The consolidated financial statements and
related footnotes of the Company are presented following.
Notes to Consolidated Financial Statements
Years Ended December 31, 2017, 2016 and
2015
Note 1.
|
Summary of Significant Accounting Policies
|
The accounting and reporting policies of
Village Bank and Trust Financial Corp. and subsidiary (the “Company”) conform to accounting principles generally accepted
in the United States of America (“GAAP”) and to general practice within the banking industry. The following is a description
of the more significant of those policies:
Business
The Company is the holding company of Village
Bank (the “Bank”). The Bank opened to the public on December 13, 1999 as a traditional community bank offering deposit
and loan services to individuals and businesses in the Richmond, Virginia metropolitan area. In 2017, the Bank entered a new market
by opening a branch in Williamsburg, Virginia. Village Bank Mortgage Corporation (“Village Mortgage”) is a full service
mortgage banking company wholly-owned by the Bank.
The Bank is subject to regulations of certain
federal and state agencies and undergoes periodic examinations by those regulatory authorities. As a consequence of the extensive
regulation of commercial banking activities, the Bank’s business is susceptible to being affected by state and federal legislation
and regulations.
The majority of the Company’s real
estate loans are collateralized by properties in the Richmond, Virginia metropolitan area. Accordingly, the ultimate collectability
of those loans collateralized by real estate is particularly susceptible to changes in market conditions in the Richmond area.
Basis of presentation
and consolidation
The consolidated financial statements include
the accounts of the Company, the Bank and Village Mortgage. All material intercompany balances and transactions have been eliminated
in consolidation.
Use of estimates
The preparation of the consolidated financial
statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities as of the balance sheets dates and revenues and expenses during
the reporting period. Actual results could differ significantly from those estimates. Material estimates that are particularly
susceptible to significant change include the determination of the allowance for loan losses and its related provision, and the
estimate of the fair value of assets held for sale.
Investment securities
At the time of purchase, debt securities
are classified into the following categories: held to maturity, available for sale or trading. Debt securities that the Company
has both the positive intent and ability to hold to maturity are classified as held to maturity. Held to maturity securities are
stated at amortized cost adjusted for amortization of premiums and accretion of discounts on purchase using a method that approximates
the effective interest method. Investments classified as trading or available for sale are stated at fair value. Changes in fair
value of trading investments are included in current earnings while changes in fair value of available for sale investments are
excluded from current earnings and reported, net of taxes, as a separate component of other comprehensive income. Presently, the
Company does not maintain a portfolio of trading securities or held to maturity.
The fair value of investment securities
held to maturity and available for sale is estimated based on quoted prices for similar assets determined by bid quotations received
from independent pricing services. Declines in the fair value of securities below their amortized cost that are other than temporary
are reflected in earnings or other comprehensive income, as appropriate. For those debt securities whose fair value is less than
their amortized cost basis, we consider our intent to sell the security, whether it is more likely than not that we will be required
to sell the security before recovery and if we do not expect to recover the entire amortized cost basis of the security. In analyzing
an issuer’s financial condition, we may consider whether the securities are issued by the federal government or its agencies,
whether downgrades by bond rating agencies have occurred and the results of reviews of the issuer’s financial condition.
Interest income is recognized when earned.
Realized gains and losses for securities classified as available-for-sale and held-to-maturity are included in earnings and are
derived using the specific identification method for determining the cost of securities sold.
Loans held for sale
The Company, through the Bank’s mortgage
banking subsidiary, Village Mortgage, originates residential mortgage loans for sale in the secondary market. Mortgage loans originated
and intended for sale in the secondary market are carried at the lower of cost or estimated fair value on an aggregate basis as
determined by outstanding commitments from investors. Upon entering into a commitment to originate a loan, the Company locks in
the loan and rate with an investor and commits to deliver the loan if settlement occurs on a best efforts basis, thus limiting
interest rate risk. Certain additional risks exist that the investor fails to meet its purchase obligation; however, based on historical
performance and the size and nature of the investors the Company does not expect them to fail to meet their obligation. Net unrealized
losses, if any, are recognized through a valuation allowance by charges to income.
Residential mortgage loans held for sale
are sold to the permanent investor with the mortgage servicing rights released. Gains or losses on sales of mortgage loans are
recognized based on the difference between the selling price and the carrying value of the related mortgage loans sold. Gains on
the sale of loans totaling approximately $5,415,000, $6,430,000 and $6,076,000 were realized during the years ended December 31,
2017, 2016 and 2015, respectively.
Once a residential mortgage loan is sold
to a permanent investor, the Company has no further involvement or retained interest in the loan. There are limited circumstances
in which the permanent investor can contractually require the Company to repurchase the loan. The Company makes no provision for
any such recourse related to loans sold as history has shown repurchase of loans under these circumstances has been remote.
The Company, through Village Mortgage,
enters into commitments to originate residential mortgage loans in which the interest rate on the loan is determined prior to funding,
termed rate lock commitments. Such rate lock commitments on mortgage loans to be sold in the secondary market are considered to
be derivatives. The period of time between issuance of a loan commitment and closing and sale of the loan generally ranges from
30 to 45 days. The Company protects itself from changes in interest rates during this period by requiring a firm purchase agreement
from a permanent investor before a loan can be closed. As a result, the Company is not exposed to losses nor will it realize gains
or losses related to its rate lock commitments due to changes in interest rates.
The fair value of rate lock commitments
and best efforts contracts is not readily ascertainable with precision because rate lock commitments and best efforts contracts
are not actively traded in stand-alone markets. The Company determines the fair value of rate lock commitments and best efforts
contracts by measuring the change in the value of the underlying asset while taking into consideration the probability that the
rate lock commitments will close. Due to high correlation between rate lock commitments and best efforts contracts, no significant
gains or losses have occurred on the rate lock commitments.
At December 31, 2017, Village Mortgage
had rate lock commitments to originate mortgage loans aggregating approximately $13,888,000 and loans held for sale of approximately
$8,047,000. Village Mortgage has entered into corresponding commitments with third party investors to sell loans of approximately
$21,935,000. Under the best efforts contractual relationship with these investors, Village Mortgage is obligated to sell the loans,
and the investor is obligated to purchase the loans, only if the loans close. No other obligation exists. As a result of these
best efforts contractual relationships with these investors Village Mortgage is not exposed to losses, nor will it realize gains,
related to its rate lock commitments due to changes in interest rates.
Transfers of financial
assets
Transfers of financial assets are accounted
for as sales when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when:
(1) the assets have been isolated from the Bank and put presumptively beyond the reach of the transferor and its creditors, even
in bankruptcy or other receivership, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage
of that right) to pledge or exchange the transferred assets, and (3) the Bank does not maintain effective control over the transferred
assets through an agreement to repurchase them before their maturity or the ability to unilaterally cause the holder to return
specific assets. Our transfers of financial assets are limited to commercial loan participations sold, which were insignificant
for 2017, 2016 and 2015, and the sale of residential mortgage loans in the secondary market; the extent of which are disclosed
in the Consolidated Statements of Cash Flows.
Loans
Loans are stated at the principal amount
outstanding, net of unearned income. Loan origination fees and certain direct loan origination costs are deferred and amortized
to interest income over the life of the loan as an adjustment to the loan’s yield over the term of the loan.
Interest is accrued on outstanding principal
balances, unless the Company considers collection to be doubtful. Commercial and unsecured consumer loans are designated as nonaccrual
when payment is delinquent 90 days or at the point which the Company considers collection doubtful, if earlier. Mortgage loans
and most other types of consumer loans past due 90 days or more may remain on accrual status if management determines that such
amounts are collectible. When loans are placed in nonaccrual status, previously accrued and unpaid interest is reversed against
interest income in the current period and interest is subsequently recognized only to the extent cash is received as long as the
remaining recorded investment in the loan is deemed fully collectible. Loans may be placed back on accrual status when, in the
opinion of management, the circumstances warrant such action such as a history of timely payments subsequent to being placed on
nonaccrual status, additional collateral is obtained or the borrowers cash flows improve.
Standby letters of credit are written conditional
commitments issued by the Bank to guarantee the performance of a customer to a third party. The credit risk involved in issuing
letters of credit is essentially the same as that involved in extending loans to customers. The total contractual amount of standby
letters of credit, whose contract amounts represent credit risk was approximately $4,615,000 at December 31, 2017 and approximately
$4,397,000 at December 31, 2016.
Allowance for loan
losses
The allowance for loan losses is established
as losses are estimated to have occurred through a provision for loan losses charged to earnings. Loan losses are charged against
the allowance when management believes the uncollectibility of a loan balance is probable. Subsequent recoveries, if any, are credited
to the allowance.
The allowance represents an amount that,
in management’s judgment, will be adequate to absorb any losses on existing loans that may become uncollectible. Management’s
judgment in determining the adequacy of the allowance is based on evaluations of the collectability of loans while taking into
consideration such factors as changes in the nature and volume of the loan portfolio, current economic conditions which may affect
a borrower’s ability to repay, overall portfolio quality, and review of specific potential losses. This evaluation is inherently
subjective, as it requires estimates that are susceptible to significant revision as more information becomes available.
The allowance consists of general and specific
components. The general component covers non-classified loans and is based on historical loss experience and risk characteristics
(i.e. trends in delinquencies and other nonperforming loans, changes in economic conditions on both a local and national level,
and changes in the categories of loans comprising the loan portfolio) adjusted for qualitative factors. The specific component
relates to loans that we have concluded, based on the value of collateral, guarantees and any other pertinent factors, have known
losses. For such loans that are also classified as impaired, an allowance is established when the discounted cash flows (or collateral
value or observable market price) of the impaired loan is lower than the carrying value of that loan. An unallocated component
is maintained to cover uncertainties that could affect management’s estimate of probable losses. The unallocated component
of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating
specific and general losses in the portfolio.
A loan is considered impaired when, based
on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal
or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining
impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments
when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management
determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of
the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s
prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on
a loan by loan basis for commercial and construction loans by either the present value of the expected future cash flows discounted
at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the
loan is collateral dependent.
Troubled debt restructurings
A loan or lease is accounted for as a troubled
debt restructuring (“TDR”) if we, for economic or legal reasons related to the borrower’s financial condition,
grant a significant concession to the borrower that we would not otherwise consider. A TDR may involve the receipt of assets from
the debtor in partial or full satisfaction of the loan or lease, or a modification of terms such as a reduction of the stated interest
rate or balance of the loan or lease, a reduction of accrued interest, an extension of the maturity date at a stated interest rate
lower than the current market rate for a new loan with similar risk, or some combination of these concessions. TDRs generally remain
categorized as nonperforming loans and leases until a six-month payment history has been maintained.
In accordance with current accounting guidance,
loans modified as troubled debt restructurings are, by definition, considered to be impaired loans. Impairment for these
loans is measured on a loan-by-loan basis similar to other impaired loans as described above under
Allowance for loan losses
.
Certain loans modified as TDRs may have been previously measured for impairment under a general allowance methodology (i.e., pooling),
thus at the time the loan is modified as a TDR the allowance will be impacted by the difference between the results of these two
measurement methodologies. Loans modified as TDRs that subsequently default are factored into the determination of the allowance
in the same manner as other defaulted loans.
Real estate acquired in settlement of
loans
Real estate acquired through or in lieu
of foreclosure is initially recorded at estimated fair value less estimated selling costs. Subsequent to the date of acquisition,
it is carried at the lower of cost or fair value, adjusted for net selling costs. If fair value declines subsequent to foreclosure
a valuation allowance is recorded through expense. Operating costs after acquisition are expensed as incurred. The valuation allowance
was $281,000 and $612,000 at December 31, 2017 and 2016, respectively. Costs relating to the development and improvement of such
property are capitalized when appropriate, whereas those costs relating to holding the property are expensed.
Assets held for sale
Assets held for sale at December 31, 2017
and December 31, 2016 included a branch building we previously closed. The Company periodically evaluates the value of assets held
for sale and records an impairment charge for any subsequent declines in fair value less selling costs.
Premises and equipment
Land is carried at cost. Premises and equipment
are carried at cost less accumulated depreciation and amortization. Depreciation of buildings and improvements is computed using
the straight-line method over the estimated useful lives of the assets of 39 years. Depreciation of equipment is computed using
the straight-line method over the estimated useful lives of the assets ranging from 3 to 7 years. Amortization of premises (leasehold
improvements) is computed using the straight-line method over the term of the lease or estimated lives of the improvements, whichever
is shorter.
Income taxes
Deferred income taxes are recognized for
the tax consequences of “temporary differences” by applying enacted tax rates applicable to future years to differences
between the financial statement carrying amounts and the tax bases of existing assets and liabilities. The primary temporary differences
are the allowance for loan losses and depreciation and amortization. The effect on recorded deferred income taxes of a change in
tax laws or rates is recognized in income in the period that includes the enactment date. To the extent that available evidence
about the future raises doubt about the realization of a deferred income tax asset, a valuation allowance is established. A tax
position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in
a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that
is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not”
test, no tax benefit is recorded. Interest and penalties associated with unrecognized tax benefits are classified as taxes other
than income in the statement of income. The Company has no uncertain tax positions.
Consolidated statements
of cash flows
For purposes of reporting cash flows, cash
and cash equivalents include cash on hand, due from banks (including cash items in process of collection), interest-bearing deposits
with banks and federal funds sold. Generally, federal funds are purchased and sold for one-day periods. Cash flows from loans originated
by the Bank for investment and deposits are reported net. The Company did not pay income taxes in 2017, 2016 and 2015.
Comprehensive income
Comprehensive income is defined to include
all changes in equity except those resulting from investments by owners and distributions to owners. Total comprehensive income
consists of net income (loss) and other comprehensive income. The Company’s other comprehensive income and accumulated other
comprehensive income are comprised of unrealized gains and losses on investment securities available for sale and amortization
of the unfunded pension liability. At December 31, 2017 and 2016 the accumulated other comprehensive income was comprised of unrealized
losses on securities available for sale of $391,000 and $181,000 and unfunded pension liability of $61,000 and $60,000 net of tax,
respectively.
Earnings
per common share
Basic earnings (loss) per common share
represent net income available to common shareholders, which represents net income (loss) less dividends paid or payable to preferred
stock shareholders, divided by the weighted-average number of common shares outstanding during the period. For diluted earnings
per common share, net income available to common shareholders is divided by the weighted average number of common shares issued
and outstanding for each period plus amounts representing the dilutive effect of stock options, restricted stock, and warrants,
as well as any adjustment to income that would result from the assumed issuance. The effects of stock options, restricted stock,
and warrants are excluded from the computation of diluted earnings per common share in periods in which the effect would be antidilutive.
Stock options, restricted stock, and warrants are antidilutive if the underlying average market price of the stock that can be
purchased for the period is less than the exercise price of the option or warrant. Potential common shares that may be issued by
the Company relate solely to outstanding stock options, restricted stock, and warrants and are determined using the treasury stock
method.
Stock incentive plan
On May 26, 2015, the Company’s shareholders
approved the adoption of the Village Bank and Trust Financial Corp. 2015 Stock Incentive Plan (the “2015 Plan”) authorizing
the issuance of up to 60,000 shares of common stock. The 2015 Plan was adopted to replace the Company’s 2006 stock incentive
plan (the “2006 Plan”) and any new awards will be made pursuant to the 2015 Plan. The prior awards made under the 2006
Plan were unchanged by the adoption of the 2015 Plan and continue to be governed by the terms of the 2006 Plan. See Note 14 for
more information on the stock incentive plans.
Fair
values of financial instruments
The fair value of an asset or liability
is the price that would be received to sell that asset or paid to transfer that liability in an orderly transaction between market
participants. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal
market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability.
The price in the principal (or most advantageous) market used to measure the fair value of the asset or liability shall not be
adjusted for transaction costs. An orderly transaction is a transaction that assumes exposure to the market for a period prior
to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets and
liabilities; it is not a forced transaction. Market participants are buyers and sellers in the principal market that are independent,
knowledgeable, able to transact and willing to transact. See Note 17 for the methods and assumptions the Bank uses in estimating
fair values of financial instruments.
Insurance of accounts, assessments and
regulation by the FDIC
Our deposits are insured by the Federal
Deposit Insurance Corporation (“FDIC”) up to the limits set forth under applicable law, currently $250,000. We are
subject to the deposit insurance assessments of the Deposit Insurance Fund (“DIF”). The amount of the assessment is
a function of the institution’s risk category, of which there are four, and its assessment base. An institution’s risk
category is determined according to its supervisory ratings and capital levels and is used to determine the institution’s
assessment rate. The assessment base is an institution’s average consolidated total assets less its average tangible equity.
The FDIC is authorized to prohibit any
DIF-insured institution from engaging in any activity that the FDIC determines by regulation or order to pose a serious threat
to the respective insurance fund. Also, the FDIC may initiate enforcement actions against banks, after first giving the institution’s
primary regulatory authority an opportunity to take such action. The FDIC may terminate the deposit insurance of any depository
institution if it determines, after a hearing, that the institution has engaged or is engaging in unsafe or unsound practices,
is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, order or any condition
imposed in writing by the FDIC. It also may suspend deposit insurance temporarily during the hearing process for the permanent
termination of insurance if the institution has no tangible capital. If deposit insurance is terminated, the deposits at the institution
at the time of termination, less subsequent withdrawals, shall continue to be insured for a period from six months to two years,
as determined by the FDIC. We are aware of no existing circumstances that could result in termination of our deposit insurance.
Segments
The Company has two reportable segments:
traditional commercial banking and mortgage banking. Revenues from commercial banking operations consist primarily of interest
earned on loans and securities and fees from deposit services. Mortgage banking operating revenues consist principally of interest
earned on mortgage loans held for sale, gains on sales of loans in the secondary mortgage market, and loan origination fee income.
The commercial banking segment provides
the mortgage banking segment with the short-term funds needed to originate mortgage loans through a warehouse line of credit and
charges the mortgage banking segment interest based on the commercial banking segment’s cost of funds. Additionally, the
mortgage banking segment leases premises from the commercial banking segment. These transactions are eliminated in the consolidation
process.
New accounting pronouncements
In May 2014, the Financial Accounting Standards
Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with
Customers: Topic 606.” This ASU revised guidance for the recognition, measurement, and disclosure of revenue from contracts
with customers. The original guidance has been amended through subsequent accounting standard updates that resulted in technical
corrections, improvements, and a one-year deferral of the effective date to January 1, 2018. The guidance, as amended, is applicable
to all entities and will replace significant portions of existing industry and transaction-specific revenue recognition rules with
a more principles-based recognition model. Most revenue associated with financial instruments, including interest income, loan
origination fees, and credit card fees, is outside the scope of the guidance. Gains and losses on investment securities, derivatives,
and sales of financial instruments are similarly excluded from the scope. Entities can elect to adopt the guidance either on a
full or modified retrospective basis. Full retrospective adoption will require a cumulative effect adjustment to retained earnings
as of the beginning of the earliest comparative period presented. Modified retrospective adoption will require a cumulative effect
adjustment to retained earnings as of the beginning of the reporting period in which the entity first applies the new guidance.
The Company has adopted this guidance as of the effective date, January 1, 2018, via the modified retrospective approach. The Company
has completed its assessment of the adoption of this ASU, noting the standard will result in expanded disclosures related to non-interest
income and enhance the qualitative disclosures on the revenues within the scope of the new guidance. The Company has concluded
the adoption of this accounting guidance will not have a material impact on the Company’s consolidated financial statements.
