Notes to Consolidated Financial Statements
Note 1. General
In the opinion of management, the accompanying unaudited financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial position at
March 31, 2016
and
December 31, 2015
, the results of operations, comprehensive income, for the three month periods ending March 31, 2016 and 2015 and changes in shareholders' equity and cash flows for the three months ended
March 31, 2016
and
2015
, in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"). The statements should be read in conjunction with the Notes to Consolidated Financial Statements included in the Annual Report on Form 10-K for the year ended
December 31, 2015
(the “
2015
Form 10-K”) of Middleburg Financial Corporation (the “Company”). The results of operations for the
three
months ended
March 31, 2016
are not necessarily indicative of the results to be expected for the full year.
In preparing these financial statements, management has evaluated subsequent events and transactions for potential recognition or disclosure through the date these financial statements were issued. Management has concluded there were no additional material subsequent events to be disclosed.
Certain amounts in the 2015 consolidated financial statements have been reclassified to conform to the 2016 presentation. No reclassifications were significant and there was no effect on net income.
Note 2. Share-Based Compensation Plan
The Company sponsors
one
share-based compensation plan, the 2006 Equity Compensation Plan, which provides for the granting of stock options, stock appreciation rights, stock awards, performance share awards, incentive awards, and stock units. The 2006 Equity Compensation Plan was approved by the Company’s shareholders at the Annual Meeting held on April 26, 2006, and has succeeded the Company’s 1997 Stock Incentive Plan. Under the plan, the Company may grant share-based compensation to its directors, officers, employees, and other persons the Company determines have contributed to the profits or growth of the Company. The number of shares reserved for issuance total
430,000
shares.
For the three months ended March 31, 2016 and 2015, the Company recorded
$189,000
and
$130,000
, respectively, in share-based compensation expense. As of
March 31, 2016
, there was
$2.4 million
of total unrecognized compensation expense related to non-vested restricted awards under the 2006 Equity Compensation Plan. For the three months ended March 31, 2016, the Company recorded
no
compensation expense related to option awards. As of
March 31, 2016
all outstanding option awards were previously vested and, accordingly, there was
no
unrecognized compensation expense as of
March 31, 2016
.
The aggregate intrinsic value, noted in the option table below, represents the amount by which the current market value of the underlying stock exceeds the exercise price as of
March 31, 2016
. Given there is no exercise price for restricted stock, the aggregate value is equal to the current market value of the stock. These amounts change based on changes in the market value of the Company’s common stock.
The following table summarizes restricted stock awarded under the 2006 Equity Compensation Plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
Shares
|
|
Weighted-Average Grant Date Fair Value
|
|
Aggregate Value
(in thousands)
|
Non-vested at December 31, 2015
|
153,399
|
|
|
$
|
17.17
|
|
|
|
Granted
|
53,500
|
|
|
20.76
|
|
|
|
Vested
|
(29,125
|
)
|
|
16.17
|
|
|
|
Forfeited
|
—
|
|
|
—
|
|
|
|
Non-vested at March 31, 2016
|
177,774
|
|
|
$
|
18.41
|
|
|
$
|
3,840
|
|
The weighted-average remaining contractual term for non-vested restricted stock awards at
March 31, 2016
, was
3.03
years.
The following table summarizes options outstanding under the 2006 Equity Compensation Plan and remaining outstanding unexercised options under the 1997 Stock Incentive Plan.
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
Shares
|
|
Weighted-Average Exercise Price
|
|
Aggregate Intrinsic Value
(in thousands)
|
Outstanding at December 31, 2015
|
30,012
|
|
|
$
|
14.00
|
|
|
$
|
—
|
|
Granted
|
—
|
|
|
—
|
|
|
—
|
|
Exercised
|
—
|
|
|
—
|
|
|
—
|
|
Forfeited
|
—
|
|
|
—
|
|
|
—
|
|
Outstanding at March 31, 2016
|
30,012
|
|
|
$
|
14.00
|
|
|
$
|
228
|
|
Options exercisable at March 31, 2016
|
30,012
|
|
|
$
|
14.00
|
|
|
$
|
228
|
|
As of
March 31, 2016
, options outstanding and exercisable are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Exercise Prices
|
|
Options Outstanding
|
|
Weighted-Average Remaining Contractual Life (years)
|
|
Options Exercisable
|
$
|
14.00
|
|
|
25,012
|
|
|
2.95
|
|
25,012
|
|
$
|
14.00
|
|
|
5,000
|
|
|
3.59
|
|
5,000
|
|
$
|
14.00
|
|
|
30,012
|
|
|
3.06
|
|
30,012
|
|
Note 3. Securities
Amortized costs and fair values of securities held to maturity are summarized as follows.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
(Dollars in thousands)
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Fair
Value
|
Held to Maturity
|
|
|
|
|
|
|
|
Obligations of states and political subdivisions
|
$
|
6,477
|
|
|
$
|
—
|
|
|
$
|
(35
|
)
|
|
$
|
6,442
|
|
Corporate securities
|
2,750
|
|
|
17
|
|
|
—
|
|
|
2,767
|
|
Total
|
$
|
9,227
|
|
|
$
|
17
|
|
|
$
|
(35
|
)
|
|
$
|
9,209
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
(Dollars in thousands)
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Fair
Value
|
Held to Maturity
|
|
|
|
|
|
|
|
Obligations of states and political subdivisions
|
$
|
1,457
|
|
|
$
|
—
|
|
|
$
|
(38
|
)
|
|
$
|
1,419
|
|
Corporate securities
|
2,750
|
|
|
24
|
|
|
(30
|
)
|
|
2,744
|
|
Total
|
$
|
4,207
|
|
|
$
|
24
|
|
|
$
|
(68
|
)
|
|
$
|
4,163
|
|
The amortized cost and fair value of securities held to maturity as of
March 31, 2016
, by contractual maturity are shown below.
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
(Dollars in thousands)
|
Amortized
Cost
|
|
Fair
Value
|
Held to Maturity
|
|
|
|
Due after five years through ten years
|
$
|
2,750
|
|
|
$
|
2,767
|
|
Due after ten years
|
6,477
|
|
|
6,442
|
|
Total
|
$
|
9,227
|
|
|
$
|
9,209
|
|
Amortized costs and fair values of securities available for sale are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
(Dollars in thousands)
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Fair
Value
|
Available for Sale
|
|
|
|
|
|
|
|
U.S. government agencies
|
$
|
79,817
|
|
|
$
|
1,062
|
|
|
$
|
(93
|
)
|
|
$
|
80,786
|
|
Obligations of states and political subdivisions
|
68,920
|
|
|
2,021
|
|
|
(355
|
)
|
|
70,586
|
|
Mortgage-backed securities:
|
|
|
|
|
|
|
|
Agency
|
135,239
|
|
|
3,940
|
|
|
(621
|
)
|
|
138,558
|
|
Non-agency
|
12,062
|
|
|
94
|
|
|
(59
|
)
|
|
12,097
|
|
Other asset backed securities
|
59,584
|
|
|
405
|
|
|
(893
|
)
|
|
59,096
|
|
Corporate securities
|
16,688
|
|
|
16
|
|
|
(802
|
)
|
|
15,902
|
|
Total
|
$
|
372,310
|
|
|
$
|
7,538
|
|
|
$
|
(2,823
|
)
|
|
$
|
377,025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
(Dollars in thousands)
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Fair
Value
|
Available for Sale
|
|
|
|
|
|
|
|
U.S. government agencies
|
$
|
79,005
|
|
|
$
|
315
|
|
|
$
|
(380
|
)
|
|
$
|
78,940
|
|
Obligations of states and political subdivisions
|
74,071
|
|
|
1,956
|
|
|
(434
|
)
|
|
75,593
|
|
Mortgage-backed securities:
|
|
|
|
|
|
|
|
|
Agency
|
129,360
|
|
|
3,046
|
|
|
(745
|
)
|
|
131,661
|
|
Non-agency
|
12,782
|
|
|
33
|
|
|
(38
|
)
|
|
12,777
|
|
Other asset backed securities
|
58,958
|
|
|
426
|
|
|
(603
|
)
|
|
58,781
|
|
Corporate securities
|
17,557
|
|
|
22
|
|
|
(760
|
)
|
|
16,819
|
|
Total
|
$
|
371,733
|
|
|
$
|
5,798
|
|
|
$
|
(2,960
|
)
|
|
$
|
374,571
|
|
The amortized cost and fair value of securities available for sale as of
March 31, 2016
, by contractual maturity are shown below. Maturities may differ from contractual maturities in corporate and mortgage-backed securities because the securities and mortgages underlying the securities may be called or repaid without any penalties. Therefore, these securities are not included in the maturity categories in the following maturity summary.
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
(Dollars in thousands)
|
Amortized
Cost
|
|
Fair
Value
|
Due in one year or less
|
$
|
482
|
|
|
$
|
482
|
|
Due after one year through five years
|
10,142
|
|
|
10,412
|
|
Due after five years through ten years
|
25,249
|
|
|
24,994
|
|
Due after ten years
|
129,552
|
|
|
131,386
|
|
Mortgage-backed securities
|
147,301
|
|
|
150,655
|
|
Other asset backed securities
|
59,584
|
|
|
59,096
|
|
Total
|
$
|
372,310
|
|
|
$
|
377,025
|
|
Proceeds from calls, principal repayments and sales of securities available for sale during the three months ended
March 31, 2016
, and 2015 were
$31.3 million
and
$28.6 million
, respectively. For the three months ended March 31, 2016 and 2015, gross gains of
$171,000
and
$118,000
and gross losses of
$8,000
and
$17,000
, respectively, were realized. The tax expense applicable to these net realized gains amounted to
$55,000
and
$34,000
for the three months ended March 31, 2016 and 2015, respectively.
The carrying value of securities pledged to qualify for fiduciary powers, to secure public monies and for other purposes as required by law amounted to
$112.8 million
and
$113.1 million
at
March 31, 2016
and
December 31, 2015
, respectively.
