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EX-32.1 - EXHIBIT 32.1 - EAGLE FINANCIAL SERVICES INC | efsi-20160630exhibit321.htm |
EX-31.2 - EXHIBIT 31.2 - EAGLE FINANCIAL SERVICES INC | efsi-20160630exhibit312.htm |
EX-31.1 - EXHIBIT 31.1 - EAGLE FINANCIAL SERVICES INC | efsi-20160630exhibit311.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
ý | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2016
or
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 0-20146
EAGLE FINANCIAL SERVICES, INC.
(Exact name of registrant as specified in its charter)
Virginia | 54-1601306 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
2 East Main Street P.O. Box 391 Berryville, Virginia | 22611 | |
(Address of principal executive offices) | (Zip Code) |
(540) 955-2510
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Date File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this Chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer | ¨ | Accelerated filer | ¨ | |||
Non-accelerated filer | ¨ | (Do not check if a smaller reporting company.) | Smaller reporting company | ý |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No ý
The number of shares of the registrant’s Common Stock ($2.50 par value) outstanding as of August 3, 2016 was 3,548,574.
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION | ||
Item 1. | Financial Statements: | |
Consolidated Balance Sheets at June 30, 2016 and December 31, 2015 | ||
Consolidated Statements of Income for the Three and Six Months Ended June 30, 2016 and 2015 | ||
Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2016 and 2015 | ||
Consolidated Statements of Changes in Shareholders’ Equity for the Six Months Ended June 30, 2016 and 2015 | ||
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2016 and 2015 | ||
Notes to Consolidated Financial Statements | ||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | |
Item 3. | Quantitative and Qualitative Disclosures about Market Risk | |
Item 4. | Controls and Procedures | |
PART II - OTHER INFORMATION | ||
Item 1. | Legal Proceedings | |
Item 1A. | Risk Factors | |
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | |
Item 3. | Defaults Upon Senior Securities | |
Item 4. | Mine Safety Disclosures | |
Item 5. | Other Information | |
Item 6. | Exhibits |
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
EAGLE FINANCIAL SERVICES, INC.
Consolidated Balance Sheets
(dollars in thousands, except per share amounts)
June 30, 2016 | December 31, 2015 | ||||||
(Unaudited) | |||||||
Assets | |||||||
Cash and due from banks | $ | 9,473 | $ | 11,082 | |||
Interest-bearing deposits with other institutions | 20,121 | 12,139 | |||||
Total cash and cash equivalents | 29,594 | 23,221 | |||||
Securities available for sale, at fair value | 102,782 | 105,823 | |||||
Restricted investments | 1,918 | 1,896 | |||||
Loans | 517,407 | 495,573 | |||||
Allowance for loan losses | (4,973 | ) | (4,959 | ) | |||
Net Loans | 512,434 | 490,614 | |||||
Bank premises and equipment, net | 20,495 | 20,964 | |||||
Other real estate owned, net of allowance | 524 | 571 | |||||
Other assets | 9,641 | 10,183 | |||||
Total assets | $ | 677,388 | $ | 653,272 | |||
Liabilities and Shareholders’ Equity | |||||||
Liabilities | |||||||
Deposits: | |||||||
Noninterest bearing demand deposits | $ | 197,524 | $ | 186,133 | |||
Savings and interest bearing demand deposits | 284,572 | 272,214 | |||||
Time deposits | 89,133 | 92,371 | |||||
Total deposits | $ | 571,229 | $ | 550,718 | |||
Federal Home Loan Bank advances | 20,000 | 20,000 | |||||
Other liabilities | 4,764 | 4,333 | |||||
Total liabilities | $ | 595,993 | $ | 575,051 | |||
Shareholders’ Equity | |||||||
Preferred stock, $10 par value; 500,000 shares authorized and unissued | $ | — | $ | — | |||
Common stock, $2.50 par value; authorized 10,000,000 shares; issued and outstanding 2016, 3,546,802 including 19,901 shares of unvested restricted stock; issued and outstanding 2015, 3,517,648 including 14,401 shares of unvested restricted stock | 8,817 | 8,758 | |||||
Surplus | 14,129 | 13,730 | |||||
Retained earnings | 56,405 | 54,682 | |||||
Accumulated other comprehensive income | 2,044 | 1,051 | |||||
Total shareholders’ equity | $ | 81,395 | $ | 78,221 | |||
Total liabilities and shareholders’ equity | $ | 677,388 | $ | 653,272 |
See Notes to Consolidated Financial Statements
1
EAGLE FINANCIAL SERVICES, INC.