In January 2016, the FASB issued ASU No.
2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities.” This ASU requires an
entity to: (i) measure equity investments at fair value through net income, with certain exceptions; (ii) present in Other Comprehensive
Income the changes in instrument-specific credit risk for financial liabilities measured using the fair value option; (iii) present
financial assets and financial liabilities by measurement category and form of financial asset; (iv) calculate the fair value of
financial instruments for disclosure purposes based on an exit price and; (v) assess a valuation allowance on deferred tax assets
related to unrealized losses of AFS debt securities in combination with other deferred tax assets. The ASU provides an election
to subsequently measure certain nonmarketable equity investments at cost less any impairment and adjusted for certain observable
price changes. The ASU also requires a qualitative impairment assessment of such equity investments and amends certain fair value
disclosure requirements. This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after
December 15, 2017. Early adoption is only permitted for the provision related to instrument-specific credit risk. The Company does
not expect ASU 2016-01 to have a material impact on the Company’s financial position, results of operations, or cash flows.
In February 2016, the FASB issued ASU No.
2016-02, “Leases (Topic 842)”. This ASU requires lessees to recognize assets and liabilities arising from most
operating leases on the statement of financial position. ASU 2016-02 will be effective for the Company for the fiscal years beginning
after December 15, 2018 with early adoption permitted. The Company has determined that the provisions of ASU-2016-02 may result
in an increase in assets to recognize the present value of the lease obligations with a corresponding increase in liabilities,
however, the Company does not expect this to have a material impact on the Company’s financial position, results of operations
or cash flows.
In March 2016, the FASB issued ASU No.
2016-09, “Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.”
This ASU simplifies several aspects of the accounting for employee share-based payment transactions, including the accounting for
income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows.
This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. The Company
has concluded the adoption of ASU No. 2016-09 has not had a material impact on its consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13,
“Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” This
ASU amends guidance on reporting credit losses for assets held at amortized cost basis and available-for-sale debt securities by
eliminating the probable initial recognition threshold (incurred loss methodology) and requiring entities to reflect its current
estimate of all expected credit losses. The amendments in the ASU are effective beginning after December 15, 2019 and for interim
periods within that year. Early adoption is permitted beginning after December 15, 2018. Entities will apply the amendments in
this ASU through a cumulative-effect adjustment to retained earnings in the first period effective. While the Company is currently
evaluating the provisions of ASU No. 2016-13 to determine the potential impact the new standard will have on the Company’s
Consolidated Financial Statements, it has taken steps to prepare for the implementation when it becomes effective, such as forming
an internal task force, gathering pertinent data, consulting with outside professionals, and evaluating its current IT systems.
This guidance may result in material changes in the Company's accounting for credit losses on financial instruments
In August 2016, the FASB issued ASU No.
2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Payments (a consensus of Merging
Issues Task Force).” This ASU attempts to clarify how certain cash receipts and cash payments are presented and classified
in the statement of cash flows. The purpose of this update is to reduce existing diversity in practice in eight areas addressed
by the update. The amendment will be effective for the Company for fiscal years beginning after December 15, 2017, including interim
periods within those fiscal years. The Company has concluded the adoption of ASU No. 2016-15 will not have a material impact on
its consolidated financial statements.
In March 2017, the FASB issued ASU No. 2017-08, “Receivables
– Nonrefundable Fees and Other Cost (Subtopic 310-20), Premium Amortization on Purchased Callable Debt Securities.” These
amendments shorten the amortization period for certain callable debt securities held at a premium. Specifically, the amendments
require the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities
held at a discount; the discount continues to be amortized to maturity. The guidance is effective for public business entities
for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted
including adoption in an interim period. If an entity early adopts in an interim period, any adjustments should be reflected as
of the beginning of the fiscal year that includes the interim period. The amendments should be applied on a modified retrospective
basis, with a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. The Company
does have exposure and is assessing the impact of ASU 2017-08, and may choose early adoption. Overall, the Company does
not expect it to have a material impact on its accounting.
In May 2017, the FASB issued ASU No. 2017-09,
“Scope of Modification Accounting.” The amendment clarifies Topic 718,
Compensation – Stock Compensation
,
such that an entity must apply modification accounting to changes in the terms or conditions of a share-based payment award unless
all of the following criteria are met: (1) the fair value of the modified award is the same as the fair value of the original award
immediately before the modification, provided that the ASU indicates that if the modification does not affect any of the inputs
to the valuation technique used to value the award, the entity is not required to estimate the value immediately before and after
the modification; (2) the vesting conditions of the modified award are the same as the vesting conditions of the original award
immediately before the modification; and (3) the classification of the modified award as an equity instrument or a liability instrument
is the same as the classification of the original award immediately before the modification. The ASU is effective for all entities
for fiscal years beginning after December 15, 2017, including interim periods within those years. The Company has concluded the
adoption of ASU No. 2017-09 will not have a material impact on its consolidated financial statements.
In February 2018, the FASB issued ASU No.
2018-02, “Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated
Other Comprehensive Income”, to address a narrow-scope financial reporting issue that arose as a consequence of the change
in the tax law. On December 22, 2017 the U.S. federal government enacted the Tax Cuts and Jobs Act of 2017 (“Tax Act”).
ASU No. 2018-02 permits a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects
resulting from the new federal corporate income tax rate under the Tax Act. The amount of the reclassification would be the difference
between the historical corporate income tax rate of 35% and the newly enacted 21% corporate income tax rate. This
ASU is effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years
with early adoption permitted, including adoption in any interim period, for (i) public business entities for reporting periods
for which financial statements have not yet been issued and (ii) all other entities for reporting periods for which financial statements
have not yet been made available for issuance. The changes are required to be applied retrospectively to each period (or periods)
in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Act is recognized. The Corporation's
early adoption of ASU No. 2018-02 resulted in the reclassification from accumulated other comprehensive income (loss) to retained
earnings of $73,000, reflected in the Consolidated Statements of Changes in Shareholders' Equity.
Note 2.
|
Investment Securities Available for Sale
|
The amortized cost and estimated fair value
of investment securities available for sale as of December 31, 2017 and 2016 are as follows (in thousands):
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Estimated
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government agencies
|
|
$
|
23,976
|
|
|
$
|
-
|
|
|
$
|
(293
|
)
|
|
$
|
23,683
|
|
Mortgage-backed securities
|
|
|
22,127
|
|
|
|
1
|
|
|
|
(188
|
)
|
|
|
21,940
|
|
Corporate debt
|
|
|
4,103
|
|
|
|
11
|
|
|
|
(26
|
)
|
|
|
4,088
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
50,206
|
|
|
$
|
12
|
|
|
$
|
(507
|
)
|
|
$
|
49,711
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government agencies
|
|
$
|
32,475
|
|
|
$
|
-
|
|
|
$
|
(229
|
)
|
|
$
|
32,246
|
|
Mortgage-backed securities
|
|
|
11,694
|
|
|
|
1
|
|
|
|
(47
|
)
|
|
|
11,648
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
44,169
|
|
|
$
|
1
|
|
|
$
|
(276
|
)
|
|
$
|
43,894
|
|
There were no investment securities pledged
to secure deposit repurchase agreements at December 31, 2017 and approximately $1,050,000 at December 31, 2016.
Gross realized gains and losses pertaining
to available for sale securities are detailed as follows for the years ending December 31, 2017, 2016 and 2015 (in thousands):
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Gross realized gains
|
|
$
|
-
|
|
|
$
|
162
|
|
|
$
|
13
|
|
Gross realized losses
|
|
|
(81
|
)
|
|
|
-
|
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(81
|
)
|
|
$
|
162
|
|
|
$
|
6
|
|
The Company sold approximately $10 million,
$22 million and $8 million of investment securities available for sale at a loss of $81,000 in 2017 and a gain of $162,000 and
$6,000 in 2016 and 2015, respectively. The sale of these securities, which had fixed interest rates, allowed the Company to decrease
its exposure to the anticipated upward movement in interest rates that would result in unrealized losses being recognized in shareholders’
equity.
Investment securities available for sale
that have an unrealized loss position at December 31, 2017 and December 31, 2016 are detailed below (in thousands):
|
|
Securities in a loss
|
|
|
Securities in a loss
|
|
|
|
|
|
|
|
|
|
position for less than
|
|
|
position for more than
|
|
|
|
|
|
|
|
|
|
12 Months
|
|
|
12 Months
|
|
|
Total
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US Government Agencies
|
|
$
|
6,153
|
|
|
$
|
(76
|
)
|
|
$
|
17,530
|
|
|
$
|
(217
|
)
|
|
$
|
23,683
|
|
|
$
|
(293
|
)
|
Mortgage-backed securities
|
|
|
20,227
|
|
|
|
(160
|
)
|
|
|
1,651
|
|
|
|
(28
|
)
|
|
|
21,878
|
|
|
|
(188
|
)
|
Corporate debt
|
|
|
1,021
|
|
|
|
(26
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
1,021
|
|
|
|
(26
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
27,401
|
|
|
$
|
(262
|
)
|
|
$
|
19,181
|
|
|
$
|
(245
|
)
|
|
$
|
46,582
|
|
|
$
|
(507
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US Government Agencies
|
|
$
|
27,291
|
|
|
$
|
(213
|
)
|
|
$
|
2,852
|
|
|
$
|
(16
|
)
|
|
$
|
33,143
|
|
|
$
|
(229
|
)
|
Mortgage-backed securities
|
|
|
9,450
|
|
|
|
(47
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
9,450
|
|
|
|
(47
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
36,741
|
|
|
$
|
(260
|
)
|
|
$
|
2,852
|
|
|
$
|
(16
|
)
|
|
$
|
42,593
|
|
|
$
|
(276
|
)
|
All of the unrealized losses are attributable
to increases in interest rates and not to credit deterioration. Currently, the Company believes that it is probable that the Company
will be able to collect all amounts due according to the contractual terms of the investments. Because the decline in market value
is attributable to changes in interest rates and not to credit quality, and because it is not more likely than not that the Company
will be required to sell the investments before recovery of their amortized cost bases, which may be maturity, the Company does
not consider these investments to be other than temporarily impaired at December 31, 2017.
The amortized cost and estimated fair value
of investment securities available for sale as of December 31, 2017, by contractual maturity, are as follows (in thousands):
|
|
Amortized
|
|
|
Estimated
|
|
|
|
Cost
|
|
|
Fair Value
|
|
|
|
|
|
|
|
|
One to five years
|
|
$
|
21,561
|
|
|
$
|
21,285
|
|
Five to ten years
|
|
|
7,575
|
|
|
|
7,517
|
|
More than ten years
|
|
|
21,070
|
|
|
|
20,909
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
50,206
|
|
|
$
|
49,711
|
|
Loans classified by type as of December
31, 2017 and 2016 are as follows (in thousands):
|
|
2017
|
|
|
2016
|
|
Construction and land development
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
5,361
|
|
|
$
|
6,770
|
|
Commercial
|
|
|
25,456
|
|
|
|
27,092
|
|
|
|
|
30,817
|
|
|
|
33,862
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
85,004
|
|
|
|
66,021
|
|
Non-owner occupied
|
|
|
70,845
|
|
|
|
57,944
|
|
Multifamily
|
|
|
9,386
|
|
|
|
8,824
|
|
Farmland
|
|
|
270
|
|
|
|
310
|
|
|
|
|
165,505
|
|
|
|
133,099
|
|
Consumer real estate
|
|
|
|
|
|
|
|
|
Home equity lines
|
|
|
22,849
|
|
|
|
20,691
|
|
Secured by 1-4 family residential,
|
|
|
|
|
|
|
|
|
First deed of trust
|
|
|
57,919
|
|
|
|
54,791
|
|
Second deed of trust
|
|
|
7,460
|
|
|
|
5,768
|
|
|
|
|
88,228
|
|
|
|
81,250
|
|
Commercial and industrial loans
(except those secured by real estate)
|
|
|
36,506
|
|
|
|
39,390
|
|
Guaranteed student loans
|
|
|
45,805
|
|
|
|
47,398
|
|
Consumer and other
|
|
|
1,848
|
|
|
|
2,101
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
|
368,709
|
|
|
|
337,100
|
|
Deferred loan cost, net
|
|
|
699
|
|
|
|
660
|
|
Less: allowance for loan losses
|
|
|
(3,239
|
)
|
|
|
(3,373
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
366,169
|
|
|
$
|
334,387
|
|
The Bank purchased portfolios of rehabilitated
student loans guaranteed by the Department of Education (“DOE”). The guarantee covers approximately 98% of principal
and accrued interest. The loans are serviced by a third-party servicer that specializes in handling the special needs of the DOE
student loan programs.
Loans pledged as collateral with the Federal
Home Loan Bank of Atlanta (“FHLB”) as part of their lending arrangements with the Company totaled $29,615,000 and $27,073,000
as of December 31, 2017 and 2016, respectively.
The following is a summary of loans directly
or indirectly with executive officers or directors of the Company for the years ended December 31, 2017 and 2016 (in thousands):
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
7,711
|
|
|
$
|
8,073
|
|
Additions
|
|
|
5,793
|
|
|
|
2,703
|
|
Reductions
|
|
|
(4,547
|
)
|
|
|
(3,065
|
)
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
8,957
|
|
|
$
|
7,711
|
|
Executive officers and directors also had
unused credit lines totaling $2,590,000 and $3,219,000 at December 31, 2017 and 2016, respectively. All loans and credit lines
to executive officers and directors were made in the ordinary course of business at the Company’s normal credit terms, including
interest rate and collateralization prevailing at the time for comparable transactions with other persons.
Loans are considered past due if the required
principal and interest payments have not been received as of the date such payments were due. Loans are placed on nonaccrual status
when, in management’s opinion, the borrower may be unable to meet payment obligations as they become due, as well as when
required by regulatory provisions. Loans may be placed on nonaccrual status regardless of whether or not such loans are considered
past due as long as the remaining recorded investment in the loan is deemed fully collectible. When interest accrual is discontinued,
all unpaid accrued interest is reversed. Interest income is subsequently recognized only to the extent cash payments are received
in excess of principal due. Loans are returned to accrual status when all principal and interest amounts contractually due are
brought to current and future payments are reasonably assured.
Year-end nonaccrual loans segregated by
type as of December 31, 2017 and 2016 were as follows (in thousands):
|
|
2017
|
|
|
2016
|
|
Construction and land development
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
43
|
|
|
$
|
102
|
|
|
|
|
43
|
|
|
|
102
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
183
|
|
|
|
225
|
|
|
|
|
183
|
|
|
|
225
|
|
Consumer real estate
|
|
|
|
|
|
|
|
|
Home equity lines
|
|
|
135
|
|
|
|
163
|
|
Secured by 1-4 family residential,
|
|
|
|
|
|
|
|
|
First deed of trust
|
|
|
1,000
|
|
|
|
1,404
|
|
Second deed of trust
|
|
|
67
|
|
|
|
72
|
|
|
|
|
1,202
|
|
|
|
1,639
|
|
Commercial and industrial loans
(except those secured by real estate)
|
|
|
870
|
|
|
|
430
|
|
Consumer and other
|
|
|
22
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
$
|
2,320
|
|
|
$
|
2,402
|
|
The Company assigns risk rating classifications
to its loans. These risk ratings are divided into the following groups:
|
·
|
Risk rated 1 to 4 loans are considered
of sufficient quality to preclude an adverse rating. These assets generally are well protected by the current net worth and paying
capacity of the obligor or by the value of the asset or underlying collateral;
|
|
·
|
Risk rated 5 loans are defined as having
potential weaknesses that deserve management’s close attention;
|
|
·
|
Risk rated 6 loans are inadequately protected
by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any; and
|
|
·
|
Risk rated 7 loans have all the weaknesses
inherent in substandard loans, with the added characteristics that the weaknesses make collection or liquidation in full, on the
basis of currently existing facts, conditions and values, highly questionable and improbable.