Investments in an unrealized loss position that are temporarily impaired are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Less than Twelve Months
|
|
Twelve Months or Greater
|
|
Total
|
March 31, 2016
|
|
Fair Value
|
|
Gross
Unrealized Losses
|
|
Fair Value
|
|
Gross
Unrealized Losses
|
|
Fair Value
|
|
Gross
Unrealized Losses
|
Held to Maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of states and political subdivisions
|
|
$
|
1,422
|
|
|
$
|
(35
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,422
|
|
|
$
|
(35
|
)
|
Total
|
|
$
|
1,422
|
|
|
$
|
(35
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,422
|
|
|
$
|
(35
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for Sale
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agencies
|
|
$
|
11,671
|
|
|
$
|
(68
|
)
|
|
$
|
2,840
|
|
|
$
|
(25
|
)
|
|
$
|
14,511
|
|
|
$
|
(93
|
)
|
Obligations of states and political subdivisions
|
|
4,641
|
|
|
(50
|
)
|
|
6,589
|
|
|
(305
|
)
|
|
11,230
|
|
|
(355
|
)
|
Mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency
|
|
17,296
|
|
|
(186
|
)
|
|
10,814
|
|
|
(435
|
)
|
|
28,110
|
|
|
(621
|
)
|
Non-agency
|
|
2,069
|
|
|
(26
|
)
|
|
999
|
|
|
(33
|
)
|
|
3,068
|
|
|
(59
|
)
|
Other asset backed securities
|
|
30,654
|
|
|
(541
|
)
|
|
14,004
|
|
|
(352
|
)
|
|
44,658
|
|
|
(893
|
)
|
Corporate securities
|
|
1,450
|
|
|
(100
|
)
|
|
11,110
|
|
|
(702
|
)
|
|
12,560
|
|
|
(802
|
)
|
Total
|
|
$
|
67,781
|
|
|
$
|
(971
|
)
|
|
$
|
46,356
|
|
|
$
|
(1,852
|
)
|
|
$
|
114,137
|
|
|
$
|
(2,823
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Less than Twelve Months
|
|
Twelve Months or Greater
|
|
Total
|
December 31, 2015
|
|
Fair Value
|
|
Gross Unrealized Losses
|
|
Fair Value
|
|
Gross Unrealized Losses
|
|
Fair Value
|
|
Gross Unrealized Losses
|
Held to Maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of states and political subdivisions
|
|
$
|
1,419
|
|
|
$
|
(38
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,419
|
|
|
$
|
(38
|
)
|
Corporate securities
|
|
1,970
|
|
|
(30
|
)
|
|
—
|
|
|
—
|
|
|
1,970
|
|
|
(30
|
)
|
Total
|
|
$
|
3,389
|
|
|
$
|
(68
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,389
|
|
|
$
|
(68
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for Sale
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agencies
|
|
$
|
46,000
|
|
|
$
|
(304
|
)
|
|
$
|
4,223
|
|
|
$
|
(76
|
)
|
|
$
|
50,223
|
|
|
$
|
(380
|
)
|
Obligations of states and political subdivisions
|
|
16,559
|
|
|
(324
|
)
|
|
1,082
|
|
|
(110
|
)
|
|
17,641
|
|
|
(434
|
)
|
Mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency
|
|
27,627
|
|
|
(402
|
)
|
|
9,911
|
|
|
(343
|
)
|
|
37,538
|
|
|
(745
|
)
|
Non-agency
|
|
7,842
|
|
|
(37
|
)
|
|
671
|
|
|
(1
|
)
|
|
8,513
|
|
|
(38
|
)
|
Other asset backed securities
|
|
25,399
|
|
|
(276
|
)
|
|
12,037
|
|
|
(327
|
)
|
|
37,436
|
|
|
(603
|
)
|
Corporate securities
|
|
10,740
|
|
|
(378
|
)
|
|
4,866
|
|
|
(382
|
)
|
|
15,606
|
|
|
(760
|
)
|
Total
|
|
$
|
134,167
|
|
|
$
|
(1,721
|
)
|
|
$
|
32,790
|
|
|
$
|
(1,239
|
)
|
|
$
|
166,957
|
|
|
$
|
(2,960
|
)
|
A total of
137
securities have been identified by the Company as temporarily impaired at
March 31, 2016
. Of the
137
securities,
133
are investment grade and
four
are speculative grade. Mortgage-backed securities, other asset backed securities and corporate securities make up the majority of the gross unrealized losses for temporarily impaired securities at
March 31, 2016
. Market prices change daily and are affected by conditions beyond the control of the Company. Although the Company has the ability to hold these securities until the temporary loss is recovered, decisions by management may necessitate a sale before the loss is fully recovered.
No
such sales were anticipated or required as of
March 31, 2016
. Investment decisions reflect the strategic asset/liability objectives of the Company. The investment portfolio is analyzed frequently by the Company and managed to provide an overall positive impact to the Company’s consolidated income statement and balance sheet.
At
March 31, 2016
, the Company evaluated the investment portfolio for possible other-than-temporary impairment losses and concluded that no adverse change in cash flows occurred and did not consider any portfolio securities to be other-than-temporarily impaired. Based on this analysis and because the Company does not intend to sell securities prior to maturity and it is more likely
than not the Company will not be required to sell any securities before recovery of amortized cost basis, which may be at maturity. For debt securities related to corporate securities, the Company determined that there was no other adverse change in the cash flows as viewed by a market participant; therefore, the Company does not consider the investments in these assets to be other-than-temporarily impaired at
March 31, 2016
. However, there is a risk that the Company’s continuing reviews could result in recognition of other-than-temporary impairment charges in the future. For the three months ended
March 31, 2016
and the year ended
December 31, 2015
,
no
credit related impairment losses were recognized by the Company.
Restricted securities
The Company’s investment in FHLB stock totaled
$5.2 million
and
$4.7 million
at
March 31, 2016
and
December 31, 2015
, respectively. FHLB stock is generally viewed as a long-term investment and as a restricted security which is carried at cost because there is no market for the stock other than the FHLB or member institutions. Therefore, when evaluating FHLB stock for impairment, its value is based on the ultimate recoverability of the par value rather than by recognizing temporary declines in value. The Company does not consider this investment to be other-than-temporarily impaired at
March 31, 2016
, and no impairment has been recognized. FHLB stock is shown in restricted securities on the consolidated balance sheets.
The Company also has an investment in Federal Reserve Bank (“FRB”) stock which totaled
$1.7 million
at
March 31, 2016
and December 31, 2015, respectively. The investment in FRB stock is a required investment and is carried at cost since there is no ready market. The Company does not consider this investment to be other-than-temporarily impaired at
March 31, 2016
, and no impairment has been recognized. FRB stock is shown in restricted securities on the consolidated balance sheets.
Note 4. Loans, Net
The Company segregates its loan portfolio into
three
primary loan segments: Real Estate Loans, Commercial Loans, and Consumer Loans. Real estate loans are further segregated into the following classes: construction loans, loans secured by farmland, loans secured by 1-4 family residential real estate, and other real estate loans. Other real estate loans include commercial real estate loans. The consolidated loan portfolio was composed of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
December 31, 2015
|
(Dollars in thousands)
|
Outstanding
Balance
|
|
Percent of
Total Portfolio
|
|
Outstanding
Balance
|
|
Percent of
Total Portfolio
|
Real estate loans:
|
|
|
|
|
|
|
|
Construction
|
$
|
43,254
|
|
|
5.3
|
%
|
|
$
|
39,673
|
|
|
4.9
|
%
|
Secured by farmland
|
18,945
|
|
|
2.3
|
|
|
19,062
|
|
|
2.4
|
|
Secured by 1-4 family residential
|
288,855
|
|
|
35.0
|
|
|
280,096
|
|
|
34.8
|
|
Other real estate loans
|
264,456
|
|
|
32.1
|
|
|
258,035
|
|
|
32.0
|
|
Commercial loans
|
189,945
|
|
|
23.0
|
|
|
190,482
|
|
|
23.6
|
|
Consumer loans
|
19,096
|
|
|
2.3
|
|
|
18,333
|
|
|
2.3
|
|
Total Gross Loans
(1)
|
$
|
824,551
|
|
|
100.0
|
%
|
|
$
|
805,681
|
|
|
100.0
|
%
|
Less allowance for loan losses
|
11,330
|
|
|
|
|
|
11,046
|
|
|
|
Net loans
|
$
|
813,221
|
|
|
|
|
|
$
|
794,635
|
|
|
|
|
|
|
(1)
|
Includes net deferred loan costs and premiums of
$3.2 million
and
$3.5 million
, respectively.
|
During the three months ended March 31, 2016, the Company received
$3.0 million
in proceeds on the sale of problem loans. Included in the sales were
two
loans with a recorded investment of
$3.1 million
as well as
twelve
loans with no outstanding recorded investment as they had been fully charged-off in prior periods. Gross charge-offs of
$359,000
and gross recoveries of
$300,000
were recorded through the allowance for loan losses during the three months ended March 31, 2016, related to the sales of these loans.
The following tables present a contractual aging of the recorded investment in past due loans by class of loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
(Dollars in thousands)
|
30-59 Days Past Due
|
|
60-89 Days Past Due
|
|
90 Days Or Greater
|
|
Total Past Due
|
|
Current
|
|
Total Loans
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
$
|
—
|
|
|
$
|
31
|
|
|
$
|
55
|
|
|
$
|
86
|
|
|
$
|
43,168
|
|
|
$
|
43,254
|
|
Secured by farmland
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
18,945
|
|
|
18,945
|
|
Secured by 1-4 family residential
|
779
|
|
|
3,084
|
|
|
236
|
|
|
4,099
|
|
|
284,756
|
|
|
288,855
|
|
Other real estate loans
|
—
|
|
|
67
|
|
|
377
|
|
|
444
|
|
|
264,012
|
|
|
264,456
|
|
Commercial loans
|
271
|
|
|
199
|
|
|
1,066
|
|
|
1,536
|
|
|
188,409
|
|
|
189,945
|
|
Consumer loans
|
1,928
|
|
|
—
|
|
|
—
|
|
|
1,928
|
|
|
17,168
|
|
|
19,096
|
|
Total
|
$
|
2,978
|
|
|
$
|
3,381
|
|
|
$
|
1,734
|
|
|
$
|
8,093
|
|
|
$
|
816,458
|
|
|
$
|
824,551
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
(Dollars in thousands)
|
30-59 Days Past Due
|
|
60-89 Days Past Due
|
|
90 Days Or Greater
|
|
Total Past Due
|
|
Current
|
|
Total Loans
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
$
|
69
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
69
|
|
|
$
|
39,604
|
|
|
$
|
39,673
|
|
Secured by farmland
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
19,062
|
|
|
19,062
|
|
Secured by 1-4 family residential
|
259
|
|
|
—
|
|
|
1,117
|
|
|
1,376
|
|
|
278,720
|
|
|
280,096
|
|
Other real estate loans
|
325
|
|
|
—
|
|
|
248
|
|
|
573
|
|
|
257,462
|
|
|
258,035
|
|
Commercial loans
|
1,242
|
|
|
15
|
|
|
31
|
|
|
1,288
|
|
|
189,194
|
|
|
190,482
|
|
Consumer loans
|
4
|
|
|
17
|
|
|
—
|
|
|
21
|
|
|
18,312
|
|
|
18,333
|
|
Total
|
$
|
1,899
|
|
|
$
|
32
|
|
|
$
|
1,396
|
|
|
$
|
3,327
|
|
|
$
|
802,354
|
|
|
$
|
805,681
|
|
The following table presents the recorded investment in nonaccrual loans and loans past due
90
days or more and still accruing by class of loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
December 31, 2015
|
(Dollars in thousands)
|
Nonaccrual
|
|
Past due 90 days or more and still accruing
|
|
Nonaccrual
|
|
Past due 90 days or more and still accruing
|
Real estate loans:
|
|
|
|
|
|
|
|
Construction
|
$
|
133
|
|
|
$
|
—
|
|
|
$
|
204
|
|
|
$
|
—
|
|
Secured by 1-4 family residential
|
3,488
|
|
|
109
|
|
|
4,460
|
|
|
—
|
|
Other real estate loans
|
1,179
|
|
|
377
|
|
|
1,186
|
|
|
248
|
|
Commercial loans
|
1,064
|
|
|
25
|
|
|
1,036
|
|
|
30
|
|
Consumer loans
|
1,883
|
|
|
—
|
|
|
1,898
|
|
|
—
|
|
Total
|
$
|
7,747
|
|
|
$
|
511
|
|
|
$
|
8,784
|
|
|
$
|
278
|
|
If interest on nonaccrual loans had been accrued, such income would have approximated
$127,600
and
$342,000
for the three months ended
March 31, 2016
and the year ended
December 31, 2015
, respectively.
