| 47,451 | | |
| 46,541 | |
Less accumulated depreciation | |
| (22,118 | ) | |
| (22,065 | ) |
Premises and equipment | |
| 25,333 | | |
| 24,476 | |
Depreciation expense, which is included in operating expenses, amounted
to $1,335,000 for 2022, and $1,320,000 for 2021. The construction in process category represents expenditures for ongoing projects. When
construction is completed, these amounts will be reclassified into buildings and improvements, and/or furniture and equipment. Depreciation
only begins when the project or asset is placed into service. As of December 31, 2022 and 2021, the construction in process consists primarily
of costs associated with the construction of a drive-thru facility as well as renovations to leased office space.
NOTE E – REGULATORY STOCK
The Bank is a member of the Federal Home Loan Bank (FHLB) of Pittsburgh,
which is one of 12 regional Federal Home Loan Banks. Each FHLB serves as a reserve or central bank for its members within its assigned
region. As a member, the Bank is required to purchase and maintain stock in the FHLB in an amount equal to 0.10% of its asset value
plus an additional 4% of its outstanding advances from the FHLB and mortgage partnership finance loans sold to the FHLB. At December 31,
2022, the Bank held $5,552,000 in stock of the FHLB compared to $4,742,000 as of December 31, 2021.
The FHLB repurchases excess capital stock on a quarterly basis and pays
a quarterly dividend on stock held by the Corporation. The FHLB’s quarterly dividend yield was 7.25% annualized on activity stock
and 3.25% annualized on membership stock as of December 31, 2022. Most of the Corporation’s dividend is based on the activity stock,
which is based on the amount of borrowings and mortgage activity with FHLB. The Corporation will continue to monitor the financial condition
of the FHLB quarterly to assess its ability to continue to regularly repurchase excess capital stock and pay a quarterly dividend.
The Corporation also owned $1,081,000 of Federal Reserve Bank stock and
$37,000 of Atlantic Community Bancshares, Inc. stock, the Bank Holding Company of ACBB, as of December 31, 2022, compared to $601,000
and $37,000, respectively, as of December 31, 2021.
NOTE F – DEPOSITS
(DOLLARS IN THOUSANDS)
Deposits by major classifications are summarized as follows:
| |
December 31, |
| |
2022 | |
2021 |
| |
$ | |
$ |
| |
| |
|
Non-interest bearing demand | |
| 672,342 | | |
| 686,278 | |
Interest-bearing demand | |
| 164,208 | | |
| 63,015 | |
NOW accounts | |
| 139,846 | | |
| 139,366 | |
Money market deposit accounts | |
| 163,836 | | |
| 168,327 | |
Savings accounts | |
| 364,897 | | |
| 341,291 | |
Time deposits under $250,000 | |
| 124,144 | | |
| 105,615 | |
Time deposits of $250,000 or more | |
| 9,685 | | |
| 8,321 | |
Total deposits | |
| 1,638,958 | | |
| 1,512,213 | |
At December 31, 2022, the scheduled maturities
of time deposits are as follows:
2023 | |
| 55,614 | |
|
2024 | |
| 33,223 | |
|
2025 | |
| 24,081 | |
|
2026 | |
| 17,500 | |
|
2027 | |
| 3,411 | |
|
| |
| | |
|
Total | |
| 133,829 | |
|
NOTE G – SHORT TERM BORROWINGS
(DOLLARS IN THOUSANDS)
Short-term borrowings consist of Federal funds purchased that mature one
business day from the transaction date, overnight borrowings from the Federal Reserve Discount Window, and FHLB advances with a term of
less than one year.
A summary of short-term borrowings is as follows for the years ended December
31, 2022 and 2021:
| |
2022 | |
2021 |
| |
$ | |
$ |
| |
| |
|
Total short-term borrowings outstanding at year end | |
| 16,000 | | |
| — | |
Average interest rate at year end | |
| 3.00% | | |
| — | |
Maximum outstanding at any month end | |
| 24,000 | | |
| — | |
Average amount outstanding for the year | |
| 13,336 | | |
| 22 | |
Weighted-average interest rate for the year | |
| 2.29% | | |
| 0.25% | |
As of December 31, 2022, the Corporation had approved unsecured
Federal funds lines of $32 million. The Corporation also has the ability to borrow through the FRB Discount Window. The amount of borrowing
available through the Discount Window was $52.6 million as of December 31, 2022 and $28.3 million as of December 31, 2021. For further
information on borrowings from the FHLB see Note H.
NOTE H – OTHER BORROWED FUNDS
(DOLLARS IN THOUSANDS)
Federal Home Loan Bank (FHLB) Borrowings
Maturities of FHLB borrowings at December 31, 2022, and 2021, are summarized as follows:
| |
December 31, |
| |
2022 | |
2021 |
| |
| |
Weighted- | |
| |
Weighted- |
| |
| |
Average | |
| |
Average |
| |
Amount | |
Rate | |
Amount | |
Rate |
| |
$ | |
% | |
$ | |
% |
| |
| |
| |
| |
|
FHLB fixed rate loans | |
| | | |
| | | |
| | | |
| | |
2023 | |
| 13,816 | | |
| 2.77 | | |
| 13,816 | | |
| 2.77 | |
2024 | |
| 17,406 | | |
| 2.02 | | |
| 17,407 | | |
| 2.02 | |
2025 | |
| 12,984 | | |
| 1.47 | | |
| 12,983 | | |
| 1.47 | |
2026 | |
| — | | |
| — | | |
| — | | |
| — | |
2027 | |
| 13,833 | | |
| 4.01 | | |
| — | | |
| — | |
| |
| | | |
| | | |
| | | |
| | |
Total other borrowings | |
| 58,039 | | |
| 2.55 | | |
| 44,206 | | |
| 2.09 | |
As a member of the FHLB of Pittsburgh, the Corporation
has access to significant credit facilities. Borrowings from FHLB are secured with a blanket security agreement and the required investment
in FHLB member bank stock. As part of the security agreement, the Corporation maintains unencumbered qualifying assets (principally 1-4
family residential mortgage loans) in an amount at least as much as the advances from the FHLB. Additionally, all of the Corporation’s
FHLB stock is pledged to secure these advances.
The Corporation had an FHLB maximum borrowing capacity of $575.7 million
as of December 31, 2022 with remaining borrowing capacity of $505.7 million. The borrowing arrangement with the FHLB is subject to annual
renewal. The maximum borrowing capacity is recalculated quarterly.
