Quarterly Report




 
 
 
 
 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q  
(Mark One )
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended June 30, 2017
 
or
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from _____________ to _____________
 
Commission File Number: 001-34527
 
EMCLAIRE FINANCIAL CORP
(Exact name of registrant as specified in its charter)
 
Pennsylvania
25-1606091
(State or other jurisdiction of incorporation or organization)
(IRS Employer Identification No.)
 
 
612 Main Street, Emlenton, Pennsylvania
16373
(Address of principal executive offices)
(Zip Code)
(844) 767-2311
(Registrant’s telephone number)
 
N/A
(Former name, former address and former fiscal year, if changed since last report)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes x No ¨
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes x  No ¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer ¨ Smaller reporting company x

Emerging growth company ¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).                            Yes ¨ No x
 
The number of shares outstanding of the Registrant’s common stock was 2,205,944 at August 14, 2017 .
 
 
 
 
 





EMCLAIRE FINANCIAL CORP
 
INDEX TO QUARTERLY REPORT ON FORM 10-Q
  
 
 
 
 
 
Item 1.
 
 
 
 
 
Consolidated Balance Sheets as of June 30, 2017 and December 31, 2016
 
 
 
 
Consolidated Statements of Net Income for the three and six months ended June 30, 2017 and 2016
 
 
 
 
Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2017 and 2016
 
 
 
 
Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2017 and 2016
 
 
 
 
Consolidated Statements of Changes in Stockholders’ Equity for the three and six months ended June 30, 2017 and 2016
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
 
 
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
Item 5.
 
 
 
Item 6.
 
 
 







PART I - FINANCIAL INFORMATION

Item 1. Interim Financial Statements

Emclaire Financial Corp
Consolidated Balance Sheets (Unaudited)
As of June 30, 2017 and December 31, 2016
(Dollar amounts in thousands, except share and per share data)
 
June 30,
2017
 
December 31,
2016
Assets
 

 
 

 
 
 
 
Cash and due from banks
$
2,455

 
$
2,758

Interest earning deposits with banks
32,260

 
14,810

Cash and cash equivalents
34,715

 
17,568

Securities available for sale
99,828

 
101,560

Loans held for sale

 
68

Loans receivable, net of allowance for loan losses of $5,767 and $5,545
545,766

 
515,435

Federal bank stocks, at cost
4,862

 
4,861

Bank-owned life insurance
11,555

 
11,390

Accrued interest receivable
1,827

 
1,815

Premises and equipment, net
17,908

 
18,282

Goodwill
10,288

 
10,288

Core deposit intangible, net
441

 
560

Prepaid expenses and other assets
9,675

 
10,308

 
 
 
 
Total Assets
$
736,865

 
$
692,135

 
 
 
 
Liabilities and Stockholders' Equity
 

 
 

 
 
 
 
Liabilities:
 

 
 

Deposits:
 

 
 

Non-interest bearing
$
129,230

 
$
123,717

Interest bearing
499,944

 
461,223

Total deposits
629,174

 
584,940

Short-term borrowed funds
2,500

 
9,500

Long-term borrowed funds
39,000

 
34,500

Accrued interest payable
359

 
239

Accrued expenses and other liabilities
9,185

 
8,883

 
 
 
 
Total Liabilities
680,218

 
638,062

 
 
 
 
Commitments and Contingent Liabilities

 

 
 
 
 
Stockholders' Equity:


 


Common stock, $1.25 par value, 12,000,000 shares authorized; 2,302,961 and 2,254,375 shares issued; 2,200,944 and 2,152,358 shares outstanding, respectively
2,879

 
2,818

Additional paid-in capital
29,211

 
27,900

Treasury stock, at cost; 102,017 shares
(2,114
)
 
(2,114
)
Retained earnings
30,790

 
29,960

Accumulated other comprehensive loss
(4,119
)
 
(4,491
)
 
 
 
 
Total Stockholders' Equity
56,647

 
54,073

 
 
 
 
Total Liabilities and Stockholders' Equity
$
736,865

 
$
692,135



 See accompanying notes to consolidated financial statements.

