Notes to Consolidated Financial Statements
Three and Nine Months Ended September
30, 2018 and 2017
(Unaudited)
Note 1 - Principles
of presentation
Village Bank and Trust Financial Corp.
(the “Company”) is the holding company of Village Bank (the “Bank”). The consolidated financial statements
include the accounts of the Company, the Bank and the Bank’s subsidiary. All material intercompany balances and transactions
have been eliminated in consolidation.
In the opinion of management, the accompanying
condensed consolidated financial statements of the Company have been prepared on the accrual basis in accordance with generally
accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial statements. However, all adjustments that are, in the
opinion of management, necessary for a fair presentation have been included. The results of operations for the nine month period
ended September 30, 2018 are not necessarily indicative of the results to be expected for the full year ending December 31, 2018.
The unaudited interim financial statements should be read in conjunction with the audited financial statements and notes to financial
statements that are presented in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017 as filed with
the Securities and Exchange Commission (“SEC”).
The Company has evaluated events and transactions
occurring subsequent to the consolidated balance sheet date of September 30, 2018 for items that should potentially be recognized
or disclosed in these consolidated financial statements. The evaluation was conducted through the date these consolidated financial
statements were issued.
On January 1, 2018, the Company adopted
Accounting Standards Update (“ASU”) 2014-09,
Revenue from Contracts with Customers,
and all subsequent
amendments to the ASU (collectively ASU 2014-09), which (i) creates a single framework for recognizing revenue from contracts
with customers that fall within its scope and (ii) revises when it is appropriate to recognize a gain (loss) from the transfer
of nonfinancial assets, such as OREO.
The Company's revenue is comprised of interest
and non-interest revenue. The majority of our revenue generating transactions are not subject to ASU 2014-09, including revenue
generated from financial instruments, such as our loans, letters of credit, investment securities, bank owned life insurance and
gains on sales of loans held for sale. The Company completed its overall assessment of revenue streams and related contracts
affected by the guidance and adopted ASU 2014-09 on January 1, 2018 with no impact on total shareholders' equity or net income.
The
Company recognizes revenue as it is earned and noted no impact to its revenue recognition policies as a result of the adoption
of ASU 2014-09. The following discussion is of revenues that are within the scope of the new revenue guidance:
|
·
|
Debit and credit interchange fee income
-
Card processing fees consist of interchange fees from consumer debit and credit card networks and other card related services.
Interchange fees are based on purchase volumes and other factors and are recognized as transactions occur.
|
|
·
|
Service charges on deposit accounts
-
Revenue from service charges on deposit accounts is earned through deposit-related services, as well as overdraft, non-sufficient
funds, account management and other deposit related fees. Revenue is recognized for these services either over time, corresponding
with deposit accounts’ monthly cycle, or at a point in time for transactional related services and fees.
|
|
·
|
Service charges on loan accounts -
Revenue from loan accounts consists primarily of fees earned on prepayment penalties. Revenue is recognized for the services at
a point in time for transactional related services and fees.
|
|
·
|
Gains/Losses on sale of OREO
-
The Company records a gain or loss from the sale of OREO when control of the property transfers to the buyer, which generally occurs
at the time of an executed deed. When the Company finances the sale of OREO to the buyer, the Company assesses whether the buyer
is committed to perform their obligations under the contract and whether collectability of the transaction price is probable. Once
these criteria are met, the OREO asset is derecognized and the gain or loss on sale is recorded upon the transfer of control of
the property to the buyer.
|
The accompanying consolidated financial
statements and notes reflect certain reclassifications in prior periods to conform to the current presentation. As of January 1,
2018, the Company began netting commissions paid to generate mortgage banking revenue against the related revenue balances. Prior
to 2018, these commission expenses were shown separately under noninterest expense on the Consolidated Statement of Operations.
Accordingly, the balances associated with the mortgage banking segment for the period ended September 30, 2017 for “Gain
on sale of loans”, “Service charges and fees” and “Other income” under noninterest income, and “Commissions”
under noninterest expense have been restated under “Mortgage banking income, net” within the Consolidated Statements
of Operations to conform to this presentation. Management believes this will better represent actual mortgage banking income generated
from this activity.
Note 2 - Use of estimates
The preparation of financial statements
in conformity with accounting principles generally accepted in the United States of America (“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 date of the balance sheets and statements of operations for the 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 including impaired loans and troubled debt restructurings (“TDRs”),
the valuation allowance on the deferred tax asset, valuation of other real estate owned and the estimate of the fair value of assets
held for sale.
Note 3 - Earnings per common share
The following table presents the basic
and diluted earnings per common share computation (in thousands, except per share data):
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
Numerator
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income - basic and diluted
|
|
$
|
1,128
|
|
|
$
|
273
|
|
|
$
|
2,181
|
|
|
$
|
926
|
|
Preferred stock dividend
|
|
|
-
|
|
|
|
(113
|
)
|
|
|
(113
|
)
|
|
|
(385
|
)
|
Net income available to common shareholders
|
|
$
|
1,128
|
|
|
$
|
160
|
|
|
$
|
2,068
|
|
|
$
|
541
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding - basic
|
|
|
1,434
|
|
|
|
1,431
|
|
|
|
1,433
|
|
|
|
1,430
|
|
Dilutive effect of common stock options
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding - diluted
|
|
|
1,434
|
|
|
|
1,431
|
|
|
|
1,433
|
|
|
|
1,430
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share - basic
|
|
$
|
0.79
|
|
|
$
|
0.11
|
|
|
$
|
1.44
|
|
|
$
|
0.38
|
|
Earnings per share - diluted
|
|
$
|
0.79
|
|
|
$
|
0.11
|
|
|
$
|
1.44
|
|
|
$
|
0.38
|
|
Applicable guidance requires that outstanding,
unvested share-based payment awards that contain voting rights and rights to nonforfeitable dividends participate in undistributed
earnings with common shareholders. Accordingly, the weighted average number of shares of the Company’s common stock used
in the calculation of basic and diluted net income per common share includes unvested shares of the Company’s outstanding
restricted common stock.
The vesting of 14,560 and 7,870 respectively,
of the unvested restricted shares included in Note 10 “Stock incentive plan” are dependent upon meeting certain performance
criteria. As of September 30, 2018 and December 31, 2017, it was indeterminable whether these unvested restricted shares will vest
and as such those shares are excluded from common shares issued and outstanding at each date and are not included in the computation
of earnings per share for any period presented.
Outstanding options and warrants to purchase
common stock were considered in the computation of diluted earnings per share for the periods presented. Stock options for 1,356
and 1,398 shares were not included in computing diluted earnings per share for the three and nine months ended September 30, 2018,
and stock options for 2,337 shares were not included in computing diluted earnings per share for the three and nine months ended
September 30, 2017, respectively, because their effects were anti-dilutive. Additionally, the impact of warrants to acquire shares
of the Company’s common stock in connection with the Company’s participation in the Troubled Asset Relief Program is
not included, as the warrants were anti-dilutive.
Note 4 – Investment securities
available for sale
At September 30, 2018 and December 31,
2017, all of our securities were classified as available for sale. The following table presents the composition of our investment
portfolio at the dates indicated (dollars in thousands):
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
Par
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Average
|
|
|
|
Value
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
Yield
|
|
September 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US Government Agencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One to five years
|
|
$
|
21,400
|
|
|
$
|
21,527
|
|
|
$
|
-
|
|
|
$
|
(474
|
)
|
|
$
|
21,053
|
|
|
|
1.44
|
%
|
Five to ten years
|
|
|
164
|
|
|
|
164
|
|
|
|
-
|
|
|
|
-
|
|
|
|
164
|
|
|
|
2.29
|
%
|
More than ten years
|
|
|
1,811
|
|
|
|
1,814
|
|
|
|
-
|
|
|
|
(12
|
)
|
|
|
1,802
|
|
|
|
2.58
|
%
|
|
|
|
23,375
|
|
|
|
23,505
|
|
|
|
-
|
|
|
|
(486
|
)
|
|
|
23,019
|
|
|
|
1.53
|
%
|
Mortgage-backed securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Five to ten years
|
|
|
2,828
|
|
|
|
2,881
|
|
|
|
-
|
|
|
|
(130
|
)
|
|
|
2,751
|
|
|
|
1.74
|
%
|
More than ten years
|
|
|
16,767
|
|
|
|
16,884
|
|
|
|
1
|
|
|
|
(741
|
)
|
|
|
16,144
|
|
|
|
2.37
|
%
|
|
|
|
19,595
|
|
|
|
19,765
|
|
|
|
1
|
|
|
|
(871
|
)
|
|
|
18,895
|
|
|
|
2.28
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Five to ten years
|
|
|
4,050
|
|
|
|
4,093
|
|
|
|
9
|
|
|
|
(31
|
)
|
|
|
4,071
|
|
|
|
5.03
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities
|
|
$
|
47,020
|
|
|
$
|
47,363
|
|
|
$
|
10
|
|
|
$
|
(1,388
|
)
|
|
$
|
45,985
|
|
|
|
2.15
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US Government Agencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One to five years
|
|
$
|
21,400
|
|
|
$
|
21,561
|
|
|
$
|
-
|
|
|
$
|
(276
|
)
|
|
$
|
21,285
|
|
|
|
1.44
|
%
|
More than ten years
|
|
|
2,411
|
|
|
|
2,415
|
|
|
|
-
|
|
|
|
(17
|
)
|
|
|
2,398
|
|
|
|
1.74
|
%
|
|
|
|
23,811
|
|
|
|
23,976
|
|
|
|
-
|
|
|
|
(293
|
)
|
|
|
23,683
|
|
|
|
1.47
|
%
|
Mortgage-backed securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Five to ten years
|
|
|
3,400
|
|
|
|
3,472
|
|
|
|
-
|
|
|
|
(43
|
)
|
|
|
3,429
|
|
|
|
1.72
|
%
|
More than ten years
|
|
|
18,518
|
|
|
|
18,655
|
|
|
|
1
|
|
|
|
(145
|
)
|
|
|
18,511
|
|
|
|
2.39
|
%
|
|
|
|
21,918
|
|
|
|
22,127
|
|
|
|
1
|
|
|
|
(188
|
)
|
|
|
21,940
|
|
|
|
2.28
|
%
|
Subordinated debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Five to ten years
|
|
|
4,050
|
|
|
|
4,103
|
|
|
|
11
|
|
|
|
(26
|
)
|
|
|
4,088
|
|
|
|
5.03
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities
|
|
$
|
49,779
|
|
|
$
|
50,206
|
|
|
$
|
12
|
|
|
$
|
(507
|
)
|
|
$
|
49,711
|
|
|
|
1.96
|
%
|
At September 30, 2018, the Company had
investment securities with a fair value of $7,936,000 pledged to secure borrowings from the Federal Home Loan Bank of Atlanta (“FHLB”).