Subordinated Debt
Subordinated debt at December 31, 2022 and 2021 was as follows:
(Dollars in thousands) | |
December 31, | |
| |
| |
| |
|
| |
| |
2022 | |
2021 | |
| |
| |
| |
|
| |
| |
Carrying | |
Carrying | |
| |
Issued | |
| |
|
| |
| |
Amount | |
Amount | |
Rate | |
Amount | |
| |
|
Issued by | |
Ranking | |
$ | |
$ | |
% | |
$ | |
Date Issued | |
Maturity |
ENB Financial Corp | |
Subordinated (1)(2) | |
| 19,760 | | |
| 19,680 | | |
| 4.00% | | |
| 20,000 | | |
12/30/20 | |
12/30/30 |
ENB Financial Corp | |
Subordinated (1)(3) | |
| 19,636 | | |
| — | | |
| 5.75% | | |
| 20,000 | | |
07/22/22 | |
09/30/32 |
| |
Total | |
| 39,396 | | |
| 19,680 | | |
| | | |
| | | |
| |
|
(1) | The subordinated notes qualify as Tier 2 capital for regulatory capital purposes. |
(2) | ENB Financial Corp has the ability to call the subordinated notes, in whole, or in part, at a redemption price equal to 100% of the principal
balance at certain times on or after December 30, 2025. |
(3) | ENB Financial Corp has the ability to call the subordinated notes, in whole, or in part, at a redemption price equal to 100% of the principal
balance at certain times on or after July 22, 2027. |
NOTE I – CAPITAL TRANSACTIONS
On October 21, 2020, the Board of Directors of the Corporation approved a plan to repurchase,
in open market and privately negotiated transactions, up to 200,000 shares of its outstanding common stock. This plan replaced the 2019
plan. As of December 31, 2022, a total of 39,356 shares were repurchased at a total cost of $785,000, for an average cost per share of
$19.95. Shares repurchased under these plans were held as treasury shares to be utilized in connection with the Corporation’s three
stock purchase plans.
Currently, the following three stock purchase plans are in place:
| ● | a nondiscriminatory employee stock purchase plan (ESPP), which allows employees to purchase shares at a 15% discount from the stock’s
fair market value at the end of each quarter, |
| ● | a dividend reinvestment plan (DRP), and; |
| ● | a directors’ stock purchase plan (DSPP). |
The ESPP was started in 2001 and is the largest of the three plans. There
were 39,617 shares issued through the ESPP in 2022 with 303,853 shares issued since existence. The DRP was started in 2005 with 14,170
shares issued in 2022 and 243,623 total shares issued since existence. Lastly, the DSPP was started in 2010 as an additional option for
board compensation. This plan is limited to outside directors. A total of 4,245 shares were issued in connection with this plan in 2022
and 44,194 since existence. In 2021, there were 25,982 shares issued through the ESPP, 12,227 shares issued through the DRP, and 2,417
shares issued through the DSPP. The plans are beneficial to the Corporation as all reissued shares increase capital and since dividends
are paid out in the form of additional shares, the plans act as a source of funds. The total amount of shares issued from Treasury for
these plans collectively in 2022 and 2021 was 58,033 and 40,626, respectively.
In the fourth quarter of 2022, the Corporation entered into employment
agreements with a number of its key personnel. The initial term of each employment agreement is three (3) years beginning on October 28,
2022. Each employment agreement shall automatically renew for additional three (3) year terms at the end of the initial three (3) year
term and at the end of each three (3) year renewal of the employment agreement unless notice to terminate is given by either party at
least one hundred eighty (180) days prior to the expiration of the initial term or any renewal term of the employment agreement. If proper
notice to terminate is not given, each employment agreement shall renew for an additional three (3) years. Further, in consideration of
entering into the employment agreements, the employees each received restricted stock units. Each restricted stock unit represents a contingent
right to receive one share of Corporation common stock. The restricted stock units vest at a rate of 33 1/3% on each anniversary of the
date of grant. The product of the number of shares granted and the grant date market price of the Corporation’s common stock determines
the fair value of the restricted shares which is expensed over the vesting period. During the year ended December 31, 2022, the Corporation
recorded $11,000 of stock-based compensation expense. Expected future compensation expense relating to the restricted stock units is $167,000
over the remaining vesting period.
The following is a summary of the status of the Company’s nonvested
restricted stock as of December 31, 2022, and changes therein during the year then ended:
| |
Number of | |
Weighted-Average |
| |
Restricted | |
Grant Date |
| |
Stock Units | |
Fair Value |
Nonvested at December 31, 2021 | |
| — | | |
| — | |
Granted | |
| 11,960 | | |
$ | 16.80 | |
Vested | |
| — | | |
| — | |
Forfeited | |
| — | | |
| — | |
Nonvested at December 31, 2022 | |
| 11,960 | | |
$ | 16.80 | |
NOTE J – RETIREMENT PLANS
The Corporation has a 401(k) Savings Plan under which the Corporation makes
an employer matching contribution, a non-elective safe harbor contribution and a discretionary non-elective profit sharing contribution.
Employee contributions to the plan are subject to the maximum annual Internal Revenue Service contribution
amounts which were $20,500 for 2022 and $19,500 for 2021, for persons under age 50, and for persons over age 50 was $27,000 in 2022 and
$26,000 in 2021. The employer matching contribution is made on the compensation of all eligible employees, up to a maximum
of 2.5% of an eligible employee’s compensation, at $0.50 for every $1.00 of employee contribution up to 5% of an eligible employee’s
salary. The Corporation’s cost for this 401(k) match was $447,000 and $423,000 for 2022 and 2021,
respectively.
The employer non-elective safe harbor contribution is 3% of all employee
compensation for the year. Based on the performance of the Corporation the Compensation Committee determined the discretionary non-elective
profit sharing contribution would be 2% of all eligible employee compensation. For the Corporation, the expense of the 401(k) matching
contribution will be smaller than the non-elective safe harbor and the discretionary non-elective profit sharing expenses as the Corporation
is matching a maximum of up to 2.5% of salary, depending on employee contributions, compared to contributing up to 5.0% of eligible employee’s
salaries in the safe harbor and discretionary profit sharing contributions.
For purposes of the 401(k) Savings Plan, covered compensation was limited
to $305,000 in 2022 and $290,000 in 2021. Total expenses of the plan were $941,000 and $936,000, for 2022 and 2021, respectively.
The Corporation’s 401(k) Savings Plan is fully funded as all obligations are funded monthly.
NOTE K - DEFERRED COMPENSATION
Prior to 1999, directors of the Corporation had the ability to defer their
directors’ fees into a directors’ deferred compensation plan. Directors electing to defer their compensation signed a contract
that allowed the Corporation to take out a life insurance policy on the director designed to fund the future deferred compensation obligation,
which is paid out over a ten-year period at retirement age. A contract and life insurance policy was taken out for each period of pay
deferred. The amount of deferred compensation to be paid to each director was actuarially determined based on the amount of life insurance
the annual directors’ fees were able to purchase. This amount varies for each director depending on age, general health, and the
number of years until the director is entitled to begin receiving payments. The Corporation is the owner and beneficiary of all life insurance
policies on the directors.
At the time the directors’ pay was deferred, the Corporation used
the amount of the annual directors’ fees to pay the premiums on the life insurance policies. The Corporation could continue to pay
premiums after the deferment period, or could allow the policies to fund annual premiums through loans against the policy’s cash
surrender value. The Corporation has continued to pay the premiums on the life insurance policies and no loans exist on the policies.