Consolidated Statements of Income (Unaudited)
(dollars in thousands, except per share amounts)
Three Months Ended | Six Months Ended | ||||||||||||||
June 30, | June 30, | ||||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||
Interest and Dividend Income | |||||||||||||||
Interest and fees on loans | $ | 5,883 | $ | 5,437 | $ | 11,592 | $ | 10,738 | |||||||
Interest and dividends on securities available for sale: | |||||||||||||||
Taxable interest income | 482 | 406 | 922 | 782 | |||||||||||
Interest income exempt from federal income taxes | 232 | 246 | 465 | 489 | |||||||||||
Dividends | 23 | 26 | 46 | 33 | |||||||||||
Interest on deposits with other institutions | 22 | 6 | 38 | 17 | |||||||||||
Total interest and dividend income | $ | 6,642 | $ | 6,121 | $ | 13,063 | $ | 12,059 | |||||||
Interest Expense | |||||||||||||||
Interest on deposits | 194 | 182 | 395 | 366 | |||||||||||
Interest on federal funds purchased and securities sold under agreements to repurchase | — | 1 | — | 1 | |||||||||||
Interest on Federal Home Loan Bank advances | 64 | 66 | 129 | 200 | |||||||||||
Interest on trust preferred capital notes | — | 33 | — | 66 | |||||||||||
Interest on interest rate swap | 39 | 45 | 80 | 91 | |||||||||||
Total interest expense | $ | 297 | $ | 327 | $ | 604 | $ | 724 | |||||||
Net interest income | $ | 6,345 | $ | 5,794 | $ | 12,459 | $ | 11,335 | |||||||
Provision For Loan Losses | — | 300 | 79 | 433 | |||||||||||
Net interest income after provision for loan losses | $ | 6,345 | $ | 5,494 | $ | 12,380 | $ | 10,902 | |||||||
Noninterest Income | |||||||||||||||
Income from fiduciary activities | $ | 380 | $ | 356 | $ | 708 | $ | 784 | |||||||
Service charges on deposit accounts | 290 | 307 | 580 | 597 | |||||||||||
Other service charges and fees | 992 | 930 | 1,821 | 1,686 | |||||||||||
Gain on sale of securities | — | 22 | 86 | 96 | |||||||||||
Other operating income | 76 | 29 | 178 | 110 | |||||||||||
Total noninterest income | $ | 1,738 | $ | 1,644 | $ | 3,373 | $ | 3,273 | |||||||
Noninterest Expenses | |||||||||||||||
Salaries and employee benefits | $ | 3,313 | $ | 3,112 | $ | 6,577 | $ | 6,107 | |||||||
Occupancy expenses | 367 | 436 | 775 | 782 | |||||||||||
Equipment expenses | 355 | 260 | 665 | 406 | |||||||||||
Advertising and marketing expenses | 185 | 184 | 347 | 303 | |||||||||||
Stationery and supplies | 51 | 61 | 101 | 112 | |||||||||||
ATM network fees | 259 | 191 | 436 | 349 | |||||||||||
Other real estate owned expense | 2 | 14 | 2 | 20 | |||||||||||
Loss on valuation adjustments and sales of other real estate owned | 47 | 73 | 47 | 92 | |||||||||||
FDIC assessment | 99 | 103 | 204 | 211 | |||||||||||
Computer software expense | 131 | 192 | 267 | 413 | |||||||||||
Bank franchise tax | 125 | 126 | 251 | 243 | |||||||||||
Professional fees | 281 | 261 | 509 | 503 | |||||||||||
Cost to terminate operating lease | — | 520 | — | 520 | |||||||||||
Other operating expenses | 617 | 598 | 1,205 | 1,128 | |||||||||||
Total noninterest expenses | $ | 5,832 | $ | 6,131 | $ | 11,386 | $ | 11,189 | |||||||
Income before income taxes | $ | 2,251 | $ | 1,007 | $ | 4,367 | $ | 2,986 | |||||||
Income Tax Expense | 641 | 209 | 1,232 | 733 | |||||||||||
Net income | $ | 1,610 | $ | 798 | $ | 3,135 | $ | 2,253 | |||||||
Earnings Per Share | |||||||||||||||
Net income per common share, basic | $ | 0.46 | $ | 0.23 | $ | 0.89 | $ | 0.65 | |||||||
Net income per common share, diluted | $ | 0.46 | $ | 0.23 | $ | 0.89 | $ | 0.65 |
See Notes to Consolidated Financial Statements
2
EAGLE FINANCIAL SERVICES, INC.
Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)
(dollars in thousands)
Three Months Ended | Six Months Ended | ||||||||||||||
June 30, | June 30, | ||||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||
Net income | $ | 1,610 | $ | 798 | $ | 3,135 | $ | 2,253 | |||||||
Other comprehensive income (loss): | |||||||||||||||
Unrealized gain (loss) on available for sale securities net of reclassification adjustments, net of deferred income tax of $222 and ($523) for the three months ended, respectively and $511 and ($317) for the six months ended, respectively | 430 | (1,012 | ) | 993 | (615 | ) | |||||||||
Change in fair value of interest rate swap, net of deferred income tax of $0 and $12 for the three months ended, respectively and $0 and $18 for the six months ended, respectively | — | 23 | — | 34 | |||||||||||
Total other comprehensive income (loss) | 430 | (989 | ) | 993 | (581 | ) | |||||||||
Total comprehensive income (loss) | $ | 2,040 | $ | (191 | ) | $ | 4,128 | $ | 1,672 |
See Notes to Consolidated Financial Statements
3
EAGLE FINANCIAL SERVICES, INC.