At December 31, 2017, the Company had no investment securities pledged to secure borrowings from the FHLB. There were no investment
securities pledged to secure deposit repurchase agreements at September 30, 2018 or December 31, 2017.
Gross realized gains and losses pertaining
to available for sale securities are detailed as follows for the periods indicated (dollars in thousands):
|
|
Three Months
|
|
|
Nine Months
|
|
|
|
Ended September 30,
|
|
|
Ended September 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross realized gains
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Gross realized losses
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(9
|
)
|
The Company sold approximately $2 million
of investment securities available for sale at a loss of $9,000 for the nine months ended September 30, 2017. 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 September 30, 2018 and December 31, 2017 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
|
|
September 30, 2018
|
|
|
|
US Government Agencies
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
23,019
|
|
|
$
|
(486
|
)
|
|
$
|
23,019
|
|
|
$
|
(486
|
)
|
Mortgage-backed securities
|
|
|
10,374
|
|
|
|
(449
|
)
|
|
|
8,473
|
|
|
|
(422
|
)
|
|
|
18,847
|
|
|
|
(871
|
)
|
Subordinated debt
|
|
|
1,490
|
|
|
|
(31
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
1,490
|
|
|
|
(31
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
11,864
|
|
|
$
|
(480
|
)
|
|
$
|
31,492
|
|
|
$
|
(908
|
)
|
|
$
|
43,356
|
|
|
$
|
(1,388
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
)
|
Subordinated debt
|
|
|
1,021
|
|
|
|
(26
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
1,021
|
|
|
|
(26
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
27,401
|
|
|
$
|
(262
|
)
|
|
$
|
19,181
|
|
|
$
|
(245
|
)
|
|
$
|
46,582
|
|
|
$
|
(507
|
)
|
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 September 30, 2018.
Note 5 – Loans and allowance
for loan losses
The following table presents the composition of our loan portfolio
(excluding mortgage loans held for sale) at the dates indicated (dollars in thousands):
|
|
September 30, 2018
|
|
|
December 31, 2017
|
|
|
|
Amount
|
|
|
%
|
|
|
Amount
|
|
|
%
|
|
Construction and land development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
14,263
|
|
|
|
3.43
|
%
|
|
$
|
5,361
|
|
|
|
1.45
|
%
|
Commercial
|
|
|
26,818
|
|
|
|
6.45
|
%
|
|
|
25,456
|
|
|
|
6.91
|
%
|
|
|
|
41,081
|
|
|
|
9.88
|
%
|
|
|
30,817
|
|
|
|
8.36
|
%
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
97,632
|
|
|
|
23.49
|
%
|
|
|
85,004
|
|
|
|
23.06
|
%
|
Non-owner occupied
|
|
|
87,006
|
|
|
|
20.94
|
%
|
|
|
70,845
|
|
|
|
19.21
|
%
|
Multifamily
|
|
|
15,411
|
|
|
|
3.71
|
%
|
|
|
9,386
|
|
|
|
2.55
|
%
|
Farmland
|
|
|
232
|
|
|
|
0.06
|
%
|
|
|
270
|
|
|
|
0.07
|
%
|
|
|
|
200,281
|
|
|
|
48.20
|
%
|
|
|
165,505
|
|
|
|
44.89
|
%
|
Consumer real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity lines
|
|
|
22,393
|
|
|
|
5.39
|
%
|
|
|
22,849
|
|
|
|
6.20
|
%
|
Secured by 1-4 family residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First deed of trust
|
|
|
59,564
|
|
|
|
14.33
|
%
|
|
|
57,919
|
|
|
|
15.71
|
%
|
Second deed of trust
|
|
|
9,757
|
|
|
|
2.35
|
%
|
|
|
7,460
|
|
|
|
2.02
|
%
|
|
|
|
91,714
|
|
|
|
22.07
|
%
|
|
|
88,228
|
|
|
|
23.93
|
%
|
Commercial and industrial loans (except those secured by real estate)
|
|
|
40,142
|
|
|
|
9.66
|
%
|
|
|
36,506
|
|
|
|
9.90
|
%
|
Guaranteed student loans
|
|
|
40,502
|
|
|
|
9.75
|
%
|
|
|
45,805
|
|
|
|
12.42
|
%
|
Consumer and other
|
|
|
1,835
|
|
|
|
0.44
|
%
|
|
|
1,848
|
|
|
|
0.50
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
|
415,555
|
|
|
|
100.0
|
%
|
|
|
368,709
|
|
|
|
100.0
|
%
|
Deferred fees and costs, net
|
|
|
764
|
|
|
|
|
|
|
|
699
|
|
|
|
|
|
Less: allowance for loan losses
|
|
|
(3,131
|
)
|
|
|
|
|
|
|
(3,239
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
413,188
|
|
|
|
|
|
|
$
|
366,169
|
|
|
|
|
|
The Bank has a purchased portfolio 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.
At September 30, 2018 and December 31,
2017, the Company had loans of $36,303,000 and $29,615,000 pledged to secure borrowings from the FHLB, respectively.
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.
The following table provides information
on nonaccrual loans segregated by type at the dates indicated (dollars in thousands):
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Construction and land development
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
40
|
|
|
$
|
43
|
|
|
|
|
40
|
|
|
|
43
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
-
|
|
|
|
183
|
|
Non-owner occupied
|
|
|
515
|
|
|
|
-
|
|
|
|
|
515
|
|
|
|
183
|
|
Consumer real estate
|
|
|
|
|
|
|
|
|
Home equity lines
|
|
|
128
|
|
|
|
135
|
|
Secured by 1-4 family residential
|
|
|
|
|
|
|
|
|
First deed of trust
|
|
|
799
|
|
|
|
1,000
|
|
Second deed of trust
|
|
|
155
|
|
|
|
67
|
|
|
|
|
1,082
|
|
|
|
1,202
|
|
Commercial and industrial loans (except those secured by real estate)
|
|
|
432
|
|
|
|
870
|
|
Consumer and other
|
|
|
10
|
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
$
|
2,079
|
|
|
$
|
2,320
|
|
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 net 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 (dollars in thousands):
|
|
Risk Rated
|
|
|
Risk Rated
|
|
|
Risk Rated
|
|
|
Risk Rated
|
|
|
Total
|
|
|
|
1-4
|
|
|
5
|
|
|
6
|
|
|
7
|
|
|
Loans
|
|
September 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and land development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
14,263
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
14,263
|
|
Commercial
|
|
|
26,445
|
|
|
|
7
|
|
|
|
366
|
|
|
|
-
|
|
|
|
26,818
|
|
|
|
|
40,708
|
|
|
|
7
|
|
|
|
366
|
|
|
|
-
|
|
|
|
41,081
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
91,175
|
|
|
|
3,290
|
|
|
|
3,167
|
|
|
|
-
|
|
|
|
97,632
|
|
Non-owner occupied
|
|
|
86,491
|
|
|
|
-
|
|
|
|
515
|
|
|
|
-
|
|
|
|
87,006
|
|
Multifamily
|
|
|
15,245
|
|
|
|
166
|
|
|
|
-
|
|
|
|
-
|
|
|
|
15,411
|
|
Farmland
|
|
|
124
|
|
|
|
108
|
|
|
|
-
|
|
|
|
-
|
|
|
|
232
|
|
|
|
|
193,035
|
|
|
|
3,564
|
|
|
|
3,682
|
|
|
|
-
|
|
|
|
200,281
|
|
Consumer real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity lines
|
|
|
21,318
|
|
|
|
935
|
|
|
|
140
|
|
|
|
-
|
|
|
|
22,393
|
|
Secured by 1-4 family residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First deed of trust
|
|
|
56,180
|
|
|
|
1,800
|
|
|
|
1,584
|
|
|
|
-
|
|
|
|
59,564
|
|
Second deed of trust
|
|
|
9,363
|
|
|
|
176
|
|
|
|
218
|
|
|
|
-
|
|
|
|
9,757
|
|
|
|
|
86,861
|
|
|
|
2,911
|
|
|
|
1,942
|
|
|
|
-
|
|
|
|
91,714
|
|
Commercial and industrial loans (except those secured by real estate)
|
|
|
37,157
|
|
|
|
2,345
|
|
|
|
625
|
|
|
|
15
|
|
|
|
40,142
|
|
Guaranteed student loans
|
|
|
40,502
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
40,502
|
|
Consumer and other
|
|
|
1,803
|
|
|
|
8
|
|
|
|
24
|
|
|
|
-
|
|
|
|
1,835
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
$
|
400,066
|
|
|
$
|
8,835
|
|
|
$
|
6,639
|
|
|
$
|
15
|
|
|
$
|
415,555
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
The following table presents the aging of the recorded investment in past due loans and leases 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
|
|
September 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and land development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
14,263
|
|
|
$
|
14,263
|
|
|
$
|
-
|
|
Commercial
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
26,818
|
|
|
|
26,818
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
41,081
|
|
|
|
41,081
|
|
|
|
-
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
138
|
|
|
|
-
|
|
|
|
-
|
|
|
|
138
|
|
|
|
97,494
|
|
|
|
97,632
|
|
|
|
-
|
|
Non-owner occupied
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
87,006
|
|
|
|
87,006
|
|
|
|
-
|
|
Multifamily
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
15,411
|
|
|
|
15,411
|
|
|
|
-
|
|
Farmland
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
232
|
|
|
|
232
|
|
|
|
-
|
|
|
|
|
138
|
|
|
|
-
|
|
|
|
-
|
|
|
|
138
|
|
|
|
200,143
|
|
|
|
200,281
|
|
|
|
-
|
|
Consumer real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity lines
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
22,393
|
|
|
|
22,393
|
|
|
|
-
|
|
Secured by 1-4 family residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First deed of trust
|
|
|
659
|
|
|
|
368
|
|
|
|
-
|
|
|
|
1,027
|
|
|
|
58,537
|
|
|
|
59,564
|
|
|
|
-
|
|
Second deed of trust
|
|
|
15
|
|
|
|
-
|
|
|
|
-
|
|
|
|
15
|
|
|
|
9,742
|
|
|
|
9,757
|
|
|
|
-
|
|
|
|
|
674
|
|
|
|
368
|
|
|
|
-
|
|
|
|
1,042
|
|
|
|
90,672
|
|
|
|
91,714
|
|
|
|
-
|
|
Commercial and industrial loans
(except those secured by real estate)
|
|
|
7
|
|
|
|
664
|
|
|
|
569
|
|
|
|
1,240
|
|
|
|
38,902
|
|
|
|
40,142
|
|
|
|
569
|
|
Guaranteed student loans
|
|
|
2,033
|
|
|
|
1,260
|
|
|
|
6,092
|
|
|
|
9,385
|
|
|
|
31,117
|
|
|
|
40,502
|
|
|
|
6,092
|
|
Consumer and other
|
|
|
9
|
|
|
|
13
|
|
|
|
-
|
|
|
|
22
|
|
|
|
1,813
|
|
|
|
1,835
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
$
|
2,861
|
|
|
$
|
2,305
|
|
|
$
|
6,661
|
|
|
$
|
11,827
|
|
|
$
|
403,728
|
|
|
$
|
415,555
|
|
|
$
|
6,661
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
Loans greater than 90 days past due consist
of loans guaranteed by the United States Department of Agriculture, which covers 100% of the principal and interest, and 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 and are not considered to be impaired.