|
The following tables provide information
on the risk rating of loans at the dates indicated (in thousands):
|
|
Risk Rated
|
|
|
Risk Rated
|
|
|
Risk Rated
|
|
|
Risk Rated
|
|
|
Total
|
|
|
|
1-4
|
|
|
5
|
|
|
6
|
|
|
7
|
|
|
Loans
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and land development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
5,361
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
5,361
|
|
Commercial
|
|
|
24,305
|
|
|
|
1,108
|
|
|
|
43
|
|
|
|
-
|
|
|
|
25,456
|
|
|
|
|
29,666
|
|
|
|
1,108
|
|
|
|
43
|
|
|
|
-
|
|
|
|
30,817
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
78,791
|
|
|
|
2,716
|
|
|
|
3,497
|
|
|
|
-
|
|
|
|
85,004
|
|
Non-owner occupied
|
|
|
70,845
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
70,845
|
|
Multifamily
|
|
|
9,210
|
|
|
|
176
|
|
|
|
-
|
|
|
|
-
|
|
|
|
9,386
|
|
Farmland
|
|
|
270
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
270
|
|
|
|
|
159,116
|
|
|
|
2,892
|
|
|
|
3,497
|
|
|
|
-
|
|
|
|
165,505
|
|
Consumer real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity lines
|
|
|
21,777
|
|
|
|
932
|
|
|
|
140
|
|
|
|
-
|
|
|
|
22,849
|
|
Secured by 1-4 family residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First deed of trust
|
|
|
53,591
|
|
|
|
2,637
|
|
|
|
1,691
|
|
|
|
-
|
|
|
|
57,919
|
|
Second deed of trust
|
|
|
7,140
|
|
|
|
181
|
|
|
|
139
|
|
|
|
-
|
|
|
|
7,460
|
|
|
|
|
82,508
|
|
|
|
3,750
|
|
|
|
1,970
|
|
|
|
-
|
|
|
|
88,228
|
|
Commercial and industrial loans (except those secured by real estate)
|
|
|
35,143
|
|
|
|
139
|
|
|
|
529
|
|
|
|
695
|
|
|
|
36,506
|
|
Guaranteed student loans
|
|
|
45,805
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
45,805
|
|
Consumer and other
|
|
|
1,826
|
|
|
|
4
|
|
|
|
18
|
|
|
|
-
|
|
|
|
1,848
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
$
|
354,064
|
|
|
$
|
7,893
|
|
|
$
|
6,057
|
|
|
$
|
695
|
|
|
$
|
368,709
|
|
|
|
Risk Rated
|
|
|
Risk Rated
|
|
|
Risk Rated
|
|
|
Risk Rated
|
|
|
Total
|
|
|
|
1-4
|
|
|
5
|
|
|
6
|
|
|
7
|
|
|
Loans
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and land development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
6,770
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
6,770
|
|
Commercial
|
|
|
25,342
|
|
|
|
1,648
|
|
|
|
102
|
|
|
|
-
|
|
|
|
27,092
|
|
|
|
|
32,112
|
|
|
|
1,648
|
|
|
|
102
|
|
|
|
-
|
|
|
|
33,862
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
58,788
|
|
|
|
3,565
|
|
|
|
3,668
|
|
|
|
-
|
|
|
|
66,021
|
|
Non-owner occupied
|
|
|
57,944
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
57,944
|
|
Multifamily
|
|
|
8,634
|
|
|
|
190
|
|
|
|
-
|
|
|
|
-
|
|
|
|
8,824
|
|
Farmland
|
|
|
310
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
310
|
|
|
|
|
125,676
|
|
|
|
3,755
|
|
|
|
3,668
|
|
|
|
-
|
|
|
|
133,099
|
|
Consumer real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity lines
|
|
|
19,501
|
|
|
|
487
|
|
|
|
703
|
|
|
|
-
|
|
|
|
20,691
|
|
Secured by 1-4 family residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First deed of trust
|
|
|
49,648
|
|
|
|
2,847
|
|
|
|
2,296
|
|
|
|
-
|
|
|
|
54,791
|
|
Second deed of trust
|
|
|
5,399
|
|
|
|
125
|
|
|
|
244
|
|
|
|
-
|
|
|
|
5,768
|
|
|
|
|
74,548
|
|
|
|
3,459
|
|
|
|
3,243
|
|
|
|
-
|
|
|
|
81,250
|
|
Commercial and industrial loans (except those secured by real estate)
|
|
|
39,390
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
39,390
|
|
Guaranteed student loans
|
|
|
46,009
|
|
|
|
739
|
|
|
|
650
|
|
|
|
-
|
|
|
|
47,398
|
|
Consumer and other
|
|
|
2,043
|
|
|
|
52
|
|
|
|
6
|
|
|
|
-
|
|
|
|
2,101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
$
|
319,778
|
|
|
$
|
9,653
|
|
|
$
|
7,669
|
|
|
$
|
-
|
|
|
$
|
337,100
|
|
The following tables present the aging of the recorded investment
in past due loans as of the dates indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recorded
|
|
|
|
|
|
|
|
|
|
Greater
|
|
|
|
|
|
|
|
|
|
|
|
Investment >
|
|
|
|
30-59 Days
|
|
|
60-89 Days
|
|
|
Than
|
|
|
Total Past
|
|
|
|
|
|
Total
|
|
|
90 Days and
|
|
|
|
Past Due
|
|
|
Past Due
|
|
|
90 Days
|
|
|
Due
|
|
|
Current
|
|
|
Loans
|
|
|
Accruing
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and land development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
5,361
|
|
|
$
|
5,361
|
|
|
$
|
-
|
|
Commercial
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
25,456
|
|
|
|
25,456
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
30,817
|
|
|
|
30,817
|
|
|
|
-
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
85,004
|
|
|
|
85,004
|
|
|
|
-
|
|
Non-owner occupied
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
70,845
|
|
|
|
70,845
|
|
|
|
-
|
|
Multifamily
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
9,386
|
|
|
|
9,386
|
|
|
|
-
|
|
Farmland
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
270
|
|
|
|
270
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
165,505
|
|
|
|
165,505
|
|
|
|
-
|
|
Consumer real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity lines
|
|
|
18
|
|
|
|
-
|
|
|
|
-
|
|
|
|
18
|
|
|
|
22,831
|
|
|
|
22,849
|
|
|
|
-
|
|
Secured by 1-4 family residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First deed of trust
|
|
|
457
|
|
|
|
-
|
|
|
|
-
|
|
|
|
457
|
|
|
|
57,462
|
|
|
|
57,919
|
|
|
|
-
|
|
Second deed of trust
|
|
|
91
|
|
|
|
-
|
|
|
|
-
|
|
|
|
91
|
|
|
|
7,369
|
|
|
|
7,460
|
|
|
|
-
|
|
|
|
|
566
|
|
|
|
-
|
|
|
|
-
|
|
|
|
566
|
|
|
|
87,662
|
|
|
|
88,228
|
|
|
|
-
|
|
Commercial and industrial loans (except those secured by real estate)
|
|
|
-
|
|
|
|
3
|
|
|
|
-
|
|
|
|
3
|
|
|
|
36,503
|
|
|
|
36,506
|
|
|
|
-
|
|
Guaranteed student loans
|
|
|
2,891
|
|
|
|
1,300
|
|
|
|
7,229
|
|
|
|
11,420
|
|
|
|
34,385
|
|
|
|
45,805
|
|
|
|
7,229
|
|
Consumer and other
|
|
|
2
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2
|
|
|
|
1,846
|
|
|
|
1,848
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
$
|
3,459
|
|
|
$
|
1,303
|
|
|
$
|
7,229
|
|
|
$
|
11,991
|
|
|
$
|
356,718
|
|
|
$
|
368,709
|
|
|
$
|
7,229
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recorded
|
|
|
|
|
|
|
|
|
|
Greater
|
|
|
|
|
|
|
|
|
|
|
|
Investment >
|
|
|
|
30-59 Days
|
|
|
60-89 Days
|
|
|
Than
|
|
|
Total Past
|
|
|
|
|
|
Total
|
|
|
90 Days and
|
|
|
|
Past Due
|
|
|
Past Due
|
|
|
90 Days
|
|
|
Due
|
|
|
Current
|
|
|
Loans
|
|
|
Accruing
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and land development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
6,770
|
|
|
$
|
6,770
|
|
|
$
|
-
|
|
Commercial
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
27,092
|
|
|
|
27,092
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
33,862
|
|
|
|
33,862
|
|
|
|
-
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
66,021
|
|
|
|
66,021
|
|
|
|
-
|
|
Non-owner occupied
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
57,944
|
|
|
|
57,944
|
|
|
|
-
|
|
Multifamily
|
|
|
190
|
|
|
|
-
|
|
|
|
-
|
|
|
|
190
|
|
|
|
8,634
|
|
|
|
8,824
|
|
|
|
-
|
|
Farmland
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
310
|
|
|
|
310
|
|
|
|
-
|
|
|
|
|
190
|
|
|
|
-
|
|
|
|
-
|
|
|
|
190
|
|
|
|
132,909
|
|
|
|
133,099
|
|
|
|
-
|
|
Consumer real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity lines
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
20,691
|
|
|
|
20,691
|
|
|
|
-
|
|
Secured by 1-4 family residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First deed of trust
|
|
|
414
|
|
|
|
63
|
|
|
|
-
|
|
|
|
477
|
|
|
|
54,314
|
|
|
|
54,791
|
|
|
|
-
|
|
Second deed of trust
|
|
|
128
|
|
|
|
-
|
|
|
|
-
|
|
|
|
128
|
|
|
|
5,640
|
|
|
|
5,768
|
|
|
|
-
|
|
|
|
|
542
|
|
|
|
63
|
|
|
|
-
|
|
|
|
605
|
|
|
|
80,645
|
|
|
|
81,250
|
|
|
|
-
|
|
Commercial and industrial loans (except those secured by real estate)
|
|
|
15
|
|
|
|
62
|
|
|
|
-
|
|
|
|
77
|
|
|
|
39,313
|
|
|
|
39,390
|
|
|
|
-
|
|
Guaranteed student loans
|
|
|
2,743
|
|
|
|
1,923
|
|
|
|
8,174
|
|
|
|
12,840
|
|
|
|
34,558
|
|
|
|
47,398
|
|
|
|
8,174
|
|
Consumer and other
|
|
|
11
|
|
|
|
-
|
|
|
|
-
|
|
|
|
11
|
|
|
|
2,090
|
|
|
|
2,101
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
$
|
3,501
|
|
|
$
|
2,048
|
|
|
$
|
8,174
|
|
|
$
|
13,723
|
|
|
$
|
323,377
|
|
|
$
|
337,100
|
|
|
$
|
8,174
|
|
Loans greater than 90 days past due are
student loans that are guaranteed by the DOE which covers approximately 98% of the principal and interest. Accordingly, these loans
will not be placed on nonaccrual status.
Loans are considered impaired when, based
on current information and events it is probable the Company will be unable to collect all amounts due in accordance with the original
contractual terms of the loan agreement, including scheduled principal and interest payments. Loans evaluated individually for
impairment include nonperforming loans, such as loans on nonaccrual, loans past due by 90 days or more, restructured loans and
other loans selected by management. The evaluations are based upon discounted expected cash flows or collateral valuations. If
the evaluation shows that a loan is individually impaired, then a specific reserve is established for the amount of impairment.
Impairment is evaluated in total for smaller-balance loans of a similar nature and on an individual loan basis for other loans.
If a loan is impaired, a specific valuation allowance is allocated, if necessary, so that the loan is reported net, at the present
value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected
solely from the collateral. Interest payments on impaired loans are typically applied to principal unless collectability of the
principal amount is reasonably assured, in which case interest is recognized on a cash basis. Impaired loans, or portions thereof,
are charged off when deemed uncollectible. Impaired loans are set forth in the following table as of the dates indicated (in thousands):
|
|
December 31, 2017
|
|
|
|
|
|
|
Unpaid
|
|
|
|
|
|
|
Recorded
|
|
|
Principal
|
|
|
Related
|
|
|
|
Investment
|
|
|
Balance
|
|
|
Allowance
|
|
With no related allowance recorded
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and land development
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
502
|
|
|
$
|
600
|
|
|
$
|
-
|
|
|
|
|
502
|
|
|
|
600
|
|
|
|
-
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
3,879
|
|
|
|
3,879
|
|
|
|
-
|
|
Non-owner occupied
|
|
|
2,153
|
|
|
|
2,153
|
|
|
|
-
|
|
|
|
|
6,032
|
|
|
|
6,032
|
|
|
|
-
|
|
Consumer real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity lines
|
|
|
577
|
|
|
|
577
|
|
|
|
-
|
|
Secured by 1-4 family residential
|
|
|
|
|
|
|
|
|
|
|
|
|
First deed of trust
|
|
|
3,931
|
|
|
|
3,931
|
|
|
|
-
|
|
Second deed of trust
|
|
|
505
|
|
|
|
713
|
|
|
|
-
|
|
|
|
|
5,013
|
|
|
|
5,221
|
|
|
|
-
|
|
Commercial and industrial loans (except those secured by real estate)
|
|
|
480
|
|
|
|
827
|
|
|
|
-
|
|
Consumer and other
|
|
|
3
|
|
|
|
3
|
|
|
|
-
|
|
|
|
|
12,030
|
|
|
|
12,683
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With an allowance recorded
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
1,491
|
|
|
|
1,506
|
|
|
|
18
|
|
|
|
|
1,491
|
|
|
|
1,506
|
|
|
|
18
|
|
Consumer real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity lines
|
|
|
135
|
|
|
|
135
|
|
|
|
2
|
|
Secured by 1-4 family residential
|
|
|
|
|
|
|
|
|
|
|
|
|
First deed of trust
|
|
|
814
|
|
|
|
814
|
|
|
|
98
|
|
Second deed of trust
|
|
|
85
|
|
|
|
85
|
|
|
|
4
|
|
|
|
|
1,034
|
|
|
|
1,034
|
|
|
|
104
|
|
Commercial and industrial loans (except those secured by real estate)
|
|
|
740
|
|
|
|
740
|
|
|
|
375
|
|
Consumer and other
|
|
|
19
|
|
|
|
19
|
|
|
|
18
|
|
|
|
|
3,284
|
|
|
|
3,299
|
|
|
|
515
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and land development
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
502
|
|
|
|
600
|
|
|
|
-
|
|
|
|
|
502
|
|
|
|
600
|
|
|
|
-
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
5,370
|
|
|
|
5,385
|
|
|
|
18
|
|
Non-owner occupied
|
|
|
2,153
|
|
|
|
2,153
|
|
|
|
-
|
|
|
|
|
7,523
|
|
|
|
7,538
|
|
|
|
18
|
|
Consumer real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity lines
|
|
|
712
|
|
|
|
712
|
|
|
|
2
|
|
Secured by 1-4 family residential,
|
|
|
|
|
|
|
|
|
|
|
|
|
First deed of trust
|
|
|
4,745
|
|
|
|
4,745
|
|
|
|
98
|
|
Second deed of trust
|
|
|
590
|
|
|
|
798
|
|
|
|
4
|
|
|
|
|
6,047
|
|
|
|
6,255
|
|
|
|
104
|
|
Commercial and industrial loans (except those secured by real estate)
|
|
|
1,220
|
|
|
|
1,567
|
|
|
|
375
|
|
Consumer and other
|
|
|
22
|
|
|
|
22
|
|
|
|
18
|
|
|
|
$
|
15,314
|
|
|
$
|
15,982
|
|
|
$
|
515
|
|
|
|
December 31, 2016
|
|
|
|
|
|
|
Unpaid
|
|
|
|
|
|
|
Recorded
|
|
|
Principal
|
|
|
Related
|
|
|
|
Investment
|
|
|
Balance
|
|
|
Allowance
|
|
With no related allowance recorded
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and land development
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
102
|
|
|
$
|
169
|
|
|
$
|
-
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
1,487
|
|
|
|
1,487
|
|
|
|
|
|
Non-owner occupied
|
|
|
2,236
|
|
|
|
2,236
|
|
|
|
-
|
|
|
|
|
3,723
|
|
|
|
3,723
|
|
|
|
-
|
|
Consumer real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity lines
|
|
|
703
|
|
|
|
703
|
|
|
|
-
|
|
Secured by 1-4 family residential
|
|
|
|
|
|
|
|
|
|
|
|
|
First deed of trust
|
|
|
3,514
|
|
|
|
3,518
|
|
|
|
-
|
|
Second deed of trust
|
|
|
619
|
|
|
|
865
|
|
|
|
-
|
|
|
|
|
4,836
|
|
|
|
5,086
|
|
|
|
-
|
|
Commercial and industrial loans (except those secured by real estate)
|
|
|
538
|
|
|
|
768
|
|
|
|
-
|
|
|
|
|
9,199
|
|
|
|
9,746
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With an allowance recorded
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and land development
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
479
|
|
|
|
479
|
|
|
|
9
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
4,117
|
|
|
|
4,132
|
|
|
|
86
|
|
Non-Owner occupied
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
4,117
|
|
|
|
4,132
|
|
|
|
86
|
|
Consumer real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured by 1-4 family residential
|
|
|
|
|
|
|
|
|
|
|
|
|
First deed of trust
|
|
|
1,550
|
|
|
|
1,550
|
|
|
|
144
|
|
Second deed of trust
|
|
|
90
|
|
|
|
90
|
|
|
|
90
|
|
|
|
|
1,640
|
|
|
|
1,640
|
|
|
|
234
|
|
Commercial and industrial loans (except those secured by real estate)
|
|
|
6
|
|
|
|
122
|
|
|
|
6
|
|
|
|
|
6,242
|
|
|
|
6,373
|
|
|
|
335
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and land development
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
581
|
|
|
|
648
|
|
|
|
9
|
|
|
|
|
581
|
|
|
|
648
|
|
|
|
9
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
5,604
|
|
|
|
5,619
|
|
|
|
86
|
|
Non-owner occupied
|
|
|
2,236
|
|
|
|
2,236
|
|
|
|
-
|
|
|
|
|
7,840
|
|
|
|
7,855
|
|
|
|
86
|
|
Consumer real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity lines
|
|
|
703
|
|
|
|
703
|
|
|
|
-
|
|
Secured by 1-4 family residential,
|
|
|
|
|
|
|
|
|
|
|
|
|
First deed of trust
|
|
|
5,064
|
|
|
|
5,068
|
|
|
|
144
|
|
Second deed of trust
|
|
|
709
|
|
|
|
955
|
|
|
|
90
|
|
|
|
|
6,476
|
|
|
|
6,726
|
|
|
|
234
|
|
Commercial and industrial loans (except those secured by real estate)
|
|
|
544
|
|
|
|
890
|
|
|
|
6
|
|
|
|
$
|
15,441
|
|
|
$
|
16,119
|
|
|
$
|
335
|
|
The following is a summary of average recorded
investment in impaired loans with and without valuation allowance and interest income recognized on those loans for periods indicated
(in thousands):
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
Average
|
|
|
Interest
|
|
|
Average
|
|
|
Interest
|
|
|
|
Recorded
|
|
|
Income
|
|
|
Recorded
|
|
|
Income
|
|
|
|
Investment
|
|
|
Recognized
|
|
|
Investment
|
|
|
Recognized
|
|
With no related allowance recorded
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and land development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
200
|
|
|
$
|
4
|
|
|
$
|
87
|
|
|
$
|
40
|
|
|
|
|
200
|
|
|
|
4
|
|
|
|
87
|
|
|
|
40
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
3,137
|
|
|
|
90
|
|
|
|
1,040
|
|
|
|
69
|
|
Non-owner occupied
|
|
|
2,186
|
|
|
|
116
|
|
|
|
2,501
|
|
|
|
121
|
|
|
|
|
5,323
|
|
|
|
206
|
|
|
|
3,541
|
|
|
|
190
|
|
Consumer real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity lines
|
|
|
730
|
|
|
|
17
|
|
|
|
1,030
|
|
|
|
51
|
|
Secured by 1-4 family residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First deed of trust
|
|
|
3,719
|
|
|
|
126
|
|
|
|
4,019
|
|
|
|
233
|
|
Second deed of trust
|
|
|
535
|
|
|
|
36
|
|
|
|
753
|
|
|
|
47
|
|
|
|
|
4,984
|
|
|
|
179
|
|
|
|
5,802
|
|
|
|
331
|
|
Commercial and industrial loans (except those secured by real estate)
|
|
|
478
|
|
|
|
65
|
|
|
|
421
|
|
|
|
44
|
|
Consumer and other
|
|
|
3
|
|
|
|
2
|
|
|
|
-
|
|
|
|
1
|
|
|
|
|
10,988
|
|
|
|
456
|
|
|
|
9,851
|
|
|
|
606
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With an allowance recorded
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and land development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
352
|
|
|
|
24
|
|
|
|
1,118
|
|
|
|
23
|
|
|
|
|
352
|
|
|
|
24
|
|
|
|
1,118
|
|
|
|
23
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
2,322
|
|
|
|
173
|
|
|
|
4,511
|
|
|
|
226
|
|
Non-Owner occupied
|
|
|
-
|
|
|
|
-
|
|
|
|
46
|
|
|
|
24
|
|
|
|
|
2,322
|
|
|
|
173
|
|
|
|
4,557
|
|
|
|
250
|
|
Consumer real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity lines
|
|
|
103
|
|
|
|
6
|
|
|
|
-
|
|
|
|
-
|
|
Secured by 1-4 family residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First deed of trust
|
|
|
936
|
|
|
|
33
|
|
|
|
1,624
|
|
|
|
26
|
|
Second deed of trust
|
|
|
130
|
|
|
|
4
|
|
|
|
131
|
|
|
|
15
|
|
|
|
|
1,169
|
|
|
|
43
|
|
|
|
1,755
|
|
|
|
41
|
|
Commercial and industrial loans (except those secured by real estate)
|
|
|
429
|
|
|
|
5
|
|
|
|
66
|
|
|
|
5
|
|
Consumer and other
|
|
|
7
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
4,279
|
|
|
|
245
|
|
|
|
7,496
|
|
|
|
319
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and land development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
552
|
|
|
|
28
|
|
|
|
1,206
|
|
|
|
63
|
|
|
|
|
552
|
|
|
|
28
|
|
|
|
1,206
|
|
|
|
63
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
5,459
|
|
|
|
263
|
|
|
|
5,551
|
|
|
|
295
|
|
Non-owner occupied
|
|
|
2,186
|
|
|
|
116
|
|
|
|
2,547
|
|
|
|
145
|
|
|
|
|
7,645
|
|
|
|
379
|
|
|
|
8,098
|
|
|
|
440
|
|
Consumer real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity lines
|
|
|
833
|
|
|
|
23
|
|
|
|
1,030
|
|
|
|
51
|
|
Secured by 1-4 family residential,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First deed of trust
|
|
|
4,655
|
|
|
|
159
|
|
|
|
5,643
|
|
|
|
259
|
|
Second deed of trust
|
|
|
665
|
|
|
|
40
|
|
|
|
884
|
|
|
|
62
|
|
|
|
|
6,153
|
|
|
|
222
|
|
|
|
7,557
|
|
|
|
372
|
|
Commercial and industrial loans (except those secured by real estate)
|
|
|
907
|
|
|
|
70
|
|
|
|
487
|
|
|
|
49
|
|
Consumer and other
|
|
|
10
|
|
|
|
2
|
|
|
|
-
|
|
|
|
1
|
|
|
|
$
|
15,267
|
|
|
$
|
701
|
|
|
$
|
17,348
|
|
|
$
|
925
|
|
As of December 31, 2017, 2016 and 2015,
the Company had impaired loans of $2,320,000, $2,402,000 and $3,718,000, respectively, which were on nonaccrual status. These loans
had valuation allowances of $454,000, $97,000 and $370,000 as of December 31, 2017, 2016 and 2015, respectively. Cumulative interest
income that would have been recorded had nonaccrual loans been performing would have been $159,000, $119,000 and $146,000 for 2017,
2016 and 2015, respectively.