Consolidated Statements of Changes in Shareholders’ Equity (Unaudited)
(dollars in thousands, except share amounts)
Common Stock | Surplus | Retained Earnings | Accumulated Other Comprehensive Income | Total | |||||||||||||||
Balance, December 31, 2014 | $ | 8,621 | $ | 12,618 | $ | 50,578 | $ | 1,315 | $ | 73,132 | |||||||||
Net income | 2,253 | 2,253 | |||||||||||||||||
Other comprehensive (loss) | (581 | ) | (581 | ) | |||||||||||||||
Vesting of restricted stock awards, stock incentive plan (6,250 shares) | 16 | (16 | ) | — | |||||||||||||||
Income tax benefit on vesting of restricted stock | 5 | 5 | |||||||||||||||||
Stock-based compensation expense | 132 | 132 | |||||||||||||||||
Issuance of common stock, dividend investment plan (16,610 shares) | 42 | 332 | 374 | ||||||||||||||||
Issuance of common stock, employee benefit plan (875 shares) | 2 | 18 | 20 | ||||||||||||||||
Dividends declared ($0.40 per share) | (1,392 | ) | (1,392 | ) | |||||||||||||||
Balance, June 30, 2015 | $ | 8,681 | $ | 13,089 | $ | 51,439 | $ | 734 | $ | 73,943 | |||||||||
Balance, December 31, 2015 | $ | 8,758 | $ | 13,730 | $ | 54,682 | $ | 1,051 | 78,221 | ||||||||||
Net income | 3,135 | 3,135 | |||||||||||||||||
Other comprehensive income | 993 | 993 | |||||||||||||||||
Vesting of restricted stock awards, stock incentive plan (8,196 shares) | 20 | (20 | ) | — | |||||||||||||||
Stock-based compensation expense | 107 | 107 | |||||||||||||||||
Issuance of common stock, dividend investment plan (14,810 shares) | 37 | 298 | 335 | ||||||||||||||||
Issuance of common stock, employee benefit plan (648 shares) | 2 | 14 | 16 | ||||||||||||||||
Dividends declared ($0.40 per share) | (1,412 | ) | (1,412 | ) | |||||||||||||||
Balance, June 30, 2016 | $ | 8,817 | $ | 14,129 | $ | 56,405 | $ | 2,044 | $ | 81,395 |
See Notes to Consolidated Financial Statements
4
EAGLE FINANCIAL SERVICES, INC.
Consolidated Statements of Cash Flows (Unaudited)
(dollars in thousands)
Six Months Ended | |||||||
June 30, | |||||||
2016 | 2015 | ||||||
Cash Flows from Operating Activities | |||||||
Net income | $ | 3,135 | $ | 2,253 | |||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Depreciation | 464 | 398 | |||||
Amortization of intangible and other assets | 86 | 110 | |||||
Provision for loan losses | 79 | 433 | |||||
Loss on valuation adjustments and sales of other real estate owned | 47 | 92 | |||||
(Gain) on the sale of premises and equipment | — | (5 | ) | ||||
Loss on the sale of repossessed assets | — | 1 | |||||
(Gain) on the sale of securities | (86 | ) | (96 | ) | |||
Fair value adjustment on derivative contract | (71 | ) | — | ||||
Stock-based compensation expense | 107 | 132 | |||||
Premium amortization on securities, net | 115 | 104 | |||||
Changes in assets and liabilities: | |||||||
Decrease (increase) in other assets | 60 | (1,306 | ) | ||||
Increase (decrease) in other liabilities | 502 | (574 | ) | ||||
Net cash provided by operating activities | $ | 4,438 | $ | 1,542 | |||
Cash Flows from Investing Activities | |||||||
Proceeds from maturities, calls, and principal payments of securities available for sale | $ | 12,593 | $ | 5,131 | |||
Proceeds from the sale of securities available for sale | 4,314 | 2,324 | |||||
Purchases of securities available for sale | (12,391 | ) | (19,966 | ) | |||
Proceeds from the sale of restricted investments | — | 900 | |||||
Purchases of restricted investments | (22 | ) | (38 | ) | |||
Purchases of bank premises and equipment | (105 | ) | (2,188 | ) | |||
Proceeds from the sale of other real estate owned | — | 310 | |||||
Proceeds from the sale of bank premises and equipment | — | 5 | |||||
Proceeds from the sale of repossessed assets | 1 | 8 | |||||
Net (increase) in loans | (21,905 | ) | (16,749 | ) | |||
Net cash (used in) investing activities | $ | (17,515 | ) | $ | (30,263 | ) | |
Cash Flows from Financing Activities | |||||||
Net increase in noninterest bearing demand deposits, savings, and interest bearing demand deposits | $ | 23,749 | $ | 20,286 | |||
Net (decrease) in time deposits | (3,238 | ) | (1,315 | ) | |||
Net increase in federal funds purchased | — | 8,329 | |||||
Net (decrease) in Federal Home Loan Bank advances | — | (20,000 | ) | ||||
Issuance of common stock, employee benefit plan | 16 | 20 | |||||
Cash dividends paid | (1,077 | ) | (1,018 | ) | |||
Net cash provided by financing activities | $ | 19,450 | $ | 6,302 |
5
EAGLE FINANCIAL SERVICES, INC.