The Company utilizes an internal asset classification system as a means of measuring and monitoring credit risk in the loan portfolio. Under the Company’s classification system, problem and potential problem loans are classified as “Special Mention”, “Substandard”, and “Doubtful”.
Special Mention: Loans with potential weaknesses that deserve management’s close attention. If left uncorrected, the potential weaknesses may result in the deterioration of the repayment prospects for the credit.
Substandard: Loans with well-defined weakness that jeopardize the liquidation of the debt. Either the paying capacity of the borrower or the value of the collateral may be inadequate to protect the Company from potential losses.
Doubtful: Loans with a very high possibility of loss. However, because of important and reasonably specific pending factors, classification as a loss is deferred until a more exact status may be determined.
Loss: Loans are deemed uncollectible and are charged off immediately.
The following tables present the recorded investment in loans by class of loan that have been classified according to the internal classification system:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
(Dollars in thousands)
|
Real Estate Construction
|
|
Real Estate Secured by Farmland
|
|
Real Estate Secured by 1-4 Family Residential
|
|
Other Real Estate Loans
|
|
Commercial
|
|
Consumer
|
|
Total
|
Pass
|
$
|
37,533
|
|
|
$
|
11,042
|
|
|
$
|
281,582
|
|
|
$
|
250,266
|
|
|
$
|
182,969
|
|
|
$
|
17,134
|
|
|
$
|
780,526
|
|
Special Mention
|
5,642
|
|
|
—
|
|
|
878
|
|
|
6,988
|
|
|
3,573
|
|
|
35
|
|
|
17,116
|
|
Substandard
|
79
|
|
|
7,903
|
|
|
6,268
|
|
|
6,023
|
|
|
2,362
|
|
|
1,927
|
|
|
24,562
|
|
Doubtful
|
—
|
|
|
—
|
|
|
127
|
|
|
1,179
|
|
|
1,041
|
|
|
—
|
|
|
2,347
|
|
Loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Ending Balance
|
$
|
43,254
|
|
|
$
|
18,945
|
|
|
$
|
288,855
|
|
|
$
|
264,456
|
|
|
$
|
189,945
|
|
|
$
|
19,096
|
|
|
$
|
824,551
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
(Dollars in thousands)
|
Real Estate Construction
|
|
Real Estate Secured by Farmland
|
|
Real Estate Secured by 1-4 Family Residential
|
|
Other Real Estate Loans
|
|
Commercial
|
|
Consumer
|
|
Total
|
Pass
|
$
|
30,114
|
|
|
$
|
10,566
|
|
|
$
|
271,721
|
|
|
$
|
243,768
|
|
|
$
|
183,532
|
|
|
$
|
16,347
|
|
|
$
|
756,048
|
|
Special Mention
|
9,024
|
|
|
—
|
|
|
896
|
|
|
7,254
|
|
|
3,638
|
|
|
42
|
|
|
20,854
|
|
Substandard
|
535
|
|
|
8,496
|
|
|
6,818
|
|
|
5,827
|
|
|
2,301
|
|
|
1,943
|
|
|
25,920
|
|
Doubtful
|
—
|
|
|
—
|
|
|
661
|
|
|
1,186
|
|
|
1,011
|
|
|
—
|
|
|
2,858
|
|
Loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
1
|
|
Ending Balance
|
$
|
39,673
|
|
|
$
|
19,062
|
|
|
$
|
280,096
|
|
|
$
|
258,035
|
|
|
$
|
190,482
|
|
|
$
|
18,333
|
|
|
$
|
805,681
|
|
The following tables present loans individually evaluated for impairment by class of loan:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
(Dollars in thousands)
|
Recorded Investment
|
|
Unpaid Principal Balance
|
|
Related Allowance
|
|
Average Recorded Investment
|
|
Interest Income Recognized
|
With no related allowance recorded:
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
Construction
|
$
|
79
|
|
|
$
|
79
|
|
|
$
|
—
|
|
|
$
|
126
|
|
|
$
|
—
|
|
Secured by farmland
|
7,903
|
|
|
7,903
|
|
|
—
|
|
|
7,903
|
|
|
59
|
|
Secured by 1-4 family residential
|
242
|
|
|
277
|
|
|
—
|
|
|
242
|
|
|
—
|
|
Other real estate loans
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Commercial loans
|
451
|
|
|
487
|
|
|
—
|
|
|
491
|
|
|
4
|
|
Consumer loans
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total with no related allowance
|
$
|
8,675
|
|
|
$
|
8,746
|
|
|
$
|
—
|
|
|
$
|
8,762
|
|
|
$
|
63
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Secured by farmland
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Secured by 1-4 family residential
|
3,860
|
|
|
3,912
|
|
|
1,086
|
|
|
4,004
|
|
|
7
|
|
Other real estate loans
|
4,179
|
|
|
4,179
|
|
|
330
|
|
|
4,285
|
|
|
39
|
|
Commercial loans
|
1,074
|
|
|
4,073
|
|
|
57
|
|
|
1,140
|
|
|
1
|
|
Consumer loans
|
1,883
|
|
|
1,883
|
|
|
787
|
|
|
2,442
|
|
|
—
|
|
Total with a related allowance
|
$
|
10,996
|
|
|
$
|
14,047
|
|
|
$
|
2,260
|
|
|
$
|
11,871
|
|
|
$
|
47
|
|
Total
|
$
|
19,671
|
|
|
$
|
22,793
|
|
|
$
|
2,260
|
|
|
$
|
20,633
|
|
|
$
|
110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
(Dollars in thousands)
|
Recorded Investment
|
|
Unpaid Principal Balance
|
|
Related Allowance
|
|
Average Recorded Investment
|
|
Interest Income Recognized
|
With no related allowance recorded:
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
Construction
|
$
|
100
|
|
|
$
|
100
|
|
|
$
|
—
|
|
|
$
|
106
|
|
|
$
|
—
|
|
Secured by farmland
|
7,903
|
|
|
7,903
|
|
|
—
|
|
|
7,903
|
|
|
237
|
|
Secured by 1-4 family residential
|
701
|
|
|
736
|
|
|
—
|
|
|
703
|
|
|
—
|
|
Other real estate loans
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Commercial loans
|
458
|
|
|
493
|
|
|
—
|
|
|
490
|
|
|
17
|
|
Consumer loans
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total with no related allowance
|
$
|
9,162
|
|
|
$
|
9,232
|
|
|
$
|
—
|
|
|
$
|
9,202
|
|
|
$
|
254
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
$
|
103
|
|
|
$
|
103
|
|
|
$
|
53
|
|
|
$
|
109
|
|
|
$
|
—
|
|
Secured by farmland
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Secured by 1-4 family residential
|
4,426
|
|
|
4,478
|
|
|
1,120
|
|
|
4,547
|
|
|
27
|
|
Other real estate loans
|
4,196
|
|
|
4,196
|
|
|
464
|
|
|
4,224
|
|
|
157
|
|
Commercial loans
|
1,059
|
|
|
4,059
|
|
|
27
|
|
|
2,315
|
|
|
100
|
|
Consumer loans
|
1,898
|
|
|
1,898
|
|
|
1,000
|
|
|
2,449
|
|
|
—
|
|
Total with a related allowance
|
$
|
11,682
|
|
|
$
|
14,734
|
|
|
$
|
2,664
|
|
|
$
|
13,644
|
|
|
$
|
284
|
|
Total
|
$
|
20,844
|
|
|
$
|
23,966
|
|
|
$
|
2,664
|
|
|
$
|
22,846
|
|
|
$
|
538
|
|
The “Recorded Investment” amounts in the table above represent the outstanding principal balance net of charge-offs and nonaccrual payments to principal on each loan represented in the table. The “Unpaid Principal Balance” represents the outstanding principal balance on each loan represented in the table plus any amounts that have been charged-off on each loan and nonaccrual payments applied to principal.
Included in certain loan categories of impaired loans are troubled debt restructurings (“TDRs”). The total balance of TDRs at
March 31, 2016
was
$15.3 million
of which
$3.3 million
were included in the Company’s nonaccrual loan totals at that date and
$12.0 million
represented loans performing as agreed according to the restructured terms. This compares with
$15.5 million
in total restructured loans at
December 31, 2015
. The amount of the valuation allowance related to TDRs was
$1.2 million
and
$1.6 million
as of
March 31, 2016
and
December 31, 2015
, respectively.