The life insurance policies had an aggregate face amount of $3,409,000
for December 31, 2022, and December 31, 2021. The death benefits totaled $6,787,000 at December 31, 2022, and $6,843,000 at December 31,
2021. The cash surrender value of the above policies totaled $5,275,000 and $5,270,000 as of December 31, 2022, and 2021, respectively.
NOTE L - INCOME TAXES
Federal income tax expense as reported differs from the amount computed
by applying the statutory Federal income tax rate to income before taxes. A reconciliation of the differences by amount and percent is
as follows:
| |
2022 | |
2021 |
| |
$ | |
% | |
$ | |
% |
| |
| |
| |
| |
|
Income tax at statutory rate | |
| 3,553 | | |
| 21.0 | | |
| 3,683 | | |
| 21.0 | |
Tax-exempt interest income | |
| (1,052 | ) | |
| (6.2 | ) | |
| (954 | ) | |
| (5.4 | ) |
Non-deductible interest expense | |
| 89 | | |
| 0.5 | | |
| 47 | | |
| 0.3 | |
Bank-owned life insurance | |
| (307 | ) | |
| (1.8 | ) | |
| (160 | ) | |
| (0.9 | ) |
Other | |
| 4 | | |
| 0.0 | | |
| 4 | | |
| 0.0 | |
| |
| | | |
| | | |
| | | |
| | |
Income tax expense | |
| 2,287 | | |
| 13.5 | | |
| 2,620 | | |
| 15.0 | |
The ability to realize the benefit of deferred tax assets is dependent
upon a number of factors, including the generation of future taxable income, the ability to carry back losses to recover taxes paid in
previous years, the ability to offset capital losses with capital gains, the reversal of deferred tax liabilities, and certain tax planning
strategies.
U.S. generally accepted accounting principles prescribe a recognition threshold
and a measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in
a tax return. Benefits from tax positions should be recognized in the financial statements only when it is more likely than not that the
tax position will be sustained upon examination by the appropriate taxing authority that would have full knowledge of all relevant information.
A tax position that meets the more-likely-than-not recognition threshold is measured at the largest amount of benefit that is greater
than 50 percent likely of being realized upon ultimate settlement. Tax positions that previously failed to meet the more-likely-than-not
recognition threshold should be recognized in the first subsequent financial reporting period in which that threshold is met. Previously
recognized tax positions that no longer meet the more-likely-than-not recognition threshold should be derecognized in the first subsequent
financial reporting period in which that threshold is no longer met.
There is currently no liability for uncertain tax positions and no known
unrecognized tax benefits. The Corporation recognizes, when applicable, interest and penalties related to unrecognized tax benefits in
the provision for income taxes in the Consolidated Statements of Income. With few exceptions, the Corporation is no longer subject to
U.S. federal, state, or local income tax examinations by tax authorities for years before 2019.
Significant components of income tax expense are as follows: | |
| |
|
(DOLLARS IN THOUSANDS) | |
Year Ended December 31, |
| |
2022 | |
2021 |
| |
$ | |
$ |
Current tax expense | |
| 2,352 | | |
| 2,605 | |
Deferred tax expense (benefit) | |
| (65 | ) | |
| 15 | |
Income tax expense | |
| 2,287 | | |
| 2,620 | |
Components of the Corporation's net deferred tax position are as follows:
(DOLLARS IN THOUSANDS) | |
December 31, |
| |
2022 | |
2021 |
| |
$ | |
$ |
| |
| |
|
Deferred tax assets | |
| | | |
| | |
Allowance for credit losses | |
| 2,972 | | |
| 2,715 | |
Allowance for off-balance sheet extensions of credit | |
| 214 | | |
| 191 | |
Net unrealized holding losses on securities available for sale | |
| 12,837 | | |
| — | |
Interest on non-accrual loans | |
| 10 | | |
| 6 | |
Other | |
| 664 | | |
| 110 | |
Total deferred tax assets | |
| 16,697 | | |
| 3,022 | |
| |
| | | |
| | |
Deferred tax liabilities | |
| | | |
| | |
Premises and equipment | |
| (936 | ) | |
| (926 | ) |
Net unrealized holding gains on securities available for sale | |
| — | | |
| (915 | ) |
Mortgage servicing rights | |
| (334 | ) | |
| (193 | ) |
Discount on investment securities | |
| (210 | ) | |
| (114 | ) |
Other | |
| (655 | ) | |
| (129 | ) |
Total deferred tax liabilities | |
| (2,135 | ) | |
| (2,277 | ) |
Net deferred tax assets | |
| 14,562 | | |
| 745 | |
NOTE M – REGULATORY MATTERS AND RESTRICTIONS
The Corporation and the Bank are subject to various regulatory capital
requirements administered by the Federal banking agencies. Failure to meet the minimum capital requirements can initiate certain mandatory
and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Corporation’s
consolidated financial statements.
The consolidated asset limit on small bank holding companies is $3 billion
and a company with assets under that limit is not subject to the consolidated capital rules but may disclose capital amounts and ratios.
The Corporation has elected to disclose those amounts and ratios.
Under capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities, and
certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classifications are also
subject to qualitative judgments by the regulators about components, risk weightings, and other factors. The quantitative measures established
by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth below) of tier I capital to
average assets, and common equity tier I capital, tier I capital, and total capital to risk-weighted assets.
As of December 31, 2022 and 2021, the Bank was categorized as “well
capitalized” under the regulatory framework for prompt corrective action. There are no conditions or events since that notification
that management believes have changed the institution’s category. The following chart details the Corporation’s and the Bank’s
capital levels as of December 31, 2022 and December 31, 2021, compared to regulatory levels.