Included in impaired loans are loans classified
as TDRs. A modification of a loan’s terms constitutes a TDR if the creditor grants a concession to the borrower for economic
or legal reasons related to the borrowers financial difficulties that it would not otherwise consider. For loans classified as
impaired TDRs, the Company further evaluates the loans as performing or nonaccrual. To restore a nonaccrual loan that has been
formally restructured in a TDR to accrual status, we perform a current, well documented credit analysis supporting a return to
accrual status based on the borrower’s financial condition and prospects for repayment under the revised terms. Otherwise,
the TDR must remain in nonaccrual status. The analysis considers the borrower’s sustained historical repayment performance
for a reasonable period to the return-to-accrual date, but may take into account payments made for a reasonable period prior to
the restructuring if the payments are consistent with the modified terms. A sustained period of repayment performance generally
would be a minimum of six months and would involve payments in the form of cash or cash equivalents.
An accruing loan that is modified in a
TDR can remain in accrual status if, based on a current well-documented credit analysis, collection of principal and interest in
accordance with the modified terms is reasonably assured, and the borrower has demonstrated sustained historical repayment performance
for a reasonable period before modification. The following is a summary of performing and nonaccrual TDRs and the related specific
valuation allowance by portfolio segment as of December 31, 2017 and 2016 (dollars in thousands).
|
|
|
|
|
|
|
|
|
|
|
Specific
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation
|
|
|
|
Total
|
|
|
Performing
|
|
|
Nonaccrual
|
|
|
Allowance
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and land development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
459
|
|
|
$
|
459
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
459
|
|
|
|
459
|
|
|
|
-
|
|
|
|
-
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
4,188
|
|
|
|
4,005
|
|
|
|
183
|
|
|
|
18
|
|
Non-owner occupied
|
|
|
2,153
|
|
|
|
2,153
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
6,341
|
|
|
|
6,158
|
|
|
|
183
|
|
|
|
18
|
|
Consumer real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured by 1-4 family residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First deeds of trust
|
|
|
3,398
|
|
|
|
2,709
|
|
|
|
689
|
|
|
|
57
|
|
Second deeds of trust
|
|
|
590
|
|
|
|
523
|
|
|
|
67
|
|
|
|
4
|
|
|
|
|
3,988
|
|
|
|
3,232
|
|
|
|
756
|
|
|
|
61
|
|
Commercial and industrial loans (except those secured by real estate)
|
|
|
385
|
|
|
|
344
|
|
|
|
41
|
|
|
|
-
|
|
|
|
$
|
11,173
|
|
|
$
|
10,193
|
|
|
$
|
980
|
|
|
$
|
79
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of loans
|
|
|
50
|
|
|
|
43
|
|
|
|
7
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
Specific
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation
|
|
|
|
Total
|
|
|
Performing
|
|
|
Nonaccrual
|
|
|
Allowance
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and land development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
479
|
|
|
$
|
479
|
|
|
$
|
-
|
|
|
$
|
9
|
|
|
|
|
479
|
|
|
|
479
|
|
|
|
-
|
|
|
|
9
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
4,342
|
|
|
|
4,117
|
|
|
|
225
|
|
|
|
86
|
|
Non-owner occupied
|
|
|
2,236
|
|
|
|
2,236
|
|
|
|
-
|
|
|
|
-
|
|
Multifamily
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
6,578
|
|
|
|
6,353
|
|
|
|
225
|
|
|
|
86
|
|
Consumer real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity lines
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Secured by 1-4 family residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First deeds of trust
|
|
|
3,853
|
|
|
|
3,012
|
|
|
|
841
|
|
|
|
139
|
|
Second deeds of trust
|
|
|
547
|
|
|
|
547
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
4,400
|
|
|
|
3,559
|
|
|
|
841
|
|
|
|
139
|
|
Commercial and industrial loans (except those secured by real estate)
|
|
|
397
|
|
|
|
-
|
|
|
|
397
|
|
|
|
-
|
|
Consumer and other
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
$
|
11,854
|
|
|
$
|
10,391
|
|
|
$
|
1,463
|
|
|
$
|
234
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of loans
|
|
|
55
|
|
|
|
36
|
|
|
|
16
|
|
|
|
3
|
|
The following table provides information
about TDRs identified during the indicated periods (dollars in thousands).
|
|
December 31, 2017
|
|
|
December 31, 2016
|
|
|
|
|
|
|
Pre-
|
|
|
Post-
|
|
|
|
|
|
Pre-
|
|
|
Post-
|
|
|
|
|
|
|
Modification
|
|
|
Modification
|
|
|
|
|
|
Modification
|
|
|
Modification
|
|
|
|
Number of
|
|
|
Recorded
|
|
|
Recorded
|
|
|
Number of
|
|
|
Recorded
|
|
|
Recorded
|
|
|
|
Loans
|
|
|
Balance
|
|
|
Balance
|
|
|
Loans
|
|
|
Balance
|
|
|
Balance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured by 1-4 family residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First deed of trust
|
|
|
1
|
|
|
$
|
190
|
|
|
$
|
190
|
|
|
|
1
|
|
|
|
234
|
|
|
|
234
|
|
Second deed of trust
|
|
|
1
|
|
|
|
68
|
|
|
|
68
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
2
|
|
|
|
258
|
|
|
|
258
|
|
|
|
1
|
|
|
|
234
|
|
|
|
234
|
|
Commercial and industrial loans (except those secured by real estate)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3
|
|
|
|
352
|
|
|
|
352
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
$
|
258
|
|
|
$
|
258
|
|
|
|
4
|
|
|
$
|
586
|
|
|
$
|
586
|
|
The following table provides information
about defaults on TDRs for the indicated periods (dollars in thousands).
|
|
December 31, 2017
|
|
|
December 31, 2016
|
|
|
|
Number of
|
|
|
Recorded
|
|
|
Number of
|
|
|
Recorded
|
|
|
|
Loans
|
|
|
Balance
|
|
|
Loans
|
|
|
Balance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
2
|
|
|
$
|
330
|
|
|
|
1
|
|
|
$
|
225
|
|
|
|
|
2
|
|
|
|
330
|
|
|
|
1
|
|
|
|
225
|
|
Consumer real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured by 1-4 family residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First deed of trust
|
|
|
7
|
|
|
|
689
|
|
|
|
13
|
|
|
|
1,134
|
|
Second deed of trust
|
|
|
2
|
|
|
|
73
|
|
|
|
2
|
|
|
|
83
|
|
|
|
|
9
|
|
|
|
762
|
|
|
|
15
|
|
|
|
1,217
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial (except those secured by real estate)
|
|
|
3
|
|
|
|
271
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
14
|
|
|
$
|
1,363
|
|
|
|
16
|
|
|
$
|
1,442
|
|
|
Note 4.
|
Allowance for Loan Losses
|
Activity in the allowance for loan losses
was as follows for the periods indicated (in thousands):
|
|
|
|
|
Provision for
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
|
|
|
(Recovery of)
|
|
|
|
|
|
|
|
|
Ending
|
|
|
|
Balance
|
|
|
Loan Losses
|
|
|
Charge-offs
|
|
|
Recoveries
|
|
|
Balance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and land development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
41
|
|
|
$
|
(10
|
)
|
|
$
|
-
|
|
|
$
|
1
|
|
|
$
|
32
|
|
Commercial
|
|
|
300
|
|
|
|
(108
|
)
|
|
|
(31
|
)
|
|
|
4
|
|
|
|
165
|
|
|
|
|
341
|
|
|
|
(118
|
)
|
|
|
(31
|
)
|
|
|
5
|
|
|
|
197
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
611
|
|
|
|
-
|
|
|
|
-
|
|
|
|
13
|
|
|
|
624
|
|
Non-owner occupied
|
|
|
406
|
|
|
|
94
|
|
|
|
-
|
|
|
|
-
|
|
|
|
500
|
|
Multifamily
|
|
|
56
|
|
|
|
4
|
|
|
|
-
|
|
|
|
-
|
|
|
|
60
|
|
Farmland
|
|
|
3
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3
|
|
|
|
|
1,076
|
|
|
|
98
|
|
|
|
-
|
|
|
|
13
|
|
|
|
1,187
|
|
Consumer real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity lines
|
|
|
271
|
|
|
|
(5
|
)
|
|
|
-
|
|
|
|
2
|
|
|
|
268
|
|
Secured by 1-4 family residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First deed of trust
|
|
|
447
|
|
|
|
98
|
|
|
|
(107
|
)
|
|
|
64
|
|
|
|
502
|
|
Second deed of trust
|
|
|
136
|
|
|
|
(123
|
)
|
|
|
-
|
|
|
|
34
|
|
|
|
47
|
|
|
|
|
854
|
|
|
|
(30
|
)
|
|
|
(107
|
)
|
|
|
100
|
|
|
|
817
|
|
Commercial and industrial loans (except those secured by real estate)
|
|
|
223
|
|
|
|
316
|
|
|
|
-
|
|
|
|
17
|
|
|
|
556
|
|
Student loans
|
|
|
158
|
|
|
|
96
|
|
|
|
(146
|
)
|
|
|
-
|
|
|
|
108
|
|
Consumer and other
|
|
|
8
|
|
|
|
4
|
|
|
|
(2
|
)
|
|
|
17
|
|
|
|
27
|
|
Unallocated
|
|
|
713
|
|
|
|
(366
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
347
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,373
|
|
|
$
|
-
|
|
|
$
|
(286
|
)
|
|
$
|
152
|
|
|
$
|
3,239
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and land development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
30
|
|
|
$
|
10
|
|
|
$
|
-
|
|
|
$
|
1
|
|
|
$
|
41
|
|
Commercial
|
|
|
291
|
|
|
|
9
|
|
|
|
(10
|
)
|
|
|
10
|
|
|
|
300
|
|
|
|
|
321
|
|
|
|
19
|
|
|
|
(10
|
)
|
|
|
11
|
|
|
|
341
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
1,167
|
|
|
|
(490
|
)
|
|
|
(66
|
)
|
|
|
-
|
|
|
|
611
|
|
Non-owner occupied
|
|
|
460
|
|
|
|
(106
|
)
|
|
|
(1
|
)
|
|
|
53
|
|
|
|
406
|
|
Multifamily
|
|
|
51
|
|
|
|
5
|
|
|
|
-
|
|
|
|
-
|
|
|
|
56
|
|
Farmland
|
|
|
17
|
|
|
|
(139
|
)
|
|
|
-
|
|
|
|
125
|
|
|
|
3
|
|
|
|
|
1,695
|
|
|
|
(730
|
)
|
|
|
(67
|
)
|
|
|
178
|
|
|
|
1,076
|
|
Consumer real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity lines
|
|
|
448
|
|
|
|
(127
|
)
|
|
|
(53
|
)
|
|
|
3
|
|
|
|
271
|
|
Secured by 1-4 family residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First deed of trust
|
|
|
602
|
|
|
|
(40
|
)
|
|
|
(140
|
)
|
|
|
25
|
|
|
|
447
|
|
Second deed of trust
|
|
|
111
|
|
|
|
21
|
|
|
|
(25
|
)
|
|
|
29
|
|
|
|
136
|
|
|
|
|
1,161
|
|
|
|
(146
|
)
|
|
|
(218
|
)
|
|
|
57
|
|
|
|
854
|
|
Commercial and industrial loans (except those secured by real estate)
|
|
|
94
|
|
|
|
44
|
|
|
|
(15
|
)
|
|
|
100
|
|
|
|
223
|
|
Student loans
|
|
|
230
|
|
|
|
149
|
|
|
|
(221
|
)
|
|
|
-
|
|
|
|
158
|
|
Consumer and other
|
|
|
2
|
|
|
|
10
|
|
|
|
(13
|
)
|
|
|
9
|
|
|
|
8
|
|
Unallocated
|
|
|
59
|
|
|
|
654
|
|
|
|
-
|
|
|
|
-
|
|
|
|
713
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,562
|
|
|
$
|
-
|
|
|
$
|
(544
|
)
|
|
$
|
355
|
|
|
$
|
3,373
|
|
Year Ended December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and land development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
34
|
|
|
$
|
(6
|
)
|
|
$
|
-
|
|
|
$
|
2
|
|
|
$
|
30
|
|
Commercial
|
|
|
202
|
|
|
|
292
|
|
|
|
(252
|
)
|
|
|
49
|
|
|
|
291
|
|
|
|
|
236
|
|
|
|
286
|
|
|
|
(252
|
)
|
|
|
51
|
|
|
|
321
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
1,837
|
|
|
|
(576
|
)
|
|
|
(127
|
)
|
|
|
33
|
|
|
|
1,167
|
|
Non-owner occupied
|
|
|
607
|
|
|
|
(151
|
)
|
|
|
-
|
|
|
|
4
|
|
|
|
460
|
|
Multifamily
|
|
|
77
|
|
|
|
(26
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
51
|
|
Farmland
|
|
|
130
|
|
|
|
(113
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
17
|
|
|
|
|
2,651
|
|
|
|
(866
|
)
|
|
|
(127
|
)
|
|
|
37
|
|
|
|
1,695
|
|
Consumer real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity lines
|
|
|
469
|
|
|
|
36
|
|
|
|
(62
|
)
|
|
|
5
|
|
|
|
448
|
|
Secured by 1-4 family residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First deed of trust
|
|
|
1,345
|
|
|
|
(1,020
|
)
|
|
|
(103
|
)
|
|
|
380
|
|
|
|
602
|
|
Second deed of trust
|
|
|
275
|
|
|
|
(159
|
)
|
|
|
(55
|
)
|
|
|
50
|
|
|
|
111
|
|
|
|
|
2,089
|
|
|
|
(1,143
|
)
|
|
|
(220
|
)
|
|
|
435
|
|
|
|
1,161
|
|
Commercial and industrial loans (except those secured by real estate)
|
|
|
506
|
|
|
|
(350
|
)
|
|
|
(162
|
)
|
|
|
100
|
|
|
|
94
|
|
Student loans
|
|
|
217
|
|
|
|
13
|
|
|
|
-
|
|
|
|
-
|
|
|
|
230
|
|
Consumer and other
|
|
|
30
|
|
|
|
1
|
|
|
|
(55
|
)
|
|
|
26
|
|
|
|
2
|
|
Unallocated
|
|
|
-
|
|
|
|
59
|
|
|
|
-
|
|
|
|
-
|
|
|
|
59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,729
|
|
|
$
|
(2,000
|
)
|
|
$
|
(816
|
)
|
|
$
|
649
|
|
|
$
|
3,562
|
|
Overall the recovery of loan losses recorded
for the year ended December 31, 2015 was due primarily to credit quality improvements and an enhanced model for evaluating inherent
losses in the Bank’s loan portfolio. Improvements in credit quality are provided in the following schedule:
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
Classified assets
|
|
$
|
8,313
|
|
|
$
|
10,454
|
|
|
$
|
15,375
|
|
Nonaccrual loans
|
|
|
2,320
|
|
|
|
2,402
|
|
|
|
3,718
|
|
Foreclosed real estate
|
|
|
1,788
|
|
|
|
2,926
|
|
|
|
6,249
|
|
During the fourth quarter of 2015, we adopted
a software solution for the analysis of the allowance for loan losses. While our methodology of evaluating the adequacy of the
allowance for loan losses generally did not change, the software is more robust in that it:
|
·
|
allows us to take a more measurable approach
to our evaluation of qualitative factors such as economic conditions that may affect loss experience; and
|
|
·
|
is widely used by community banks which
provides peer data that can be used as a benchmark for comparison to our analysis.
|
In addition
to the adoption of the software solution for our analysis, we reviewed the last twenty years of historical loss data for peer banks
in Virginia to assist us in our evaluation of environmental factors and other conditions that could affect the loan portfolio and
the overall adequacy of the allowance for loan losses.
The allowance for loan losses at each of
the periods presented includes an amount that could not be identified to individual types of loans referred to as the unallocated
portion of the allowance. We recognize the inherent imprecision in estimates of losses due to various uncertainties and variability
related to the factors used, and therefore a reasonable range around the estimate of losses is derived and used to ascertain whether
the allowance is too high. We concluded that the unallocated portion of the allowance was acceptable given the level of classified
assets and was within a reasonable range around the estimate of losses. The allowance for loan losses included an unallocated portion
of approximately $347,000, $713,000 and $59,000 at December 31, 2017, 2016 and 2015, respectively.