Loan modifications that were classified as TDRs during the three months ended March 31, 2016 and 2015 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans Modified as TDRs
|
|
|
For the Three Months Ended March 31,
|
(Dollars in thousands)
|
|
2016
|
|
2015
|
Class of Loan
|
|
Number of Contracts
|
|
Pre-Modification Outstanding Recorded Investment
|
|
Post-Modification Outstanding Recorded Investment
|
|
Number of Contracts
|
|
Pre-Modification Outstanding Recorded Investment
|
|
Post-Modification Outstanding Recorded Investment
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Secured by farmland
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Secured by 1-4 family residential
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Other real estate loans
|
|
1
|
|
|
368
|
|
|
367
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total real estate loans
|
|
1
|
|
|
$
|
368
|
|
|
$
|
367
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Commercial loans
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Consumer loans
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total
|
|
1
|
|
|
$
|
368
|
|
|
$
|
367
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
There were
no
outstanding commitments to lend additional amounts to troubled debt restructured borrowers at
March 31, 2016
or December 31, 2015.
There were
no
TDR payment defaults during
three
months ended
March 31, 2016
and
2015
. For purposes of this disclosure, a TDR payment default occurs when, within
12 months
of the original TDR modification, either a full or partial charge-off occurs or a TDR becomes
90 days
or more past due.
Note 5. Allowance for Loan Losses
The following table presents, the total allowance for loan losses, the allowance by impairment methodology (individually evaluated for impairment or collectively evaluated for impairment), the total loans and loans by impairment methodology (individually evaluated for impairment or collectively evaluated for impairment).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
(Dollars in thousands)
|
Real Estate Construction
|
|
Real Estate Secured by Farmland
|
|
Real Estate Secured by 1-4 Family Residential
|
|
Other Real Estate Loans
|
|
Commercial
|
|
Consumer
|
|
Total
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
December 31, 2015
|
$
|
905
|
|
|
$
|
192
|
|
|
$
|
3,341
|
|
|
$
|
3,761
|
|
|
$
|
1,706
|
|
|
$
|
1,141
|
|
|
$
|
11,046
|
|
Charge-offs
|
(359
|
)
|
|
—
|
|
|
(7
|
)
|
|
—
|
|
|
—
|
|
|
(6
|
)
|
|
(372
|
)
|
Recoveries
|
15
|
|
|
—
|
|
|
278
|
|
|
8
|
|
|
5
|
|
|
50
|
|
|
356
|
|
Provision
|
450
|
|
|
(22
|
)
|
|
(238
|
)
|
|
(68
|
)
|
|
403
|
|
|
(225
|
)
|
|
300
|
|
Balance at
March 31, 2016
|
$
|
1,011
|
|
|
$
|
170
|
|
|
$
|
3,374
|
|
|
$
|
3,701
|
|
|
$
|
2,114
|
|
|
$
|
960
|
|
|
$
|
11,330
|
|
Ending allowance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending allowance balance attributable to loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,086
|
|
|
$
|
330
|
|
|
$
|
57
|
|
|
$
|
787
|
|
|
$
|
2,260
|
|
Collectively evaluated for impairment
|
1,011
|
|
|
170
|
|
|
2,288
|
|
|
3,371
|
|
|
2,057
|
|
|
173
|
|
|
9,070
|
|
Total ending allowance balance
|
$
|
1,011
|
|
|
$
|
170
|
|
|
$
|
3,374
|
|
|
$
|
3,701
|
|
|
$
|
2,114
|
|
|
$
|
960
|
|
|
$
|
11,330
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
$
|
79
|
|
|
$
|
7,903
|
|
|
$
|
4,102
|
|
|
$
|
4,179
|
|
|
$
|
1,525
|
|
|
$
|
1,883
|
|
|
$
|
19,671
|
|
Collectively evaluated for impairment
|
43,175
|
|
|
11,042
|
|
|
284,753
|
|
|
260,277
|
|
|
188,420
|
|
|
17,213
|
|
|
804,880
|
|
Total ending loans balance
|
$
|
43,254
|
|
|
$
|
18,945
|
|
|
$
|
288,855
|
|
|
$
|
264,456
|
|
|
$
|
189,945
|
|
|
$
|
19,096
|
|
|
$
|
824,551
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
(Dollars in thousands)
|
Real Estate Construction
|
|
Real Estate Secured by Farmland
|
|
Real Estate Secured by 1-4 Family Residential
|
|
Other Real Estate Loans
|
|
Commercial
|
|
Consumer
|
|
Total
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
December 31, 2014
|
$
|
550
|
|
|
$
|
179
|
|
|
$
|
3,966
|
|
|
$
|
3,916
|
|
|
$
|
2,354
|
|
|
$
|
821
|
|
|
$
|
11,786
|
|
Charge-offs
|
—
|
|
|
—
|
|
|
(344
|
)
|
|
(9
|
)
|
|
(3,281
|
)
|
|
(57
|
)
|
|
(3,691
|
)
|
Recoveries
|
246
|
|
|
—
|
|
|
359
|
|
|
28
|
|
|
14
|
|
|
11
|
|
|
658
|
|
Provision
|
109
|
|
|
13
|
|
|
(640
|
)
|
|
(174
|
)
|
|
2,619
|
|
|
366
|
|
|
2,293
|
|
Balance at
December 31, 2015
|
$
|
905
|
|
|
$
|
192
|
|
|
$
|
3,341
|
|
|
$
|
3,761
|
|
|
$
|
1,706
|
|
|
$
|
1,141
|
|
|
$
|
11,046
|
|
Ending allowance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending allowance balance attributable to loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
$
|
53
|
|
|
$
|
—
|
|
|
$
|
1,120
|
|
|
$
|
464
|
|
|
$
|
27
|
|
|
$
|
1,000
|
|
|
$
|
2,664
|
|
Collectively evaluated for impairment
|
852
|
|
|
192
|
|
|
2,221
|
|
|
3,297
|
|
|
1,679
|
|
|
141
|
|
|
8,382
|
|
Total ending allowance balance
|
$
|
905
|
|
|
$
|
192
|
|
|
$
|
3,341
|
|
|
$
|
3,761
|
|
|
$
|
1,706
|
|
|
$
|
1,141
|
|
|
$
|
11,046
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
$
|
203
|
|
|
$
|
7,903
|
|
|
$
|
5,127
|
|
|
$
|
4,196
|
|
|
$
|
1,517
|
|
|
$
|
1,898
|
|
|
$
|
20,844
|
|
Collectively evaluated for impairment
|
39,470
|
|
|
11,159
|
|
|
274,969
|
|
|
253,839
|
|
|
188,965
|
|
|
16,435
|
|
|
784,837
|
|
Total ending loans balance
|
$
|
39,673
|
|
|
$
|
19,062
|
|
|
$
|
280,096
|
|
|
$
|
258,035
|
|
|
$
|
190,482
|
|
|
$
|
18,333
|
|
|
$
|
805,681
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2015
|
(Dollars in thousands)
|
Real Estate Construction
|
|
Real Estate Secured by Farmland
|
|
Real Estate Secured by 1-4 Family Residential
|
|
Other Real Estate Loans
|
|
Commercial
|
|
Consumer
|
|
Total
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
December 31, 2014
|
$
|
550
|
|
|
$
|
179
|
|
|
$
|
3,966
|
|
|
$
|
3,916
|
|
|
$
|
2,354
|
|
|
$
|
821
|
|
|
$
|
11,786
|
|
Charge-offs
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(246
|
)
|
|
(20
|
)
|
|
(266
|
)
|
Recoveries
|
9
|
|
|
—
|
|
|
19
|
|
|
15
|
|
|
5
|
|
|
6
|
|
|
54
|
|
Provision
|
8
|
|
|
6
|
|
|
188
|
|
|
(122
|
)
|
|
(4
|
)
|
|
374
|
|
|
450
|
|
Balance at
March 31, 2015
|
$
|
567
|
|
|
$
|
185
|
|
|
$
|
4,173
|
|
|
$
|
3,809
|
|
|
$
|
2,109
|
|
|
$
|
1,181
|
|
|
$
|
12,024
|
|
Ending allowance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending allowance balance attributable to loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
$
|
63
|
|
|
$
|
—
|
|
|
$
|
1,339
|
|
|
$
|
455
|
|
|
$
|
50
|
|
|
$
|
1,000
|
|
|
$
|
2,907
|
|
Collectively evaluated for impairment
|
504
|
|
|
185
|
|
|
2,834
|
|
|
3,354
|
|
|
2,059
|
|
|
181
|
|
|
9,117
|
|
Total ending allowance balance
|
$
|
567
|
|
|
$
|
185
|
|
|
$
|
4,173
|
|
|
$
|
3,809
|
|
|
$
|
2,109
|
|
|
$
|
1,181
|
|
|
$
|
12,024
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
$
|
235
|
|
|
$
|
7,903
|
|
|
$
|
5,352
|
|
|
$
|
4,510
|
|
|
$
|
790
|
|
|
$
|
3,000
|
|
|
$
|
21,790
|
|
Collectively evaluated for impairment
|
36,467
|
|
|
11,712
|
|
|
261,935
|
|
|
248,736
|
|
|
164,967
|
|
|
16,308
|
|
|
740,125
|
|
Total ending loans balance
|
$
|
36,702
|
|
|
$
|
19,615
|
|
|
$
|
267,287
|
|
|
$
|
253,246
|
|
|
$
|
165,757
|
|
|
$
|
19,308
|
|
|
$
|
761,915
|
|
Note 6. Earnings Per Share
The following shows the weighted-average number of shares used in computing earnings per share and the effect on weighted-average number of shares of diluted potential common stock. Nonvested restricted shares are included in basic earnings per share because of dividend participation rights. Potential dilutive common stock had no effect on income available to common stockholders.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31,
|
|
2016
|
|
2015
|
|
Shares
|
|
Per Share Amount
|
|
Shares
|
|
Per Share Amount
|
Earnings per share, basic
|
7,078,975
|
|
|
$
|
0.29
|
|
|
7,127,910
|
|
|
$
|
0.34
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
9,004
|
|
|
|
|
7,052
|
|
|
|
Warrant
|
21,601
|
|
|
|
|
13,740
|
|
|
|
Earnings per share, diluted
|
7,109,580
|
|
|
$
|
0.29
|
|
|
7,148,702
|
|
|
$
|
0.34
|
|
The warrant and
none
of the stock options were considered anti-dilutive as of
March 31, 2016
and
2015
.
Note 7. Segment Reporting
The Company operates its principal business activities of retail banking services and wealth management services in a decentralized fashion. Revenue from retail banking activity consists primarily of interest and fees earned on loans, including mortgage banking activity, interest earned on investment securities and service charges on deposit accounts. Revenue from the wealth management activities is comprised of fees based upon the market value of the accounts under administration as well as commissions on investment transactions.