CAPITAL LEVELS | |
| |
| |
| |
| |
To Be Well |
(DOLLARS IN THOUSANDS) | |
| |
| |
| |
| |
Capitalized Under |
| |
| |
| |
For Capital | |
Prompt Corrective |
| |
Actual | |
Adequacy Purposes | |
Action Provision |
| |
$ | |
% | |
$ | |
% | |
$ | |
% |
| |
| |
| |
| |
| |
| |
|
As of December 31, 2022 | |
| |
| |
| |
| |
| |
|
Total Capital to Risk-Weighted Assets | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Consolidated | |
| 200,191 | | |
| 15.0 | | |
| N/A | | |
| N/A | | |
| N/A | | |
| N/A | |
Bank | |
| 193,076 | | |
| 14.5 | | |
| 106,407 | | |
| 8.0 | | |
| 133,008 | | |
| 10.0 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Tier I Capital to Risk-Weighted Assets | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Consolidated | |
| 145,627 | | |
| 10.9 | | |
| N/A | | |
| N/A | | |
| N/A | | |
| N/A | |
Bank | |
| 177,907 | | |
| 13.4 | | |
| 79,805 | | |
| 6.0 | | |
| 106,407 | | |
| 8.0 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Common Equity Tier I Capital to Risk-Weighted Assets | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Consolidated | |
| 145,627 | | |
| 10.9 | | |
| N/A | | |
| N/A | | |
| N/A | | |
| N/A | |
Bank | |
| 177,907 | | |
| 13.4 | | |
| 59,854 | | |
| 4.5 | | |
| 86,455 | | |
| 6.5 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Tier I Capital to Average Assets | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Consolidated | |
| 145,627 | | |
| 7.6 | | |
| N/A | | |
| N/A | | |
| N/A | | |
| N/A | |
Bank | |
| 177,907 | | |
| 9.3 | | |
| 76,190 | | |
| 4.0 | | |
| 95,238 | | |
| 5.0 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
As of December 31, 2021 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Total Capital to Risk-Weighted Assets | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Consolidated | |
| 166,878 | | |
| 15.6 | | |
| N/A | | |
| N/A | | |
| N/A | | |
| N/A | |
Bank | |
| 162,375 | | |
| 14.9 | | |
| 87,281 | | |
| 8.0 | | |
| 109,101 | | |
| 10.0 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Tier I Capital to Risk-Weighted Assets | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Consolidated | |
| 133,848 | | |
| 12.5 | | |
| N/A | | |
| N/A | | |
| N/A | | |
| N/A | |
Bank | |
| 148,735 | | |
| 13.6 | | |
| 65,461 | | |
| 6.0 | | |
| 87,281 | | |
| 8.0 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Common Equity Tier I Capital to Risk-Weighted Assets | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Consolidated | |
| 133,848 | | |
| 12.5 | | |
| N/A | | |
| N/A | | |
| N/A | | |
| N/A | |
Bank | |
| 148,735 | | |
| 13.6 | | |
| 49,095 | | |
| 4.5 | | |
| 70,916 | | |
| 6.5 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Tier I Capital to Average Assets | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Consolidated | |
| 133,848 | | |
| 8.2 | | |
| N/A | | |
| N/A | | |
| N/A | | |
| N/A | |
Bank | |
| 148,735 | | |
| 9.1 | | |
| 65,721 | | |
| 4.0 | | |
| 81,701 | | |
| 5.0 | |
In addition to the capital guidelines, certain laws restrict the amount
of dividends paid to stockholders in any given year. The approval of the OCC shall be required if the total of all dividends declared
by the Corporation in any year shall exceed the total of its net profits for that year combined with retained net profits of the preceding
two years. Under this restriction, the Corporation could declare dividends in 2022, without the approval of the OCC, of approximately
$23.9 million, plus an additional amount equal to the Corporation’s net profits for 2023, up to the date of any such dividend declaration.
NOTE N – TRANSACTIONS WITH DIRECTORS AND OFFICERS
The following table presents activity in the amounts due from directors,
executive officers, immediate family, and affiliated companies. These transactions are made on the same terms and conditions, including
interest rates and collateral requirements as those prevailing at the time for comparable transactions with others. An analysis of the
activity with respect to such aggregate loans to related parties is shown below.
LOANS TO INSIDERS | |
| | |
| |
(DOLLARS IN THOUSANDS) | |
Year Ended | | |
Year Ended | |
| |
December 31, | | |
December 31, | |
| |
2022 | | |
2021 | |
| |
$ | | |
$ | |
| |
| | |
| |
Balance, beginning of year | |
| 194 | | |
| 31 | |
Advances | |
| 1,398 | | |
| 40 | |
Repayments | |
| (1,614 | ) | |
| (71 | ) |
Other changes | |
| 2,646 | | |
| 194 | |
Balance, end of year | |
| 2,624 | | |
| 194 | |
In the Corporation’s case, other changes in the table above for the
year ended December 31, 2022, represented the addition of a director, and for the year ended December 31, 2021, represented the addition
of an executive officer.
Deposits from the insiders totaled $1,417,000 as of December 31, 2022,
and $2,855,000 as of December 31, 2021.
NOTE O - COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Corporation makes various commitments
that are not reflected in the accompanying consolidated financial statements. These are commonly referred to as off-balance sheet commitments
and include firm commitments to extend credit, unused lines of credit, and open letters of credit. On December 31, 2022, firm loan commitments
totaled approximately $117.5 million; unused lines of credit totaled $467.8 million; and open letters of credit totaled $11.1 million.
The sum of these commitments, $596.4 million, represents total exposure to credit loss in the event of nonperformance by customers with
respect to these financial instruments; however the vast majority of these commitments are typically not drawn upon. The same credit policies
for on-balance sheet instruments apply for making commitments and conditional obligations and the actual credit losses that could arise
from the exercise of these commitments is expected to compare favorably with the loan loss experience on the loan portfolio taken as a
whole. Commitments to extend credit on December 31, 2021, totaled $490.1 million, representing firm loan commitments of $99.0 million,
unused lines of credit of $378.3 million, and open letters of credit totaling $12.8 million.
Firm commitments to extend credit and unused lines of credit are agreements
to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed
expiration dates or other termination clauses. Since many of the commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements. Each customer’s creditworthiness is evaluated on an individual
basis. The amount of collateral obtained, if deemed necessary by the extension of credit, is based on management’s credit evaluation
of the customer. These commitments are supported by various types of collateral, where it is determined that collateral is required.
Open letters of credit are conditional commitments issued to guarantee
the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements.
Most guarantees expire within one year. The credit risk involved in issuing letters of credit is essentially the same as that involved
in extending loans to customers. While various assets of the customer act as collateral for these letters of credit, real estate is the
primary collateral held for these potential obligations.
NOTE P - FINANCIAL INSTRUMENTS WITH CONCENTRATIONS OF CREDIT RISK
The Corporation determines concentrations of credit risk by reviewing loans
by borrower, geographical area, and loan purpose. The amount of credit extended to a single borrower or group of borrowers is capped by
the legal lending limit, which is defined as 15% of the Bank’s risk-based capital, less the allowance for credit losses. The Corporation’s
lending policy further restricts the amount to 75% of the legal lending limit. As of December 31, 2022, the Corporation’s legal
lending limit was $28,961,000, and the Corporation’s lending policy internal limit was $21,721,000. This compared to a legal lending
limit of $24,356,000, and lending policy limit of $18,267,000 as of
December 31, 2021. As of December 31, 2022 and 2021, no lending relationships
exceeded the Corporation’s internal lending policy limit.
Geographically, the primary lending area for the Corporation is defined
as its market area, with the vast majority of the loans made in Lancaster County. The ability of debtors to honor their loan
agreements is impacted by the health of the local economy. The Corporation’s immediate market area benefits from a diverse economy,
which has resulted in a diverse loan portfolio. As a community bank, the largest amount of loans outstanding consists of personal mortgages,
residential rental loans, and personal loans secured by real estate. Beyond personal lending, the Corporation’s business and commercial
lending includes loans for agricultural, construction, specialized manufacturing, service industries, many types of small businesses,
and loans to governmental units and non-profit entities.