Consolidated Statements of Cash Flows (Unaudited)
(continued)
Six Months Ended | |||||||
June 30, | |||||||
2016 | 2015 | ||||||
Increase (decrease) in cash and cash equivalents | $ | 6,373 | $ | (22,419 | ) | ||
Cash and Cash Equivalents | |||||||
Beginning | 23,221 | 34,564 | |||||
Ending | $ | 29,594 | $ | 12,145 | |||
Supplemental Disclosures of Cash Flow Information | |||||||
Cash payments for: | |||||||
Interest | $ | 612 | $ | 812 | |||
Income taxes | $ | — | $ | 583 | |||
Supplemental Schedule of Noncash Investing and Financing Activities: | |||||||
Unrealized gain (loss) on securities available for sale | $ | 1,504 | $ | (932 | ) | ||
Change in fair value of interest rate swap | $ | — | $ | 53 | |||
Other real estate and repossessed assets acquired in settlement of loans | $ | 6 | $ | 564 | |||
Issuance of common stock, dividend investment plan | $ | 335 | $ | 374 |
6
EAGLE FINANCIAL SERVICES, INC.
Notes to Consolidated Financial Statements (Unaudited)
June 30, 2016
NOTE 1. General
The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America.
In the opinion of management, the accompanying financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial position at June 30, 2016 and December 31, 2015, the results of operations for the three and six months ended June 30, 2016 and 2015, and cash flows for the six months ended June 30, 2016 and 2015. The results of operations for the three and six months ended June 30, 2016 are not necessarily indicative of the results to be expected for the full year. These financial statements should be read in conjunction with the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 (the “2015 Form 10-K”).
Eagle Financial Services, Inc. (the "Company") owns 100% of Bank of Clarke County (the “Bank”). The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary. All significant intercompany accounts and transactions between the Company and the Bank have been eliminated.
Certain amounts in the consolidated financial statements have been reclassified to conform to current year presentations. None of the reclassifications were of a material nature.
NOTE 2. Stock-Based Compensation Plan
During 2014, the Company’s shareholders approved a stock incentive plan which allows key employees and directors to increase their personal financial interest in the Company. This plan permits the issuance of incentive stock options and non-qualified stock options and the award of stock appreciation rights, common stock, restricted stock, and phantom stock. The plan authorizes the issuance of up to 500,000 shares of common stock.
The Company periodically grants Restricted Stock to its directors and executive officers. Restricted Stock provides grantees with rights to shares of common stock upon completion of a service period or achievement of Company performance measures. During the restriction period, all shares are considered outstanding and dividends are paid to the grantee. In general, outside directors are periodically granted restricted shares which vest over a period of less than 9 months. Beginning during 2006, executive officers were granted restricted shares which vest over a 3 year service period and restricted shares which vest based on meeting annual performance measures over a 1 year period. The Company recognizes compensation expense over the restricted period. As of June 30, 2016, there was $249 thousand of unrecognized compensation cost related to nonvested restricted stock.
The following table presents Restricted Stock activity for the six months ended June 30, 2016 and 2015:
Six Months Ended | |||||||||||||
June 30, | |||||||||||||
2016 | 2015 | ||||||||||||
Shares | Weighted Average Grant Date Fair Value | Shares | Weighted Average Grant Date Fair Value | ||||||||||
Nonvested, beginning of period | 14,401 | $ | 22.98 | 15,151 | $ | 22.27 | |||||||
Granted | 14,650 | 23.07 | 14,650 | 23.85 | |||||||||
Vested | (8,196 | ) | 22.86 | (6,250 | ) | 20.95 | |||||||
Forfeited | (954 | ) | 23.00 | — | — | ||||||||
Nonvested, end of period | 19,901 | 23.09 | 23,551 | 23.61 |
7
NOTE 3. Earnings Per Common Share
Basic earnings per share represents income available to common shareholders divided by the weighted average number of common shares outstanding during the period. Nonvested restricted shares are included in the weighted average number of common shares used to compute basic earnings per share because of dividend participation and voting rights. Diluted earnings per share reflects additional common shares that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustment to income that would result from the assumed issuance. The number of potential common shares is determined using the treasury method.