Discussion of the recovery of loan losses related to specific
loan types are provided following:
|
·
|
The recovery of loan losses totaling $118,000
for the construction and land development portfolio at December 31, 2017 was attributed to a decline in the general component of
the allowance for loan losses as a result of a decrease in the historical loss experience from 0.38% as of December 31, 2016 to
0.04% as of December 31, 2017.
|
|
·
|
The provision for loan losses totaling
$286,000 for the construction and land development portfolio at December 31, 2015 was attributed to a an increase in the historical
loss experience from a net recovery of 0.27% at December 31, 2014 to a net charge-off of 0.48% at December 31, 2015.
|
|
·
|
The provision for loan losses totaling
$316,000 for the commercial and industrial loans (except those secured by real estate) at December 31, 2017 was attributed to an
increase of $369,000 in the specific reserve associated with loans evaluated individually for impairment.
|
|
·
|
The recovery of loan losses totaling $730,000
and $866,000 for the commercial real estate portfolio at December 31, 2016 and 2015, respectively, was attributed to a decline
in the general component of the allowance for loan losses as a result of a decrease in the historical loss experience from 0.96%
in 2014 to 0.57% in 2015 and to 0.20% in 2016. In addition, net charge-offs on this portfolio decreased from $1,220,000 in 2014
to $90,000 in 2015 and to a net recovery of $111,000 in 2016.
|
|
·
|
The recovery of loan losses totaling $146,000
and $1,143,000 for the consumer real estate portfolio at December 31, 2016 and 2015, respectively, was attributed to a decline
in the general component of the allowance for loan losses as a result of a decrease in the historical loss experience from 1.36%
in 2014 to 0.24% in 2015 and to .0022% in 2016. In addition, net charge-offs on this portfolio decreased from $562,000 in 2014
to a recovery of $215,000 in 2015.
|
Loans were evaluated for impairment as follows for the periods
indicated (in thousands):
|
|
Recorded Investment in Loans
|
|
|
|
Allowance
|
|
|
Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending
|
|
|
|
|
|
|
|
|
Ending
|
|
|
|
|
|
|
|
|
|
Balance
|
|
|
Individually
|
|
|
Collectively
|
|
|
Balance
|
|
|
Individually
|
|
|
Collectively
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and land development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
32
|
|
|
$
|
-
|
|
|
$
|
32
|
|
|
$
|
5,361
|
|
|
$
|
-
|
|
|
$
|
5,361
|
|
Commercial
|
|
|
165
|
|
|
|
-
|
|
|
|
165
|
|
|
|
25,456
|
|
|
|
502
|
|
|
|
24,954
|
|
|
|
|
197
|
|
|
|
-
|
|
|
|
197
|
|
|
|
30,817
|
|
|
|
502
|
|
|
|
30,315
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
624
|
|
|
|
18
|
|
|
|
606
|
|
|
|
85,004
|
|
|
|
5,370
|
|
|
|
79,634
|
|
Non-owner occupied
|
|
|
500
|
|
|
|
-
|
|
|
|
500
|
|
|
|
70,845
|
|
|
|
2,153
|
|
|
|
68,692
|
|
Multifamily
|
|
|
60
|
|
|
|
-
|
|
|
|
60
|
|
|
|
9,386
|
|
|
|
-
|
|
|
|
9,386
|
|
Farmland
|
|
|
3
|
|
|
|
-
|
|
|
|
3
|
|
|
|
270
|
|
|
|
-
|
|
|
|
270
|
|
|
|
|
1,187
|
|
|
|
18
|
|
|
|
1,169
|
|
|
|
165,505
|
|
|
|
7,523
|
|
|
|
157,982
|
|
Consumer real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity lines
|
|
|
268
|
|
|
|
2
|
|
|
|
266
|
|
|
|
22,849
|
|
|
|
712
|
|
|
|
22,137
|
|
Secured by 1-4 family residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First deed of trust
|
|
|
502
|
|
|
|
98
|
|
|
|
404
|
|
|
|
57,919
|
|
|
|
4,745
|
|
|
|
53,174
|
|
Second deed of trust
|
|
|
47
|
|
|
|
4
|
|
|
|
43
|
|
|
|
7,460
|
|
|
|
590
|
|
|
|
6,870
|
|
|
|
|
817
|
|
|
|
104
|
|
|
|
713
|
|
|
|
88,228
|
|
|
|
6,047
|
|
|
|
82,181
|
|
Commercial and industrial loans (except those secured by real estate)
|
|
|
556
|
|
|
|
375
|
|
|
|
181
|
|
|
|
36,506
|
|
|
|
1,220
|
|
|
|
35,286
|
|
Student loans
|
|
|
108
|
|
|
|
-
|
|
|
|
108
|
|
|
|
45,805
|
|
|
|
-
|
|
|
|
45,805
|
|
Consumer and other
|
|
|
374
|
|
|
|
18
|
|
|
|
356
|
|
|
|
1,848
|
|
|
|
22
|
|
|
|
1,826
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,239
|
|
|
$
|
515
|
|
|
$
|
2,724
|
|
|
$
|
368,709
|
|
|
$
|
15,314
|
|
|
$
|
353,395
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and land development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
41
|
|
|
$
|
-
|
|
|
$
|
41
|
|
|
$
|
6,770
|
|
|
$
|
-
|
|
|
$
|
6,770
|
|
Commercial
|
|
|
300
|
|
|
|
9
|
|
|
|
291
|
|
|
|
27,092
|
|
|
|
581
|
|
|
|
26,511
|
|
|
|
|
341
|
|
|
|
9
|
|
|
|
332
|
|
|
|
33,862
|
|
|
|
581
|
|
|
|
33,281
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
611
|
|
|
|
86
|
|
|
|
525
|
|
|
|
66,021
|
|
|
|
5,604
|
|
|
|
60,417
|
|
Non-owner occupied
|
|
|
406
|
|
|
|
-
|
|
|
|
406
|
|
|
|
57,944
|
|
|
|
2,236
|
|
|
|
55,708
|
|
Multifamily
|
|
|
56
|
|
|
|
-
|
|
|
|
56
|
|
|
|
8,824
|
|
|
|
-
|
|
|
|
8,824
|
|
Farmland
|
|
|
3
|
|
|
|
-
|
|
|
|
3
|
|
|
|
310
|
|
|
|
-
|
|
|
|
310
|
|
|
|
|
1,076
|
|
|
|
86
|
|
|
|
990
|
|
|
|
133,099
|
|
|
|
7,840
|
|
|
|
125,259
|
|
Consumer real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity lines
|
|
|
271
|
|
|
|
-
|
|
|
|
271
|
|
|
|
20,691
|
|
|
|
703
|
|
|
|
19,988
|
|
Secured by 1-4 family residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First deed of trust
|
|
|
447
|
|
|
|
144
|
|
|
|
303
|
|
|
|
54,791
|
|
|
|
5,064
|
|
|
|
49,727
|
|
Second deed of trust
|
|
|
136
|
|
|
|
90
|
|
|
|
46
|
|
|
|
5,768
|
|
|
|
709
|
|
|
|
5,059
|
|
|
|
|
854
|
|
|
|
234
|
|
|
|
620
|
|
|
|
81,250
|
|
|
|
6,476
|
|
|
|
74,774
|
|
Commercial and industrial loans (except those secured by real estate)
|
|
|
223
|
|
|
|
6
|
|
|
|
217
|
|
|
|
39,390
|
|
|
|
544
|
|
|
|
38,846
|
|
Student loans
|
|
|
158
|
|
|
|
-
|
|
|
|
158
|
|
|
|
47,398
|
|
|
|
-
|
|
|
|
47,398
|
|
Consumer and other
|
|
|
721
|
|
|
|
-
|
|
|
|
721
|
|
|
|
2,101
|
|
|
|
-
|
|
|
|
2,101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,373
|
|
|
$
|
335
|
|
|
$
|
3,038
|
|
|
$
|
337,100
|
|
|
$
|
15,441
|
|
|
$
|
321,659
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and land development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
30
|
|
|
$
|
-
|
|
|
$
|
30
|
|
|
$
|
5,202
|
|
|
$
|
-
|
|
|
$
|
5,202
|
|
Commercial
|
|
|
291
|
|
|
|
2
|
|
|
|
289
|
|
|
|
25,948
|
|
|
|
1,822
|
|
|
|
24,126
|
|
|
|
|
321
|
|
|
|
2
|
|
|
|
319
|
|
|
|
31,150
|
|
|
|
1,822
|
|
|
|
29,328
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
1,167
|
|
|
|
383
|
|
|
|
784
|
|
|
|
69,256
|
|
|
|
6,785
|
|
|
|
62,471
|
|
Non-owner occupied
|
|
|
460
|
|
|
|
26
|
|
|
|
434
|
|
|
|
38,037
|
|
|
|
2,867
|
|
|
|
35,170
|
|
Multifamily
|
|
|
51
|
|
|
|
-
|
|
|
|
51
|
|
|
|
8,537
|
|
|
|
-
|
|
|
|
8,537
|
|
Farmland
|
|
|
17
|
|
|
|
-
|
|
|
|
17
|
|
|
|
388
|
|
|
|
-
|
|
|
|
388
|
|
|
|
|
1,695
|
|
|
|
409
|
|
|
|
1,286
|
|
|
|
116,218
|
|
|
|
9,652
|
|
|
|
106,566
|
|
Consumer real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity lines
|
|
|
448
|
|
|
|
-
|
|
|
|
448
|
|
|
|
20,333
|
|
|
|
1,238
|
|
|
|
19,095
|
|
Secured by 1-4 family residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First deed of trust
|
|
|
602
|
|
|
|
324
|
|
|
|
278
|
|
|
|
56,776
|
|
|
|
5,759
|
|
|
|
51,017
|
|
Second deed of trust
|
|
|
111
|
|
|
|
98
|
|
|
|
13
|
|
|
|
6,485
|
|
|
|
1,212
|
|
|
|
5,273
|
|
|
|
|
1,161
|
|
|
|
422
|
|
|
|
739
|
|
|
|
83,594
|
|
|
|
8,209
|
|
|
|
75,385
|
|
Commercial and industrial loans (except those secured by real estate)
|
|
|
94
|
|
|
|
18
|
|
|
|
76
|
|
|
|
20,086
|
|
|
|
826
|
|
|
|
19,260
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Student loans
|
|
|
230
|
|
|
|
-
|
|
|
|
230
|
|
|
|
53,989
|
|
|
|
-
|
|
|
|
53,989
|
|
Consumer and other
|
|
|
61
|
|
|
|
-
|
|
|
|
61
|
|
|
|
1,734
|
|
|
|
-
|
|
|
|
1,734
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,562
|
|
|
$
|
851
|
|
|
$
|
2,711
|
|
|
$
|
306,771
|
|
|
$
|
20,509
|
|
|
$
|
286,262
|
|
|
Note 5.
|
Premises and Equipment
|
The following is a summary of premises
and equipment as of December 31, 2017 and 2016 (in thousands):
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Land
|
|
$
|
4,352
|
|
|
$
|
4,352
|
|
Buildings and improvements
|
|
|
9,651
|
|
|
|
9,087
|
|
Furniture, fixtures and equipment
|
|
|
8,008
|
|
|
|
7,613
|
|
Total premises and equipment
|
|
|
22,011
|
|
|
|
21,052
|
|
Less: Accumulated depreciation and amortization
|
|
|
(9,029
|
)
|
|
|
(8,294
|
)
|
|
|
|
|
|
|
|
|
|
Premises and equipment, net
|
|
$
|
12,982
|
|
|
$
|
12,758
|
|
Depreciation and amortization of premises
and equipment for 2017, 2016 and 2015 amounted to $742,000, $765,000 and $843,000, respectively.
|
Note 6.
|
Investment in Bank Owned Life Insurance
|
The Bank is owner and designated beneficiary
on life insurance policies in the aggregate face amount of $13,723,000 covering certain of its directors and executive officers.
The earnings from these policies are used to offset expenses related to retirement plans. The cash surrender value of these policies
at December 31, 2017 and 2016 was approximately $7,268,000 and $7,093,000, respectively.
Deposits as of December 31, 2017 and 2016
were as follows (in thousands):
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Checking accounts
|
|
|
|
|
|
|
|
|
Noninterest bearing demand
|
|
$
|
104,138
|
|
|
$
|
92,574
|
|
Interest bearing
|
|
|
48,042
|
|
|
|
44,390
|
|
Money market accounts
|
|
|
82,523
|
|
|
|
71,290
|
|
Savings accounts
|
|
|
27,596
|
|
|
|
26,598
|
|
Time deposits of $250,000 and over
|
|
|
21,592
|
|
|
|
13,372
|
|
Other time deposits
|
|
|
127,733
|
|
|
|
135,053
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
411,624
|
|
|
$
|
383,277
|
|
The following are the scheduled maturities
of time deposits as of December 31, 2017 (in thousands):
|
|
|
|
|
Greater than
|
|
|
|
|
|
|
Less Than
|
|
|
or Equal to
|
|
|
|
|
Year Ending December 31,
|
|
$250,000
|
|
|
$250,000
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
$
|
62,312
|
|
|
$
|
11,913
|
|
|
$
|
74,225
|
|
2019
|
|
|
21,435
|
|
|
|
2,836
|
|
|
|
24,271
|
|
2020
|
|
|
13,958
|
|
|
|
1,091
|
|
|
|
15,049
|
|
2021
|
|
|
21,080
|
|
|
|
3,159
|
|
|
|
24,239
|
|
2022
|
|
|
8,948
|
|
|
|
2,593
|
|
|
|
11,541
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
127,733
|
|
|
$
|
21,592
|
|
|
$
|
149,325
|
|
Deposits held at the Company by related
parties, which include officers, directors, greater than 5% shareholders and companies in which directors of the board have a significant
ownership interest, approximated $9,916,000 and $5,709,000 at December 31, 2017 and 2016, respectively.
The Company uses both short-term and long-term
borrowings to supplement deposits when they are available at a lower overall cost to the Company or they can be invested at a positive
rate of return.
As a member of the Federal Home Loan Bank
of Atlanta, the Bank is required to own capital stock in the FHLB and is authorized to apply for advances from the FHLB. The Company
held $920,000 in FHLB stock at December 31, 2017 and $512,000 at December 31, 2016 which is held at cost and included in other
assets. Each FHLB credit program has its own interest rate, which may be fixed or variable, and range of maturities. The FHLB may
prescribe the acceptable uses to which the advances may be put, as well as on the size of the advances and repayment provisions.
The FHLB borrowings are secured by the pledge of commercial and 1-4 family residential loans. The Company had FHLB advances of
approximately $12,300,000 at December 31, 2017 maturing through 2018. At December 31, 2016, approximately $2,400,000 of advances
was outstanding.
The Company had advances from the FHLB
for the periods indicated that consisted of the following (in thousands):
Year Ended December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturity
|
|
|
Interest
|
|
|
Advance
|
|
Type
|
|
Date
|
|
|
Rate
|
|
|
Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Rate
|
|
|
06/01/2018
|
|
|
|
1.48
|
%
|
|
$
|
800
|
|
Fixed Rate
|
|
|
06/08/2018
|
|
|
|
1.63
|
%
|
|
|
5,000
|
|
Fixed Rate
|
|
|
11/15/2018
|
|
|
|
1.71
|
%
|
|
|
6,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
12,300
|
|
Year Ended December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturity
|
|
|
Interest
|
|
|
Advance
|
|
Type
|
|
Date
|
|
|
Rate
|
|
|
Amount
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Rate
|
|
|
06/01/2017
|
|
|
|
1.06
|
%
|
|
$
|
800
|
|
Fixed Rate
|
|
|
12/01/2017
|
|
|
|
1.27
|
%
|
|
|
800
|
|
Fixed Rate
|
|
|
06/01/2018
|
|
|
|
1.48
|
%
|
|
|
800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,400
|
|
The Company uses federal funds purchased
and repurchase agreements for short-term borrowing needs. Securities sold under agreements to repurchase are classified as borrowings
and generally mature within one to four days from the transaction date. Securities sold under agreements to repurchase are reflected
at the amount of cash received in connection with the transaction. The Company may be required to provide additional collateral
based on the fair value of the underlying securities. The carrying value of these short-term borrowing agreements was $1,584,000
and $81,000 at December 31, 2017 and 2016, respectively.
Information related to borrowings as of
December 31, 2017, 2016 and 2015 is as follows (dollars in thousands):
|
|
Year Ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
Maximum outstanding during the year
|
|
|
|
|
|
|
|
|
|
|
|
|
FHLB advances
|
|
$
|
12,300
|
|
|
$
|
12,200
|
|
|
$
|
14,000
|
|
Balance outstanding at end of year
|
|
|
|
|
|
|
|
|
|
|
|
|
FHLB advances
|
|
|
12,300
|
|
|
|
2,400
|
|
|
|
6,000
|
|
Average amount outstanding during the year
|
|
|
|
|
|
|
|
|
|
|
|
|
FHLB advances
|
|
|
4,223
|
|
|
|
5,161
|
|
|
|
9,027
|
|
Average interest rate during the year
|
|
|
|
|
|
|
|
|
|
|
|
|
FHLB advances
|
|
|
1.33
|
%
|
|
|
1.09
|
%
|
|
|
1.88
|
%
|
Average interest rate at end of year
|
|
|
|
|
|
|
|
|
|
|
|
|
FHLB advances
|
|
|
1.66
|
%
|
|
|
1.46
|
%
|
|
|
1.58
|
%
|
The following summarizes the tax effects
of temporary differences which comprise net deferred tax assets and liabilities at December 31, 2017 and 2016 (in thousands):
|
|
2017
|
|
|
2016
|
|
Deferred tax assets
|
|
|
|
|
|
|
|
|
Net operating loss carryforward
|
|
$
|
4,818
|
|
|
$
|
7,471
|
|
Capital loss carryforward
|
|
|
26
|
|
|
|
14
|
|
State net operating loss carryfoward
|
|
|
80
|
|
|
|
50
|
|
AMT credit
|
|
|
22
|
|
|
|
-
|
|
Allowance for loan losses
|
|
|
680
|
|
|
|
1,147
|
|
Unrealized loss on available-for-sale securities
|
|
|
104
|
|
|
|
93
|
|
Interest on nonaccrual loans
|
|
|
33
|
|
|
|
41
|
|
Expenses and writedowns related to foreclosed property
|
|
|
225
|
|
|
|
883
|
|
Stock compensation
|
|
|
53
|
|
|
|
253
|
|
Employee benefits
|
|
|
689
|
|
|
|
1,079
|
|
Pension expense
|
|
|
16
|
|
|
|
31
|
|
Depreciation
|
|
|
125
|
|
|
|
144
|
|
Lease Obligation
|
|
|
-
|
|
|
|
74
|
|
Other, net
|
|
|
2
|
|
|
|
71
|
|
Goodwill
|
|
|
5
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
6,878
|
|
|
|
11,374
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities
|
|
|
|
|
|
|
|
|
Amortization of intangibles
|
|
|
-
|
|
|
|
1
|
|
Total deferred tax liabilities
|
|
|
-
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
$
|
6,878
|
|
|
$
|
11,373
|
|
The net deferred tax asset is included
in other assets on the consolidated balance sheet. Accounting Standards Codification Topic 740,
Income Taxes
, requires that
companies assess whether a valuation allowance should be established against their deferred tax assets based on the consideration
of all available evidence using a “more likely than not” standard. Management considers both positive and negative
evidence and analyzes changes in near-term market conditions as well as other factors which may impact future operating results.
In making such judgments, significant weight is given to evidence that can be objectively verified. The deferred tax assets are
analyzed quarterly for changes affecting realization.
On December 22, 2017, the President signed
into law the Tax Cuts and Jobs Act of 2017 (the “Tax Reform Act”). The Tax Reform Act includes a number of changes
in existing tax law impacting businesses. One of the most significant changes is a permanent reduction in the corporate income
tax rate from 35% to 21%. The rate reduction took effect on January 1, 2018. GAAP requires companies to re-value their deferred
tax assets and liabilities as of the date of enactment, with resulting tax effects accounted for in the reporting period of enactment.
As of December 31, 2017, the Company
had net deferred tax assets of $11 million. The Company recorded a re-valuation of its deferred tax assets and liabilities as of
December 31, 2017, at the new rate of 21%, based upon balances in existence at date of enactment. As a result, the Company's net
deferred tax assets were written down by approximately $4,181,000 in the fourth quarter of 2017 with a corresponding increase in
tax expense. Although the Tax Reform Act had a significant negative impact on the Company’s earnings for 2017 as a result
of the re-valuation of its deferred tax assets and liabilities, the reduction in the corporate tax rate to 21% is expected to have
a significant positive benefit to the Company in 2018 and beyond.
There was an $11,172,000 income tax benefit
recorded for the year ended December 31, 2016 compared to no tax expense for the year ended December 31 2015. The income tax benefit
in 2016 was primarily due to the reversal of an $11,997,000 valuation allowance previously recorded against the net deferred tax
asset. This valuation allowance was first recorded in the fourth quarter of 2011 due to the uncertainty of whether or not the Company
would be able to realize the asset.
In assessing the Company’s ability
to realize its net deferred tax asset, management considers whether it is more likely than not that some portion or all of the
net deferred tax asset will or will not be realized. The Company’s ultimate realization of the net deferred tax asset
is dependent upon the generation of future taxable income during the periods in which temporary differences become deductible.