1





Emclaire Financial Corp
Consolidated Statements of Net Income (Unaudited)
For the three and six months ended June 30, 2017 and 2016
(Dollar amounts in thousands, except share and per share data) 
 
For the three months ended June 30,
 
For the six months ended June 30,
 
2017
 
2016
 
2017
 
2016
Interest and dividend income:
 

 
 

 
 

 
 

Loans receivable, including fees
$
5,801

 
$
5,185

 
$
11,367

 
$
9,887

Securities:
 

 
 

 
 

 
 

Taxable
392

 
441

 
787

 
874

Exempt from federal income tax
140

 
156

 
283

 
316

Federal bank stocks
61

 
52

 
115

 
87

Interest earning deposits with banks
38

 
43

 
53

 
62

Total interest and dividend income
6,432

 
5,877

 
12,605

 
11,226

 
 
 
 
 
 
 
 
Interest expense:
 

 
 

 
 

 
 

Deposits
749

 
721

 
1,452

 
1,309

Borrowed funds
318

 
296

 
632

 
540

Total interest expense
1,067

 
1,017

 
2,084

 
1,849

 
 
 
 
 
 
 
 
Net interest income
5,365

 
4,860

 
10,521

 
9,377

Provision for loan losses
201

 
121

 
363

 
302

 
 
 
 
 
 
 
 
Net interest income after provision for loan losses
5,164

 
4,739

 
10,158

 
9,075

 
 
 
 
 
 
 
 
Noninterest income:
 

 
 

 
 

 
 

Fees and service charges
435

 
386

 
842

 
731

Net gain on sales of available for sale securities
350

 
81

 
350

 
83

Net gain on sales of loans
124

 

 
130

 

Other-than-temporary impairment loss
(508
)
 

 
(508
)
 

Earnings on bank-owned life insurance
101

 
100

 
202

 
198

Other
366

 
375

 
707

 
710

Total noninterest income
868

 
942

 
1,723

 
1,722

 
 
 
 
 
 
 
 
Noninterest expense:
 

 
 

 
 

 
 

Compensation and employee benefits
2,347

 
2,177

 
4,670

 
4,225

Premises and equipment
726

 
692

 
1,484

 
1,378

Intangible asset amortization
59

 
56

 
119

 
105

Professional fees
216

 
190

 
417

 
373

Federal deposit insurance
102

 
89

 
210

 
182

Acquisition costs
106

 
92

 
107

 
401

Other
1,121

 
1,168

 
2,291

 
1,818

Total noninterest expense
4,677

 
4,464

 
9,298

 
8,482

 
 
 
 
 
 
 
 
Income before provision for income taxes
1,355

 
1,217

 
2,583

 
2,315

Provision for income taxes
314

 
287

 
586

 
583

 
 
 
 
 
 
 
 
Net income
$
1,041

 
$
930

 
$
1,997

 
$
1,732

 
 
 
 
 
 
 
 
Basic earnings per common share
$
0.48

 
$
0.43

 
$
0.93

 
$
0.81

Diluted earnings per common share
0.48

 
0.43

 
0.92

 
$
0.80

 
 
 
 
 
 
 
 
Average common shares outstanding - basic
2,164,747

 
2,146,160

 
2,158,587

 
2,145,484

Average common shares outstanding - diluted
2,182,761

 
2,156,378

 
2,175,523

 
2,154,708


 See accompanying notes to consolidated financial statements.

2



Emclaire Financial Corp
Consolidated Statements of Comprehensive Income (Unaudited)
For the three and six months ended June 30, 2017 and 2016
(Dollar amounts in thousands)
 
 
For the three months ended June 30,
 
For the six months ended June 30,
 
2017
 
2016
 
2017
 
2016
Net income
$
1,041

 
$
930

 
$
1,997

 
$
1,732

 
 
 
 
 
 
 
 
Other comprehensive income
 

 
 

 
 

 
 

Unrealized gains on securities:
 

 
 

 
 

 
 

Unrealized holding gain arising during the period
15

 
699

 
406

 
2,030

Reclassification adjustment for gains included in net income
(350
)
 
(81
)
 
(350
)
 
(83
)
Reclassification adjustment for other than temporary impairment losses included in net income
508

 

 
508

 

 
173

 
618

 
564

 
1,947

Tax effect
(59
)
 
(210
)
 
(192
)
 
(662
)
 
 
 
 
 
 
 
 
Net of tax
114

 
408

 
372

 
1,285

 
 
 
 
 
 
 
 
Comprehensive income
$
1,155

 
$
1,338

 
$
2,369

 
$
3,017

 
See accompanying notes to consolidated financial statements.