The following table shows the weighted average number of shares used in computing earnings per share for the three and six months ended June 30, 2016 and 2015 and the effect on the weighted average number of shares of dilutive potential common stock. During 2016 and 2015, there were no potentially dilutive securities outstanding.
Three Months Ended | Six Months Ended | ||||||||||
June 30, | June 30, | ||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||
Weighted average number of common shares outstanding used to calculate basic earnings per share | 3,539,876 | 3,487,215 | 3,535,505 | 3,482,259 | |||||||
Effect of dilutive common stock | — | — | — | — | |||||||
Weighted average number of common shares outstanding used to calculate diluted earnings per share | 3,539,876 | 3,487,215 | 3,535,505 | 3,482,259 |
NOTE 4. Securities
Amortized costs and fair values of securities available for sale at June 30, 2016 and December 31, 2015 were as follows:
Amortized Cost | Gross Unrealized Gains | Gross Unrealized (Losses) | Fair Value | ||||||||||||
June 30, 2016 | |||||||||||||||
(in thousands) | |||||||||||||||
Obligations of U.S. government corporations and agencies | $ | 29,883 | $ | 1,016 | $ | — | $ | 30,899 | |||||||
Mortgage-backed securities | 29,371 | 523 | — | 29,894 | |||||||||||
Obligations of states and political subdivisions | 40,489 | 1,500 | — | 41,989 | |||||||||||
$ | 99,743 | $ | 3,039 | $ | — | $ | 102,782 | ||||||||
December 31, 2015 | |||||||||||||||
(in thousands) | |||||||||||||||
Obligations of U.S. government corporations and agencies | $ | 37,348 | $ | 475 | $ | (158 | ) | $ | 37,665 | ||||||
Mortgage-backed securities | 28,858 | 293 | (220 | ) | 28,931 | ||||||||||
Obligations of states and political subdivisions | 38,082 | 1,169 | (24 | ) | 39,227 | ||||||||||
$ | 104,288 | $ | 1,937 | $ | (402 | ) | $ | 105,823 |
During the six months ended June 30, 2016, the Company received proceeds of $4.3 million on sales of available for sale securities for a gross gain of $86 thousand. There were no losses on the sale of available for sale securities during the six months ended June 30, 2016. During the six months ended June 30, 2015, the Company sold $2.3 million of available for sale securities for a gross gain of $96 thousand. There were no losses on the sale of available for sale securities during the six months ended June 30, 2015.
8
The fair value and gross unrealized losses for securities available for sale, totaled by the length of time that individual securities have been in a continuous gross unrealized loss position, at June 30, 2016 and December 31, 2015 were as follows:
Less than 12 months | 12 months or more | Total | |||||||||||||||||||||
Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | ||||||||||||||||||
June 30, 2016 | |||||||||||||||||||||||
(in thousands) | |||||||||||||||||||||||
Obligations of U.S. government corporations and agencies | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||
Mortgage-backed securities | — | — | — | — | — | — | |||||||||||||||||
Obligations of states and political subdivisions | — | — | — | — | — | — | |||||||||||||||||
$ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||
December 31, 2015 | |||||||||||||||||||||||
(in thousands) | |||||||||||||||||||||||
Obligations of U.S. government corporations and agencies | $ | 21,296 | $ | 143 | $ | 1,985 | $ | 15 | $ | 23,281 | $ | 158 | |||||||||||
Mortgage-backed securities | 18,563 | 194 | 1,105 | 26 | 19,668 | 220 | |||||||||||||||||
Obligations of states and political subdivisions | 3,414 | 22 | 497 | 2 | 3,911 | 24 | |||||||||||||||||
$ | 43,273 | $ | 359 | $ | 3,587 | $ | 43 | $ | 46,860 | $ | 402 |
Gross unrealized losses on available for sale securities included zero (0) and forty-five (45) debt securities at June 30, 2016 and December 31, 2015, respectively. The Company evaluates securities for other-than-temporary impairment on at least a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to the length of time and the amount of an unrealized loss, the financial condition of the issuer, and the intent and ability of the Company to retain its investment in the issuer long enough to allow for an anticipated recovery in fair value. The fair value of a security reflects its liquidity as compared to similar instruments, current market rates on similar instruments, and the creditworthiness of the issuer. Absent any change in the liquidity of a security or the creditworthiness of the issuer, prices will decline as market rates rise and vice-versa. The primary cause of the unrealized losses at December 31, 2015 was changes in market interest rates. Since the losses can be primarily attributed to changes in market interest rates and not expected cash flows or an issuer’s financial condition, the unrealized losses were deemed to be temporary. The continuing economic recession involving housing, liquidity and credit were also a contributing factor to the unrealized losses on these securities at December 31, 2015. The Company’s mortgage-backed securities are issued by U.S. government agencies, which guarantee payments to investors regardless of the status of the underlying mortgages. The Company monitors the financial condition of these issuers continuously and will record other-than-temporary impairment if the recovery of value is unlikely.