Management evaluates concentrations of credit based on loan purpose on
a quarterly basis. The Corporation’s greatest concentration of loans by purpose is residential real estate, which comprises $520.6
million, or 43.8%, of the $1,188.5 million gross loans outstanding as of December 31, 2022. This compares to $403.9 million, or 43.9%,
of the $919.1 million of gross loans outstanding as of December 31, 2021. Residential real estate consists of first mortgages and home
equity loans. A concentration in commercial real estate of 46.4%, or $518.8 million, also exists; however, within that category there
is not a concentration by specific industry type.
The Corporation remains focused on agricultural purpose loans, of which
the vast majority are real estate secured. Agricultural mortgages made up 19.8% of gross loans as of December 31, 2022, compared to 22.2%
as of December 31, 2021; however these agricultural mortgages are spread over several broader types of agricultural purpose loans. More
specifically within these larger purpose categories, management monitors on a quarterly basis the largest concentrations of non-consumer
credit based on the North American Industrial Classification System (NAICS). As of December 31, 2022, the largest specific industry type
categories were dairy cattle and milk production loans of $93.9 million, or 7.9% of gross loans, non-residential real estate investment
loans of $89.1 million, or 7.5% of gross loans, and residential real estate investment loans with a balance of $66.9 million, or 5.6%
of gross loans.
Outside of consumer and commercial real estate, including agricultural
mortgages, the third largest component of the Corporation’s loans consist of commercial and industrial loans. These loans are generally
secured by personal guarantees, inventory, or pledges of municipalities. Out of the $143.3 million of loans designated as commercial and
industrial for the Uniform Bank Performance Reports, the largest concentration within that area is $28.7 million of loans to political
subdivisions, which account for 2.4% of gross loans outstanding. For the Corporation, these loans consisted of tax-free loans to local
municipalities.
To evaluate risk for the securities portfolio, the Corporation reviews
both geographical concentration and credit ratings. The largest geographical concentrations as of December 31, 2022, were obligations
of states and political subdivisions located in the states of Pennsylvania, California, and Texas. Based on fair market value, the Corporation
had 18% of its portfolio invested in Pennsylvania municipals, 18% in California, and 9% in Texas. As of December 31, 2022, no municipal
bonds were below an A credit rating.
The Corporation held $76.7 million of corporate bonds based on amortized
cost as of December 31, 2022. Out of the $76.7 million of total corporate securities, $63.4 million is domestic and $13.3 million is foreign-issued
debt. Most of the Corporation’s foreign-issued debt is from the United Kingdom, Australia, and Switzerland. In addition, $48.5 million,
or 63.2%, of the corporate bonds held are invested in national or foreign banks, bank holding companies, brokerage firms, or finance companies.
By internal policy, at time of purchase, all corporate bonds must carry
a credit rating of at least A3 by Moody’s or A- by S&P, and at all times corporate bonds are to be investment grade, which is
defined as Baa3 for Moody’s and BBB- for S&P, or above. As of December 31, 2022, all of the Corporation’s corporate bonds
carried at least one single A credit rating of A3 by Moody’s or A- by S&P, except for one. One bond carried a rating of BBB+
by Moody’s. All were considered investment grade.
NOTE Q – LEASES
A lease is defined as a contract, or part of a contract, that conveys the
right to control the use of identified property, plant or equipment for a period of time in exchange for consideration. For the Corporation,
Topic 842 primarily affects the accounting treatment for operating lease agreements in which the Corporation is the lessee.
All of these leases in which the Corporation is the lessee are comprised
of real estate property for branches and office space with terms extending through 2042. All of the Corporation’s leases are classified
as operating leases.
The following table represents the Consolidated Balance Sheet classification
of the Corporation’s ROU assets and lease liabilities.
Lease Consolidated Balance Sheets Classification | |
| | |
| |
(Dollars in Thousands) | |
Classification | |
December 31, 2022 | | |
December 31, 2021 | |
Lease Right-of-Use Assets | |
| |
| | | |
| | |
| |
| |
| | | |
| | |
Operating lease right-of use assets | |
Other Assets | |
$ | 3,117 | | |
$ | 617 | |
| |
| |
| | | |
| | |
Lease Liabilities | |
| |
| | | |
| | |
Operating lease liabilties | |
Other Liabilities | |
$ | 3,145 | | |
$ | 629 | |
The calculated amount of the ROU assets and lease liabilities in the table
above are impacted by the length of the lease term and the discount rate used to determine the present value of the minimum lease payments.
The Corporation’s lease agreements often include one or more options to renew at the Corporation’s discretion. If at lease
inception, the Corporation considers the exercising of a renewal option to be reasonably certain, the Corporation will include the extended
term in the calculation of the ROU asset and lease liability. Regarding the discount rate, Topic 842 requires the use of the rate implicit
in the lease whenever this rate is readily determinable. As the rate is rarely determinable, the Corporation utilizes its incremental
borrowing rate at lease inception, on a collateralized basis, over a similar term.
| |
December 31, 2022 | | |
December 31, 2021 | |
Weighted-average remaining lease term | |
| | | |
| | |
Operating leases | |
| 12.5 years | | |
| 3.7 years | |
Weighted-average discount rate | |
| | | |
| | |
Operating leases | |
| 2.88% | | |
| 2.82% | |
The total rent expense for all operating leases was $326,000 and $213,000
for the years ended December 31, 2022 and 2021, respectively. As the Corporation elected, for all classes of underlying assets, not to
separate lease and non-lease components and instead to account for them as a single lease component, the variable lease cost primarily
represents variable payments such as common area maintenance and utilities.
Future minimum payments for operating leases with initial or remaining
terms of one year or more as of December 31, 2022 were as follows:
Lease Payment Schedule | |
|
(Dollars in Thousands) | |
Operating Leases |
Twelve Months Ended: | |
| | |
December 31, 2023 | |
$ | 450 | |
December 31, 2024 | |
| 455 | |
December 31, 2025 | |
| 345 | |
December 31, 2026 | |
| 239 | |
December 31, 2027 | |
| 228 | |
Thereafter | |
| 2,052 | |
Total Future Minimum Lease Payments | |
| 3,769 | |
Amounts Representing Interests | |
| (624 | ) |
Present Value of Net Future Minimum Lease Payments | |
$ | 3,145 | |
NOTE R - FAIR VALUE MEASUREMENTS
U.S. generally accepted accounting principles establish a hierarchal disclosure
framework associated with the level of observable pricing utilized in measuring assets and liabilities at fair value. The three broad
levels defined by the hierarchy are as follows:
Level I: |
Quoted prices are available in active markets for identical assets or liabilities as of the reported date. |
Level II: |
Pricing inputs are other than the quoted prices in active markets, which are either directly or indirectly observable as of the reported
date. The nature of these assets and liabilities includes items for which quoted prices are available but traded less frequently and
items that are fair-valued using other financial instruments, the parameters of which can be directly observed. |
Level III: |
Assets and liabilities that have little to no observable pricing as of the reported date. These items do not have two-way markets and
are measured using management’s best estimate of fair value, where the inputs into the determination of fair value require significant
management judgement or estimation. |
This hierarchy requires the use of observable market data when available.