Management considers the nature and amount of historical and projected future taxable income, the scheduled reversal of deferred
tax assets and liabilities, and available tax planning strategies in making this assessment. The amount of net deferred taxes
recognized could be impacted by changes to any of these variables.
Each quarter, the Company weighs both the
positive and negative information with respect to realization of the net deferred tax asset and analyzes its position as to whether
or not a valuation allowance is required. Over the past several quarters, the positive information has been increasing while the
negative information has been decreasing. The Company has demonstrated consistent earnings while its level of nonperforming assets,
which was the primary cause of the Company’s losses, has steadily decreased. Additionally, the Reserve Bank, the FDIC and
the Virginia Bureau of Financial Institutions have terminated their formal agreements with the Company and the Bank, reducing regulatory
risk.
Given the consistent earnings and improving
asset quality, the Company’s analysis concluded that, it is more likely than not that the Company will generate sufficient
taxable income within the applicable carry-forward periods to realize its net deferred tax asset. As such, the full valuation allowance
of $11,997,000 was released.
The net operating losses available to offset
future taxable income amounted to $22,942,000 at December 31, 2017 and begin expiring in 2028.
The income tax expense (benefit) charged
to operations for the years ended December 31, 2017, 2016 and 2015 consists of the following (in thousands):
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
Current tax expense (benefit)
|
|
$
|
1
|
|
|
$
|
12
|
|
|
$
|
-
|
|
Deferred tax expense (benefit)
|
|
|
385
|
|
|
|
813
|
|
|
|
277
|
|
Write-down deferred tax assets
|
|
|
4,181
|
|
|
|
-
|
|
|
|
-
|
|
Valuation allowance
|
|
|
-
|
|
|
|
(11,997
|
)
|
|
|
(277
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense (benefit)
|
|
$
|
4,567
|
|
|
$
|
(11,172
|
)
|
|
$
|
-
|
|
A reconciliation of income taxes computed
at the federal statutory income tax rate to total income taxes is as follows for the years ended December 31, 2017, 2016 and 2015
(in thousands):
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense (benefit)
|
|
$
|
1,471
|
|
|
$
|
2,341
|
|
|
$
|
646
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Computed "expected" tax expense (benefit)
|
|
$
|
500
|
|
|
$
|
796
|
|
|
$
|
220
|
|
Write-down of deferred tax assets
|
|
|
4,181
|
|
|
|
-
|
|
|
|
-
|
|
Valuation allowance change
|
|
|
-
|
|
|
|
(11,997
|
)
|
|
|
(277
|
)
|
State taxes, net of fed
|
|
|
(17
|
)
|
|
|
(39
|
)
|
|
|
-
|
|
Cash surrender value of life insurance
|
|
|
(60
|
)
|
|
|
(63
|
)
|
|
|
(62
|
)
|
Other
|
|
|
(37
|
)
|
|
|
131
|
|
|
|
119
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense (benefit)
|
|
$
|
4,567
|
|
|
$
|
(11,172
|
)
|
|
$
|
-
|
|
Commercial banking organizations conducting
business in Virginia are not subject to Virginia income taxes. Instead, they are subject to a franchise tax based on bank capital.
The Company recorded franchise tax expense of approximately $341,000 and $75,000 for the years ended December 31, 2017 and 2016,
respectively. Due to the Company’s adjusted capital level we were not subject to franchise tax expense for the year ended
December 31, 2015.
|
Note 10.
|
Earnings (Loss) per Share
|
The following table presents the basic
and diluted earnings per share computations (in thousands except per share data):
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Numerator
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) - basic and diluted
|
|
$
|
(3,096
|
)
|
|
$
|
13,513
|
|
|
$
|
646
|
|
Preferred stock dividend and accretion
|
|
|
(498
|
)
|
|
|
(737
|
)
|
|
|
(674
|
)
|
Preferred stock principal forgiveness
|
|
|
-
|
|
|
|
-
|
|
|
|
4,404
|
|
Preferred stock dividend forgiveness
|
|
|
-
|
|
|
|
-
|
|
|
|
2,215
|
|
Net income (loss) available to common shareholders
|
|
$
|
(3,594
|
)
|
|
$
|
12,776
|
|
|
$
|
6,591
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding - basic
|
|
|
1,412
|
|
|
|
1,421
|
|
|
|
1,166
|
|
Dilutive effect of common stock options and restricted stock awards
|
|
|
-
|
|
|
|
-
|
|
|
|
35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding - diluted
|
|
|
1,412
|
|
|
|
1,421
|
|
|
|
1,201
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share - basic
|
|
$
|
(2.55
|
)
|
|
$
|
8.99
|
|
|
$
|
5.65
|
|
Earnings (loss) per share - diluted
|
|
$
|
(2.55
|
)
|
|
$
|
8.99
|
|
|
$
|
5.49
|
|
Outstanding options and warrants to purchase
common stock were considered in the computation of diluted earnings per share for the periods ended December 31, 2016 and 2015.
Stock options for 2,245 shares of common stock were not included in computing diluted earnings per share in 2017, because their
effects were anti-dilutive.
|
Note 11.
|
Lease Commitments
|
Certain premises and equipment are leased
under various operating leases. Total rent expense charged to operations was $243,000, $387,000 and $422,000 in 2017, 2016 and
2015, respectively. At December 31, 2017, the minimum total rental commitment under such non-cancelable operating leases was as
follows (in thousands):
2018
|
|
|
437
|
|
2019
|
|
|
415
|
|
2020
|
|
|
416
|
|
2021
|
|
|
278
|
|
2022
|
|
|
113
|
|
|
|
|
|
|
|
|
$
|
1,659
|
|
|
Note 12.
|
Commitments and Contingencies
|
Off-balance-sheet risk
– The
Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financial
needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. These instruments
involve, to varying degrees, elements of credit and interest-rate risk in excess of the amounts recognized in the financial statements.
The contract amounts of these instruments reflect the extent of involvement that the Company has in particular classes of instruments.
The Company’s exposure to credit
loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit, and to potential
credit loss associated with letters of credit issued, is represented by the contractual amount of those instruments. The Company
uses the same credit policies in making commitments and conditional obligations as it does for loans and other such on-balance
sheet instruments.
At December 31, 2017 and 2016, the Company
had outstanding the following approximate off-balance-sheet financial instruments whose contract amounts represent credit risk
(in thousands):
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Undisbursed credit lines
|
|
$
|
65,495
|
|
|
$
|
55,315
|
|
Commitments to extend or originate credit
|
|
|
13,888
|
|
|
|
16,467
|
|
Standby letters of credit
|
|
|
4,615
|
|
|
|
4,397
|
|
|
|
|
|
|
|
|
|
|
Total commitments to extend credit
|
|
$
|
83,998
|
|
|
$
|
76,179
|
|
Commitments to extend credit are agreements
to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have
fixed expiration dates or other termination clauses and may require the payment of a fee. Historically, many commitments expire
without being drawn upon; therefore, the total commitment amounts shown in the above table are not necessarily indicative of future
cash requirements. The Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral
obtained, as deemed necessary by the Company upon extension of credit is based on management’s credit evaluation of the customer.
Collateral held varies but may include personal or income-producing commercial real estate, accounts receivable, inventory and
equipment.
Concentrations of credit risk
–
Generally, the Company’s loans, commitments to extend credit, and standby letters of credit have been granted to customers
in the Company’s market area. Although the Company is building a diversified loan portfolio, a substantial portion of its
clients’ ability to honor contracts is reliant upon the economic stability of the Richmond, Virginia area, including the
real estate markets in the area. The concentrations of credit by type of loan are set forth in Note 3. The distribution of commitments
to extend credit approximates the distribution of loans outstanding.
Prior Agreements with Regulators −
In February 2012, the Bank entered into a Stipulation and Consent to the Issuance of a Consent Order with the FDIC and the
Virginia Bureau of Financial Institutions (the “Supervisory Authorities”), and the Supervisory Authorities issued the
related Consent Order effective February 3, 2012 (the “Consent Order”). In June 2012, the Company entered into a similar
written agreement (the “Written Agreement”) with the Reserve Bank. As a result of the steps the Company and the Bank
took to, among other things, improve asset quality, increase capital, augment management and board oversight, and increase earnings,
the Consent Order was terminated effective December 14, 2015. In place of the Consent Order, the Bank’s Board of Directors
made certain written assurances to the Supervisory Authorities in the form of a Memorandum of Understanding (“MOU”)
that became effective November 17, 2015. Due to further improvements by the Company and the Bank in asset quality and earnings,
and the correction of a prior Regulation W violation, the MOU was terminated effective May 12, 2016, and the Written Agreement
was terminated effective July 28, 2016.
Note 13.
|
Shareholders’ Equity and Regulatory Matters
|
Preferred Stock
On May 1, 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) 14,738 shares of the Company’s
Fixed Rate Cumulative Perpetual Preferred Stock, Series A, par value $4.00 per share, having a liquidation preference of $1,000
per share (the “preferred stock”) and (ii) a warrant (the “Warrant”) to purchase 499,029 shares of the
Company’s common stock at an initial exercise price of $4.43 per share, subject to certain anti-dilution and other adjustments,
for an aggregate purchase price of $14,738,000 in cash. As a result of the Company’s 1 for 16 reverse stock split completed
in August 2014, the number of shares underlying the Warrant and the exercise price per share were adjusted to 31,190 and $70.88,
respectively. The fair value of the preferred stock was estimated using discounted cash flow methodology at an assumed market equivalent
rate of 13%, with 20 quarterly payments over a five year period, and was determined to be $10,208,000. The fair value of the Warrant
was estimated using the Black-Scholes option pricing model, with assumptions of 25% volatility, a risk-free rate of 2.03%, a yield
of 6.162% and an estimated life of 5 years, and was determined to be $534,000. The aggregate fair value for both the preferred
stock and Warrant was determined to be $10,742,000 with 95% of the aggregate attributable to the preferred stock and 5% attributable
to the Warrant. Therefore, the $14,738,000 issuance was allocated with $14,006,000 being assigned to the preferred stock and $732,000
being allocated to the Warrant. The difference between the $14,738,000 face value of the preferred stock and the amount allocated
of $14,006,000 to the preferred stock was accreted as a discount on the preferred stock using the effective interest rate method
over five years.
The preferred stock qualifies as Tier 1
capital and accrued cumulative dividends at a rate of 5% until May 1, 2014 and now accrues at a 9% rate. The preferred stock is
generally non-voting, other than on certain matters that could adversely affect the preferred stock.
The Warrant was immediately exercisable.
The Warrant provides for the adjustment of the exercise price and the number of shares of common stock issuable upon exercise pursuant
to customary anti-dilution provisions, such as upon stock splits or distributions of securities or other assets to holders of common
stock, and upon certain issuances of common stock at or below a specified price relative to the then-current market price of common
stock. The Warrant expires ten years from the issuance date. Pursuant to the Purchase Agreement, the Treasury has agreed not to
exercise voting power with respect to any shares of common stock issued upon exercise of the Warrant.
In November 2013, the Company participated
in a successful auction of the Company’s preferred stock by the Treasury that resulted in the purchase of the securities
by private and institutional investors.
In accordance with the Company’s
prior Written Agreement with the Reserve Bank, the Company had been deferring quarterly cash dividends on the preferred stock since
May 2011. The Written Agreement was terminated by the Reserve Bank as of July 28, 2016. With the termination of the Written Agreement,
the Company is not required to defer the quarterly cash dividends on the preferred stock.
During the first quarter of 2017, the Company
received approval from state and federal regulators allowing the Bank to pay a special dividend to the Company for the sole purpose
of paying all accrued and unpaid dividends on the preferred stock through February 15, 2017, as well as to redeem 688 shares of
the total 5,715 shares outstanding. The accrued and unpaid dividends paid on February 15, 2017 amounted to $2,911,000. The 688
shares were redeemed on February 24, 2017 at a redemption price of $1,000 per share plus accrued dividends from February 15, 2017
to the redemption date.
During the second quarter of 2017, the
Company received approval from the state regulators allowing the Bank to pay a special dividend to the Company for the purpose
of paying the preferred stock dividend due on May 15, 2017. No other dividends were paid by the Bank to the Company during 2017.
At December 31, 2017, the aggregate amount
of the Company’s total accrued dividend payments on the preferred stock was $56,000 and reflected as a reduction of retained
earnings.
Common Stock
On August 6, 2014, the Company filed Articles
of Amendment to its Articles of Incorporation with the Virginia State Corporation Commission to affect a reverse stock split of
its outstanding common stock which became effective on August 8, 2014. As a result of the reverse split, every sixteen shares of
the Company’s issued and outstanding common stock were consolidated into one issued and outstanding share of common stock.
On March 27, 2015, the Company completed
a rights offering to shareholders (the “Rights Offering”) and concurrent standby offering to Kenneth R. Lehman (the
“Standby Offering”), in which the Company issued an aggregate of 1,051,866 shares of common stock (the total number
of shares offered) at $13.87 per share for aggregate gross proceeds of $14,589,381 (including the value of the Company’s
preferred stock exchanged by Mr. Lehman for shares of common stock of $4,618,813). In connection with the Rights Offering, 283,293
shares were issued to shareholders upon exercise of their basic subscription rights and 191,773 shares were issued to shareholders
upon exercise of their oversubscription privileges (approximately 36.9% of the total number of shares requested pursuant to oversubscription
privileges). In connection with the Standby Offering, Mr. Lehman purchased an aggregate of 576,800 shares of the Company’s
common stock, 333,007 of which were issued in exchange for 9,023 shares of the Company’s preferred stock and 243,793 of which
were purchased for cash. Also, as part of the Standby Offering, Mr. Lehman forgave $2,215,009 in accrued and unpaid dividends on
the preferred stock.
Regulatory Matters
The Bank is subject to various regulatory
capital requirements administered by the federal and state banking agencies. Failure to meet minimum capital requirements can initiate
certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have a direct material
effect on the Bank’s financial statements. Under the capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets,
liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Bank’s capital
amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other
factors.
Quantitative measures established by regulation
to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the table below) of total and
Tier 1 Capital (as defined in the regulations) to risk-weighted assets, and of Tier 1 Capital to average assets (the Leverage ratio).
In July 2013, the Board of Governors of
the Federal Reserve System and the FDIC approved the final rules implementing the Basel Committee on Banking Supervision's capital
guidelines for U.S. banks (commonly known as Basel III). Under the final rules, which began for the Company and the Bank on January
1, 2015 and are subject to a phase-in period through January 1, 2019, minimum requirements will increase for both the quantity
and quality of capital held by the Company and the Bank. The rules include a new common equity Tier 1 capital to risk-weighted
assets ratio (“CET1 ratio”) of 4.5% and a capital conservation buffer of 2.5% of risk-weighted assets, which when fully
phased-in, effectively results in a minimum CET1 ratio of 7.0%. Basel III raises the minimum ratio of Tier 1 capital to risk-weighted
assets from 4.0% to 6.0% (which, with the capital conservation buffer, effectively results in a minimum Tier 1 capital ratio of
8.5% when fully phased-in), effectively results in a minimum total capital to risk-weighted assets ratio of 10.5% (with the capital
conservation buffer fully phased-in), and requires a minimum leverage ratio of 4.0%. Basel III also makes changes to risk weights
for certain assets and off-balance-sheet exposures. Management expects that the capital ratios for the Company and the Bank under
Basel III will continue to exceed the well capitalized minimum capital requirements.
The capital amounts and ratios at December
31, 2017 and 2016 for the Bank are presented in the table below (dollars in thousands):
|
|
|
|
|
|
|
|
For Capital
|
|
|
|
|
|
|
|
|
|
Actual
|
|
|
Adequacy Purposes
|
|
|
To be Well Capitalized
|
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital (to risk-weighted assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Village Bank
|
|
$
|
45,504
|
|
|
|
12.88
|
%
|
|
$
|
28,268
|
|
|
|
8.00
|
%
|
|
$
|
35,335
|
|
|
|
10.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 capital (to risk-weighted assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Village Bank
|
|
|
42,265
|
|
|
|
11.96
|
%
|
|
|
14,134
|
|
|
|
4.00
|
%
|
|
|
21,201
|
|
|
|
6.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leverage ratio (Tier 1 capital to average assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Village Bank
|
|
|
42,265
|
|
|
|
9.18
|
%
|
|
|
18,422
|
|
|
|
4.00
|
%
|
|
|
23,028
|
|
|
|
5.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common equity tier 1 (to risk-weighted assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Village Bank
|
|
|
42,265
|
|
|
|
11.96
|
%
|
|
|
15,901
|
|
|
|
4.50
|
%
|
|
|
22,968
|
|
|
|
6.50
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
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Total capital (to risk-weighted assets)
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Village Bank
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$
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49,225
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15.33
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%
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$
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25,693
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8.00
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%
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$
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32,117
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10.00
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%
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Tier 1 capital (to risk-weighted assets)
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Village Bank
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45,852
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14.28
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%
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12,847
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4.00
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%
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19,270
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6.00
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%
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Leverage ratio (Tier 1 capital to average assets)
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Village Bank
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45,852
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10.47
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%
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17,523
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4.00
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%
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21,903
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5.00
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%
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Common equity tier 1 (to risk-weighted assets)
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Village Bank
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45,852
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14.28
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%
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14,452
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4.50
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%
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20,876
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6.50
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%
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Note 14.
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Stock Incentive Plan
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In accordance with accounting standards,
the Company measures the cost of employee services received in exchange for an award of equity instruments based on the grant-date
fair value of the award (with limited exceptions). That cost is recognized over the period during which an employee is required
to provide service in exchange for the award rather than disclosed in the financial statements.
The following table summarizes options
outstanding under the Company’s stock incentive plans at the indicated dates:
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Year Ended December 31,
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2017
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2016
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Weighted
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Weighted
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Average
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Average
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Exercise
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Fair Value
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Intrinsic
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Exercise
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Fair Value
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Intrinsic
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Options
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Price
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Per Share
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Value
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Options
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Price
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Per Share
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Value
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Options outstanding, beginning of period
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2,337
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$
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24.21
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$
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12.76
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2,929
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$
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24.47
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$
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12.71
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Granted
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-
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-
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-
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-
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-
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-
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Forfeited
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(92
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)
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25.28
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9.76
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(592
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)
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25.48
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12.53
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Exercised
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-
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-
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-
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-
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-
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-
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Options outstanding, end of period
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2,245
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$
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24.17
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$
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12.88
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$
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-
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2,337
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$
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24.21
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$
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12.76
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$
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-
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Options exercisable, end of period
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2,245
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2,337
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Year Ended December 31,
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2015
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Weighted
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Average
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Exercise
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Fair Value
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Intrinsic
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Options
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Price
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Per Share
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Value
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Options outstanding, beginning of period
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6,830
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$
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92.34
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$
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57.97
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Granted
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-
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-
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-
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Forfeited
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(3,901
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)
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168.79
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95.85
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Exercised
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-
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-
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-
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Options outstanding, end of period
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2,929
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$
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24.47
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$
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12.71
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$
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-
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Options exercisable, end of period
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1,730
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The following table summarizes information
about stock options outstanding at December 31, 2017:
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Outstanding
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Exercisable
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Weighted
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Average
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Remaining
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Weighted
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Weighted
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Years of
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Average
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Average
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Range of
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Number of
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Contractual
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Exercise
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Number of
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Exercise
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Exercise Prices
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Options
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Life
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Price
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Options
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Price
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$16.00-$25.76
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2,245
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5.71
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$
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24.17
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2,245
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$
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24.17
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2,245
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5.71
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24.17
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2,245
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24.17
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|
During the second quarter of 2017, we granted
certain officers 600 restricted shares of common stock with a weighted average fair market value of $28.83 at the date of grant.