3





Emclaire Financial Corp
Condensed Consolidated Statements of Cash Flows (Unaudited)
For the six months ended June 30, 2017 and 2016
(Dollar amounts in thousands)
 
For the six months ended June 30,
 
2017
 
2016
Cash flows from operating activities
 

 
 

Net income
$
1,997

 
$
1,732

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

 
 

Depreciation and amortization
578

 
550

Provision for loan losses
363

 
302

Amortization of premiums, net
174

 
176

Amortization of intangible assets and mortgage servicing rights
143

 
115

Impairment loss on security recognized in earnings
508

 

Realized gains on sales of available for sale securities, net
(350
)
 
(83
)
Net gains on sales of loans
(130
)
 

Net gains on foreclosed real estate

 
(10
)
Loans originated for sale
(3,265
)
 

Proceeds from the sale of loans originated for sale
3,371

 

Stock compensation expense
110

 
111

Increase in bank-owned life insurance, net
(165
)
 
(165
)
Increase in accrued interest receivable
(12
)
 
(102
)
Decrease in prepaid expenses and other assets
332

 
75

Increase in accrued interest payable
120

 
46

Increase (decrease) in accrued expenses and other liabilities
302

 
(702
)
Net cash provided by operating activities
4,076

 
2,045

 
 
 
 
Cash flows from investing activities
 

 
 

Loan originations and principal collections, net
(32,600
)
 
3,604

Purchase of residential mortgage loans

 
(6,911
)
Proceeds from sales of loans held for sale previously classified as portfolio loans
1,817

 

Available for sale securities:
 

 
 

     Sales
18,195

 
6,118

     Maturities, repayments and calls
5,850

 
11,060

     Purchases
(21,939
)
 
(8,258
)
Net cash paid for acquisition

 
(3,309
)
Redemption (purchase) of federal bank stocks
(1
)
 
1,454

Proceeds from the sale of foreclosed real estate
124

 
171

Purchases of premises and equipment
(204
)
 
(392
)
Net cash provided by (used in) investing activities
(28,758
)
 
3,537

 
 
 
 
Cash flows from financing activities
 

 
 

Net increase in deposits
44,234

 
34,299

Repayments on long-term debt
(500
)
 
(5,000
)
Proceeds from other long-term debt
5,000

 
5,000

Net change in short-term borrowings
(7,000
)
 
(11,750
)
Proceeds from exercise of stock options
1,263

 

Dividends paid
(1,168
)
 
(1,116
)
Net cash provided by financing activities
41,829

 
21,433

 
 
 
 
Increase in cash and cash equivalents
17,147

 
27,015

Cash and cash equivalents at beginning of period
17,568

 
11,546

Cash and cash equivalents at end of period
$
34,715

 
$
38,561

 
 
 
 
Supplemental information:
 

 
 

Interest paid
$
1,964

 
$
942

Income taxes paid
575

 

 
 
 
 
Supplemental noncash disclosure:
 

 
 

Transfers from loans to foreclosed real estate
39

 
147

Transfers from portfolio loans to loans held for sale
1,725

 



See accompanying notes to consolidated financial statements.

4



Emclaire Financial Corp
Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)
For the three and six months ended June 30, 2017 and 2016
(Dollar amounts in thousands, except per share data)
 
 
For the three months ended June 30,
 
For the six months ended June 30,
 
2017
 
2016
 
2017
 
2016
 
 
 
 
 
 
 
 
Balance at beginning of period
$
54,761

 
$
54,007

 
$
54,073

 
$
52,839

 
 
 
 
 
 
 
 
Net income
1,041

 
930

 
1,997

 
1,732

 
 
 
 
 
 
 
 
Other comprehensive income
114

 
408

 
372

 
1,285

 
 
 
 
 
 
 
 
Stock compensation expense
55

 
64

 
110

 
111

 
 
 
 
 
 
 
 
Dividends declared on common stock
(587
)
 
(558
)
 
(1,168
)
 
(1,116
)
 
 
 
 
 
 
 
 
Exercise of stock options (48,586 shares)
1,263

 

 
1,263

 

 
 
 
 
 
 
 
 
Balance at end of period
$
56,647

 
$
54,851

 
$
56,647

 
$
54,851

 
 
 
 
 
 
 
 
Cash dividend per common share
$
0.27

 
$
0.26

 
$
0.54

 
$
0.52

 
See accompanying notes to consolidated financial statements.