The following tables provide the fair market value for assets required
to be measured and reported at fair value on a recurring basis on the Consolidated Balance Sheets as of December 31, 2022 and December
31, 2021, by level within the fair value hierarchy. As required by U.S. generally accepted accounting principles, financial assets and
liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
ASSETS REPORTED AT FAIR VALUE ON A RECURRING BASIS
(DOLLARS IN THOUSANDS)
| |
December 31, 2022 |
| |
Level I | |
Level II | |
Level III | |
Total |
| |
$ | |
$ | |
$ | |
$ |
| |
| |
| |
| |
|
U.S. Treasuries | |
| 32,657 | | |
| — | | |
| — | | |
| 32,657 | |
U.S. government agencies | |
| — | | |
| 24,787 | | |
| — | | |
| 24,787 | |
U.S. agency mortgage-backed securities | |
| — | | |
| 45,307 | | |
| — | | |
| 45,307 | |
U. S. agency collateralized mortgage obligations | |
| — | | |
| 27,490 | | |
| — | | |
| 27,490 | |
Non-agency MBS/CMO | |
| — | | |
| 50,250 | | |
| | | |
| 50,250 | |
Asset-backed securities | |
| — | | |
| 73,234 | | |
| — | | |
| 73,234 | |
Corporate bonds | |
| — | | |
| 69,631 | | |
| — | | |
| 69,631 | |
Obligations of states and political subdivisions | |
| — | | |
| 205,786 | | |
| — | | |
| 205,786 | |
Marketable equity securities | |
| 9,118 | | |
| — | | |
| — | | |
| 9,118 | |
| |
| | | |
| | | |
| | | |
| | |
Total securities | |
| 41,775 | | |
| 496,485 | | |
| — | | |
| 538,260 | |
On December 31, 2022, the Corporation held no securities valued using level
III inputs. All of the Corporation’s debt instruments were valued using levels I and II inputs. Level I means each investment has
their own quoted prices in an active market and Level II means quoted prices are available and observable but not necessarily quotes on
identical securities traded in active markets on a daily basis. The Corporation’s CRA fund investments and bank stocks are fair
valued utilizing level I inputs.
Financial instruments are considered level III when their values are determined
using pricing models, discounted cash flow methodologies, or similar techniques, and at least one significant model assumption or input
is unobservable. In addition to these unobservable inputs, the valuation models for level III financial instruments typically also rely
on a number of inputs that are readily observable either directly or indirectly. Level III financial instruments also include those for
which the determination of fair value requires significant management judgment or estimation.
ASSETS REPORTED AT FAIR VALUE ON A RECURRING BASIS
(DOLLARS IN THOUSANDS)
| |
December 31, 2021 |
| |
Level I | |
Level II | |
Level III | |
Total |
| |
$ | |
$ | |
$ | |
$ |
| |
| |
| |
| |
|
U.S. Treasuries | |
| 14,813 | | |
| — | | |
| — | | |
| 14,813 | |
U.S. government agencies | |
| — | | |
| 29,021 | | |
| — | | |
| 29,021 | |
U.S. agency mortgage-backed securities | |
| — | | |
| 51,988 | | |
| — | | |
| 51,988 | |
U. S. agency collateralized mortgage obligations | |
| — | | |
| 31,077 | | |
| — | | |
| 31,077 | |
Asset-backed securities | |
| — | | |
| 101,219 | | |
| — | | |
| 101,219 | |
Corporate bonds | |
| — | | |
| 82,509 | | |
| — | | |
| 82,509 | |
Obligations of states and political subdivisions | |
| — | | |
| 247,466 | | |
| — | | |
| 247,466 | |
Marketable equity securities | |
| 8,982 | | |
| — | | |
| — | | |
| 8,982 | |
| |
| | | |
| | | |
| | | |
| | |
Total securities | |
| 23,795 | | |
| 543,280 | | |
| — | | |
| 567,075 | |
On December 31, 2021, the Corporation held no securities valued using level
III inputs. All of the Corporation’s debt instruments were valued using levels I and II inputs. Level I means each investment has
their own quoted prices in an active market and Level II means quoted prices are available and observable but not necessarily quotes on
identical securities traded in active markets on a daily basis. The Corporation’s CRA fund investments and bank stocks are fair
valued utilizing level I inputs because the funds have their own quoted prices in an active market.
The following table provides the fair value for each
class of assets required to be measured and reported at fair value on a nonrecurring basis on the Consolidated Balance Sheets as of December
31, 2022 and December 31, 2021, by level within the fair value hierarchy:
ASSETS MEASURED ON A NONRECURRING BASIS
(DOLLARS IN THOUSANDS)
| |
December 31, 2022 |
| |
Level I | |
Level II | |
Level III | |
Total |
| |
$ | |
$ | |
$ | |
$ |
Assets: | |
| | | |
| | | |
| | | |
| | |
Impaired Loans | |
| — | | |
| — | | |
| 4,620 | | |
| 4,620 | |
| |
| — | | |
| — | | |
| 4,620 | | |
| 4,620 | |
| |
December 31, 2021 |
| |
Level I | |
Level II | |
Level III | |
Total |
| |
$ | |
$ | |
$ | |
$ |
Assets: | |
| | | |
| | | |
| | | |
| | |
Impaired Loans | |
| — | | |
| — | | |
| 3,177 | | |
| 3,177 | |
Total | |
| — | | |
| — | | |
| 3,177 | | |
| 3,177 | |
The Corporation had a total of $4,620,000 of impaired
loans as of December 31, 2022, with no specific allocation against these loans. As of December 31, 2021, the Corporation had a total
of $3,324,000 of impaired loans with $147,000 of specific allocation against these loans. The value of impaired loans is generally determined
through independent appraisals of the underlying collateral.
The following table presents additional quantitative information about
assets measured at fair value on a nonrecurring basis for which the Corporation has utilized level III inputs to determine fair value:
QUANTITATIVE INFORMATION ABOUT LEVEL III FAIR VALUE MEASUREMENTS
(DOLLARS IN THOUSANDS)
|
December 31, 2022 |
|
Fair Value |
Valuation |
Unobservable |
Range |
|
Estimate |
Techniques |
Input |
(Weighted Avg) |
|
|
|
|
|
Impaired loans |
4,620 |
Appraisal of collateral (1) |
Appraisal adjustments (2) |
0% to -20% (-20%) |
|
|
|
Liquidation expenses (2) |
0% to -10% (-10%) |
|
December 31, 2021 |
|
Fair Value |
Valuation |
Unobservable |
Range |
|
Estimate |
Techniques |
Input |
(Weighted Avg) |
|
|
|
|
|
Impaired loans |
3,177 |
Appraisal of collateral (1) |
Appraisal adjustments (2) |
0% to -20% (-20%) |
|
|
|
Liquidation expenses (2) |
0% to -10% (-10%) |
(1) Fair value is generally determined
through independent appraisals of the underlying collateral, which generally includes various level III inputs which are not
identifiable.