Loans are considered impaired when, based
on current information and events it is probable the Company will be unable to collect all amounts when due in accordance with
the original contractual terms of the loan agreement, including scheduled principal and interest payments. Loans evaluated individually
for impairment include non-performing loans, such as loans on non-accrual, 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):
|
|
September 30, 2018
|
|
|
December 31, 2017
|
|
|
|
|
|
|
Unpaid
|
|
|
|
|
|
|
|
|
Unpaid
|
|
|
|
|
|
|
Recorded
|
|
|
Principal
|
|
|
Related
|
|
|
Recorded
|
|
|
Principal
|
|
|
Related
|
|
|
|
Investment
|
|
|
Balance
|
|
|
Allowance
|
|
|
Investment
|
|
|
Balance
|
|
|
Allowance
|
|
With no related allowance recorded
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and land development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
366
|
|
|
$
|
464
|
|
|
$
|
-
|
|
|
$
|
502
|
|
|
$
|
600
|
|
|
$
|
-
|
|
|
|
|
366
|
|
|
|
464
|
|
|
|
-
|
|
|
|
502
|
|
|
|
600
|
|
|
|
-
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
3,755
|
|
|
|
3,755
|
|
|
|
|
|
|
|
3,879
|
|
|
|
3,879
|
|
|
|
-
|
|
Non-owner occupied
|
|
|
2,608
|
|
|
|
2,608
|
|
|
|
-
|
|
|
|
2,153
|
|
|
|
2,153
|
|
|
|
-
|
|
|
|
|
6,363
|
|
|
|
6,363
|
|
|
|
-
|
|
|
|
6,032
|
|
|
|
6,032
|
|
|
|
-
|
|
Consumer real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity lines
|
|
|
688
|
|
|
|
688
|
|
|
|
-
|
|
|
|
577
|
|
|
|
577
|
|
|
|
-
|
|
Secured by 1-4 family residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First deed of trust
|
|
|
3,182
|
|
|
|
3,182
|
|
|
|
-
|
|
|
|
3,931
|
|
|
|
3,931
|
|
|
|
-
|
|
Second deed of trust
|
|
|
732
|
|
|
|
940
|
|
|
|
-
|
|
|
|
505
|
|
|
|
713
|
|
|
|
-
|
|
|
|
|
4,602
|
|
|
|
4,810
|
|
|
|
-
|
|
|
|
5,013
|
|
|
|
5,221
|
|
|
|
-
|
|
Commercial and industrial loans
(except those secured by real estate)
|
|
|
427
|
|
|
|
774
|
|
|
|
-
|
|
|
|
480
|
|
|
|
827
|
|
|
|
-
|
|
Consumer and other
|
|
|
1
|
|
|
|
1
|
|
|
|
-
|
|
|
|
3
|
|
|
|
3
|
|
|
|
-
|
|
|
|
|
11,759
|
|
|
|
12,412
|
|
|
|
-
|
|
|
|
12,030
|
|
|
|
12,683
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With an allowance recorded
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
1,465
|
|
|
|
1,480
|
|
|
|
23
|
|
|
|
1,491
|
|
|
|
1,506
|
|
|
|
18
|
|
|
|
|
1,465
|
|
|
|
1,480
|
|
|
|
23
|
|
|
|
1,491
|
|
|
|
1,506
|
|
|
|
18
|
|
Consumer real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured by 1-4 family residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First deed of trust
|
|
|
202
|
|
|
|
224
|
|
|
|
21
|
|
|
|
814
|
|
|
|
814
|
|
|
|
98
|
|
Second deed of trust
|
|
|
163
|
|
|
|
163
|
|
|
|
5
|
|
|
|
85
|
|
|
|
85
|
|
|
|
4
|
|
|
|
|
365
|
|
|
|
387
|
|
|
|
26
|
|
|
|
1,034
|
|
|
|
1,034
|
|
|
|
104
|
|
Commercial and industrial loans
(except those secured by real estate)
|
|
|
298
|
|
|
|
497
|
|
|
|
144
|
|
|
|
740
|
|
|
|
740
|
|
|
|
375
|
|
Consumer and other
|
|
|
23
|
|
|
|
23
|
|
|
|
23
|
|
|
|
19
|
|
|
|
19
|
|
|
|
18
|
|
|
|
|
2,151
|
|
|
|
2,387
|
|
|
|
216
|
|
|
|
3,284
|
|
|
|
3,299
|
|
|
|
515
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and land development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
366
|
|
|
|
464
|
|
|
|
-
|
|
|
|
502
|
|
|
|
600
|
|
|
|
-
|
|
|
|
|
366
|
|
|
|
464
|
|
|
|
-
|
|
|
|
502
|
|
|
|
600
|
|
|
|
-
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
5,220
|
|
|
|
5,235
|
|
|
|
23
|
|
|
|
5,370
|
|
|
|
5,385
|
|
|
|
18
|
|
Non-owner occupied
|
|
|
2,608
|
|
|
|
2,608
|
|
|
|
-
|
|
|
|
2,153
|
|
|
|
2,153
|
|
|
|
-
|
|
|
|
|
7,828
|
|
|
|
7,843
|
|
|
|
23
|
|
|
|
7,523
|
|
|
|
7,538
|
|
|
|
18
|
|
Consumer real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity lines
|
|
|
688
|
|
|
|
688
|
|
|
|
-
|
|
|
|
712
|
|
|
|
712
|
|
|
|
2
|
|
Secured by 1-4 family residential,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First deed of trust
|
|
|
3,384
|
|
|
|
3,406
|
|
|
|
21
|
|
|
|
4,745
|
|
|
|
4,745
|
|
|
|
98
|
|
Second deed of trust
|
|
|
895
|
|
|
|
1,103
|
|
|
|
5
|
|
|
|
590
|
|
|
|
798
|
|
|
|
4
|
|
|
|
|
4,967
|
|
|
|
5,197
|
|
|
|
26
|
|
|
|
6,047
|
|
|
|
6,255
|
|
|
|
104
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial loans
(except those secured by real estate)
|
|
|
725
|
|
|
|
1,271
|
|
|
|
144
|
|
|
|
1,220
|
|
|
|
1,567
|
|
|
|
375
|
|
Consumer and other
|
|
|
24
|
|
|
|
24
|
|
|
|
23
|
|
|
|
22
|
|
|
|
22
|
|
|
|
18
|
|
|
|
$
|
13,910
|
|
|
$
|
14,799
|
|
|
$
|
216
|
|
|
$
|
15,314
|
|
|
$
|
15,982
|
|
|
$
|
515
|
|
The following is a summary of average recorded
investment in impaired loans with and without a valuation allowance and interest income recognized on those loans for the periods
indicated (in thousands):
|
|
For the Three Months
|
|
|
For the Nine Months
|
|
|
|
Ended September 30, 2018
|
|
|
Ended September 30, 2018
|
|
|
|
Average
|
|
|
Interest
|
|
|
Average
|
|
|
Interest
|
|
|
|
Recorded
|
|
|
Income
|
|
|
Recorded
|
|
|
Income
|
|
|
|
Investment
|
|
|
Recognized
|
|
|
Investment
|
|
|
Recognized
|
|
With no related allowance recorded
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and land development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
560
|
|
|
$
|
-
|
|
|
$
|
546
|
|
|
$
|
13
|
|
|
|
|
560
|
|
|
|
-
|
|
|
|
546
|
|
|
|
13
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
2,520
|
|
|
|
29
|
|
|
|
3,814
|
|
|
|
109
|
|
Non-owner occupied
|
|
|
3,016
|
|
|
|
-
|
|
|
|
2,509
|
|
|
|
231
|
|
|
|
|
5,536
|
|
|
|
29
|
|
|
|
6,323
|
|
|
|
340
|
|
Consumer real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity lines
|
|
|
464
|
|
|
|
-
|
|
|
|
497
|
|
|
|
-
|
|
Secured by 1-4 family residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First deed of trust
|
|
|
1,957
|
|
|
|
25
|
|
|
|
3,234
|
|
|
|
71
|
|
Second deed of trust
|
|
|
1,506
|
|
|
|
12
|
|
|
|
638
|
|
|
|
35
|
|
|
|
|
3,927
|
|
|
|
37
|
|
|
|
4,369
|
|
|
|
106
|
|
Commercial and industrial loans
(except those
secured by real estate)
|
|
|
289
|
|
|
|
7
|
|
|
|
446
|
|
|
|
27
|
|
Consumer and other
|
|
|
1
|
|
|
|
-
|
|
|
|
2
|
|
|
|
1
|
|
|
|
|
10,313
|
|
|
|
73
|
|
|
|
11,686
|
|
|
|
487
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With an allowance recorded
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and land development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
978
|
|
|
|
26
|
|
|
|
1,477
|
|
|
|
48
|
|
|
|
|
978
|
|
|
|
26
|
|
|
|
1,477
|
|
|
|
48
|
|
Consumer real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity line
|
|
|
741
|
|
|
|
-
|
|
|
|
67
|
|
|
|
-
|
|
Secured by 1-4 family residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First deed of trust
|
|
|
217
|
|
|
|
3
|
|
|
|
519
|
|
|
|
18
|
|
Second deed of trust
|
|
|
154
|
|
|
|
2
|
|
|
|
145
|
|
|
|
6
|
|
|
|
|
1,112
|
|
|
|
5
|
|
|
|
731
|
|
|
|
24
|
|