5



Emclaire Financial Corp
Notes to Consolidated Financial Statements (Unaudited)

1.
Nature of Operations and Basis of Presentation

Emclaire Financial Corp (the Corporation) is a Pennsylvania corporation and the holding company of The Farmers National Bank of Emlenton (the Bank) and Emclaire Settlement Services, LLC (the Title Company). The Corporation provides a variety of financial services to individuals and businesses through its offices in Western Pennsylvania. Its primary deposit products are checking, savings and term certificate accounts and its primary lending products are residential and commercial mortgages, commercial business loans and consumer loans.
 
The consolidated financial statements include the accounts of the Corporation and its wholly owned subsidiaries, the Bank and the Title Company. All significant intercompany transactions and balances have been eliminated in preparing the consolidated financial statements.
 
The accompanying unaudited consolidated financial statements for the interim periods include all adjustments, consisting of normal recurring accruals, which are necessary, in the opinion of management, to fairly reflect the Corporation’s consolidated financial position and results of operations. Additionally, these consolidated financial statements for the interim periods have been prepared in accordance with instructions for the Securities and Exchange Commission’s (SEC’s) Form 10-Q and Article 10 of Regulation S-X and therefore do not include all information or footnotes necessary for a complete presentation of financial condition, results of operations and cash flows in conformity with accounting principles generally accepted in the United States of America (GAAP). For further information, refer to the audited consolidated financial statements and footnotes thereto for the year ended December 31, 2016 , as contained in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2016 filed with the SEC.
 
The balance sheet at December 31, 2016 has been derived from the audited financial statements at that date but does not include all the information and footnotes required by GAAP for complete financial statements.
 
The preparation of financial statements, in conformity with GAAP, requires management to make estimates and assumptions that affect the reported amounts in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. The results of operations for interim quarterly or year-to-date periods are not necessarily indicative of the results that may be expected for the entire year or any other period. Certain amounts previously reported may have been reclassified to conform to the current year’s financial statement presentation.

2.
Mergers and Acquisitions

On May 4, 2017, the Corporation and Northern Hancock Bank & Trust Co. (Northern Hancock) announced that they have entered into an Agreement and Plan of Merger providing for the acquisition of Northern Hancock by the Corporation. Northern Hancock is a West Virginia bank headquartered in Newall, West Virginia and operates two offices located in Hancock County, West Virginia.

Under the terms of the merger agreement, Northern Hancock will merge into the Bank and shareholders of Northern Hancock will receive 0.9793 of a share of the Corporation's common stock and $3.35 in cash for each share of common stock of Northern Hancock upon completion of the merger or approximately $1.7 million of stock and $200,000 in cash in the aggregate. The merger is expected to be completed in the third quarter of 2017, subject to the satisfaction of customary closing conditions, including regulatory approval and the approval of the shareholders of Northern Hancock.



6



3.
Earnings per Common Share

Basic earnings per common share (EPS) excludes dilution and is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted EPS includes the dilutive effect of additional potential common shares for assumed issuance of restricted stock and shares issued under stock options.

The factors used in the Corporation’s earnings per common share computation follow:
 
(Dollar amounts in thousands, except for per share amounts)
For the three months ended June 30,
 
For the six months ended June 30,
 
2017
 
2016
 
2017
 
2016
Earnings per common share - basic
 

 
 

 
 

 
 

 
 
 
 
 
 
 
 
Net income
$
1,041

 
$
930

 
$
1,997

 
$
1,732

 
 
 
 
 
 
 
 
Average common shares outstanding
2,164,747

 
2,146,160

 
2,158,587

 
2,145,484

 
 
 
 
 
 
 
 
Basic earnings per common share
$
0.48

 
$
0.43

 
$
0.93

 
$
0.81

 
 
 
 
 
 
 
 
Earnings per common share - diluted
 

 
 

 
 

 
 

 
 
 
 
 
 
 
 
Net income
$
1,041

 
$
930

 
$
1,997

 
$
1,732

 
 
 
 
 
 
 
 