Middleburg Bank and the Company have assets in custody with Middleburg Trust Company and accordingly pay Middleburg Trust Company a monthly fee. Middleburg Bank also pays interest to Middleburg Trust Company on deposit accounts with Middleburg Bank. Middleburg Trust Company pays rental and other miscellaneous occupancy expenses to Middleburg Bank. Transactions related to these relationships are eliminated to reach consolidated totals.
The following tables represent reportable segment information for the three months ended
March 31, 2016
and
2015
, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
For the Three Months Ended
|
|
March 31, 2016
|
|
March 31, 2015
|
(In Thousands)
|
Retail
Banking
|
Wealth
Manage-
ment
|
Parent
Company
|
Inter-
company
Eliminations
|
Consolidated
|
|
Retail
Banking
|
Wealth
Manage-
ment
|
Parent
Company
|
Inter-
company
Eliminations
|
Consolidated
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
$
|
10,870
|
|
$
|
2
|
|
$
|
—
|
|
$
|
—
|
|
$
|
10,872
|
|
|
$
|
10,696
|
|
$
|
3
|
|
$
|
—
|
|
$
|
—
|
|
$
|
10,699
|
|
Trust and investment fee income
|
—
|
|
1,201
|
|
—
|
|
(43
|
)
|
1,158
|
|
|
—
|
|
1,259
|
|
—
|
|
(41
|
)
|
1,218
|
|
Other income
|
1,319
|
|
—
|
|
—
|
|
(27
|
)
|
1,292
|
|
|
1,790
|
|
—
|
|
—
|
|
—
|
|
1,790
|
|
Total operating income
|
12,189
|
|
1,203
|
|
—
|
|
(70
|
)
|
13,322
|
|
|
12,486
|
|
1,262
|
|
—
|
|
(41
|
)
|
13,707
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
1,053
|
|
—
|
|
70
|
|
—
|
|
1,123
|
|
|
999
|
|
—
|
|
69
|
|
—
|
|
1,068
|
|
Salaries and employee benefits
|
4,017
|
|
527
|
|
268
|
|
—
|
|
4,812
|
|
|
4,106
|
|
534
|
|
208
|
|
—
|
|
4,848
|
|
Provision for loan losses
|
300
|
|
—
|
|
—
|
|
—
|
|
300
|
|
|
450
|
|
—
|
|
—
|
|
—
|
|
450
|
|
Other
|
4,227
|
|
287
|
|
—
|
|
(70
|
)
|
4,444
|
|
|
3,795
|
|
281
|
|
17
|
|
(41
|
)
|
4,052
|
|
Total operating expenses
|
9,597
|
|
814
|
|
338
|
|
(70
|
)
|
10,679
|
|
|
9,350
|
|
815
|
|
294
|
|
(41
|
)
|
10,418
|
|
Income (loss) before income taxes
|
2,592
|
|
389
|
|
(338
|
)
|
—
|
|
2,643
|
|
|
3,136
|
|
447
|
|
(294
|
)
|
—
|
|
3,289
|
|
Income tax expense (benefit)
|
647
|
|
147
|
|
(206
|
)
|
—
|
|
588
|
|
|
828
|
|
167
|
|
(154
|
)
|
—
|
|
841
|
|
Net Income (loss)
|
$
|
1,945
|
|
$
|
242
|
|
$
|
(132
|
)
|
$
|
—
|
|
$
|
2,055
|
|
|
$
|
2,308
|
|
$
|
280
|
|
$
|
(140
|
)
|
$
|
—
|
|
$
|
2,448
|
|
Total assets
|
$
|
1,342,502
|
|
$
|
11,908
|
|
$
|
126,760
|
|
$
|
(133,049
|
)
|
$
|
1,348,121
|
|
|
$
|
1,259,259
|
|
$
|
12,145
|
|
$
|
125,284
|
|
$
|
(131,301
|
)
|
$
|
1,265,387
|
|
Capital expenditures
|
$
|
125
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
125
|
|
|
$
|
151
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
151
|
|
Goodwill and other intangibles
|
$
|
—
|
|
$
|
3,593
|
|
$
|
—
|
|
$
|
—
|
|
$
|
3,593
|
|
|
$
|
—
|
|
$
|
3,765
|
|
$
|
—
|
|
$
|
—
|
|
$
|
3,765
|
|
Note 8. Capital Purchase Program
On
January 30, 2009
, as part of the Capital Purchase Program established by the U.S. Department of the Treasury (the “Treasury”) under the Emergency Economic Stabilization Act of 2008, the Company entered into a Letter Agreement and Securities Purchase Agreement—Standard Terms (collectively, the “Purchase Agreement”) with the Treasury, pursuant to which the Company sold (i)
22,000
shares of Fixed Rate Cumulative Perpetual Preferred Stock, Series A, par value
$2.50
per share, having a liquidation preference of
$1,000
per share (the “Preferred Stock”) and (ii) a warrant (the “Warrant”) to purchase
208,202
shares of the Company’s common stock, par value
$2.50
per share, at an initial exercise price of
$15.85
per share. As a result of the completion of a public stock offering in 2009, the number of shares of common stock underlying the Warrant was reduced by
one-half
to
104,101
and the Company redeemed all
22,000
shares of Preferred Stock pursuant to the Purchase Agreement. During 2011, the Warrant was sold by the U.S. Treasury at public auction and has not been exercised as of
March 31, 2016
.
Note 9. Fair Value Measurements
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. U.S. GAAP requires that valuation techniques maximize the use of observable inputs and minimize the use of unobservable inputs. U.S. GAAP also establishes a fair value hierarchy which prioritizes the valuation inputs into three broad levels. Based on the underlying inputs, each fair value measurement in its entirety is reported in one of the three levels. The three levels of the fair value 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 pricing observability 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 judgment or estimation.
|
Measured on a recurring basis
The following describes the valuation techniques and inputs used by the Company in determining the fair value of certain assets recorded at fair value on a recurring basis in the financial statements.
Securities Available for Sale
The Company primarily values its investment portfolio using Level II fair value measurements, but may also use Level I or Level III measurements if required by the composition of the portfolio. If quoted market prices are not available, fair values are measured utilizing independent valuation techniques of identical or similar securities for which significant assumptions are derived primarily from or corroborated by observable market data. Third party vendors compile prices from various sources and may determine the fair value of identical or similar securities by using pricing models that consider observable market data (Level II). In certain cases where there is limited activity or less transparency around inputs to the valuation, securities are classified as Level III of the valuation hierarchy.
Interest Rate Swaps and Interest Rate Cap
Interest rate swaps and caps are recorded at fair value based on third party vendors who compile prices from various sources and may determine fair value of identical or similar instruments by using pricing models that consider observable market data (Level II).
The following tables present the balances of assets and liabilities measured at fair value on a recurring basis as of
March 31, 2016
and
December 31, 2015
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
March 31, 2016
|
Description
|
|
Total
|
|
Level I
|
|
Level II
|
|
Level III
|
Assets:
|
|
|
|
|
|
|
|
|
U.S. government agencies
|
|
$
|
80,786
|
|
|
$
|
—
|
|
|
$
|
80,786
|
|
|
$
|
—
|
|
Obligations of states and political subdivisions
|
|
70,586
|
|
|
—
|
|
|
70,586
|
|
|
—
|
|
Mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency
|
|
138,558
|
|
|
—
|
|
|
138,558
|
|
|
—
|
|
Non-agency
|
|
12,097
|
|
|
—
|
|
|
12,097
|
|
|
—
|
|
Other asset backed securities
|
|
59,096
|
|
|
—
|
|
|
59,096
|
|
|
—
|
|
Corporate securities
|
|
15,902
|
|
|
—
|
|
|
15,902
|
|
|
—
|
|
Interest rate swaps
|
|
242
|
|
|
—
|
|
|
242
|
|
|
—
|
|
Interest rate cap
|
|
12
|
|
|
—
|
|
|
12
|
|
|
—
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
766
|
|
|
—
|
|
|
766
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
December 31, 2015
|
Description
|
|
Total
|
|
Level I
|
|
Level II
|
|
Level III
|
Assets:
|
|
|
|
|
|
|
|
|
U.S. government agencies
|
|
$
|
78,940
|
|
|
$
|
—
|
|
|
$
|
78,940
|
|
|
$
|
—
|
|
Obligations of states and political subdivisions
|
|
75,593
|
|
|
—
|
|
|
75,593
|
|
|
—
|
|
Mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency
|
|
131,661
|
|
|
—
|
|
|
131,661
|
|
|
—
|
|
Non-agency
|
|
12,777
|
|
|
—
|
|
|
12,777
|
|
|
—
|
|
Other asset backed securities
|
|
58,781
|
|
|
—
|
|
|
58,781
|
|
|
—
|
|
Corporate securities
|
|
16,819
|
|
|
—
|
|
|
16,819
|
|
|
|
|
Interest rate swaps
|
|
73
|
|
|
—
|
|
|
73
|
|
|
—
|
|
Interest rate cap
|
|
39
|
|
|
|
|
39
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
370
|
|
|
—
|
|
|
370
|
|
|
—
|
|
Measured on nonrecurring basis
The Company may be required, from time to time, to measure and recognize certain other assets at fair value on a nonrecurring basis in accordance with U.S. GAAP. The following describes the valuation techniques and inputs used by the Company in determining the fair value of certain assets recorded at fair value on a nonrecurring basis in the financial statements.
Impaired Loans
Loans are designated as impaired when, in the judgment of management based on current information and events, it is probable that all amounts due according to the contractual terms of the loan agreement will not be collected when due. The measurement of loss associated with impaired loans can be based on either the observable market price of the loan or the fair value of the collateral. Collateral may be in the form of real estate or business assets including equipment, inventory, and accounts receivable. Any given loan may have multiple types of collateral. The vast majority of the collateral is real estate. The value of real estate collateral is determined utilizing a market valuation approach based on an appraisal conducted by an independent, licensed appraiser outside of the Company using observable market data (Level II). However, if the collateral value is significantly adjusted due to differences in the comparable properties, or is discounted by the Company because of marketability, then the fair value is considered Level III. The value of business equipment is based upon an outside appraisal if deemed significant, or the net book value on the applicable business' financial statements if not considered significant. Likewise, values for inventory and accounts receivable collateral are based on financial statement balances or aging reports (Level III). Impaired loans allocated to the allowance for loan losses are measured at fair value on a nonrecurring basis. Any fair value adjustments are recorded in the period incurred as provision for loan losses on the consolidated statements of income.