Commercial and industrial loans
(except those secured by real estate)
|
|
|
288
|
|
|
|
-
|
|
|
|
544
|
|
|
|
-
|
|
Consumer and other
|
|
|
316
|
|
|
|
-
|
|
|
|
15
|
|
|
|
-
|
|
|
|
|
2,694
|
|
|
|
31
|
|
|
|
2,767
|
|
|
|
72
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and land development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
560
|
|
|
|
-
|
|
|
|
546
|
|
|
|
13
|
|
|
|
|
560
|
|
|
|
-
|
|
|
|
546
|
|
|
|
13
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
3,498
|
|
|
|
55
|
|
|
|
5,291
|
|
|
|
157
|
|
Non-owner occupied
|
|
|
3,016
|
|
|
|
-
|
|
|
|
2,509
|
|
|
|
231
|
|
|
|
|
6,514
|
|
|
|
55
|
|
|
|
7,800
|
|
|
|
388
|
|
Consumer real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity lines
|
|
|
1,205
|
|
|
|
-
|
|
|
|
564
|
|
|
|
-
|
|
Secured by 1-4 family residential,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First deed of trust
|
|
|
2,175
|
|
|
|
28
|
|
|
|
3,753
|
|
|
|
89
|
|
Second deed of trust
|
|
|
1,659
|
|
|
|
14
|
|
|
|
783
|
|
|
|
41
|
|
|
|
|
5,039
|
|
|
|
42
|
|
|
|
5,100
|
|
|
|
130
|
|
Commercial and industrial loans
(except those secured by real estate)
|
|
|
577
|
|
|
|
7
|
|
|
|
990
|
|
|
|
27
|
|
Consumer and other
|
|
|
317
|
|
|
|
-
|
|
|
|
17
|
|
|
|
1
|
|
|
|
$
|
13,007
|
|
|
$
|
104
|
|
|
$
|
14,453
|
|
|
$
|
559
|
|
|
|
For the Three Months
|
|
|
For the Nine Months
|
|
|
|
Ended September 30, 2017
|
|
|
Ended September 30, 2017
|
|
|
|
Average
|
|
|
Interest
|
|
|
Average
|
|
|
Interest
|
|
|
|
Recorded
|
|
|
Income
|
|
|
Recorded
|
|
|
Income
|
|
|
|
Investment
|
|
|
Recognized
|
|
|
Investment
|
|
|
Recognized
|
|
With no related allowance recorded
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and land development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
99
|
|
|
$
|
1
|
|
|
$
|
100
|
|
|
$
|
3
|
|
|
|
|
99
|
|
|
|
1
|
|
|
|
100
|
|
|
|
3
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
3,531
|
|
|
|
32
|
|
|
|
2,539
|
|
|
|
90
|
|
Non-owner occupied
|
|
|
2,187
|
|
|
|
23
|
|
|
|
2,206
|
|
|
|
82
|
|
|
|
|
5,718
|
|
|
|
55
|
|
|
|
4,745
|
|
|
|
172
|
|
Consumer real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity lines
|
|
|
751
|
|
|
|
16
|
|
|
|
761
|
|
|
|
17
|
|
Secured by 1-4 family residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First deed of trust
|
|
|
3,737
|
|
|
|
24
|
|
|
|
3,615
|
|
|
|
86
|
|
Second deed of trust
|
|
|
555
|
|
|
|
9
|
|
|
|
563
|
|
|
|
27
|
|
|
|
|
5,043
|
|
|
|
49
|
|
|
|
4,939
|
|
|
|
130
|
|
Commercial and industrial loans
(except those
secured by real estate)
|
|
|
470
|
|
|
|
35
|
|
|
|
493
|
|
|
|
49
|
|
Consumer and other
|
|
|
4
|
|
|
|
-
|
|
|
|
2
|
|
|
|
-
|
|
|
|
|
11,334
|
|
|
|
140
|
|
|
|
10,279
|
|
|
|
354
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With an allowance recorded
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and land development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
467
|
|
|
|
5
|
|
|
|
472
|
|
|
|
17
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
1,929
|
|
|
|
17
|
|
|
|
2,978
|
|
|
|
58
|
|
|
|
|
1,929
|
|
|
|
17
|
|
|
|
2,978
|
|
|
|
58
|
|
Consumer real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity line
|
|
|
139
|
|
|
|
-
|
|
|
|
69
|
|
|
|
6
|
|
Secured by 1-4 family residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First deed of trust
|
|
|
815
|
|
|
|
8
|
|
|
|
1,120
|
|
|
|
26
|
|
Second deed of trust
|
|
|
129
|
|
|
|
1
|
|
|
|
131
|
|
|
|
3
|
|
|
|
|
1,083
|
|
|
|
9
|
|
|
|
1,320
|
|
|
|
35
|
|
Commercial and industrial loans
(except those secured by real estate)
|
|
|
444
|
|
|
|
-
|
|
|
|
245
|
|
|
|
4
|
|
Consumer and other
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
|
|
|
-
|
|
|
|
|
3,923
|
|
|
|
31
|
|
|
|
5,016
|
|
|
|
114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and land development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
566
|
|
|
|
6
|
|
|
|
572
|
|
|
|
20
|
|
|
|
|
566
|
|
|
|
6
|
|
|
|
572
|
|
|
|
20
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
5,460
|
|
|
|
49
|
|
|
|
5,517
|
|
|
|
148
|
|
Non-owner occupied
|
|
|
2,187
|
|
|
|
23
|
|
|
|
2,206
|
|
|
|
82
|
|
|
|
|
7,647
|
|
|
|
72
|
|
|
|
7,723
|
|
|
|
230
|
|
Consumer real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity lines
|
|
|
890
|
|
|
|
16
|
|
|
|
830
|
|
|
|
23
|
|
Secured by 1-4 family residential,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First deed of trust
|
|
|
4,552
|
|
|
|
32
|
|
|
|
4,735
|
|
|
|
112
|
|
Second deed of trust
|
|
|
684
|
|
|
|
10
|
|
|
|
694
|
|
|
|
30
|
|
|
|
|
6,126
|
|
|
|
58
|
|
|
|
6,259
|
|
|
|
165
|
|
Commercial and industrial loans
(except those secured by real estate)
|
|
|
915
|
|
|
|
35
|
|
|
|
738
|
|
|
|
53
|
|
Consumer and other
|
|
|
4
|
|
|
|
-
|
|
|
|
3
|
|
|
|
-
|
|
|
|
$
|
15,257
|
|
|
$
|
171
|
|
|
$
|
15,295
|
|
|
$
|
468
|
|
Included in impaired loans are loans classified
as troubled debt restructurings (“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 borrower’s 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 for the periods indicated (dollars in thousands).
|
|
|
|
|
|
|
|
|
|
|
Specific
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation
|
|
|
|
Total
|
|
|
Performing
|
|
|
Nonaccrual
|
|
|
Allowance
|
|
September 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and land development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
4,102
|
|
|
|
4,102
|
|
|
|
-
|
|
|
|
23
|
|
Non-owner occupied
|
|
|
2,092
|
|
|
|
2,092
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
6,194
|
|
|
|
6,194
|
|
|
|
-
|
|
|
|
23
|
|
Consumer real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured by 1-4 family residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First deeds of trust
|
|
|
2,407
|
|
|
|
1,871
|
|
|
|
536
|
|
|
|
21
|
|
Second deeds of trust
|
|
|
805
|
|
|
|
739
|
|
|
|
65
|
|
|
|
5
|
|
|
|
|
3,212
|
|
|
|
2,610
|
|
|
|
602
|
|
|
|
26
|
|
Commercial and industrial loans
(except those secured by real estate)
|
|
|
329
|
|
|
|
293
|
|
|
|
36
|
|
|
|
-
|
|
|
|
$
|
9,735
|
|
|
$
|
9,097
|
|
|
$
|
638
|
|
|
$
|
49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of loans
|
|
|
43
|
|
|
|
35
|
|
|
|
8
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
The following provides information about TDRs identified during
the indicated periods (dollars in thousands).
|
|
Nine Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30, 2018
|
|
|
September 30, 2017
|
|
|
|
|
|
|
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
|
|
|
$
|
73
|
|
|
$
|
73
|
|
|
|
1
|
|
|
$
|
190
|
|
|
$
|
190
|
|
Second deed of trust
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
|
|
|
68
|
|
|
|
68
|
|
|
|
|
1
|
|
|
$
|
73
|
|
|
$
|
73
|
|
|
|
2
|
|
|
$
|
258
|
|
|
$
|
258
|
|
There were no defaults on TDRs that were
modified as TDRs during the prior twelve month period.