Average common shares outstanding
2,164,747

 
2,146,160

 
2,158,587

 
2,145,484

Add: Dilutive effects of assumed issuance of restricted stock and exercise of stock options
18,014

 
10,218

 
16,936

 
9,224

 
 
 
 
 
 
 
 
Average shares and dilutive potential common shares
2,182,761

 
2,156,378

 
2,175,523

 
2,154,708

 
 
 
 
 
 
 
 
Diluted earnings per common share
$
0.48

 
$
0.43

 
$
0.92

 
$
0.80

 
 
 
 
 
 
 
 
Stock options not considered in computing earnings per share because they were antidilutive

 
67,000

 

 
67,000

 
 
 
 
 
 
 
 


7



4.
Securities

The following table summarizes the Corporation’s securities as of June 30, 2017 and December 31, 2016 :
 
(Dollar amounts in thousands)
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
Available for sale:
 

 
 

 
 

 
 

June 30, 2017:
 

 
 

 
 

 
 

U.S. Treasury and federal agency
$
4,545

 
$

 
$
(27
)
 
$
4,518

U.S. government sponsored entities and agencies
12,151

 
3

 
(111
)
 
12,043

U.S. agency mortgage-backed securities: residential
22,303

 
33

 
(94
)
 
22,242

U.S. agency collateralized mortgage obligations: residential
24,538

 
28

 
(564
)
 
24,002

State and political subdivisions
25,662

 
150

 
(31
)
 
25,781

Corporate debt securities
9,512

 
28

 
(20
)
 
9,520

Equity securities
1,580

 
160

 
(18
)
 
1,722

 
$
100,291

 
$
402

 
$
(865
)
 
$
99,828

December 31, 2016:
 

 
 

 
 

 
 

U.S. Treasury and federal agency
4,550

 

 
(50
)
 
4,500

U.S. government sponsored entities and agencies
9,186

 

 
(188
)
 
8,998

U.S. agency mortgage-backed securities: residential
25,790

 
32

 
(196
)
 
25,626

U.S. agency collateralized mortgage obligations: residential
25,367

 
23

 
(684
)
 
24,706

State and political subdivisions
27,853

 
17

 
(262
)
 
27,608

Corporate debt securities
8,012

 
5

 
(85
)
 
7,932

Equity securities
1,829

 
373

 
(12
)
 
2,190

 
$
102,587

 
$
450

 
$
(1,477
)
 
$
101,560

 
 
 
 
 
 
 
 
 
The following table summarizes scheduled maturities of the Corporation’s debt securities as of June 30, 2017 . Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties. Mortgage-backed securities and collateralized mortgage obligations are not due at a single maturity and are shown separately.
 
(Dollar amounts in thousands)
Available for sale
 
Amortized
Cost
 
Fair
Value
Due in one year or less
$
3,158

 
$
3,155

Due after one year through five years
27,945

 
27,873

Due after five through ten years
19,756

 
19,835

Due after ten years
1,011

 
999

Mortgage-backed securities: residential
22,303

 
22,242

Collateralized mortgage obligations: residential
24,538

 
24,002

 
$
98,711

 
$
98,106

 
 
 
 
 

8



4.
Securities (continued)

Information pertaining to securities with gross unrealized losses at June 30, 2017 and December 31, 2016 , aggregated by investment category and length of time that individual securities have been in a continuous loss position are included in the table below:

(Dollar amounts in thousands)
 
Less than 12 Months
 
12 Months or More
 
Total
Description of Securities
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
June 30, 2017:
 
 

 
 

 
 

 
 

 
 

 
 

U.S. Treasury and federal agency
 
$
4,518

 
$
(27
)
 
$

 
$

 
$
4,518

 
$
(27
)
U.S. government sponsored entities and agencies
 
9,054

 
(111
)
 

 

 
9,054

 
(111
)
U.S. agency mortgage-backed securities: residential
 
11,446

 
(94
)
 

 

 
11,446

 
(94
)
U.S. agency collateralized mortgage obligations: residential
 
9,481

 
(184
)
 
12,694

 
(380
)
 
22,175

 
(564
)
State and political subdivisions
 
3,863

 
(28
)
 
347

 
(3
)
 
4,210

 
(31
)
Corporate debt securities
 
4,995

 
(20
)
 

 

 
4,995

 
(20
)
Equity securities
 

 