The Company’s securities are exposed to various risks, such as interest rate, market, currency and credit risks. Due to the level of risk associated with certain securities and the level of uncertainty related to changes in the value of securities, it is at least reasonably possible that changes in risks in the near term would materially affect securities reported in the financial statements. In addition, recent economic uncertainty and market events have led to unprecedented volatility in currency, commodity, credit and equity markets culminating in failures of some banking and financial services firms and government intervention to solidify others. These events underscore the level of investment risk associated with the current economic environment, and accordingly the level of risk in the Company’s securities.
Securities having a carrying value of $2.9 million at June 30, 2016 were pledged for various purposes required by law.
9
The composition of restricted investments at June 30, 2016 and December 31, 2015 was as follows:
June 30, 2016 | December 31, 2015 | ||||||
(in thousands) | |||||||
Federal Reserve Bank Stock | $ | 344 | $ | 344 | |||
Federal Home Loan Bank Stock | 1,434 | 1,412 | |||||
Community Bankers’ Bank Stock | 140 | 140 | |||||
$ | 1,918 | $ | 1,896 |
NOTE 5. Allowance for Loan Losses
Changes in the allowance for loan losses for the six months ended June 30, 2016 and 2015 and the year ended December 31, 2015 were as follows:
Six Months Ended | Year Ended | Six Months Ended | |||||||||
June 30, | December 31, | June 30, | |||||||||
2016 | 2015 | 2015 | |||||||||
(in thousands) | |||||||||||
Balance, beginning | $ | 4,959 | $ | 5,080 | $ | 5,080 | |||||
Provision for (recovery of) loan losses | 79 | (227 | ) | 433 | |||||||
Recoveries added to the allowance | 90 | 562 | 343 | ||||||||
Loan losses charged to the allowance | (155 | ) | (456 | ) | (320 | ) | |||||
Balance, ending | $ | 4,973 | $ | 4,959 | $ | 5,536 |
Nonaccrual and past due loans by class at June 30, 2016 and December 31, 2015 were as follows:
June 30, 2016 | |||||||||||||||||||||||||||||||
(in thousands) | |||||||||||||||||||||||||||||||
30 - 59 Days Past Due | 60 - 89 Days Past Due | 90 or More Days Past Due | Total Past Due | Current | Total Loans | 90 or More Days Past Due Still Accruing | Nonaccrual Loans | ||||||||||||||||||||||||
Commercial - Non Real Estate: | |||||||||||||||||||||||||||||||
Commercial & Industrial | $ | 287 | $ | 333 | $ | — | $ | 620 | $ | 29,674 | $ | 30,294 | $ | — | $ | 114 | |||||||||||||||
Commercial Real Estate: | |||||||||||||||||||||||||||||||
Owner Occupied | 451 | 445 | — | 896 | 113,025 | 113,921 | — | 1,040 | |||||||||||||||||||||||
Non-owner occupied | — | 575 | — | 575 | 87,092 | 87,667 | — | 913 | |||||||||||||||||||||||
Construction and Farmland: | |||||||||||||||||||||||||||||||
Residential | 490 | — | — | 490 | 8,367 | 8,857 | — | — | |||||||||||||||||||||||
Commercial | 2,093 | — | — | 2,093 | 28,788 | 30,881 | — | — | |||||||||||||||||||||||
Consumer: | |||||||||||||||||||||||||||||||
Installment | 35 | 8 | 5 | 48 | 13,313 | 13,361 | 5 | — | |||||||||||||||||||||||
Residential: | |||||||||||||||||||||||||||||||
Equity Lines | 101 | 18 | — | 119 | 31,141 | 31,260 | — | 142 | |||||||||||||||||||||||
Single family | 959 | 4,367 | 1,249 | 6,575 | 187,668 | 194,243 | 28 | 1,769 | |||||||||||||||||||||||
Multifamily | — | — | — | — | 3,835 | 3,835 | — | — | |||||||||||||||||||||||
All Other Loans | — | — | — | — | 3,088 | 3,088 | — | — | |||||||||||||||||||||||
Total | $ | 4,416 | $ | 5,746 | $ | 1,254 | $ | 11,416 | $ | 505,991 | $ | 517,407 | $ | 33 | $ | 3,978 |
10
December 31, 2015 | |||||||||||||||||||||||||||||||