Activity in the allowance for loan losses
is as follows for the periods indicated (in thousands):
|
|
|
|
|
Provision for
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
|
|
|
(Recovery of)
|
|
|
|
|
|
|
|
|
Ending
|
|
|
|
Balance
|
|
|
Loan Losses
|
|
|
Charge-offs
|
|
|
Recoveries
|
|
|
Balance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and land development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
36
|
|
|
$
|
46
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
82
|
|
Commercial
|
|
|
196
|
|
|
|
(31
|
)
|
|
|
-
|
|
|
|
2
|
|
|
|
167
|
|
|
|
|
232
|
|
|
|
15
|
|
|
|
-
|
|
|
|
2
|
|
|
|
249
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
719
|
|
|
|
(52
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
667
|
|
Non-owner occupied
|
|
|
567
|
|
|
|
47
|
|
|
|
-
|
|
|
|
-
|
|
|
|
614
|
|
Multifamily
|
|
|
72
|
|
|
|
26
|
|
|
|
-
|
|
|
|
-
|
|
|
|
98
|
|
Farmland
|
|
|
2
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2
|
|
|
|
|
1,360
|
|
|
|
21
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,381
|
|
Consumer real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity lines
|
|
|
237
|
|
|
|
92
|
|
|
|
(64
|
)
|
|
|
-
|
|
|
|
265
|
|
Secured by 1-4 family residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First deed of trust
|
|
|
476
|
|
|
|
(80
|
)
|
|
|
-
|
|
|
|
2
|
|
|
|
398
|
|
Second deed of trust
|
|
|
56
|
|
|
|
(8
|
)
|
|
|
-
|
|
|
|
6
|
|
|
|
54
|
|
|
|
|
769
|
|
|
|
4
|
|
|
|
(64
|
)
|
|
|
8
|
|
|
|
717
|
|
Commercial and industrial loans
(except those
secured by real estate)
|
|
|
404
|
|
|
|
12
|
|
|
|
-
|
|
|
|
3
|
|
|
|
419
|
|
Student loans
|
|
|
91
|
|
|
|
33
|
|
|
|
(27
|
)
|
|
|
-
|
|
|
|
97
|
|
Consumer and other
|
|
|
30
|
|
|
|
13
|
|
|
|
(1
|
)
|
|
|
2
|
|
|
|
44
|
|
Unallocated
|
|
|
322
|
|
|
|
(98
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
224
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,208
|
|
|
$
|
-
|
|
|
$
|
(92
|
)
|
|
$
|
15
|
|
|
$
|
3,131
|
|
|
|
|
|
|
Provision for
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
|
|
|
(Recovery of)
|
|
|
|
|
|
|
|
|
Ending
|
|
|
|
Balance
|
|
|
Loan Losses
|
|
|
Charge-offs
|
|
|
Recoveries
|
|
|
Balance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and land development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
38
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
38
|
|
Commercial
|
|
|
213
|
|
|
|
(40
|
)
|
|
|
-
|
|
|
|
2
|
|
|
|
175
|
|
|
|
|
251
|
|
|
|
(40
|
)
|
|
|
-
|
|
|
|
2
|
|
|
|
213
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
515
|
|
|
|
9
|
|
|
|
-
|
|
|
|
-
|
|
|
|
524
|
|
Non-owner occupied
|
|
|
416
|
|
|
|
18
|
|
|
|
-
|
|
|
|
-
|
|
|
|
434
|
|
Multifamily
|
|
|
40
|
|
|
|
(1
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
39
|
|
Farmland
|
|
|
3
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3
|
|
|
|
|
974
|
|
|
|
26
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,000
|
|
Consumer real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity lines
|
|
|
250
|
|
|
|
(3
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
247
|
|
Secured by 1-4 family residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First deed of trust
|
|
|
462
|
|
|
|
(10
|
)
|
|
|
-
|
|
|
|
7
|
|
|
|
459
|
|
Second deed of trust
|
|
|
127
|
|
|
|
(89
|
)
|
|
|
-
|
|
|
|
7
|
|
|
|
45
|
|
|
|
|
839
|
|
|
|
(102
|
)
|
|
|
-
|
|
|
|
14
|
|
|
|
751
|
|
Commercial and industrial loans
(except those secured by real estate)
|
|
|
302
|
|
|
|
140
|
|
|
|
-
|
|
|
|
3
|
|
|
|
445
|
|
Student loans
|
|
|
99
|
|
|
|
45
|
|
|
|
(45
|
)
|
|
|
-
|
|
|
|
99
|
|
Consumer and other
|
|
|
9
|
|
|
|
(4
|
)
|
|
|
-
|
|
|
|
2
|
|
|
|
7
|
|
Unallocated
|
|
|
793
|
|
|
|
(65
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
728
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,267
|
|
|
$
|
-
|
|
|
$
|
(45
|
)
|
|
$
|
21
|
|
|
$
|
3,243
|
|
|
|
|
|
|
Provision for
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
|
|
|
(Recovery of)
|
|
|
|
|
|
|
|
|
Ending
|
|
|
|
Balance
|
|
|
Loan Losses
|
|
|
Charge-offs
|
|
|
Recoveries
|
|
|
Balance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and land development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
32
|
|
|
$
|
49
|
|
|
$
|
-
|
|
|
$
|
1
|
|
|
$
|
82
|
|
Commercial
|
|
|
165
|
|
|
|
(3
|
)
|
|
|
-
|
|
|
|
5
|
|
|
|
167
|
|
|
|
|
197
|
|
|
|
46
|
|
|
|
-
|
|
|
|
6
|
|
|
|
249
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
624
|
|
|
|
43
|
|
|
|
-
|
|
|
|
-
|
|
|
|
667
|
|
Non-owner occupied
|
|
|
500
|
|
|
|
(104
|
)
|
|
|
-
|
|
|
|
218
|
|
|
|
614
|
|
Multifamily
|
|
|
60
|
|
|
|
38
|
|
|
|
-
|
|
|
|
-
|
|
|
|
98
|
|
Farmland
|
|
|
3
|
|
|
|
(1
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
2
|
|
|
|
|
1,187
|
|
|
|
(24
|
)
|
|
|
-
|
|
|
|
218
|
|
|
|
1,381
|
|
Consumer real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity lines
|
|
|
268
|
|
|
|
60
|
|
|
|
(64
|
)
|
|
|
1
|
|
|
|
265
|
|
Secured by 1-4 family residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First deed of trust
|
|
|
502
|
|
|
|
(82
|
)
|
|
|
(41
|
)
|
|
|
19
|
|
|
|
398
|
|
Second deed of trust
|
|
|
47
|
|
|
|
14
|
|
|
|
(45
|
)
|
|
|
38
|
|
|
|
54
|
|
|
|
|
817
|
|
|
|
(8
|
)
|
|
|
(150
|
)
|
|
|
58
|
|
|
|
717
|
|
Commercial and industrial loans
(except those secured by real estate)
|
|
|
556
|
|
|
|
2
|
|
|
|
(314
|
)
|
|
|
175
|
|
|
|
419
|
|
Student loans
|
|
|
108
|
|
|
|
76
|
|
|
|
(87
|
)
|
|
|
-
|
|
|
|
97
|
|
Consumer and other
|
|
|
27
|
|
|
|
31
|
|
|
|
(22
|
)
|
|
|
8
|
|
|
|
44
|
|
Unallocated
|
|
|
347
|
|
|
|
(123
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
224
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,239
|
|
|
$
|
-
|
|
|
$
|
(573
|
)
|
|
$
|
465
|
|
|
$
|
3,131
|
|
|
|
|
|
|
Provision for
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
|
|
|
(Recovery of)
|
|
|
|
|
|
|
|
|
Ending
|
|
|
|
Balance
|
|
|
Loan Losses
|
|
|
Charge-offs
|
|
|
Recoveries
|
|
|
Balance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and land development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
41
|
|
|
$
|
(4
|
)
|
|
$
|
-
|
|
|
$
|
1
|
|
|
$
|
38
|
|
Commercial
|
|
|
300
|
|
|
|
(127
|
)
|
|
|
-
|
|
|
|
2
|
|
|
|
175
|
|
|
|
|
341
|
|
|
|
(131
|
)
|
|
|
-
|
|
|
|
3
|
|
|
|
213
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
611
|
|
|
|
(100
|
)
|
|
|
-
|
|
|
|
13
|
|
|
|
524
|
|
Non-owner occupied
|
|
|
406
|
|
|
|
28
|
|
|
|
-
|
|
|
|
-
|
|
|
|
434
|
|
Multifamily
|
|
|
56
|
|
|
|
(17
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
39
|
|
Farmland
|
|
|
3
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3
|
|
|
|
|
1,076
|
|
|
|
(89
|
)
|
|
|
-
|
|
|
|
13
|
|
|
|
1,000
|
|
Consumer real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity lines
|
|
|
271
|
|
|
|
(25
|
)
|
|
|
-
|
|
|
|
1
|
|
|
|
247
|
|
Secured by 1-4 family residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First deed of trust
|
|
|
447
|
|
|
|
90
|
|
|
|
(107
|
)
|
|
|
29
|
|
|
|
459
|
|
Second deed of trust
|
|
|
136
|
|
|
|
(120
|
)
|
|
|
-
|
|
|
|
29
|
|
|
|
45
|
|
|
|
|
854
|
|
|
|
(55
|
)
|
|
|
(107
|
)
|
|
|
59
|
|
|
|
751
|
|
Commercial and industrial loans
(except those secured by real estate)
|
|
|
223
|
|
|
|
209
|
|
|
|
-
|
|
|
|
13
|
|
|
|
445
|
|
Student loans
|
|
|
158
|
|
|
|
56
|
|
|
|
(115
|
)
|
|
|
-
|
|
|
|
99
|
|
Consumer and other
|
|
|
8
|
|
|
|
(5
|
)
|
|
|
(2
|
)
|
|
|
6
|
|
|
|
7
|
|
Unallocated
|
|
|
713
|
|
|
|
15
|
|
|
|
-
|
|
|
|
-
|
|
|
|
728
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,373
|
|
|
$
|
-
|
|
|
$
|
(224
|
)
|
|
$
|
94
|
|
|
$
|
3,243
|
|
|
|
|
|
|
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
|
|
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. The unallocated component covers uncertainties that could affect management’s estimate of probably
losses. We recognize the inherent imprecision in estimates of losses due to various uncertainties and the variability related to
the factors used in the calculation of the allowance. The allowance for loan losses included an unallocated portion of approximately
$224,000, $347,000, and $728,000 at September 30, 2018, December 31, 2017, and September 30, 2017, respectively.