(2) Appraisals may be adjusted by management
for qualitative factors such as economic conditions and estimated liquidation expenses. The range and weighted average of
liquidation expenses and other appraisal adjustments are presented as a percent of the appraisal.
NOTE S - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following tables provide the carrying amount for each class of assets
and liabilities and the fair value for certain financial instruments that are not required to be measured or reported at fair value on
the Corporation's Consolidated Balance Sheets as of December 31, 2022 and December 31, 2021:
FINANCIAL INSTRUMENTS NOT REQUIRED TO BE MEASURED OR REPORTED AT FAIR VALUE
(DOLLARS IN THOUSANDS)
| |
December 31, 2022 |
| |
| |
| |
Quoted Prices in | |
| |
|
| |
| |
| |
Active Markets | |
Significant Other | |
Significant |
| |
| |
| |
for Identical | |
Observable | |
Unobservable |
| |
Carrying | |
| |
Assets | |
Inputs | |
Inputs |
| |
Amount | |
Fair Value | |
(Level 1) | |
(Level II) | |
(Level III) |
| |
$ | |
$ | |
$ | |
$ | |
$ |
Financial Assets: | |
| | | |
| | | |
| | | |
| | | |
| | |
Cash and cash equivalents | |
| 37,572 | | |
| 37,572 | | |
| 37,572 | | |
| — | | |
| — | |
Regulatory stock | |
| 6,670 | | |
| 6,670 | | |
| 6,670 | | |
| — | | |
| — | |
Loans held for sale | |
| 5,927 | | |
| 5,927 | | |
| 5,927 | | |
| — | | |
| — | |
Loans, net of allowance | |
| 1,176,966 | | |
| 1,112,400 | | |
| — | | |
| — | | |
| 1,112,400 | |
Mortgage servicing assets | |
| 2,030 | | |
| 2,894 | | |
| — | | |
| — | | |
| 2,894 | |
Accrued interest receivable | |
| 6,555 | | |
| 6,555 | | |
| 6,555 | | |
| — | | |
| — | |
Bank owned life insurance | |
| 34,805 | | |
| 34,805 | | |
| 34,805 | | |
| — | | |
| — | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Financial Liabilities: | |
| | | |
| | | |
| | | |
| | | |
| | |
Demand deposits | |
| 672,342 | | |
| 672,342 | | |
| 672,342 | | |
| — | | |
| — | |
Interest-bearing demand deposits | |
| 164,208 | | |
| 164,208 | | |
| 164,208 | | |
| — | | |
| — | |
NOW accounts | |
| 139,846 | | |
| 139,846 | | |
| 139,846 | | |
| — | | |
| — | |
Money market deposit accounts | |
| 163,836 | | |
| 163,836 | | |
| 163,836 | | |
| — | | |
| — | |
Savings accounts | |
| 364,897 | | |
| 364,897 | | |
| 364,897 | | |
| — | | |
| — | |
Time deposits | |
| 133,829 | | |
| 129,422 | | |
| — | | |
| — | | |
| 129,422 | |
Total deposits | |
| 1,638,958 | | |
| 1,634,551 | | |
| 1,505,129 | | |
| — | | |
| 129,422 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Short-term debt | |
| 16,000 | | |
| 15,721 | | |
| — | | |
| — | | |
| 15,721 | |
Long-term debt | |
| 58,039 | | |
| 56,431 | | |
| — | | |
| — | | |
| 56,431 | |
Subordinated debt | |
| 39,396 | | |
| 35,975 | | |
| — | | |
| — | | |
| 35,975 | |
Accrued interest payable | |
| 597 | | |
| 597 | | |
| 597 | | |
| — | | |
| — | |
FINANCIAL INSTRUMENTS NOT REQUIRED TO BE MEASURED OR REPORTED AT FAIR VALUE
(DOLLARS IN THOUSANDS)
| |
December 31, 2021 |
| |
| |
| |
Quoted Prices in | |
| |
|
| |
| |
| |
Active Markets | |
Significant Other | |
Significant |
| |
| |
| |
for Identical | |
Observable | |
Unobservable |
| |
Carrying | |
| |
Assets | |
Inputs | |
Inputs |
| |
Amount | |
Fair Value | |
(Level 1) | |
(Level II) | |
(Level III) |
| |
$ | |
$ | |
$ | |
$ | |
$ |
Financial Assets: | |
| | | |
| | | |
| | | |
| | | |
| | |
Cash and cash equivalents | |
| 158,449 | | |
| 158,449 | | |
| 158,449 | | |
| — | | |
| — | |
Regulatory stock | |
| 5,380 | | |
| 5,380 | | |
| 5,380 | | |
| — | | |
| — | |
Loans held for sale | |
| 3,194 | | |
| 3,194 | | |
| 3,194 | | |
| — | | |
| — | |
Loans, net of allowance | |
| 907,973 | | |
| 914,251 | | |
| — | | |
| — | | |
| 914,251 | |
Mortgage servicing assets | |
| 1,768 | | |
| 2,129 | | |
| — | | |
| — | | |
| 2,129 | |
Accrued interest receivable | |
| 5,152 | | |
| 5,152 | | |
| 5,152 | | |
| — | | |
| — | |
Bank owned life insurance | |
| 35,414 | | |
| 35,414 | | |
| 35,414 | | |
| — | | |
| — | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Financial Liabilities: | |
| | | |
| | | |
| | | |
| | | |
| | |
Demand deposits | |
| 686,278 | | |
| 686,278 | | |
| 686,278 | | |
| — | | |
| — | |
Interest-bearing demand deposits | |
| 63,015 | | |
| 63,015 | | |
| 63,015 | | |
| — | | |
| — | |
NOW accounts | |
| 139,366 | | |
| 139,366 | | |
| 139,366 | | |
| — | | |
| — | |
Money market deposit accounts | |
| 168,327 | | |
| 168,327 | | |
| 168,327 | | |
| — | | |
| — | |
Savings accounts | |
| 341,291 | | |
| 341,291 | | |
| 341,291 | | |
| — | | |
| — | |
Time deposits | |
| 113,936 | | |
| 113,919 | | |
| — | | |
| — | | |
| 113,919 | |
Total deposits | |
| 1,512,213 | | |
| 1,512,196 | | |
| 1,398,277 | | |
| — | | |
| 113,919 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Long-term debt | |
| 44,206 | | |
| 43,060 | | |
| — | | |
| — | | |
| 43,060 | |
Subordinated debt | |
| 19,680 | | |
| 19,088 | | |
| — | | |
| — | | |
| 19,088 | |
Accrued interest payable | |
| 251 | | |
| 251 | | |
| 251 | | |
| — | | |
| — | |
NOTE T – ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The activity in accumulated other comprehensive income (loss) for the years
ended December 31, 2022 and 2021 is as follows:
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) (1) (2)
(DOLLARS IN THOUSANDS)
| |
Unrealized |
| |
Gains/(Losses) |
| |
on Securities |
| |
Available-for-Sale |
| |
$ |
Balance at January 1, 2022 | |
| 3,441 | |
| |
| | |
Other comprehensive loss before reclassifications | |
| (51,700 | ) |
Amount reclassified from accumulated other comprehensive loss | |
| (33 | ) |
| |
| | |
Period change | |
| (51,733 | ) |
| |
| | |
Balance at December 31, 2022 | |
| (48,292 | ) |
| |
| | |
Balance at January 1, 2021 | |
| 7,958 | |
| |
| | |
Other comprehensive loss before reclassifications | |
| (3,940 | ) |
Amount reclassified from accumulated other comprehensive loss | |
| (577 | ) |
Period change | |
| (4,517 | ) |
| |
| | |
Balance at December 31, 2021 | |
| 3,441 | |
(1) All amounts are net of tax. Related
income tax expense or benefit is calculated using a Federal income tax rate of 21%.