 
231

 
(18
)
 
231

 
(18
)
 
 
$
43,357

 
$
(464
)
 
$
13,272

 
$
(401
)
 
$
56,629

 
$
(865
)
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2016:
 
 

 
 

 
 

 
 

 
 

 
 

U.S. Treasury and federal agency
 
$
4,500

 
$
(50
)
 
$

 
$

 
$
4,500

 
$
(50
)
U.S. government sponsored entities and agencies
 
8,998

 
(188
)
 

 

 
8,998

 
(188
)
U.S. agency mortgage-backed securities: residential
 
23,279

 
(196
)
 

 

 
23,279

 
(196
)
U.S. agency collateralized mortgage obligations: residential
 
13,568

 
(438
)
 
9,317

 
(246
)
 
22,885

 
(684
)
State and political subdivisions
 
21,924

 
(262
)
 

 

 
21,924

 
(262
)
Corporate debt securities
 
3,927

 
(85
)
 

 

 
3,927

 
(85
)
Equity securities
 

 

 
237

 
(12
)
 
237

 
(12
)
 
 
$
76,196

 
$
(1,219
)
 
$
9,554

 
$
(258
)
 
$
85,750

 
$
(1,477
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gains on sales of available for sale securities for the three and six months ended June 30 were as follows:
(Dollar amounts in thousands)
For the three months
ended June 30,
 
For the six months ended June 30,
 
2017
 
2016
 
2017
 
2016
Proceeds
$
18,195

 
$
2,439

 
$
18,195

 
$
6,118

Gains
350

 
81

 
350

 
83

Tax provision related to gains
119

 
28

 
119

 
28

 
 
 
 
 
 
 
 
 
Management evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic, market or other conditions warrant such evaluation. Consideration is given to: (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, (3) whether the market decline was affected by macroeconomic conditions and (4) whether the Corporation has the intent to sell the security or more likely than not will be required to sell the security before recovery of its amortized cost basis. If the Corporation intends to sell an impaired security, or if it is more likely than not the Corporation will be required to sell the security before its anticipated recovery, the Corporation records an other-than-temporary loss in an amount equal to the entire difference between fair value and amortized cost. Otherwise, only the credit portion of the estimated loss on debt securities is recognized in earnings, with the other portion of the loss recognized in other comprehensive income. For equity securities determined to be other-than-temporarily impaired, the entire amount of impairment is recognized through earnings.
 

9



4.
Securities (continued)

There was one equity security in an unrealized loss position for more than 12 months as of June 30, 2017 . Equity securities owned by the Corporation consist of common stock of various financial service providers. This investment security is in an unrealized loss position as a result of the illiquid nature of the stock. The Corporation does not invest in these securities with the intent to sell them for a profit in the near term. For investments in equity securities, in addition to the general factors mentioned above for determining whether the decline in market value is other-than-temporary, the analysis of whether an equity security is other-than-temporarily impaired includes a review of the profitability, capital adequacy and other relevant information available to determine the financial position and near term prospects of each issuer. The results of analyzing the aforementioned metrics and financial fundamentals suggest recovery of amortized cost in the near future. Based on that evaluation, and given that the Corporation’s current intention is not to sell any impaired security and it is more likely than not it will not be required to sell this security before the recovery of its amortized cost basis, the Corporation does not consider the equity security with an unrealized loss as of June 30, 2017 to be other-than-temporarily impaired.
 
During the three months ended June 30, 2017, management determined that an other-than-temporary impairment existed on a corporate debt security due to deterioration in the credit quality of the issuer that would likely result in the non-collection of contractual principal and interest. This security was written down to its fair market value and the resulting impairment loss of $508,000 was recognized in earnings during the quarter ended June 30, 2017.

After recognizing the aforementioned impairment, there were 69 debt securities in an unrealized loss position as of June 30, 2017 , of which 14 were in an unrealized loss position for more than 12 months. Of these 69 securities, 25 were government-backed collateralized mortgage obligations, 12 were state and political subdivision securities, 10 were corporate securities, 9 were mortgage-backed securities, 8 were U.S. government sponsored entity and agency securities and 5 were U.S. Treasury securities. The unrealized losses associated with these securities were not due to the deterioration in the credit quality of the issuer that would likely result in the non-collection of contractual principal and interest, but rather have been caused by a rise in interest rates from the time the securities were purchased. Based on that evaluation and other general considerations, and given that the Corporation’s current intention is not to sell any impaired securities and it is more likely than not it will not be required to sell these securities before the recovery of its amortized cost basis, the Corporation does not consider these debt securities with unrealized losses as of June 30, 2017 to be other-than-temporarily impaired.