Other Real Estate Owned
Other Real Estate Owned (“OREO”) is measured at fair value less estimated costs to sell, based on an appraisal conducted by an independent, licensed appraiser outside of the Company. If the collateral value is significantly adjusted due to differences in the comparable properties, or is discounted by the Company because of marketability, then the fair value is considered Level III. The initial fair value of OREO is based on an appraisal performed at the time of foreclosure. Subsequent fair value adjustments are recorded in the period incurred and included in other non-interest expense on the consolidated statements of income.
For the purpose of OREO valuations, appraisals are discounted
10%
for selling costs and it is the policy of the Company to obtain annual appraisals for properties held in accordance with the bank's OREO policy. Any fair value adjustments are recorded in the period incurred as loss on other real estate owned on the consolidated statements of income.
Repossessed Assets
The value of repossessed assets is determined by the Company based on marketability and other factors and is considered Level III.
The following table summarizes the Company’s non-financial assets that were measured at fair value on a nonrecurring basis during the period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
March 31, 2016
|
|
|
Total
|
|
Level I
|
|
Level II
|
|
Level III
|
Assets:
|
|
|
|
|
|
|
|
|
Impaired loans
|
|
$
|
8,736
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
8,736
|
|
Other real estate owned
|
|
$
|
3,727
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,727
|
|
Repossessed assets
(1)
|
|
$
|
1,043
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,043
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
December 31, 2015
|
|
|
Total
|
|
Level I
|
|
Level II
|
|
Level III
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans
|
|
$
|
9,018
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
9,018
|
|
Other real estate owned
|
|
$
|
3,345
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,345
|
|
Repossessed assets
(1)
|
|
$
|
1,043
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,043
|
|
|
|
(1)
|
Included in other assets on the consolidated balance sheets.
|
The following table presents quantitative information as of
March 31, 2016
and
December 31, 2015
about Level III fair value measurements for assets measured at fair value on a nonrecurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
Fair Value
(in thousands)
|
|
Valuation Technique
|
|
Unobservable Inputs
|
|
Range
(Weighted Average)
|
Impaired loans
|
|
$
|
5,321
|
|
|
Appraisals
|
|
Discount to reflect current market conditions and estimated selling costs
|
|
0% - 100% (14%)
|
Impaired loans
|
|
$
|
3,415
|
|
|
Present value of cash flows
|
|
Discount rate
|
|
6% - 8% (7%)
|
Other real estate owned
|
|
$
|
3,727
|
|
|
Appraisals
|
|
Discount to reflect current market conditions and estimated selling costs
|
|
10%
|
Repossessed assets
|
|
$
|
1,043
|
|
|
Market analysis
|
|
Historical sales activity
|
|
50%
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
Fair Value
(in thousands)
|
|
Valuation Technique
|
|
Unobservable Inputs
|
|
Range
(Weighted Average)
|
Impaired loans
|
|
$
|
5,434
|
|
|
Appraisals
|
|
Discount to reflect current market conditions and estimated selling costs
|
|
0% - 100% (17%)
|
Impaired loans
|
|
$
|
3,584
|
|
|
Present value of cash flows
|
|
Discount rate
|
|
6% - 8% (7%)
|
Other real estate owned
|
|
$
|
3,345
|
|
|
Appraisals
|
|
Discount to reflect current market conditions and estimated selling costs
|
|
10%
|
Repossessed assets
|
|
$
|
1,043
|
|
|
Market analysis
|
|
Historical sales activity
|
|
50%
|
The fair value of a financial instrument is the current amount that would be exchanged between willing parties, other than in a forced liquidation. Fair value is best determined based upon quoted market prices. However, in many instances, there are
no
quoted market prices for the Company’s various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument. U.S. GAAP excludes certain financial instruments and all non-
financial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company.
The following methods and assumptions were used to estimate the fair value of each class of financial instruments (not previously described) for which it is practicable to estimate that value:
Cash and Cash Equivalents
For cash and cash equivalents, the carrying amount is a reasonable estimate of fair value.
Securities held to maturity
Certain debt securities that management has the positive intent and ability to hold until maturity are recorded at amortized cost. Fair values are determined in a manner that is consistent with securities available for sale.
Restricted securities
The restricted security category is comprised of FHLB and Federal Reserve Bank stock. These stocks are classified as restricted securities because their ownership is restricted to certain types of entities and they lack a market. When the FHLB or Federal Reserve Bank repurchases stock, they repurchase at the stock's book value. Therefore, the carrying amounts of restricted securities approximate fair value.
Loans, Net
For variable-rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values. For fixed rate loans, the fair value is estimated by discounting future cash flows using current market inputs at which loans with similar terms and qualities would be made to borrowers of similar credit quality. Where quoted market prices were available, primarily for certain residential mortgage loans, such market rates were utilized as estimates for fair value. Fair value for impaired loans is described above.
Bank Owned Life Insurance
The carrying amount of bank owned life insurance is a reasonable estimate of fair value.
Accrued Interest Receivable and Payable
The carrying amounts of accrued interest approximate fair values.
Deposits
The fair value of demand deposits, savings accounts, and certain money market deposits is the amount payable on demand at the reporting date. For all other deposits, the fair value is determined using the discounted cash flow method. The discount rate is equal to the rate currently offered on similar products.
Securities Sold Under Agreements to Repurchase
The carrying amounts approximate fair values.
FHLB Borrowings and Subordinated Notes
For variable rate long-term debt, fair values are based on carrying values. For fixed rate debt, fair values are estimated based on observable market prices and discounted cash flow analysis using interest rates for borrowings of similar remaining maturities and characteristics. The fair values of the Company's Subordinated Notes are estimated using discounted cash flow analysis based on the Company's current incremental borrowing rates for similar types of borrowing arrangements.
Off-Balance Sheet Financial Instruments
The fair value of commitments to extend credit is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair value of standby letters of credit is based on fees currently charged for similar agreements or on the estimated cost to terminate them or otherwise settle the obligations with the counterparties at the reporting date. At
March 31, 2016
and
December 31, 2015
, the fair values of loan commitments and standby letters of credit were deemed immaterial; therefore, they have not been included in the tables below.
Fair Value of Financial Instruments
The estimated fair values, and related carrying amounts, of the Company's financial instruments are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
March 31, 2016
|
|
|
|
|
|
Fair value measurements using:
|
|
Carrying
Amount
|
|
Total Fair Value
|
|
Level I
|
|
Level II
|
|
Level III
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
65,721
|
|
|
$
|
65,721
|
|
|
$
|
65,721
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Securities held to maturity
|
9,227
|
|
|
9,209
|
|
|
—
|
|
|
9,209
|
|
|
—
|
|
Securities available for sale
|
377,025
|
|
|
377,025
|
|
|
—
|
|
|
377,025
|
|
|
—
|
|
Loans, net
|
813,221
|
|
|
823,904
|
|
|
—
|
|
|
—
|
|
|
823,904
|
|
Bank owned life insurance
|
23,434
|
|
|
23,434
|
|
|
—
|
|
|
23,434
|
|
|
—
|
|
Accrued interest receivable
|
5,172
|
|
|
5,172
|
|
|
—
|
|
|
5,172
|
|
|
—
|
|
Interest rate swaps
|
242
|
|
|
242
|
|
|
—
|
|
|
242
|
|
|
—
|
|
Interest rate cap
|
12
|
|
|
12
|
|
|
—
|
|
|
12
|
|
|
—
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
$
|
1,083,898
|
|
|
$
|
1,083,820
|
|
|
$
|
—
|
|
|
$
|
1,083,820
|
|
|
$
|
—
|
|
Securities sold under agreements to repurchase
|
25,294
|
|
|
25,294
|
|
|
—
|
|
|
25,294
|
|
|
—
|
|
FHLB borrowings
|
95,000
|
|
|
95,155
|
|
|
—
|
|
|
95,155
|
|
|
—
|
|
Subordinated notes
|
5,155
|
|
|
5,163
|
|
|
—
|
|
|
5,163
|
|
|
—
|
|
Accrued interest payable
|
393
|
|
|
393
|
|
|
—
|
|
|
393
|
|
|
—
|
|
Interest rate swaps
|
766
|
|
|
766
|
|
|
—
|
|
|
766
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
December 31, 2015
|
|
|
|
|
|
Fair value measurements using:
|
|
Carrying
Amount
|
|
Total Fair Value
|
|
Level I
|
|
Level II
|
|
Level III
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
39,228
|
|
|
$
|
39,228
|
|
|
$
|
39,228
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Securities held to maturity
|
4,207
|
|
|
4,163
|
|
|
—
|
|
|
4,163
|
|
|
—
|
|
Securities available for sale
|
374,571
|
|
|
374,571
|
|
|
—
|
|
|
374,571
|
|
|
—
|
|
Loans, net
|
794,635
|
|
|
802,535
|
|
|
—
|
|
|
—
|
|
|
802,535
|
|
Bank-owned life insurance
|
23,273
|
|
|
23,273
|
|
|
—
|
|
|
23,273
|
|
|
—
|
|
Accrued interest receivable
|
5,204
|
|
|
5,204
|
|
|
—
|
|
|
5,204
|
|
|
—
|
|
Interest rate swaps
|
73
|
|
|
73
|
|
|
—
|
|
|
73
|
|
|
—
|
|
Interest rate cap
|
39
|
|
|
39
|
|
|
|
|
39
|
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
Deposits
|
$
|
1,040,800
|
|
|
$
|
1,040,016
|
|
|
$
|
—
|
|
|
$
|
1,040,016
|
|
|
$
|
—
|
|
Securities sold under agreements to repurchase
|
26,869
|
|
|
26,869
|
|
|
—
|
|
|
26,869
|
|
|
—
|
|
FHLB borrowings
|
85,000
|
|
|
85,033
|
|
|
—
|
|
|
85,033
|
|
|
—
|
|
Subordinated debt
|
5,155
|
|
|
5,157
|
|
|
—
|
|
|
5,157
|
|
|
—
|
|
Accrued interest payable
|
410
|
|
|
410
|
|
|
—
|
|
|
410
|
|
|
—
|
|
Interest rate swaps
|
370
|
|
|
370
|
|
|
—
|
|
|
370
|
|
|
—
|
|
The Company assumes interest rate risk as a result of its normal operations. The fair values of the Company's financial instruments will change when interest rate levels change, which may be either favorable or unfavorable to the Company. Management attempts to match maturities of assets and liabilities to the extent believed necessary to minimize interest rate risk. However, borrowers with fixed rate obligations are less likely to prepay in a rising rate environment and more likely to prepay in a falling rate environment. Conversely, depositors who are receiving fixed rates are more likely to withdraw funds before maturity in a rising rate environment and less likely to do so in a falling rate environment. Management monitors rates and maturities of assets and liabilities and attempts to minimize interest rate risk by adjusting terms of new loans and deposits and by investing in securities with terms that mitigate the Company's overall interest rate risk.