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and land development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
82
|
|
|
$
|
-
|
|
|
$
|
82
|
|
|
$
|
14,263
|
|
|
$
|
-
|
|
|
$
|
14,263
|
|
Commercial
|
|
|
167
|
|
|
|
-
|
|
|
|
167
|
|
|
|
26,818
|
|
|
|
366
|
|
|
|
26,452
|
|
|
|
|
249
|
|
|
|
-
|
|
|
|
249
|
|
|
|
41,081
|
|
|
|
366
|
|
|
|
40,715
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
667
|
|
|
|
23
|
|
|
|
644
|
|
|
|
97,632
|
|
|
|
5,220
|
|
|
|
92,412
|
|
Non-owner occupied
|
|
|
614
|
|
|
|
-
|
|
|
|
614
|
|
|
|
87,006
|
|
|
|
2,608
|
|
|
|
84,398
|
|
Multifamily
|
|
|
98
|
|
|
|
-
|
|
|
|
98
|
|
|
|
15,411
|
|
|
|
-
|
|
|
|
15,411
|
|
Farmland
|
|
|
2
|
|
|
|
-
|
|
|
|
2
|
|
|
|
232
|
|
|
|
-
|
|
|
|
232
|
|
|
|
|
1,381
|
|
|
|
23
|
|
|
|
1,358
|
|
|
|
200,281
|
|
|
|
7,828
|
|
|
|
192,453
|
|
Consumer real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity lines
|
|
|
265
|
|
|
|
-
|
|
|
|
265
|
|
|
|
22,393
|
|
|
|
688
|
|
|
|
21,705
|
|
Secured by 1-4 family residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First deed of trust
|
|
|
398
|
|
|
|
21
|
|
|
|
377
|
|
|
|
59,564
|
|
|
|
3,384
|
|
|
|
56,180
|
|
Second deed of trust
|
|
|
54
|
|
|
|
5
|
|
|
|
49
|
|
|
|
9,757
|
|
|
|
895
|
|
|
|
8,862
|
|
|
|
|
717
|
|
|
|
26
|
|
|
|
691
|
|
|
|
91,714
|
|
|
|
4,967
|
|
|
|
86,747
|
|
Commercial and industrial loans
(except those secured by real estate)
|
|
|
419
|
|
|
|
144
|
|
|
|
275
|
|
|
|
40,142
|
|
|
|
725
|
|
|
|
39,417
|
|
Student loans
|
|
|
97
|
|
|
|
-
|
|
|
|
97
|
|
|
|
40,502
|
|
|
|
-
|
|
|
|
40,502
|
|
Consumer and other
|
|
|
268
|
|
|
|
23
|
|
|
|
245
|
|
|
|
1,835
|
|
|
|
24
|
|
|
|
1,811
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,131
|
|
|
$
|
216
|
|
|
$
|
2,915
|
|
|
$
|
415,555
|
|
|
$
|
13,910
|
|
|
$
|
401,645
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
Note 6 – Deposits
Deposits as of September 30, 2018 and December
31, 2017 were as follows (dollars in thousands):
|
|
September 30, 2018
|
|
|
December 31, 2017
|
|
|
|
Amount
|
|
|
%
|
|
|
Amount
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand accounts
|
|
$
|
120,374
|
|
|
|
27.6
|
%
|
|
$
|
104,138
|
|
|
|
25.3
|
%
|
Interest checking accounts
|
|
|
48,489
|
|
|
|
11.1
|
%
|
|
|
48,042
|
|
|
|
11.7
|
%
|
Money market accounts
|
|
|
88,833
|
|
|
|
20.3
|
%
|
|
|
82,523
|
|
|
|
20.1
|
%
|
Savings accounts
|
|
|
28,683
|
|
|
|
6.6
|
%
|
|
|
27,596
|
|
|
|
6.7
|
%
|
Time deposits of $250,000 and over
|
|
|
19,730
|
|
|
|
4.5
|
%
|
|
|
21,592
|
|
|
|
5.2
|
%
|
Other time deposits
|
|
|
130,757
|
|
|
|
29.9
|
%
|
|
|
127,733
|
|
|
|
31.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
436,866
|
|
|
|
100.0
|
%
|
|
$
|
411,624
|
|
|
|
100.0
|
%
|
Note 7 – Borrowings
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 $1,384,200 in FHLB stock at September 30, 2018 and $920,000 at December 31, 2017, 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 investment securities, commercial loans and 1-4 family residential loans. The
Company had FHLB advances of $22,500,000 at September 30, 2018 and $12,300,000 at December 31, 2017 maturing through 2023.
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. There were no borrowings against the lines at September 30, 2018. The carrying
value of these short-term borrowing agreements was $1,584,000 at December 31, 2017.
Note 8 – 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 at September 30, 2018 was 4.49%. 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 September 30, 2018 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 September 30, 2018 was 3.74%. 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 September 30, 2018 and there are no plans to do so. The principal asset of the
Trust is $3.6 million of the Company’s junior subordinated debt 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 9 – Subordinated Debt Offering
On March 21, 2018, the Company issued $5,700,000
of fixed-to-floating rate subordinated notes due March 31, 2028 in a private placement. The Company received $5,539,000 in net
proceeds after deducting issuance costs. The subordinated notes accrue interest at a fixed rate of 6.50% for the first five years
until March 31, 2023; thereafter, the subordinated notes will accrue interest at an annual floating rate equal to three-month LIBOR
plus a spread of 3.73% until maturity or early redemption. The Company may redeem the subordinated notes in whole or in part, on
or after March 31, 2023. The subordinated notes are unsecured and subordinated 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. At September
30, 2018, the carrying value of the notes totaled $5,555,000.
Note 10 – Stock incentive plan
The Village Bank and Trust Financial Corp.
Incentive Plan, which was adopted on February 28, 2006, authorized the issuance of up to 48,750 shares of common stock (after the
reverse stock split in 2014) (the “2006 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 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.
The following table summarizes stock options
outstanding under the stock incentive plans at the indicated dates:
|
|
Nine Months Ended September 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
|
|
|
Fair Value
|
|
|
Intrinsic
|
|
|
|
|
|
Exercise
|
|
|
Fair Value
|
|
|
Intrinsic
|
|
|
|
Options
|
|
|
Price
|
|
|
Per Share
|
|
|
Value
|
|
|
Options
|
|
|
Price
|
|
|
Per Share
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding,
beginning of period
|
|
|
2,245
|
|
|
$
|
24.17
|
|
|
$
|
12.88
|
|
|
|
|
|
|
|
2,337
|
|
|
$
|
24.21
|
|
|
$
|
12.76
|
|
|
|
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Exercised
|
|
|
(313
|
)
|
|
|
25.76
|
|
|
|
16.32
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Options outstanding,
end of period
|
|
|
1,932
|
|
|
$
|
23.91
|
|
|
$
|
12.32
|
|
|
$
|
-
|
|
|
|
2,337
|
|
|
$
|
24.21
|
|
|
$
|
12.76
|
|
|
$
|
-
|
|
Options exercisable,
end of period
|
|
|
1,932
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,337
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the third quarter of 2018, we granted
certain officers 8,050 target performance-based restricted shares of common stock with a weighted average fair value of $33.75
on the date of grant. These performance awards have a two-year performance period beginning on January 2, 2019. The performance
targets are based on return on tangible common equity and the adversely classified items ratio over the performance period with
possible payouts ranging from 0% to 150% of the target awards.
During the third quarter of 2018, we granted
certain officers 1,575 time-based restricted shares of common stock with a weighted average fair value of $33.75 on the date of
grant. These restricted stock awards vest over three years. During the first quarter of 2018, we granted certain officers 1,590
time-based restricted shares of common stock with a weighted average fair value of $32.42 on the date of grant. These restricted
stock awards vest over three years. During the second quarter of 2017, we granted certain officers 600 time-based restricted shares
of common stock with a weighted average fair 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 time-based restricted shares of common stock with a
weighted average fair 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 time-based restricted shares of common stock with a weighted average fair value
of $30.65 at the date of grant. These restricted stock awards vest over one year.
The total number of shares underlying non-vested
restricted stock was 25,026 and 28,437 at September 30, 2018 and 2017, 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. Unrecognized stock-based compensation related
to nonvested share based compensation arrangements granted under the stock incentive plan as of September 30, 2018 and 2017, was
$522,100 and $487,374, respectively. The time based unrecognized compensation of $211,042 is expected to be recognized over a weighted
average period of 1.76 years.
Stock-based compensation expense was approximately
$136,000 and $102,000 for the nine months ended September 30, 2018 and 2017, respectively.
Note 11 — Fair value
The Company determines the fair value of
its financial instruments based on the requirements established in Accounting Standards Codification (“ASC”) 820:
Fair
Value Measurements,
which provides a framework for measuring fair value under GAAP and requires an entity to maximize the use
of observable inputs when measuring fair value. ASC 820 defines fair value as the exit price, the price that would be received
for an asset or paid to transfer a liability, in the principal or most advantageous market for the asset or liability in an orderly
transaction between market participants on the measurement date under current market conditions.
ASC 820 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 if an appraisal of the property
is more than two years old, 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 using observable market data. Likewise, values for inventory and account
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.