(in thousands) | |||||||||||||||||||||||||||||||
30 - 59 Days Past Due | 60 - 89 Days Past Due | 90 or More Days Past Due | Total Past Due | Current | Total Loans | 90 or More Past Due Still Accruing | Nonaccrual Loans | ||||||||||||||||||||||||
Commercial - Non Real Estate: | |||||||||||||||||||||||||||||||
Commercial & Industrial | $ | 1 | $ | — | $ | — | $ | 1 | $ | 29,365 | $ | 29,366 | $ | — | $ | 475 | |||||||||||||||
Commercial Real Estate: | |||||||||||||||||||||||||||||||
Owner Occupied | 623 | 142 | — | 765 | 108,942 | 109,707 | — | 1,614 | |||||||||||||||||||||||
Non-owner occupied | — | 55 | 746 | 801 | 64,664 | 65,465 | — | 948 | |||||||||||||||||||||||
Construction and Farmland: | |||||||||||||||||||||||||||||||
Residential | 50 | — | — | 50 | 8,509 | 8,559 | — | — | |||||||||||||||||||||||
Commercial | 356 | 72 | — | 428 | 32,582 | 33,010 | — | 310 | |||||||||||||||||||||||
Consumer: | |||||||||||||||||||||||||||||||
Installment | 43 | 3 | — | 46 | 13,484 | 13,530 | — | — | |||||||||||||||||||||||
Residential: | |||||||||||||||||||||||||||||||
Equity Lines | 175 | — | — | 175 | 34,246 | 34,421 | — | 276 | |||||||||||||||||||||||
Single family | 2,123 | 209 | 1,296 | 3,628 | 191,602 | 195,230 | 307 | 1,662 | |||||||||||||||||||||||
Multifamily | — | — | — | — | 3,975 | 3,975 | — | — | |||||||||||||||||||||||
All Other Loans | — | — | — | — | 2,310 | 2,310 | — | — | |||||||||||||||||||||||
Total | $ | 3,371 | $ | 481 | $ | 2,042 | $ | 5,894 | $ | 489,679 | $ | 495,573 | $ | 307 | $ | 5,285 |
Allowance for loan losses by segment at June 30, 2016 and December 31, 2015 were as follows:
As of and For the Six Months Ended | |||||||||||||||||||||||||||||||
June 30, 2016 | |||||||||||||||||||||||||||||||
(in thousands) | |||||||||||||||||||||||||||||||
Construction and Farmland | Residential | Commercial Real Estate | Commercial - Non Real Estate | Consumer | All Other Loans | Unallocated | Total | ||||||||||||||||||||||||
Allowance for credit losses: | |||||||||||||||||||||||||||||||
Beginning Balance | $ | 775 | $ | 2,322 | $ | 1,268 | $ | 211 | $ | 109 | $ | 53 | $ | 221 | $ | 4,959 | |||||||||||||||
Charge-Offs | — | (127 | ) | — | — | (11 | ) | (17 | ) | — | (155 | ) | |||||||||||||||||||
Recoveries | 28 | 13 | 5 | 8 | 33 | 3 | — | 90 | |||||||||||||||||||||||
Provision | (198 | ) | 2 | 271 | (26 | ) | (46 | ) | 47 | 29 | 79 | ||||||||||||||||||||
Ending balance | $ | 605 | $ | 2,210 | $ | 1,544 | $ | 193 | $ | 85 | $ | 86 | $ | 250 | $ | 4,973 | |||||||||||||||
Ending balance: Individually evaluated for impairment | $ | 20 | $ | 368 | $ | 137 | $ | 5 | $ | — | $ | — | $ | — | $ | 530 | |||||||||||||||
Ending balance: collectively evaluated for impairment | $ | 585 | $ | 1,842 | $ | 1,407 | $ | 188 | $ | 85 | $ | 86 | $ | 250 | $ | 4,443 | |||||||||||||||
Loans: | |||||||||||||||||||||||||||||||
Ending balance | $ | 39,738 | $ | 229,338 | $ | 201,588 | $ | 30,294 | $ | 13,361 | $ | 3,088 | $ | — | $ | 517,407 | |||||||||||||||
Ending balance individually evaluated for impairment | $ | 1,362 | $ | 6,382 | $ | 3,913 | $ | 452 | $ | — | $ | — | $ | — | $ | 12,109 | |||||||||||||||
Ending balance collectively evaluated for impairment | $ | 38,376 | $ | 222,956 | $ | 197,675 | $ | 29,842 | $ | 13,361 | $ | 3,088 | $ | — | $ | 505,298 |
11
As of and for the Twelve Months Ended | |||||||||||||||||||||||||||||||
December 31, 2015 | |||||||||||||||||||||||||||||||
(in thousands) | |||||||||||||||||||||||||||||||
Construction and Farmland | Residential | Commercial Real Estate | Commercial - Non Real Estate | Consumer | All Other Loans | Unallocated | Total | ||||||||||||||||||||||||
Allowance for credit losses: | |||||||||||||||||||||||||||||||