10



5.
Loans Receivable and Related Allowance for Loan Losses

The Corporation’s loans receivable as of the respective dates are summarized as follows:
(Dollar amounts in thousands)
June 30,
2017
 
December 31,
2016
Mortgage loans on real estate:
 

 
 

Residential first mortgages
$
214,905

 
$
198,167

Home equity loans and lines of credit
90,736

 
91,359

Commercial real estate
179,891

 
166,994

 
485,532

 
456,520

Other loans:
 

 
 

Commercial business
58,797

 
57,788

Consumer
7,204

 
6,672

 
66,001

 
64,460

 
 
 
 
Total loans, gross
551,533

 
520,980

 
 
 
 
Less allowance for loan losses
5,767

 
5,545

 
 
 
 
Total loans, net
$
545,766

 
$
515,435

 
 
 
 
 
During the quarter ended June 30, 2017, the Corporation sold $1.1 million of residential mortgage loans that were previously classified as held for investment.

Included in total loans above are net deferred costs of $1.4 million and $1.3 million at June 30, 2017 and December 31, 2016 , respectively.
 
An allowance for loan losses (ALL) is maintained to absorb probable incurred losses from the loan portfolio. The ALL is based on management’s continuing evaluation of the risk characteristics and credit quality of the loan portfolio, assessment of current economic conditions, diversification and size of the portfolio, adequacy of collateral, past and anticipated loss experience and the amount of nonperforming loans.
 
Management reviews the loan portfolio on a quarterly basis using a defined, consistently applied process in order to make appropriate and timely adjustments to the ALL. When information confirms all or part of specific loans to be uncollectible, these amounts are promptly charged off against the ALL.

The allowance for loan losses is based on estimates and actual losses may vary from current estimates. Management believes that the granularity of the homogeneous pools and the related historical loss ratios and other qualitative factors, as well as the consistency in the application of assumptions, result in an ALL that is representative of the risk found in the components of the portfolio at any given date.
 
At June 30, 2017 , there was no allowance for loan losses allocated to loans acquired in the April 2016 merger with United American Savings Bank.
 


11




5.
Loans Receivable and Related Allowance for Loan Losses (continued)

The following table details activity in the ALL and the recorded investment by portfolio segment based on impairment method:
(Dollar amounts in thousands)
Residential
Mortgages
 
Home
Equity
& Lines
of Credit
 
Commercial
Real Estate
 
Commercial
Business
 
Consumer
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
Three months ended June 30, 2017:
 

 
 

 
 

 
 

 
 

 
 

Allowance for loan losses:
 

 
 

 
 

 
 

 
 

 
 

Beginning Balance
$
1,956

 
$
648

 
$
2,449

 
$
583

 
$
52

 
$
5,688

Charge-offs
(10
)
 
(10
)
 
(90
)
 
(10
)
 
(8
)
 
(128
)
Recoveries

 
1

 
2

 

 
3

 
6

Provision
48

 

 
99

 
48

 
6

 
201

 
 
 
 
 
 
 
 
 
 
 
 
Ending Balance
$
1,994

 
$
639

 
$
2,460

 
$
621

 
$
53

 
$
5,767

 
 
 
 
 
 
 
 
 
 
 
 
Six months ended June 30, 2017:
 

 
 

 
 

 
 

 
 

 
 

Allowance for loan losses:
 

 
 

 
 

 
 

 
 

 
 

Beginning Balance
$
1,846

 
$
633

 
$
2,314

 
$
700

 
$
52

 
$
5,545

Charge-offs
(36
)
 
(11
)
 
(90
)
 
(10
)
 
(27
)
 
(174
)
Recoveries

 
20

 
4

 

 
9

 
33

Provision
184

 
(3
)
 
232

 
(69
)
 
19

 
363

 
 
 
 
 
 
 
 
 
 
 
 
Ending Balance
$
1,994

 
$
639

 
$
2,460

 
$
621

 
$
53

 
$
5,767

 
 