Other Real Estate Owned:
Other real
estate owned assets are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. Subsequently,
real estate owned assets are carried at lower of cost or fair value less estimated 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 the lower of cost less accumulated depreciation or fair value 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 and liabilities measured at fair
value under Topic 820 on a recurring and non-recurring basis are summarized below for the indicated dates (dollars in thousands):
|
|
Fair Value Measurement
|
|
|
|
at September 30, 2018 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
|
|
$
|
23,019
|
|
|
$
|
-
|
|
|
$
|
23,019
|
|
|
$
|
-
|
|
Mortgage-backed securities
|
|
|
18,895
|
|
|
|
-
|
|
|
|
18,895
|
|
|
|
-
|
|
Subordinated debt
|
|
|
4,071
|
|
|
|
-
|
|
|
|
2,014
|
|
|
|
2,057
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Assets - Non-Recurring
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans
|
|
|
1,935
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,935
|
|
Assets held for sale
|
|
|
610
|
|
|
|
-
|
|
|
|
-
|
|
|
|
610
|
|
Other real estate owned
|
|
|
548
|
|
|
|
-
|
|
|
|
-
|
|
|
|
548
|
|
|
|
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
|
|
|
2,769
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,769
|
|
Assets held for sale
|
|
|
610
|
|
|
|
-
|
|
|
|
-
|
|
|
|
610
|
|
Other real estate owned
|
|
|
1,788
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,788
|
|
The following tables present qualitative information about Level
3 fair value measurements for financial instruments measured at fair value at September 30, 2018 and December 31, 2017 (dollars
in thousands):
|
|
September 30, 2018
|
|
|
|
|
|
|
|
|
|
Range
|
|
|
Fair Value
|
|
|
Valuation
|
|
Unobservable
|
|
(Weighted
|
|
|
Estimate
|
|
|
Techniques
|
|
Input
|
|
Average)
|
|
|
|
|
|
|
|
|
|
|
Impaired loans - real estate secured
|
|
$
|
1,781
|
|
|
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
|
|
$
|
154
|
|
|
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%)
|
Other real estate owned
|
|
$
|
548
|
|
|
Appraisal (1) or Internal Valuation (2)
|
|
Selling costs
|
|
6%-10% (7%)
|
|
(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
|
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
|
Range
|
|
|
Fair Value
|
|
|
Valuation
|
|
Unobservable
|
|
(Weighted
|
|
|
Estimate
|
|
|
Techniques
|
|
Input
|
|
Average)
|
|
|
|
|
|
|
|
|
|
|
Impaired loans - real estate secured
|
|
$
|
2,403
|
|
|
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
|
|
$
|
366
|
|
|
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%)
|
Other real estate owned
|
|
$
|
1,788
|
|
|
Appraisal (1) or Internal Valuation (2)
|
|
Selling costs
|
|
6%-10% (7%)
|
|
(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
|
On January 1, 2018, the Company adopted
ASU 2016-01,
“Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial
Assets and Financial Liabilities.”
ASU 2016-01 makes targeted improvements to several areas of U.S. GAAP including the
disclosure of the fair value of financial instruments that are not measured at fair value on a recurring basis. Specifically, the
new guidance (i) eliminates the requirements to disclose the methods and significant assumptions used to estimate the fair value
and the description of the changes therein, if any, during the period, (ii) requires the use of the exit price notion, prospectively,
in calculating the fair values of financial instruments not measured at fair value on a recurring basis and (iii) eliminates the
guidance that allowed the use of the entry price notion to calculate the fair value of certain financial instruments, such as loans
and long-term debt. For example, the Company has historically estimated the fair value for loans reported at amortized cost on
its balance sheet by examining the average rates per the terms of these loans, and comparing those average rates to the current
rates offered by the Company (i.e., the entry price notion). Utilizing the exit price notion requires the Company to estimate fair
value of these loans based on the price that would be received to sell these loans in an orderly transaction between market participants
at the measurement date.
In accordance
with the prospective adoption of ASU No. 2016-01 as previously discussed, the fair value of loans as of September 30, 2018 was
measured using an exit price notion. The fair value of loans as of December 31, 2017 was measured using an entry price notion.
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
|
|
2018
|
|
|
2017
|
|
|
|
Level in Fair
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value
|
|
Carrying
|
|
|
Estimated
|
|
|
Carrying
|
|
|
Estimated
|
|
|
|
Hierarchy
|
|
Value
|
|
|
Fair Value
|
|
|
Value
|
|
|
Fair Value
|
|
|
|
(In thousands)
|
|
Financial assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
Level 1
|
|
$
|
15,400
|
|
|
$
|
15,400
|
|
|
$
|
17,810
|
|
|
$
|
17,810
|
|
Investment securities available for sale
|
|
Level 1
|
|
|
-
|
|
|
|
-
|
|
|
|
757
|
|
|
|
757
|
|
Investment securities available for sale
|
|
Level 2
|
|
|
43,928
|
|
|
|
43,928
|
|
|
|
47,154
|
|
|
|
47,154
|
|
Investment securities available for sale
|
|
Level 3
|
|
|
2,057
|
|
|
|
2,057
|
|
|
|
1,800
|
|
|
|
1,800
|
|
Federal Home Loan Bank stock
|
|
Level 2
|
|
|
1,384
|
|
|
|
1,384
|
|
|
|
920
|
|
|
|
920
|
|
Loans held for sale
|
|
Level 2
|
|
|
4,496
|
|
|
|
4,496
|
|
|
|
8,047
|
|
|
|
8,047
|
|
Loans
|
|
Level 3
|
|
|
413,620
|
|
|
|
408,967
|
|
|
|
365,940
|
|
|
|
366,035
|
|
Impaired loans
|
|
Level 3
|
|
|
1,935
|
|
|
|
1,935
|
|
|
|
2,769
|
|
|
|
2,769
|
|
Assets held for sale
|
|
Level 3
|
|
|
610
|
|
|
|
610
|
|
|
|
610
|
|
|
|
610
|
|
Other real estate owned
|
|
Level 3
|
|
|
548
|
|
|
|
548
|
|
|
|
1,788
|
|
|
|
1,788
|
|
Bank owned life insurance
|
|
Level 3
|
|
|
7,396
|
|
|
|
7,396
|
|
|
|
7,268
|
|
|
|
7,268
|
|
Accrued interest receivable
|
|
Level 2
|
|
|
2,657
|
|
|
|
2,657
|
|
|
|
2,600
|
|
|
|
2,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
Level 2
|
|
|
436,866
|
|
|
|
435,278
|
|
|
|
411,624
|
|
|
|
411,044
|
|
FHLB borrowings
|
|
Level 2
|
|
|
22,500
|
|
|
|
22,470
|
|
|
|
12,300
|
|
|
|
12,294
|
|
Trust preferred securities
|
|
Level 2
|
|
|
8,764
|
|
|
|
9,251
|
|
|
|
8,764
|
|
|
|
9,099
|
|
Other borrowings
|
|
Level 2
|
|
|
-
|
|
|
|
-
|
|
|
|
1,584
|
|
|
|
1,584
|
|
Accrued interest payable
|
|
Level 2
|
|
|
196
|
|
|
|
196
|
|
|
|
93
|
|
|
|
93
|
|
Note 12 – 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 three and nine months ended September 30, 2018 and 2017 (in thousands):
|
|
Commercial
|
|
|
Mortgage
|
|
|
|
|
|
Consolidated
|
|
|
|
Banking
|
|
|
Banking
|
|
|
Eliminations
|
|
|
Totals
|
|
Three Months Ended September 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
$
|
5,387
|
|
|
$
|
98
|
|
|
$
|
(5
|
)
|
|
$
|
5,480
|
|
Gain on sale of loans
|
|
|
-
|
|
|
|
1,679
|
|
|
|
-
|
|
|
|
1,679
|
|
Other revenues
|
|
|
609
|
|
|
|
186
|
|
|
|
(56
|
)
|
|
|
739
|
|
Total revenues
|
|
|
5,996
|
|
|
|
1,963
|
|
|
|
(61
|
)
|
|
|
7,898
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
1,047
|
|
|
|
5
|
|
|
|
(5
|
)
|
|
|
1,047
|
|
Salaries and benefits
|
|
|
2,080
|
|
|
|
848
|
|
|
|
-
|
|
|
|
2,928
|
|
Commissions
|
|
|
-
|
|
|
|
623
|
|
|
|
-
|
|
|
|
623
|
|
Other expenses
|
|
|
1,674
|
|
|
|
274
|
|
|
|
(56
|
)
|
|
|
1,892
|
|
Total operating expenses
|
|
|
4,801
|
|
|
|
1,750
|
|
|
|
(61
|
)
|
|
|
6,490
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
$
|
1,195
|
|
|
$
|
213
|
|
|
$
|
-
|
|
|
$
|
1,408
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
516,962
|
|
|
$
|
9,476
|
|
|
$
|
(14,119
|
)
|
|
$
|
512,319
|
|
|
|
Commercial
|
|
|
Mortgage
|
|
|
|
|
|
Consolidated
|
|
|
|
Banking
|
|
|
Banking
|
|
|
Eliminations
|
|
|
Totals
|
|
Three Months Ended September 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
$
|
4,313
|
|
|
$
|
72
|
|
|
$
|
(5
|
)
|
|
$
|
4,380
|
|
Gain on sale of loans
|
|
|
-
|
|
|
|
1,395
|
|
|
|
-
|
|
|
|
1,395
|
|
Other revenues
|
|
|
566
|
|
|
|
158
|
|
|
|
(41
|
)
|
|
|
683
|
|
Total revenues
|
|
|
4,879
|
|
|
|
1,625
|
|
|
|
(46
|
)
|
|
|
6,458
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
688
|
|
|
|
5
|
|
|
|
(5
|
)
|
|
|
688
|
|
Salaries and benefits
|
|
|
2,010
|
|
|
|
975
|
|
|
|
-
|
|
|
|
2,985
|
|
Commissions
|
|
|
-
|
|
|
|
431
|
|
|
|
-
|
|
|
|
431
|
|
Other expenses
|
|
|
1,775
|
|
|
|
241
|
|
|
|
(41
|
)
|
|
|
1,975
|
|
Total operating expenses
|
|
|
4,473
|
|
|
|
1,652
|
|
|
|
(46
|
)
|
|
|
6,079
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
$
|
406
|
|
|
$
|
(27
|
)
|
|
$
|
-
|
|
|
$
|
379
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
467,558
|
|
|
$
|
10,123
|
|
|
$
|
(12,975
|
)
|
|
$
|
464,706
|
|
|
|
Commercial
|
|
|
Mortgage
|
|
|
|
|
|
Consolidated
|
|
|
|
Banking
|
|
|
Banking
|
|
|
Eliminations
|
|
|
Totals
|
|
Nine Months Ended September 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
$
|
15,197
|
|
|
$
|
218
|
|
|
$
|
(6
|
)
|
|
$
|
15,409
|
|
Gain on sale of loans
|
|
|
-
|
|
|
|
4,131
|
|
|
|
-
|
|
|
|
4,131
|
|
Other revenues
|
|
|
1,756
|
|
|
|
492
|
|
|
|
(155
|
)
|
|
|
2,093
|
|
Total revenues
|
|
|
16,953
|
|
|
|
4,841
|
|
|
|
(161
|
)
|
|
|
21,633
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
2,737
|
|
|
|
6
|
|
|
|
(6
|
)
|
|
|
2,737
|
|
Salaries and benefits
|
|
|
6,344
|
|
|
|
2,499
|
|
|
|
-
|
|
|
|
8,843
|
|
Commissions
|
|
|
-
|
|
|
|
1,426
|
|
|
|
-
|
|
|
|
1,426
|
|
Other expenses
|
|
|
5,277
|
|
|
|
819
|
|
|
|
(155
|
)
|
|
|
5,941
|
|
Total operating expenses
|
|
|
14,358
|
|
|
|
4,750
|
|
|
|
(161
|
)
|
|
|
18,947
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
$
|
2,595
|
|
|
$
|
91
|
|
|
$
|
-
|
|
|
$
|
2,686
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
516,962
|
|
|
$
|
9,476
|
|
|
$
|
(14,119
|
)
|
|
$
|
512,319
|
|
|
|
Commercial
|
|
|
Mortgage
|
|
|
|
|
|
Consolidated
|
|
|
|
Banking
|
|
|
Banking
|
|
|