Note 10. Recent Accounting Pronouncements
In August 2014, the FASB issued ASU No. 2014-15, “Presentation of Financial Statements - Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern.” This update is intended to provide guidance about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going
concern and to provide related footnote disclosures. Management is required under the new guidance to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date the financial statements are issued when preparing financial statements for each interim and annual reporting period. If conditions or events are identified, the ASU specifies the process that must be followed by management and also clarifies the timing and content of going concern footnote disclosures in order to reduce diversity in practice. The amendments in this ASU are effective for annual periods and interim periods within those annual periods beginning after December 15, 2016. Early adoption is permitted. The Company does not expect the adoption of ASU 2014-15 to have a material impact on its consolidated financial statements.
In January 2016, the FASB issued ASU 2016-01, “Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.” The amendments in ASU 2016-01, among other things: 1) Requires equity investments (except those accounted for under the equity method of accounting, or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. 2) Requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes. 3) Requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (i.e., securities or loans and receivables). 4) Eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost. The amendments in this ASU are effective for public companies for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company is currently assessing the impact that ASU 2016-01 will have on its consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842).” Among other things, in the amendments in ASU 2016-02, lessees will be required to recognize the following for all leases (with the exception of short-term leases) at the commencement date: (1) A lease liability, which is a lessee‘s obligation to make lease payments arising from a lease, measured on a discounted basis; and (2) A right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Under the new guidance, lessor accounting is largely unchanged. Certain targeted improvements were made to align, where necessary, lessor accounting with the lessee accounting model and Topic 606, Revenue from Contracts with Customers. The amendments in this ASU are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application is permitted upon issuance. Lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. Lessees and lessors may not apply a full retrospective transition approach. The Company is currently assessing the impact that ASU 2016-02 will have on its consolidated financial statements.
During March 2016, the FASB issued ASU No. 2016-05, “Derivatives and Hedging (Topic 815): Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships.” The amendments in this ASU clarify that a change in the counterparty to a derivative instrument that has been designated as the hedging instrument does not, in and of itself, require dedesignation of that hedging relationship provided that all other hedge accounting criteria remain intact. The amendments are effective for public business entities for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The Company does not expect the adoption of ASU 2016-05 to have a material impact on its consolidated financial statements.
In March 2016, the FASB issued ASU No. 2016-07, “Investments - Equity Method and Joint Ventures (Topic 323): Simplifying the Transition to the Equity Method of Accounting.” The amendments in this ASU eliminate the requirement that when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence, an investor must adjust the investment, results of operations, and retained earnings retroactively on a step-by-step basis as if the equity method had been in effect during all previous periods that the investment had been held. The amendments require that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. Therefore, upon qualifying for the equity method of accounting, no retroactive adjustment of the investment is required. In addition, the amendments in this ASU require that an entity that has an available-for-sale equity security that becomes qualified for the equity method of accounting recognize through earnings the unrealized holding gain or loss in accumulated other comprehensive income at the date the investment becomes qualified for use of the equity method. The amendments are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. The amendments should be applied prospectively upon their effective date to increases in the level of ownership interest or degree of influence that result in the adoption of the equity method. Early adoption is permitted. The Company does not expect the adoption of ASU 2016-07 to have a material impact on its consolidated financial statements.
During March 2016, the FASB issued ASU No. 2016-09, “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.” The amendments in this ASU simplify several aspects of the accounting for share-based payment award transactions including: (a) income tax consequences; (b) classification of awards as either equity or liabilities; and (c) classification on the statement of cash flows. The amendments are effective for public companies for annual periods beginning after December 15, 2016, and interim periods within those annual periods. The Company is currently assessing the impact that ASU 2016-09 will have on its consolidated financial statements.
Note 11. Accumulated Other Comprehensive Income
Changes in accumulated other comprehensive income for the three months ended March 31, 2016 and 2015 were:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
Unrealized Gains on Securities
|
|
Cash Flow Hedges
|
|
Accumulated Other Comprehensive Income
|
Balance December 31, 2014
|
$
|
3,979
|
|
|
$
|
(185
|
)
|
|
$
|
3,794
|
|
Unrealized holding gains (net of tax, $583)
|
1,136
|
|
|
—
|
|
|
1,136
|
|
Reclassification adjustment (net of tax, $34)
|
(67
|
)
|
|
—
|
|
|
(67
|
)
|
Unrealized loss on interest rate swaps (net of tax, $29)
|
—
|
|
|
(57
|
)
|
|
(57
|
)
|
Reclassification adjustment (net of tax, $2)
|
—
|
|
|
(4
|
)
|
|
(4
|
)
|
Balance March 31, 2015
|
$
|
5,048
|
|
|
$
|
(246
|
)
|
|
$
|
4,802
|
|
|
|
|
|
|
|
Balance December 31, 2015
|
$
|
1,872
|
|
|
$
|
(195
|
)
|
|
$
|
1,677
|
|
Unrealized holding gains (net of tax, $693)
|
1,347
|
|
|
—
|
|
|
1,347
|
|
Reclassification adjustment (net of tax, $55)
|
(108
|
)
|
|
—
|
|
|
(108
|
)
|
Unrealized loss on interest rate swaps (net of tax, $78)
|
—
|
|
|
(149
|
)
|
|
(149
|
)
|
Balance March 31, 2016
|
$
|
3,111
|
|
|
$
|
(344
|
)
|
|
$
|
2,767
|
|
The following table presents information related to reclassifications from accumulated other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
Details about Accumulated Other Comprehensive Income
|
Amount Reclassified from Accumulated Other Comprehensive Income
|
Affected Line Item in the Consolidated Statements of Income
|
|
For the Three Months Ended March 31,
|
|
|
(Dollars in thousands)
|
2016
|
|
2015
|
|
|
Securities available for sale
(1)
:
|
|
|
|
|
|
Net securities gains reclassified into earnings
|
$
|
(163
|
)
|
|
$
|
(101
|
)
|
|
Gain on sales of securities available for sale, net
|
Related income tax expense
|
55
|
|
|
34
|
|
|
Income tax expense
|
Derivatives
(2)
:
|
|
|
|
|
|
Gain on interest rate swap ineffectiveness
|
—
|
|
|
(6
|
)
|
|
Other operating expenses
|
Related income tax expense
|
—
|
|
|
2
|
|
|
Income tax expense
|
Net effect on accumulated other comprehensive income for the period
|
(108
|
)
|
|
(71
|
)
|
|
Net of tax
|
Total reclassifications for the period
|
$
|
(108
|
)
|
|
$
|
(71
|
)
|
|
Net of tax
|
|
|
(1)
|
For more information related to unrealized gains on securities available for sale, see Note 3, "Securities".
|
|
|
(2)
|
For more information related to unrealized losses on derivatives, see Note 12, "Derivatives".
|
Note 12. Derivatives
The Company utilizes derivative instruments as a part of its asset-liability management program to control fluctuation of market values and cash flows to changes in interest rates associated with certain financial instruments. The Company accounts for derivatives in accordance with ASC 815, "Derivatives and Hedging". Under current guidance, derivative transactions are classified as either cash flow hedges or fair value hedges or they are not designated as hedging instruments. The Company designates each
derivative instrument at the inception of the derivative transaction in accordance with this guidance. Information concerning each of the Company's categories of derivatives as of
March 31, 2016
and
December 31, 2015
is presented below.
Derivatives designated as cash flow hedges
During 2010, the Company entered into an interest rate swap agreement as part of the interest rate risk management process. The swap was designated as a cash flow hedge intended to hedge the variability of cash flows associated with the Company’s trust preferred capital securities. The swap hedges the cash flow associated with the trust preferred capital notes wherein the Company receives a floating rate based on LIBOR from a counterparty and pays a fixed rate of
2.59%
to the same counterparty. The swap is calculated on a notional amount of
$5.2 million
. The term of the swap is
10
years and commenced on
October 23, 2010
. The Company has cash collateral reserved for this swap in the amount of
$400,000
as of March 31, 2016 and December 31, 2015. The swap was entered into with a counterparty that met the Company’s credit standards and the agreement contains collateral provisions protecting the at-risk party. The Company believes that the credit risk inherent in the contract is not significant.
During 2013, the Company entered into an interest rate swap agreement as part of the interest rate risk management process. The swap has been designated as a cash flow hedge intended to hedge the variability of cash flows associated with the Company’s FHLB borrowings. The swap hedges the cash flows associated with the FHLB borrowings wherein the Company receives a floating rate based on LIBOR from a counterparty and pays a fixed rate of
1.43%
to the same counterparty. The swap is calculated on a notional amount of
$10.0 million
. The term of the swap is
5
years and commenced on November 25, 2013. The Company has cash collateral reserved for this swap in the amount of
$300,000
as of March 31, 2016 and December 31, 2015. The swap was entered into with a counterparty that met the Company’s credit standards and the agreement contains collateral provisions protecting the at-risk party. The Company believes that the credit risk inherent in the contract is not significant.
Amounts receivable or payable are recognized as accrued under the terms of the agreement, with the effective portion of the derivative’s unrealized gain or loss recorded as a component of other comprehensive income. The ineffective portion of the unrealized gain or loss, if any, would be recorded in other expense. The Company has assessed the effectiveness of the hedging relationship by comparing the changes in cash flows on the designated hedged item. As a result of this assessment, there was
no
hedge ineffectiveness identified for the three months ended March 31, 2016 and 2015. At
December 31, 2015
there was
no
hedge ineffectiveness identified for this interest rate swap.
The amounts included in accumulated other comprehensive income as unrealized losses (fair value, net of tax) were
$344,000
and
$195,000
as of
March 31, 2016
and
December 31, 2015
, respectively.