(2) Amounts in parentheses indicate debits.
DETAILS ABOUT ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) COMPONENTS (1)
(DOLLARS IN THOUSANDS)
| |
Amount Reclassified from | |
|
| |
Accumulated Other Comprehensive | |
|
| |
Income (Loss) | |
|
| |
For the Year Ended | |
|
| |
December 31, | |
Affected Line Item |
| |
2022 | |
2021 | |
in the Consolidated |
| |
$ | |
$ | |
Statements of Income |
Securities available for sale: | |
| | | |
| | | |
|
Net securities gains reclassified into earnings | |
| 42 | | |
| 730 | | |
Gains on sale of debt securities, net |
Related income tax expense | |
| (9 | ) | |
| (153 | ) | |
Provision for federal income taxes |
Net effect on accumulated other comprehensive income (loss) for the period | |
| 33 | | |
| 577 | | |
|
| |
| | | |
| | | |
|
Total reclassifications for the period | |
| 33 | | |
| 577 | | |
|
(1) Amounts in parentheses indicate debits.
NOTE U – CONDENSED PARENT ONLY DATA
Condensed Balance Sheets (Parent Company Only) | |
| |
|
(DOLLARS IN THOUSANDS) | |
December 31, |
| |
2022 | |
2021 |
| |
$ | |
$ |
Assets | |
| |
|
Cash | |
| 4,601 | | |
| 2,638 | |
Equity securities | |
| 1,773 | | |
| 1,743 | |
Equity in bank subsidiary | |
| 129,615 | | |
| 152,176 | |
Other assets | |
| 768 | | |
| 452 | |
Total assets | |
| 136,757 | | |
| 157,009 | |
| |
| | | |
| | |
Liabilities | |
| | | |
| | |
Subordinated debt | |
| 39,396 | | |
| 19,680 | |
Other Liabilities | |
| 26 | | |
| 41 | |
Total Liabilities | |
| 39,422 | | |
| 19,721 | |
| |
| | | |
| | |
Stockholders' Equity | |
| | | |
| | |
Common stock | |
| 574 | | |
| 574 | |
Capital surplus | |
| 4,437 | | |
| 4,520 | |
Retained earnings | |
| 142,677 | | |
| 131,856 | |
Accumulated other comprehensive (loss) income, net of tax | |
| (48,292 | ) | |
| 3,441 | |
Treasury stock | |
| (2,061 | ) | |
| (3,103 | ) |
Total stockholders' equity | |
| 97,335 | | |
| 137,288 | |
| |
| | | |
| | |
Total liabilities and stockholders' equity | |
| 136,757 | | |
| 157,009 | |
Condensed Statements of Comprehensive (Loss) Income | |
| |
|
(DOLLARS IN THOUSANDS) | |
Year Ended December 31, |
| |
2022 | |
2021 |
| |
$ | |
$ |
Income | |
| |
|
Dividend income - investment securities | |
| 67 | | |
| 52 | |
Gains (losses) on equity securities, net | |
| (32 | ) | |
| 324 | |
Dividend income | |
| 3,810 | | |
| 3,730 | |
Undistributed earnings of bank subsidiary | |
| 12,161 | | |
| 11,730 | |
Total income | |
| 16,006 | | |
| 15,836 | |
| |
| | | |
| | |
Expense | |
| | | |
| | |
Subordinated debt interest expense | |
| 1,311 | | |
| 800 | |
Shareholder expenses | |
| 150 | | |
| 132 | |
Other expenses | |
| 279 | | |
| 130 | |
Total expense | |
| 1,740 | | |
| 1,062 | |
Provision (benefit) for income taxes | |
| (365 | ) | |
| (142 | ) |
| |
| | | |
| | |
Net Income | |
| 14,631 | | |
| 14,916 | |
Comprehensive (Loss) Income | |
| (37,102 | ) | |
| 10,399 | |
Condensed Statements of Cash Flows | |
| |
|
(DOLLARS IN THOUSANDS) | |
| |
|
| |
Year Ended December 31, |
| |
2022 | |
2021 |
Cash Flows from Operating Activities: | |
$ | |
$ |
Net Income | |
| 14,631 | | |
| 14,916 | |
Equity in undistributed earnings of subsidiaries | |
| (12,161 | ) | |
| (11,730 | ) |
Losses (gains) on equity securities, net | |
| 32 | | |
| (324 | ) |
Net amortization of subordinated debt fees | |
| 116 | | |
| 79 | |
Net increase in other assets | |
| (316 | ) | |
| (287 | ) |
Net decrease in other liabilities | |
| (15 | ) | |
| (404 | ) |
Net cash provided by operating activities | |
| 2,287 | | |
| 2,250 | |
| |
| | | |
| | |
Cash Flows from Investing Activities: | |
| | | |
| | |
Proceeds from sales of equity securities | |
| 151 | | |
| 460 | |
Purchases of equity securities | |
| (213 | ) | |
| (950 | ) |
Net cash used for investing activities | |
| (62 | ) | |
| (490 | ) |
| |
| | | |
| | |
Cash Flows from Financing Activities: | |
| | | |
| | |
Proceeds from sale of treasury stock | |
| 1,064 | | |
| 885 | |
Proceeds from issuance of subordinated debt | |
| 19,600 | | |
| — | |
Dividend to bank subsidiary | |
| (17,000 | ) | |
| (3,500 | ) |
Treasury stock purchased | |
| (116 | ) | |
| (482 | ) |
Dividends paid | |
| (3,810 | ) | |
| (3,730 | ) |
Net cash used for financing activities | |
| (262 | ) | |
| (6,827 | ) |
| |
| | | |
| | |
Cash and Cash Equivalents: | |
| | | |
| | |
Net change in cash and cash equivalents | |
| 1,963 | | |
| (5,067 | ) |
Cash and cash equivalents at beginning of period | |
| 2,638 | | |
| 7,705 | |
Cash and cash equivalents at end of period | |
| 4,601 | | |
| 2,638 | |