Eliminations
|
|
|
Totals
|
|
Nine Months Ended September 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
$
|
12,513
|
|
|
$
|
205
|
|
|
$
|
(15
|
)
|
|
$
|
12,703
|
|
Gain on sale of loans
|
|
|
-
|
|
|
|
4,195
|
|
|
|
-
|
|
|
|
4,195
|
|
Other revenues
|
|
|
1,680
|
|
|
|
503
|
|
|
|
(137
|
)
|
|
|
2,046
|
|
Total revenues
|
|
|
14,193
|
|
|
|
4,903
|
|
|
|
(152
|
)
|
|
|
18,944
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
1,997
|
|
|
|
15
|
|
|
|
(15
|
)
|
|
|
1,997
|
|
Salaries and benefits
|
|
|
6,090
|
|
|
|
2,952
|
|
|
|
-
|
|
|
|
9,042
|
|
Commissions
|
|
|
-
|
|
|
|
1,180
|
|
|
|
-
|
|
|
|
1,180
|
|
Other expenses
|
|
|
4,914
|
|
|
|
689
|
|
|
|
(137
|
)
|
|
|
5,466
|
|
Total operating expenses
|
|
|
13,001
|
|
|
|
4,836
|
|
|
|
(152
|
)
|
|
|
17,685
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
$
|
1,192
|
|
|
$
|
67
|
|
|
$
|
-
|
|
|
$
|
1,259
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
467,558
|
|
|
$
|
10,123
|
|
|
$
|
(12,975
|
)
|
|
$
|
464,706
|
|
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 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 Warrant was immediately exercisable and
expires ten years from the issuance date.
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.
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.
During the first quarter of 2018, the Company
used the proceeds from the subordinated note issuance to redeem the remaining 5,027 shares ($5,027,000 aggregate liquidation value)
of preferred stock plus accrued dividends of $56,554.
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.
Accumulated Other Comprehensive Loss
The following table presents the cumulative
balances of the components of accumulated other comprehensive loss, net of deferred taxes of $304,000 and $120,000 as of September
30, 2018 and December 31, 2017 (in thousands):
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Net unrealized losses on securities
|
|
$
|
(1,088
|
)
|
|
$
|
(391
|
)
|
Net unrecognized losses on defined benefit plan
|
|
|
(56
|
)
|
|
|
(61
|
)
|
Total other comprehensive loss
|
|
$
|
(1,144
|
)
|
|
$
|
(452
|
)
|
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 are 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 Federal Deposit Insurance Corporation (“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 September
30, 2018 and December 31, 2017 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital (to risk-weighted assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Village Bank
|
|
$
|
48,656
|
|
|
|
12.22
|
%
|
|
$
|
31,866
|
|
|
|
8.00
|
%
|
|
$
|
39,833
|
|
|
|
10.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 capital (to risk-weighted assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Village Bank
|
|
|
45,525
|
|
|
|
11.43
|
%
|
|
|
23,900
|
|
|
|
6.00
|
%
|
|
|
31,866
|
|
|
|
8.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leverage ratio (Tier 1 capital to average assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Village Bank
|
|
|
45,525
|
|
|
|
8.96
|
%
|
|
|
20,429
|
|
|
|
4.00
|
%
|
|
|
24,537
|
|
|
|
5.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common equity tier 1 (to risk-weighted assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Village Bank
|
|
|
45,525
|
|
|
|
11.43
|
%
|
|
|
17,925
|
|
|
|
4.50
|
%
|
|
|
25,891
|
|
|
|
6.50
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
%
|
|
|
21,201
|
|
|
|
6.00
|
%
|
|
|
26,268
|
|
|
|
8.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
%
|
Note 14 – 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 non-performance 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.
The Company had outstanding the following
approximate off-balance-sheet financial instruments whose contract amounts represent credit risk at the dates indicated (in thousands):
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Undisbursed credit lines
|
|
$
|
60,886
|
|
|
$
|
65,495
|
|
Commitments to extend or originate credit
|
|
|
14,819
|
|
|
|
13,888
|
|
Standby letters of credit
|
|
|
4,085
|
|
|
|
4,615
|
|
|
|
|
|
|
|
|
|
|
Total commitments to extend credit
|
|
$
|
79,790
|
|
|
$
|
83,998
|
|
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.
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.
Concentrations of credit risk
–
All of 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 5. The distribution of commitments to extend credit
approximates the distribution of loans outstanding.
Note 15 – Income Taxes
The net deferred tax asset is included
in other assets on the 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 the 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.
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 non-performing assets,
which was the primary cause of the Company’s losses, has steadily decreased.
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.
There was $280,000 and $505,000 in income
tax expense recorded for the three and nine months ended September 30, 2018, respectively, compared to $106,000 and $333,000 for
the three and nine months ended September 30, 2017, respectively.
The net operating losses available to offset
future taxable income amounted to $20,991,000 at September 30, 2018 and begin expiring in 2028.
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 $80,000 and $241,000 for the three and nine months ended September
30, 2018, respectively, compared to $85,000 and $256,000 for the three and nine months ended September 30, 2017, respectively.
Note 16 – Recent accounting
pronouncements
In February 2016, the Financial Accounting
Standards Board (“FASB”) issued ASU No. 2016-02, “Leases (Topic 842).” Among other things, in the amendments
in ASU 2016-02, lessees will be required to recognize the following for all leases (with the exception of short-term leases) at
the commencement date: (1) a lease liability, which is a lessee‘s obligation to make lease payments arising from a lease,
measured on a discounted basis; and (2) a right-of-use asset, which is an asset that represents the lessee’s right to use,
or control the use of, a specified asset for the lease term. Under the new guidance, lessor accounting is largely unchanged. Certain
targeted improvements were made to align, where necessary, lessor accounting with the lessee accounting model and Topic 606, Revenue
from Contracts with Customers. The amendments in this ASU are effective for fiscal years beginning after December 15, 2018, including
interim periods within those fiscal years. Early application is permitted upon issuance. Lessees (for capital and operating leases)
and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective transition approach for
leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements.
The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative
period presented. Lessees and lessors may not apply a full retrospective transition approach. The FASB made subsequent amendments
to Topic 842 in July 2018 through ASU 2018-10 (“Codification Improvements to Topic 842, Leases.”) and ASU 2018-11 (“Leases
(Topic 842): Targeted Improvements.”) Among these amendments is the provision in ASU 2018-11 that provides entities with
an additional (and optional) transition method to adopt the new leases standard. Under this new transition method, an entity initially
applies the new leases standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained
earnings in the period of adoption. Consequently, an entity’s reporting for the comparative periods presented in the financial
statements in which it adopts the new leases standard will continue to be in accordance with current GAAP (Topic 840, Leases).
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 June 2016, the FASB issued ASU No. 2016-13,
“Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” The
amendments in this ASU, among other things, require the measurement of all expected credit losses for financial assets held at
the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions
and other organizations will now use forward-looking information to better inform their credit loss estimates. Many of the loss
estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the
full amount of expected credit losses. In addition, the ASU amends the accounting for credit losses on available-for-sale debt
securities and purchased financial assets with credit deterioration. 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 March 2017, the FASB issued ASU 2017-08,
“Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20), Premium Amortization on Purchased Callable Debt
Securities.” The amendments in this ASU shorten the amortization period for certain callable debt securities purchased at
a premium. Upon adoption of the standard, premiums on these qualifying callable debt securities will be amortized to the earliest
call date. Discounts on purchased debt securities will continue to be accreted to maturity. The amendments are effective for fiscal
years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted, including
adoption in an interim period. Upon transition, the Company is required to apply the guidance on a modified retrospective basis,
with a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption and provide the disclosures
required for a change in accounting principle. 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 consolidated financial statements.
In June 2018, the FASB issued ASU 2018-07,
“Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting.” The amendments
expand the scope of Topic 718 to include share-based payments issued to non-employees for goods or services, which were previously
excluded. The amendments will align the accounting for share-based payments to nonemployees and employees more similarly. The amendments
are effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption
is permitted. The Company does not expect the adoption of ASU 2018-07 to have a material impact on its consolidated financial statements.