Beginning Balance | $ | 951 | $ | 1,977 | $ | 1,347 | $ | 464 | $ | 103 | $ | 42 | $ | 196 | $ | 5,080 | |||||||||||||||
Charge-Offs | (166 | ) | (152 | ) | (47 | ) | — | (66 | ) | (25 | ) | — | (456 | ) | |||||||||||||||||
Recoveries | 75 | 142 | 115 | 181 | 33 | 16 | — | 562 | |||||||||||||||||||||||
Provision | (85 | ) | 355 | (147 | ) | (434 | ) | 39 | 20 | 25 | (227 | ) | |||||||||||||||||||
Ending balance | $ | 775 | $ | 2,322 | $ | 1,268 | $ | 211 | $ | 109 | $ | 53 | $ | 221 | $ | 4,959 | |||||||||||||||
Ending balance: Individually evaluated for impairment | $ | 10 | $ | 423 | $ | 141 | $ | 2 | $ | — | $ | — | $ | — | $ | 576 | |||||||||||||||
Ending balance: collectively evaluated for impairment | $ | 765 | $ | 1,899 | $ | 1,127 | $ | 209 | $ | 109 | $ | 53 | $ | 221 | $ | 4,383 | |||||||||||||||
Loans: | |||||||||||||||||||||||||||||||
Ending balance | $ | 41,569 | $ | 233,626 | $ | 175,172 | $ | 29,366 | $ | 13,530 | $ | 2,310 | $ | — | $ | 495,573 | |||||||||||||||
Ending balance individually evaluated for impairment | $ | 1,392 | $ | 7,209 | $ | 4,555 | $ | 847 | $ | — | $ | — | $ | — | $ | 14,003 | |||||||||||||||
Ending balance collectively evaluated for impairment | $ | 40,177 | $ | 226,417 | $ | 170,617 | $ | 28,519 | $ | 13,530 | $ | 2,310 | $ | — | $ | 481,570 |
12
Impaired loans by class as of and for the periods ended June 30, 2016 and December 31, 2015 were as follows:
As of and for the Six Months Ended | |||||||||||||||||||
June 30, 2016 | |||||||||||||||||||
(in thousands) | |||||||||||||||||||
Unpaid Principal Balance | Recorded Investment (1) | Related Allowance | Average Recorded Investment | Interest Income Recognized | |||||||||||||||
With no related allowance: | |||||||||||||||||||
Commercial - Non Real Estate: | |||||||||||||||||||
Commercial & Industrial | $ | 192 | $ | 156 | $ | — | $ | 184 | $ | 6 | |||||||||
Commercial Real Estate: | |||||||||||||||||||
Owner Occupied | 1,513 | 1,385 | — | 1,399 | 8 | ||||||||||||||
Non-owner occupied | 1,153 | 1,050 | — | 1,060 | 7 | ||||||||||||||
Construction and Farmland: | |||||||||||||||||||
Residential | — | — | — | — | — | ||||||||||||||
Commercial | 360 | 361 | — | 367 | 16 | ||||||||||||||
Residential: | |||||||||||||||||||
Equity lines | — | — | — | — | — | ||||||||||||||
Single family | 3,835 | 3,650 | — | 3,730 | 58 | ||||||||||||||
Multifamily | — | — | — | — | — | ||||||||||||||
Other Loans | — | — | — | — | — | ||||||||||||||
$ | 7,053 | $ | 6,602 | $ | — | $ | 6,740 | $ | 95 | ||||||||||
With an allowance recorded: | |||||||||||||||||||
Commercial - Non Real Estate: | |||||||||||||||||||
Commercial & Industrial | $ | 298 | $ | 298 | $ | 5 | $ | 306 | $ | 7 | |||||||||
Commercial Real Estate: | |||||||||||||||||||
Owner Occupied | 205 | 206 | 38 | 207 | 5 | ||||||||||||||
Non-owner occupied | 1,273 | 1,277 | 99 | 1,285 | 32 | ||||||||||||||
Construction and Farmland: | |||||||||||||||||||
Residential | — | — | — | — | — | ||||||||||||||
Commercial | 1,002 | 1,006 | 20 | 1,009 | 21 | ||||||||||||||
Residential: | |||||||||||||||||||
Equity lines | 545 | 207 | 78 | 210 | 2 | ||||||||||||||
Single family | 2,573 | 2,541 | 290 | 2,556 | 39 | ||||||||||||||
Multifamily | — | — | — | — | — | ||||||||||||||
Other Loans | — | — | — | — | — | ||||||||||||||
$ | 5,896 | $ | 5,535 | $ | 530 | $ | 5,573 | $ | 106 | ||||||||||
Total: | |||||||||||||||||||
Commercial | $ | 490 | $ | 454 | $ | 5 | $ | 490 | $ | 13 | |||||||||
Commercial Real Estate | 4,144 | 3,918 | 137 | 3,951 | 52 | ||||||||||||||
Construction and Farmland | 1,362 | 1,367 | 20 | 1,376 | 37 | ||||||||||||||
Residential | 6,953 | 6,398 | 368 | 6,496 | 99 | ||||||||||||||
Other | — |