Information concerning the derivatives designated as a cash flow hedges at
March 31, 2016
and
December 31, 2015
is presented in the following tables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
Positions (#)
|
|
Notional Amount
(in thousands)
|
|
Asset
(in thousands)
|
|
Liability
(in thousands)
|
|
Receive Rate
|
|
Pay
Rate
|
|
Life (Years)
|
Pay fixed - receive floating interest rate swap
|
1
|
|
$
|
5,155
|
|
|
$
|
—
|
|
|
$
|
346
|
|
|
0.62
|
%
|
|
2.59
|
%
|
|
4.5
|
Pay fixed - receive floating interest rate swap
|
1
|
|
$
|
10,000
|
|
|
$
|
—
|
|
|
$
|
178
|
|
|
0.43
|
%
|
|
1.43
|
%
|
|
2.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
Positions (#)
|
|
Notional Amount
(in thousands)
|
|
Asset
(in thousands)
|
|
Liability
(in thousands)
|
|
Receive Rate
|
|
Pay
Rate
|
|
Life (Years)
|
Pay fixed - receive floating interest rate swap
|
1
|
|
$
|
5,155
|
|
|
$
|
—
|
|
|
$
|
226
|
|
|
0.32
|
%
|
|
2.59
|
%
|
|
4.8
|
Pay fixed - receive floating interest rate swap
|
1
|
|
$
|
10,000
|
|
|
$
|
—
|
|
|
$
|
71
|
|
|
0.23
|
%
|
|
1.43
|
%
|
|
3.0
|
Derivatives not designated as hedging instruments
Two-way client loan swaps
During the fourth quarter of 2014 and 2012, the Company entered into certain interest rate swap contracts that are not designated as hedging instruments. These derivative contracts relate to transactions in which we enter into an interest rate swap with a customer while at the same time entering into an offsetting interest rate swap with another financial institution. In connection with each swap transaction, the Company agrees to pay interest to the customer on a notional amount at a variable interest rate and receive interest from the customer on an identical notional amount at a fixed interest rate. At the same time, the Company agrees to pay the counterparty the same fixed interest rate on the same notional amount and receive the same variable interest rate on the same notional amount. The transaction allows our clients to effectively convert a variable rate loan into a fixed rate loan. Because the Company acts as an intermediary for our customers, changes in the fair value of the underlying derivatives contracts offset each other and do not significantly impact our results of operations.
Certain additional risks arise from interest rate swap contracts in that the counterparties to the contracts may not be able to meet the terms of the contracts. We do not expect any counterparty to fail to meet its obligations.
Information concerning two-way client interest rate swaps not designated as either fair value or cash flow hedges is presented in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
Positions (#)
|
|
Notional Amount
(in thousands)
|
|
Asset
(in thousands)
|
|
Liability
(in thousands)
|
|
Receive Rate
|
|
Pay
Rate
|
|
Life (Years)
|
Pay fixed - receive floating interest rate swap
|
1
|
|
$
|
3,698
|
|
|
$
|
—
|
|
|
$
|
128
|
|
|
1 month
LIBOR
plus 200 BP
|
|
|
3.90
|
%
|
|
11.6
|
Pay fixed - receive floating interest rate swap
|
1
|
|
1,695
|
|
|
—
|
|
|
114
|
|
|
1 month
LIBOR
plus 180 BP
|
|
|
4.09
|
%
|
|
8.6
|
Pay floating - receive fixed interest rate swap
|
1
|
|
3,698
|
|
|
128
|
|
|
—
|
|
|
3.90
|
%
|
|
1 month
LIBOR
plus 200 BP
|
|
|
11.6
|
Pay floating - receive fixed interest rate swap
|
1
|
|
1,695
|
|
|
114
|
|
|
—
|
|
|
4.09
|
%
|
|
1 month
LIBOR
plus 180 BP
|
|
|
8.6
|
Total derivatives not designated
|
|
|
$
|
10,786
|
|
|
$
|
242
|
|
|
$
|
242
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
Positions (#)
|
|
Notional Amount
(in thousands)
|
|
Asset
(in thousands)
|
|
Liability
(in thousands)
|
|
Receive Rate
|
|
Pay
Rate
|
|
Life (Years)
|
Pay fixed - receive floating interest rate swap
|
1
|
|
|
$
|
3,760
|
|
|
$
|
—
|
|
|
$
|
21
|
|
|
1 month
LIBOR
plus 200 BP
|
|
|
3.90
|
%
|
|
11.9
|
Pay fixed - receive floating interest rate swap
|
1
|
|
|
1,706
|
|
|
—
|
|
|
52
|
|
|
1 month
LIBOR
plus 180 BP
|
|
|
4.09
|
%
|
|
8.9
|
Pay floating - receive fixed interest rate swap
|
1
|
|
|
3,760
|
|
|
21
|
|
|
—
|
|
|
3.90
|
%
|
|
1 month
LIBOR
plus 200 BP
|
|
|
11.9
|
Pay floating - receive fixed interest rate swap
|
1
|
|
|
1,706
|
|
|
52
|
|
|
—
|
|
|
4.09
|
%
|
|
1 month
LIBOR
plus 180 BP
|
|
|
8.9
|
Total derivatives not designated
|
|
|
$
|
10,932
|
|
|
$
|
73
|
|
|
$
|
73
|
|
|
|
|
|
|
|
Rate Cap Transaction
At March 31, 2016, the Company had
one
derivative instrument in the form of an interest rate cap agreement with a notional amount of
$10.0 million
. The notional amount of the financial derivative instrument does not represent exposure to credit loss. The Company is exposed to credit loss only to the extent the counter-party defaults in its responsibility to pay interest under the terms of the agreement. The credit risk in derivative instruments is mitigated by entering into transactions with highly-rated counterparties that management believes to be creditworthy and by limiting the amount of exposure to each counter-party. We do not expect any counterparty to fail to meet its obligations.
The details of the interest rate cap agreement as of March 31, 2016 and December 31, 2015 are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
(Dollars in thousands)
|
Notional Amount
|
|
Termination Date
|
|
3-Month LIBOR Strike Rate
|
|
Premium Paid
|
|
Unamortized Premium at
March 31, 2016
|
|
Fair Value
March 31, 2016
|
|
Cumulative Cash Flows Received
|
$
|
10,000
|
|
|
September 8, 2018
|
|
2.00
|
%
|
|
$
|
70
|
|
|
$
|
70
|
|
|
$
|
12
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
(Dollars in thousands)
|
Notional Amount
|
|
Termination Date
|
|
3-Month LIBOR Strike Rate
|
|
Premium Paid
|
|
Unamortized Premium at December 31, 2015
|
|
Fair Value
December 31, 2015
|
|
Cumulative Cash Flows Received
|
$
|
10,000
|
|
|
September 8, 2018
|
|
2.00
|
%
|
|
$
|
70
|
|
|
$
|
70
|
|
|
$
|
39
|
|
|
$
|
—
|
|
In the third quarter of 2015, the interest rate cap agreement was purchased to limit the Company's exposure to rising interest rates. Under the terms of the agreement, the Company paid a premium of
$70,000
for the right to receive cash flow payments if 3-month LIBOR rises above the cap of
2.00%
, thus effectively ensuring interest expense is capped at a maximum rate of
2.00%
for the duration of the agreement. The interest rate cap agreement is a derivative not designated as a hedging instrument.
At March 31, 2016 and December 31, 2015, the total fair value of the interest rate cap agreement was
$12,000
and
$39,000
, respectively. The fair value of the interest rate cap agreement is included in other assets on the Company's consolidated balance sheets. Changes in fair value are recorded in earnings in other operating expenses. At March 31, 2016 and December 31, 2015,
$27,000
and
$31,000
was recognized in other operating expenses. There was
no
interest rate cap at March 31, 2015, therefore there were
no
changes in fair value and
no
amounts recognized in other operating expenses.
The premium paid on the interest rate cap agreement is recognized as a decrease in interest income over the duration of the agreement using the caplet method. For the three months ended March 31, 2016 and for the year ended December 31, 2015,
no
premium amortization was required.
Note 13. Other Real Estate Owned (OREO)
At March 31, 2016 and December 31, 2015, OREO balances were
$3.7 million
and
$3.3 million
, respectively. OREO is primarily comprised of residential properties and non-residential properties, and are located primarily in the state of Virginia. Changes in the balance for OREO, net of valuation allowances, are as follows:
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
March 31, 2016
|
|
December 31, 2015
|
Balance at the beginning of year, net
|
$
|
3,345
|
|
|
$
|
4,051
|
|
Transfers from loans and to premises and equipment, net
|
526
|
|
|
287
|
|
Sales proceeds
|
—
|
|
|
(814
|
)
|
Loss on disposition
|
—
|
|
|
(100
|
)
|
Less valuation adjustments
|
(144
|
)
|
|
(79
|
)
|
Balance at the end of year, net
|
$
|
3,727
|
|
|
$
|
3,345
|
|
Expenses applicable to OREO, were
$167,000
and
$67,000
during the three months ended March 31, 2016 and 2015, respectively.
The major classifications of OREO in the consolidated balance sheets at March 31, 2016 and December 31, 2015 were as follows:
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
March 31, 2016
|
|
December 31, 2015
|
Real estate loans:
|
|
|
|
Construction
|
$
|
880
|
|
|
$
|
853
|
|
Secured by farmland
|
—
|
|
|
—
|
|
Secured by 1-4 family residential
|
2,336
|
|
|
1,958
|
|
Other real estate loans
|
511
|
|
|
534
|
|
Total real estate loans
|
$
|
3,727
|
|
|
$
|
3,345
|
|
At March 31, 2016, the Company had
no
consumer mortgage loans secured by residential real estate for which foreclosure was in process. At December 31, 2015, the Company had
one
consumer mortgage loan secured by residential real estate that totaled
$530,000
for which foreclosure was in process and subsequently transfered to OREO.
Note 14. Low Income Housing Tax Credits
The Company has invested in
four
separate housing equity funds at March 31, 2016 and December 31, 2015. The general purpose of these funds is to encourage and assist participants in investing in low-income residential rental properties located in the Commonwealth of Virginia, develop and implement strategies to maintain projects as low-income housing, deliver Federal Low Income Housing Credits to investors, allocate tax losses and other possible tax benefits to investors, and to preserve and protect project assets. The investments in these funds were recorded as other assets on the consolidated balance sheets and were
$8.87 million
and
$9.03 million
at March 31, 2016 and December 31, 2015, respectively. The expected terms of these investments and the related tax benefits run through 2033. Tax credits and other tax benefits recognized during the three months ended March 31, 2016 and 2015, were
$146,000
and
$123,000
, respectively, related to these investments. Total projected tax credits to be received for 2016 are
$531,000
, which is based on the most recent quarterly estimates received from the funds. Additional capital calls expected for the funds totaled
$9.31 million
at March 31, 2016 and December 31, 2015, and are included in other liabilities on the consolidated balance sheets.