These restricted stock awards vest over two years. During the third quarter of 2017, we granted certain officers 5,450 restricted
shares of common stock with a weighted average fair market value of $31.00 at the date of grant. These restricted stock awards
vest over three years. During the fourth quarter of 2017, we granted certain officers 660 restricted shares of common stock with
a weighted average fair market value of $30.65 at the date of grant. These restricted stock awards vest over one year. During the
second quarter of 2016, we granted certain officers 4,000 performance based shares of common stock with a weighted average fair
market value of $20.00 at the date of grant. These restricted stock awards vest over two years. During the third quarter of 2016,
we granted certain officers 6,250 restricted shares of common stock with a weighted average fair market value of $22.50 at the
date of grant. These restricted stock awards have a three-year graded vesting. During the third quarter of 2015, we granted certain
officers 40,675 restricted shares of common stock with a weighted average fair market value of $19.72 at the date of grant. Prior
to vesting, these shares are subject to forfeiture to us without consideration upon termination of employment under certain circumstances.
The total number of shares underlying non-vested restricted stock was 23,920 and 39,080 at December 31, 2017 and 2016, respectively.
The fair value of the stock is based on
the grant date of the award and the expense is recognized over the vesting period. Unamortized stock-based compensation related
to nonvested shares based compensation arrangements granted under the stock incentive plan as of December 31, 2017 and 2016 was
$422,000 and $697,000, respectively. The time based unamortized compensation of $251,000 is expected to be recognized over a weighted
average period of 1.79 years. During 2017 and 2016, there were forfeitures of 10,845 and 3,399 shares of restricted stock awards,
respectively. There were no forfeitures of restricted stock awards in 2015.
A summary of changes in the Company’s
nonvested restricted stock awards for the year follows:
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Weighted-
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Average
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Aggregate
|
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Grant-Date
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Intrinsic
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Shares
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Fair-Value
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Value
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December 31, 2016
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39,080
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|
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$
|
21.04
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$
|
1,197,791
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Granted
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6,710
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|
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|
30.64
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205,662
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Vested
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(11,025
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)
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22.79
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|
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(337,916
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)
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Forfeited
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(10,845
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)
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20.34
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(332,399
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)
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|
December 31, 2017
|
|
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23,920
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$
|
23.03
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$
|
733,137
|
|
Stock-based compensation expense was $140,000,
$213,000, and $262,000 for the years ended December 31, 2017, 2016, and 2015, respectively.
Note 15.
|
Trust Preferred Securities
|
During the first quarter of 2005, Southern
Community Financial Capital Trust I, a wholly-owned subsidiary of the Company, was formed for the purpose of issuing redeemable
securities. On February 24, 2005, $5.2 million of Trust Preferred Capital Notes were issued through a pooled underwriting. The
securities have a LIBOR-indexed floating rate of interest (three-month LIBOR plus 2.15%) which adjusts, and is payable, quarterly.
The interest rate was 3.74% and 3.13% at December 31, 2017 and 2016, respectively. The securities were redeemable at par beginning
on March 15, 2010 and each quarter after such date until the securities mature on March 15, 2035. No amounts have been redeemed
at December 31, 2017 and there are no plans to do so. The principal asset of the Trust is $5.2 million of the Company’s junior
subordinated debt securities with like maturities and like interest rates to the Trust Preferred Capital Notes.
During the third quarter of 2007, Village
Financial Statutory Trust II, a wholly–owned subsidiary of the Company, was formed for the purpose of issuing redeemable
securities. On September 20, 2007, $3.6 million of Trust Preferred Capital Notes were issued through a pooled underwriting. The
securities have LIBOR-indexed floating rate of interest (three-month LIBOR plus 1.4%) which adjusts and is also payable quarterly.
The interest rate at December 31, 2017 was 2.99%. The securities may be redeemed at par at any time commencing in December 2012
until the securities mature in 2037. No amounts have been redeemed at December 31, 2017 and there are no plans to do so. The principal
asset of the Trust is $3.6 million of the Company’s junior subordinated securities with like maturities and like interest
rates to the Trust Preferred Capital Notes.
The Trust Preferred Capital Notes may be
included in Tier 1 capital for regulatory capital adequacy determination purposes up to 25% of Tier 1 capital after its inclusion.
The portion of the Trust Preferred Capital Notes not considered as Tier 1 capital may be included in Tier 2 capital.
The obligations of the Company with respect
to the issuance of the Trust Preferred Capital Notes constitute a full and unconditional guarantee by the Company of the Trust’s
obligations with respect to the Trust Preferred Capital Notes. Subject to certain exceptions and limitations, the Company may elect
from time to time to defer interest payments on the junior subordinated debt securities, which would result in a deferral of distribution
payments on the related Trust Preferred Capital Notes and require a deferral of common dividends. The Company is current on these
interest payments.
Note 16.
|
Retirement Plans
|
401K Plan
: The Bank provides a qualified
401K plan to all eligible employees which is administered through the Virginia Bankers Association Benefits Corporation. Employees
are eligible to participate in the plan after three months of employment. Eligible employees may, subject to statutory limitations,
contribute a portion of their salary to the plan through payroll deduction. Due to economic conditions at the time, the Bank ceased
its matching program in 2009; however, beginning January 2013, the Bank reinstituted the 401K match. The Bank provided a matching
contribution of 100% of the first 1% the participant contributes, and then 50% of the next 5% of their salary, totaling a maximum
3.5%. Participants are always fully vested in their own contributions, and the Bank’s matching contributions vest 100% after
two years. Total contributions to the plan for the years ended December 31, 2017, 2016 and 2015 were $304,000, $164,000 and $159,000,
respectively.
Supplemental Executive Retirement Plan
:
The Bank established the Village Bank Supplemental Executive Retirement Plan (the “SERP”) on January 1, 2005 to provide
supplemental retirement income to certain executive officers as designated by the Personnel Committee, later replaced by the Compensation
Committee, and approved by the board of directors. While we are subject to the regulatory agreements, the respective regulatory
agencies also review and approve new participants or changes in benefits under the SERP. The SERP is an unfunded employee pension
plan under the provisions of ERISA. An eligible employee, once designated by the Committee and approved by the board of directors
in writing to participate in the SERP, becomes a participant in the SERP 60 days following such approval (unless an earlier participation
date is approved). There are currently four executive officers who participate in the SERP. The retirement benefit to be received
by a participant is determined by the Committee and approved by the board of directors and is payable in equal monthly installments
over the period specified in the SERP for each respective participant, commencing on the first day of the month following a participant’s
retirement or termination of employment, provided the participant has been employed by the Bank for a minimum of 10 years. The
Compensation Committee, in its sole discretion, may choose to treat a participant who has experienced a termination of employment
on or after attaining age 65 but prior to completing his service requirement as having completed his service requirement. At December
31, 2017 and 2016, the Bank’s liability under the SERP was $2,116,000 and $2,064,000, respectively, and expense for the years
ended December 31, 2017, 2016 and 2015 was $190,000, $168,000 and $201,000, respectively. The increase in cash surrender value
of the BOLI related to the participants was $175,000 and $183,000 for the years ended December 31, 2017 and 2015, respectively,
while the cash surrender value decreased in 2016 by $37,000. The cash surrender value decreased in 2016 due to proceeds from bank
owned life insurance claim of $266,000.
On July 9, 2016, the Bank amended the SERP
to provide that the participants’ benefits will vest upon a change of control of the Bank. The SERP previously provided that
a participant’s benefits would vest upon a change of control only if the participant experienced a qualifying termination
of employment within 12 months after the change of control.
Directors’ Deferral Plan
:
The Bank established the Village Bank Outside Directors Deferral Plan (the “Directors Deferral Plan”) on January 1,
2005 under which non-employee directors of the Bank have the opportunity to defer receipt of all or a portion of certain compensation
until retirement or departure from the board of directors. Deferral of compensation under the Directors Deferral Plan is voluntary
by non-employee directors and to participate in the plan a director must file a deferral election as provided in the plan. A director
shall become an active participant with respect to a plan year (as defined in the plan) only if he is expected to have compensation
during the plan year and he timely files a deferral election. A separate account is established for each participant in the plan
and each account shall, in addition to compensation deferred at the election of the participant, be credited with interest on the
balance of the account, the rate of such interest to be established by the board of directors in its sole discretion at the beginning
of each plan year. For those directors electing to purchase stock, the obligation will only be settled by delivery of the fixed
number of shares they purchased. At December 31, 2017 and 2016, the Bank’s liability under the Directors Deferral Plan was
$235,000 and $166,000, respectively, and expense for the years ended December 31, 2017, 2016 and 2015 was $74,000, $89,000 and
$87,000, respectively. In the first quarter of 2015 and the fourth quarter of 2013, certain directors elected to purchase common
stock with funds from their deferred compensation accounts causing the December 31, 2015 and December 31, 2013 liability to be
lower than the December 31, 2014 liability. A rabbi trust was established to hold the shares. At December 31, 2017 and 2016, the
trust held 46,555 and 47,560 shares, respectively of Company common stock totaling $1,010,000 and $1,034,382, respectively.
The fair value of an asset or liability
is the price that would be received to sell that asset or paid to transfer that liability in an orderly transaction between market
participants. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal
market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability.
The price in the principal (or most advantageous) market used to measure the fair value of the asset or liability shall not be
adjusted for transaction costs. An orderly transaction is a transaction that assumes exposure to the market for a period prior
to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets and
liabilities; it is not a forced transaction. Market participants are buyers and sellers in the principal market that are independent,
knowledgeable, able to transact and willing to transact.
FASB Codification Topic 820:
Fair Value
Measurements and Disclosures
establishes a hierarchy for valuation inputs that gives the highest priority to quoted prices
in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair values hierarchy
is as follows:
|
·
|
Level 1 Inputs
— Quoted prices
(unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement
date.
|
|
·
|
Level 2 Inputs
— Significant
other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets
that are not active; or other inputs that are observable or can be corroborated by observable market data.
|
|
·
|
Level 3 Inputs
- Significant unobservable
inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset
or liability.
|
The Company used the following methods
to determine the fair value of each type of financial instrument:
Securities
:
Fair values for securities available-for-sale are obtained from an independent
pricing service. The prices are not adjusted. The independent pricing service uses industry-standard models to price U.S. Government
agency obligations and mortgage backed securities that consider various assumptions, including time value, yield curves, volatility
factors, prepayment speeds, default rates, loss severity, current market and contractual prices for the underlying financial instruments,
as well as other relevant economic measures. Securities of obligations of state and political subdivisions are valued using a type
of matrix, or grid, pricing in which securities are benchmarked against the treasury rate based on credit rating. Substantially
all assumptions used by the independent pricing service are observable in the marketplace, can be derived from observable data,
or are supported by observable levels at which transactions are executed in the marketplace (Levels 1 and 2). If the inputs used
to provide the evaluation for certain securities are unobservable and/or there is little, if any, market activity, then the security
would fall to the lowest level of the hierarchy (Level 3).
Impaired loans
: The fair values
of impaired loans are measured for impairment using the fair value of the collateral for collateral-dependent loans on a nonrecurring
basis. Collateral may be in the form of real estate or business assets including equipment, inventory, and accounts receivable.
The vast majority of the Company’s collateral is real estate. The value of real estate collateral is determined utilizing
an income or market valuation approach based on an appraisal conducted by an independent, licensed appraiser using observable market
data (Level 2). However, if the collateral is a house or building in the process of construction or when economic or other circumstances
dictate a need to obtain an updated appraisal of the property, then a Level 3 valuation is considered to measure the fair value.
The value of business equipment is based upon an outside appraisal if deemed significant, or the net book value on the applicable
business’s financial statements if not considered significant using observable market data. Likewise, values for inventory
and accounts receivables collateral are based on financial statement balances or aging reports (Level 3). Any fair value adjustments
are recorded in the period incurred as provision for loan losses on the Consolidated Statements of Operations.
Real
estate owned:
Real estate owned assets are adjusted to fair value upon transfer of the loans to foreclosed assets. Subsequently,
real estate owned assets are carried at fair value less costs to sell. Fair value is based upon independent market prices, appraised
values of the collateral or management’s estimation of the value of the collateral. When the fair value of the collateral
is based on an observable market price or a current appraised value, the Company records the foreclosed asset as nonrecurring Level
2. When an appraised value is not available or management determines the fair value of the collateral is further impaired below
the appraised value and there is no observable market price, the Company records the foreclosed asset as nonrecurring Level 3
.
Assets
held for sale:
assets held for sale were transferred from premises and equipment at cost less accumulated depreciation at the
date of transfer. The Company periodically evaluates the value of assets held for sale and records an impairment charge for any
subsequent declines in fair value less selling costs. Fair value is based upon independent market prices, appraised values of the
collateral or management’s estimation of the value of the collateral. When the fair value of the collateral is based on an
observable market price or a current appraised value, the Company records the assets held for sale as nonrecurring Level 2. When
an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised
value and there is no observable market price, the Company records the asset held for sale as nonrecurring Level 3
.
Assets measured at fair value under Topic
820 on a recurring and non-recurring basis are summarized below (in thousands):
|
|
Fair Value Measurement
|
|
|
|
at December 31, 2017 Using
|
|
|
|
|
|
|
Quoted Prices
|
|
|
|
|
|
|
|
|
|
|
|
|
in Active
|
|
|
Other
|
|
|
Significant
|
|
|
|
|
|
|
Markets for
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
Carrying
|
|
|
Identical Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
Value
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
Financial Assets - Recurring
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US Government Agencies
|
|
$
|
23,683
|
|
|
$
|
-
|
|
|
$
|
23,683
|
|
|
$
|
-
|
|
Mortgage-backed securities
|
|
|
21,940
|
|
|
|
-
|
|
|
|
21,940
|
|
|
|
-
|
|
Subordinated debt
|
|
|
4,088
|
|
|
|
757
|
|
|
|
1,531
|
|
|
|
1,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Assets - Non-Recurring
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans
|
|
|
15,314
|
|
|
|
-
|
|
|
|
13,722
|
|
|
|
1,592
|
|
Assets held for sale
|
|
|
610
|
|
|
|
-
|
|
|
|
-
|
|
|
|
610
|
|
Real estate owned
|
|
|
1,788
|
|
|
|
-
|
|
|
|
1,788
|
|
|
|
-
|
|
|
|
Fair Value Measurement
|
|
|
|
at December 31, 2016 Using
|
|
|
|
|
|
|
Quoted Prices
|
|
|
|
|
|
|
|
|
|
|
|
|
in Active
|
|
|
Other
|
|
|
Significant
|
|
|
|
|
|
|
Markets for
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
Carrying
|
|
|
Identical Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
Value
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
Financial Assets - Recurring
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US Government Agencies
|
|
$
|
32,246
|
|
|
$
|
2,103
|
|
|
$
|
30,143
|
|
|
$
|
-
|
|
Mortgage-backed securities
|
|
|
11,648
|
|
|
|
9,450
|
|
|
|
2,198
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Assets - Non-Recurring
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans
|
|
|
15,441
|
|
|
|
-
|
|
|
|
14,467
|
|
|
|
974
|
|
Assets held for sale
|
|
|
841
|
|
|
|
-
|
|
|
|
-
|
|
|
|
841
|
|
Real estate owned
|
|
|
2,926
|
|
|
|
-
|
|
|
|
2,926
|
|
|
|
-
|
|
The following table presents qualitative
information about Level 3 fair value measurements for financial instruments for the years ended December 31, 2017 and 2016 (dollars
in thousands):
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
Range
|
|
|
|
Fair Value
|
|
|
Valuation
|
|
Unobservable
|
|
(Weighted
|
|
|
|
Estimate
|
|
|
Techniques
|
|
Input
|
|
Average)
|
|
|
|
|
|
Impaired loans - real estate secured
|
|
$
|
284
|
|
|
Appraisal (1) or Internal Valuation (2)
|
|
Selling costs
|
|
6%-10% (7%)
|
|
|
|
|
|
|
|
|
|
Discount for lack of
|
|
|
|
|
|
|
|
|
|
|
|
|
marketability and age
|
|
|
|
|
|
|
|
|
|
|
|
|
of appraisal
|
|
6%-30% (10%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans - non-real estate secured
|
|
$
|
1,308
|
|
|
Appraisal (1) or Discounted Cash Flow
|
|
Selling costs
|
|
10%
|
|
|
|
|
|
|
|
|
|
Discount for lack of
|
|
|
|
|
|
|
|
|
|
|
|
marketability or practical life
|
|
0%-50% (20%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets held for sale
|
|
$
|
610
|
|
|
Appraisal (1) or Internal Valuation (2)
|
|
Selling costs
|
|
6%-10% (7%)
|
|
|
|
|
|
|
|
|
|
Discount for lack of
|
|
|
|
|
|
|
|
|
|
|
|
marketability and age
|
|
|
|
|
|
|
|
|
|
|
|
|
of appraisal
|
|
6%-30% (15%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities available for sale
|
|
$
|
1,800
|
|
|
Valuation service
|
|
Discounted cash flows
|
|
3%-6% (5%)
|
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
Range
|
|
|
|
Fair Value
|
|
|
Valuation
|
|
Unobservable
|
|
(Weighted
|
|
|
|
Estimate
|
|
|
Techniques
|
|
Input
|
|
Average)
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans - real estate secured
|
|
$
|
517
|
|
|
Appraisal (1) or Internal Valuation (2)
|
|
Selling costs
|
|
6%-10% (7%)
|
|
|
|
|
|
|
|
|
|
Discount for lack of
|
|
|
|
|
|
|
|
|
|
|
|
|
marketability and age
|
|
|
|
|
|
|
|
|
|
|
|
|
of appraisal
|
|
6%-30% (10%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans - non-real estate secured
|
|
$
|
457
|
|
|
Appraisal (1) or Discounted Cash Flow
|
|
Selling costs
|
|
10%
|
|
|
|
|
|
|
|
|
|
Discount for lack of
|
|
|
|
|
|
|
|
|
|
|
|
|
marketability or practical life
|
|
0%-50% (20%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets held for sale
|
|
$
|
841
|
|
|
Appraisal (1) or Internal Valuation (2)
|
|
Selling costs
|
|
6%-10% (7%)
|
|
|
|
|
|
|
|
|
|
Discount for lack of
|
|
|
|
|
|
|
|
|
|
|
|
|
marketability and age
|
|
|
|
|
|
|
|
|
|
|
|
|
of appraisal
|
|
6%-30% (15%)
|
|
|
(1)
|
Fair Value is generally determined through independent
appraisals of the underlying collateral, which generally included various level 3 inputs which are not identifiable.
|
|
(2)
|
Internal valuations may be conducted to determine Fair
Value for assets with nominal carrying balances.
|
The following table presents the changes
in the Level 3 fair value category for the years ended December 31, 2017 and 2016 (in thousands):
|
|
Impaired
|
|
|
Subordinated
|
|
|
Real Estate
|
|
|
Assets Held
|
|
|
|
|
|
|
Loans
|
|
|
Debt
|
|
|
Owned
|
|
|
for Sale
|
|
|
Total Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2015
|
|
$
|
1,647
|
|
|
$
|
-
|
|
|
$
|
59
|
|
|
$
|
12,631
|
|
|
$
|
14,337
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total realized and unrealized gains (losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in earnings
|
|
|
-
|
|
|
|
-
|
|
|
|
15
|
|
|
|
-
|
|
|
|
15
|
|
Included in other comprehensive income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Net transfers in and/or out of Level 3
|
|
|
(673
|
)
|
|
|
-
|
|
|
|
(74
|
)
|
|
|
(11,790
|
)
|
|
|
(12,537
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2016
|
|
$
|
974
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
841
|
|
|
$
|
1,815
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total realized and unrealized gains (losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in earnings
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Included in other comprehensive income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Net transfers in and/or out of Level 3
|
|
|
618
|
|
|
|
1,800
|
|
|
|
-
|
|
|
|
(231
|
)
|
|
|
2,187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2017
|
|
$
|
1,592
|
|
|
$
|
1,800
|
|
|
$
|
-
|
|
|
$
|
610
|
|
|
$
|
4,002
|
|
In general, fair value of securities is
based upon quoted market prices, where available. If such quoted market prices are not available, fair value is based upon market
prices determined by an outside, independent entity that primarily uses as inputs, observable market-based parameters. Fair value
of loans held for sale is based upon internally developed models that primarily use as inputs, observable market-based parameters.
Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. These adjustments may include
amounts to reflect counterparty credit quality, the Company’s creditworthiness, among other things, as well as unobservable
parameters. Any such valuation adjustments are applied consistently over time. The Company valuation methodologies may produce
a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. While management
believes the Company’s valuation methodologies are appropriate and consistent with other market participants, the use of
different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different
estimate of fair value at the reporting date. Transfers between levels of the fair value hierarchy are recognized on the actual
date of the event or circumstances that caused the transfer, which generally coincides with the Company’s monthly and or
quarter valuation process.
Cash and cash equivalents
–
The carrying amount of cash and cash equivalents approximates fair value.
Investment securities
– The
fair value of investment securities held-to-maturity and available-for-sale is estimated based on quoted prices for similar assets
or liabilities determined by bid quotations received from independent pricing services. The carrying amount of other investments
approximates fair value.
Loans
– For variable rate
loans that reprice frequently and have no significant change in credit risk, fair values are based on carrying values. For all
other loans, fair values are calculated by discounting the contractual cash flows using estimated market discount rates which reflect
the credit and interest rate risk inherent in the loans, or by using the current rates at which similar loans would be made to
borrowers with similar credit ratings and for the same remaining maturities.
Bank owned life insurance
–
The carrying value of BOLI approximates fair value. The Company records these policies at their cash surrender value, which is
estimated using information provided by insurance carriers.
Assets held for sale
– The
carrying value of assets held for sale is based on fair value less selling costs. Fair values for assets held for sale are estimated
based on appraised values of the asset or management’s estimation of the value of the assets.
Deposits
– The fair value
of deposits with no stated maturity, such as demand, interest checking and money market, and savings accounts, is equal to the
amount payable on demand at year-end. The fair value of certificates of deposit is based on the discounted value of contractual
cash flows using the rates currently offered for deposits of similar remaining maturities.
Borrowings
– The fair value
of borrowings is based on the discounted value of contractual cash flows using the rates currently offered for borrowings of similar
remaining maturities.
Accrued interest
– The carrying
amounts of accrued interest receivable and payable approximate fair value.
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
|
Level in Fair
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value
|
|
Carrying
|
|
|
Estimated
|
|
|
Carrying
|
|
|
Estimated
|
|
|
|
Hierarchy
|
|
Value
|
|
|
Fair Value
|
|
|
Value
|
|
|
Fair Value
|
|
|
|
(In thousands)
|
Financial assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
Level 1
|
|
$
|
17,810
|
|
|
$
|
17,810
|
|
|
$
|
10,848
|
|
|
$
|
10,848
|
|
Cash equivalents
|
|
Level 2
|
|
|
-
|
|
|
|
-
|
|
|
|
948
|
|
|
|
948
|
|
Investment securities available for sale
|
|
Level 1
|
|
|
757
|
|
|
|
757
|
|
|
|
11,553
|
|
|
|
11,553
|
|
Investment securities available for sale
|
|
Level 2
|
|
|
47,154
|
|
|
|
47,154
|
|
|
|
32,341
|
|
|
|
32,341
|
|
Investment securities available for sale
|
|
Level 3
|
|
|
1,800
|
|
|
|
1,800
|
|
|
|
-
|
|
|
|
-
|
|
Federal Home Loan Bank stock
|
|
Level 2
|
|
|
920
|
|
|
|
920
|
|
|
|
512
|
|
|
|
512
|
|
Loans held for sale
|
|
Level 2
|
|
|
8,047
|
|
|
|
8,047
|
|
|
|
14,784
|
|
|
|
14,784
|
|
Loans
|
|
Level 2
|
|
|
353,395
|
|
|
|
353,490
|
|
|
|
321,659
|
|
|
|
322,386
|
|
Impaired loans
|
|
Level 2
|
|
|
13,722
|
|
|
|
13,722
|
|
|
|
14,467
|
|
|
|
14,467
|
|
Impaired loans
|
|
Level 3
|
|
|
1,592
|
|
|
|
1,592
|
|
|
|
974
|
|
|
|
974
|
|
Assets held for sale
|
|
Level 3
|
|
|
610
|
|
|
|
610
|
|
|
|
841
|
|
|
|
841
|
|
Other real estate owned
|
|
Level 2
|
|
|
1,788
|
|
|
|
1,788
|
|
|
|
2,926
|
|
|
|
2,926
|
|
Bank owned life insurance
|
|
Level 3
|
|
|
7,268
|
|
|
|
7,268
|
|
|
|
7,093
|
|
|
|
7,093
|
|
Accrued interest receivable
|
|
Level 2
|
|
|
2,600
|
|
|
|
2,600
|
|
|
|
2,274
|
|
|
|
2,274
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
Level 2
|
|
|
411,624
|
|
|
|
411,044
|
|
|
|
383,277
|
|
|
|
383,985
|
|
FHLB borrowings
|
|
Level 2
|
|
|
12,300
|
|
|
|
12,294
|
|
|
|
2,400
|
|
|
|
2,402
|
|
Trust preferred securities
|
|
Level 2
|
|
|
8,764
|
|
|
|
9,099
|
|
|
|
8,764
|
|
|
|
8,565
|
|
Other borrowings
|
|
Level 2
|
|
|
1,584
|
|
|
|
1,584
|
|
|
|
81
|
|
|
|
81
|
|
Accrued interest payable
|
|
Level 2
|
|
|
93
|
|
|
|
93
|
|
|
|
70
|
|
|
|
70
|
|
Note 18.
|
Segment Reporting
|
The Company has two reportable segments:
traditional commercial banking and mortgage banking. Revenues from commercial banking operations consist primarily of interest
earned on loans and securities and fees from deposit services. Mortgage banking operating revenues consist principally of interest
earned on mortgage loans held for sale, gains on sales of loans in the secondary mortgage market, and loan origination fee income.
The commercial banking segment provides
the mortgage banking segment with the short-term funds needed to originate mortgage loans through a warehouse line of credit and
charges the mortgage banking segment interest based on the commercial banking segment’s cost of funds. Additionally, the
mortgage banking segment leases premises from the commercial banking segment. These transactions are eliminated in the consolidation
process.
The following table presents segment information
as of and for the years ended December 31, 2017, 2016 and 2015 (in thousands):
|
|
Commercial
|
|
|
Mortgage
|
|
|
|
|
|
Consolidated
|
|
|
|
Banking
|
|
|
Banking
|
|
|
Eliminations
|
|
|
Totals
|
|
Year Ended December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
$
|
17,036
|
|
|
$
|
279
|
|
|
$
|
(17
|
)
|
|
$
|
17,298
|
|
Gain on sale of loans
|
|
|
-
|
|
|
|
5,415
|
|
|
|
-
|
|
|
|
5,415
|
|
Other revenues
|
|
|
2,194
|
|
|
|
685
|
|
|
|
(188
|
)
|
|
|
2,691
|
|
Total revenues
|
|
|
19,230
|
|
|
|
6,379
|
|
|
|
(205
|
)
|
|
|
25,404
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
2,721
|
|
|
|
17
|
|
|
|
(17
|
)
|
|
|
2,721
|
|
Salaries and benefits
|
|
|
8,198
|
|
|
|
3,883
|
|
|
|
-
|
|
|
|
12,081
|
|
Commissions
|
|
|
-
|
|
|
|
1,526
|
|
|
|
-
|
|
|
|
1,526
|
|
Other expenses
|
|
|
6,883
|
|
|
|
910
|
|
|
|
(188
|
)
|
|
|
7,605
|
|
Total operating expenses
|
|
|
17,802
|
|
|
|
6,336
|
|
|
|
(205
|
)
|
|
|
23,933
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
$
|
1,428
|
|
|
$
|
43
|
|
|
$
|
-
|
|
|
$
|
1,471
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
480,069
|
|
|
$
|
10,130
|
|
|
$
|
(13,225
|
)
|
|
$
|
476,974
|
|
|
|
Commercial
|
|
|
Mortgage
|
|
|
|
|
|
Consolidated
|
|
|
|
Banking
|
|
|
Banking
|
|
|
Eliminations
|
|
|
Totals
|
|
Year Ended December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
$
|
15,636
|
|
|
$
|
470
|
|
|
$
|
(117
|
)
|
|
$
|
15,989
|
|
Gain on sale of loans
|
|
|
-
|
|
|
|
6,430
|
|
|
|
-
|
|
|
|
6,430
|
|
Other revenues
|
|
|
3,868
|
|
|
|
742
|
|
|
|
(190
|
)
|
|
|
4,420
|
|
Total revenues
|
|
|
19,504
|
|
|
|
7,642
|
|
|
|
(307
|
)
|
|
|
26,839
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
2,609
|
|
|
|
117
|
|
|
|
(117
|
)
|
|
|
2,609
|
|
Salaries and benefits
|
|
|
7,702
|
|
|
|
3,593
|
|
|
|
-
|
|
|
|
11,295
|
|
Commissions
|
|
|
-
|
|
|
|
1,606
|
|
|
|
-
|
|
|
|
1,606
|
|
Other expenses
|
|
|
8,088
|
|
|
|
1,090
|
|
|
|
(190
|
)
|
|
|
8,988
|
|
Total operating expenses
|
|
|
18,399
|
|
|
|
6,406
|
|
|
|
(307
|
)
|
|
|
24,498
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
$
|
1,105
|
|
|
$
|
1,236
|
|
|
$
|
-
|
|
|
$
|
2,341
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
448,373
|
|
|
$
|
10,026
|
|
|
$
|
(13,597
|
)
|
|
$
|
444,802
|
|
|
|
Commercial
|
|
|
Mortgage
|
|
|
|
|
|
Consolidated
|
|
|
|
Banking
|
|
|
Banking
|
|
|
Eliminations
|
|
|
Totals
|
|
Year Ended December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
$
|
15,165
|
|
|
$
|
446
|
|
|
$
|
(107
|
)
|
|
$
|
15,504
|
|
Gain on sale of loans
|
|
|
-
|
|
|
|
6,076
|
|
|
|
-
|
|
|
|
6,076
|
|
Other revenues
|
|
|
3,473
|
|
|
|
749
|
|
|
|
(240
|
)
|
|
|
3,982
|
|
Total revenues
|
|
|
18,638
|
|
|
|
7,271
|
|
|
|
(347
|
)
|
|
|
25,562
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
2,877
|
|
|
|
107
|
|
|
|
(117
|
)
|
|
|
2,867
|
|
Salaries and benefits
|
|
|
7,346
|
|
|
|
3,500
|
|
|
|
-
|
|
|
|
10,846
|
|
Commissions
|
|
|
-
|
|
|
|
1,555
|
|
|
|
-
|
|
|
|
1,555
|
|
Other expenses
|
|
|
8,787
|
|
|
|
1,091
|
|
|
|
(230
|
)
|
|
|
9,648
|
|
Total operating expenses
|
|
|
19,010
|
|
|
|
6,253
|
|
|
|
(347
|
)
|
|
|
24,916
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
$
|
(372
|
)
|
|
$
|
1,018
|
|
|
$
|
-
|
|
|
$
|
646
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
426,038
|
|
|
$
|
8,806
|
|
|
$
|
(14,903
|
)
|
|
$
|
419,941
|
|
|
Note 19.
|
Parent Corporation Only Financial Statements
|
Village Bank and Trust Financial Corp.
(Parent Corporation Only)
Condensed Balance Sheet
(in thousands)
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
1,210
|
|
|
$
|
1,770
|
|
Investment in subsidiaries
|
|
|
44,747
|
|
|
|
50,230
|
|
Investment in special purpose subsidiary
|
|
|
264
|
|
|
|
264
|
|
Prepaid expenses and other assets
|
|
|
1,931
|
|
|
|
2,935
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
48,152
|
|
|
$
|
55,199
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders' Equity
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Balance due to nonbank subsidiaries
|
|
$
|
8,764
|
|
|
$
|
8,764
|
|
Other liabilities
|
|
|
54
|
|
|
|
2,821
|
|
Total liabilities
|
|
|
8,818
|
|
|
|
11,585
|
|
|
|
|
|
|
|
|
|
|
Shareholders' equity
|
|
|
|
|
|
|
|
|
Preferred stock
|
|
|
20
|
|
|
|
23
|
|
Common stock
|
|
|
5,672
|
|
|
|
5,629
|
|
Additional paid-in capital
|
|
|
58,055
|
|
|
|
58,643
|
|
Warrant surplus
|
|
|
732
|
|
|
|
732
|
|
Accumulated deficit
|
|
|
(24,693
|
)
|
|
|
(21,172
|
)
|
Stock in directors rabbi trust
|
|
|
(1,010
|
)
|
|
|
(1,034
|
)
|
Directors deferred fees obligation
|
|
|
1,010
|
|
|
|
1,034
|
|
Accumulated other comprehensive loss
|
|
|
(452
|
)
|
|
|
(241
|
)
|
Total stockholders' equity
|
|
|
39,334
|
|
|
|
43,614
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
48,152
|
|
|
$
|
55,199
|
|
Village Bank and Trust Financial Corp.
(Parent Corporation Only)
Condensed Statements of Operations and
Comprehensive Income (Loss)
Years Ended December 31, 2017, 2016 and
2015
(in thousands)
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
|
|
|
|
|
|
|
|
|
|
Village Bank money market
|
|
$
|
5
|
|
|
$
|
8
|
|
|
$
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on trust preferred securities
|
|
|
259
|
|
|
|
185
|
|
|
|
213
|
|
Total interest expense
|
|
|
259
|
|
|
|
185
|
|
|
|
213
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest expense
|
|
|
(254
|
)
|
|
|
(177
|
)
|
|
|
(203
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
Write down of assets held for sale
|
|
|
-
|
|
|
|
-
|
|
|
|
1,759
|
|
Supplies
|
|
|
48
|
|
|
|
48
|
|
|
|
48
|
|
Professional and outside services
|
|
|
140
|
|
|
|
199
|
|
|
|
412
|
|
Other
|
|
|
32
|
|
|
|
33
|
|
|
|
52
|
|
Total noninterest expense
|
|
|
220
|
|
|
|
280
|
|
|
|
2,271
|
|
Net loss before undistributed income (loss) of subsidiary
|
|
|
(474
|
)
|
|
|
(457
|
)
|
|
|
(2,474
|
)
|
Undistributed income (loss) of subsidiary
|
|
|
(1,619
|
)
|
|
|
11,087
|
|
|
|
3,120
|
|
Net income (loss) before income tax expense (benefit)
|
|
|
(2,093
|
)
|
|
|
10,630
|
|
|
|
646
|
|
Income tax expense (benefit)
|
|
|
1,003
|
|
|
|
(2,883
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(3,096
|
)
|
|
$
|
13,513
|
|
|
$
|
646
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income (loss)
|
|
$
|
(3,306
|
)
|
|
$
|
13,779
|
|
|
$
|
860
|
|
(Parent Corporation Only)
Condensed Statements of Cash Flows
Years Ended December 31, 2017, 2016 and
2015
(in thousands)
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Operating Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(3,096
|
)
|
|
$
|
13,513
|
|
|
$
|
646
|
|
Adjustments to reconcile net income (loss) to net cash used in operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Write-off of deferred tax assets
|
|
|
1,164
|
|
|
|
-
|
|
|
|
-
|
|
Writedown on assets held for sale
|
|
|
-
|
|
|
|
-
|
|
|
|
1,759
|
|
Undistributed (income) loss of subsidiary
|
|
|
1,619
|
|
|
|
(11,087
|
)
|
|
|
(3,120
|
)
|
(Increase) decrease in other assets
|
|
|
(160
|
)
|
|
|
(2,890
|
)
|
|
|
258
|
|
Decrease in other liabilities
|
|
|
(9
|
)
|
|
|
(1,260
|
)
|
|
|
(19
|
)
|
Net cash used in operating activities
|
|
|
(482
|
)
|
|
|
(1,724
|
)
|
|
|
(476
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in subsidiary
|
|
|
3,867
|
|
|
|
-
|
|
|
|
(5,000
|
)
|
Net cash used in investing activities
|
|
|
3,867
|
|
|
|
-
|
|
|
|
(5,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock
|
|
|
-
|
|
|
|
-
|
|
|
|
(79
|
)
|
Redemption of preferred stock
|
|
|
(688
|
)
|
|
|
-
|
|
|
|
-
|
|
Payment of preferred dividends
|
|
|
(3,257
|
)
|
|
|
-
|
|
|
|
-
|
|
Net proceeds from sale of common stock,
|
|
|
|
|
|
|
|
|
|
|
|
|
net of expenses of $990
|
|
|
-
|
|
|
|
-
|
|
|
|
8,965
|
|
Net cash provided by (used in) financing activities
|
|
|
(3,945
|
)
|
|
|
-
|
|
|
|
8,886
|
|
Net increase (decrease) in cash
|
|
|
(560
|
)
|
|
|
(1,724
|
)
|
|
|
3,410
|
|
Cash, beginning of year
|
|
|
1,770
|
|
|
|
3,494
|
|
|
|
84
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, end of year
|
|
$
|
1,210
|
|
|
$
|
1,770
|
|
|
$
|
3,494
|
|
|
Note 20.
|
Subsequent Events
|
On March 21, 2018, the Company issued $5.7
million of fixed-to-floating rate subordinated notes due March 31, 2028 in a private placement. The Company expects to receive
approximately $5.525 million in net proceeds after deducting issuance costs, which will be used to redeem all of the Company’s
remaining 5,027 shares of its Series A, Fixed Rate Cumulative Perpetual Preferred Stock on March 30, 2018. The subordinated notes
accrue interest at a fixed rate of 6.50% for the first five years until March 21, 2023. From and including this date and for the
remaining five years of the subordinated notes’ term, interest will accrue at a floating rate of three-month LIBOR plus 3.73%.
The Company may redeem the subordinated notes in whole or in part, on or after March 21, 2023, with certain exceptions provided
in the subordinated notes that allow the Company to redeem the subordinated notes prior to that date. The subordinated notes are
unsecured obligations subordinate and junior in right of payment to all of the Company’s existing and future senior indebtedness,
whether secured or unsecured, including claims of depositors and general creditors, and rank equally in right of payment with any
unsecured, subordinated indebtedness that the Company may incur in the future that rank equally with the subordinated notes