 
 
 
 
 
 
 
 
 
 
At June 30, 2017:
 

 
 

 
 

 
 

 
 

 
 

Ending ALL balance attributable to loans:
 

 
 

 
 

 
 

 
 

 
 

Individually evaluated for impairment
$
8

 
$

 
$

 
$

 
$

 
$
8

Acquired loans collectively evaluated for impairment

 

 

 

 

 

Originated loans collectively evaluated for impairment
1,986

 
639

 
2,460

 
621

 
53

 
5,759

 
 
 
 
 
 
 
 
 
 
 
 
Total
$
1,994

 
$
639

 
$
2,460

 
$
621

 
$
53

 
$
5,767

 
 
 
 
 
 
 
 
 
 
 
 
Total loans:
 

 
 

 
 

 
 

 
 

 
 

Individually evaluated for impairment
$
442

 
$

 
$
975

 
$
600

 
$

 
$
2,017

Acquired loans collectively evaluated for impairment
21,849

 
4,324

 
24,486

 
1,038

 

 
51,697

Originated loans collectively evaluated for impairment
192,614

 
86,412

 
154,430

 
57,159

 
7,204

 
497,819

 
 
 
 
 
 
 
 
 
 
 
 
Total
$
214,905

 
$
90,736

 
$
179,891

 
$
58,797

 
$
7,204

 
$
551,533

 
 
 
 
 
 
 
 
 
 
 
 
At December 31, 2016:
 

 
 

 
 

 
 

 
 

 
 

Ending ALL balance attributable to loans:
 

 
 

 
 

 
 

 
 

 
 

Individually evaluated for impairment
$
19

 
$

 
$
95

 
$
6

 
$

 
$
120

Acquired loans collectively evaluated for impairment

 

 

 

 

 

Originated loans collectively evaluated for impairment
1,827

 
633

 
2,219

 
694

 
52

 
5,425

 
 
 
 
 
 
 
 
 
 
 
 
Total
$
1,846

 
$
633

 
$
2,314

 
$
700

 
$
52

 
$
5,545

 
 
 
 
 
 
 
 
 
 
 
 
Total loans:
 

 
 

 
 

 
 

 
 

 
 

Individually evaluated for impairment
$
135

 
$

 
$
1,014

 
$
684

 
$

 
$
1,833

Acquired loans collectively evaluated for impairment
25,024

 
5,225

 
27,492

 
1,182

 
13

 
58,936

Originated loans collectively evaluated for impairment
173,008

 
86,134

 
138,488

 
55,922

 
6,659

 
460,211

 
 
 
 
 
 
 
 
 
 
 
 
Total
$
198,167

 
$
91,359

 
$
166,994

 
$
57,788

 
$
6,672

 
$
520,980

 
 
 
 
 
 
 
 
 
 
 
 
Three months ended June 30, 2016:
 

 
 

 
 

 
 

 
 

 
 

Allowance for loan losses:
 

 
 

 
 

 
 

 
 

 
 

Beginning Balance
$
1,577

 
$
636

 
$
1,926

 
$
1,162

 
$
51

 
$
5,352

Charge-offs
(8
)
 
(33
)
 

 

 
(6
)
 
(47
)
Recoveries

 
1

 
3

 

 
1

 
5

Provision
127

 
41

 
189

 
(242
)
 
6

 
121

 
 
 
 
 
 
 
 
 
 
 
 
Ending Balance
$
1,696

 
$
645

 
$
2,118

 
$
920

 
$
52

 
$
5,431

 
 
 
 
 
 
 
 
 
 
 
 
Six months ended June 30, 2016:
 

 
 

 
 

 
 

 
 

 
 

Allowance for loan losses:
 

 
 

 
 

 
 

 
 

 
 

Beginning Balance
$
1,429

 
$
586

 
$
2,185

 
$
960

 
$
45

 
$
5,205

Charge-offs
(40
)
 
(33
)
 

 

 
(15
)
 
(88
)
Recoveries

 
1

 
7

 

 
4

 
12

Provision
307

 
91

 
(74
)
 
(40
)
 
18

 
302

 
 
 
 
 
 
 
 
 
 
 
 
Ending Balance
$
1,696

 
$
645

 
$
2,118

 
$
920

 
$
52

 
$
5,431