ITEM 7 – MANAGEMENT’S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis is intended to provide
an overview of the significant factors affecting the Corporation and its subsidiaries financial condition at December 31, 2016
and 2015 and the results of operations for the years ended December 31, 2016, 2015, and 2014. The consolidated financial statements
and accompanying notes should be read in conjunction with this discussion and analysis.
Forward-Looking Statements
In addition to historical information, this Annual Report on
Form 10-K may contain forward-looking statements. For this purpose, any statements contained herein, including documents incorporated
by reference, that are not statements of historical fact may be deemed to be forward-looking statements. Examples of forward-looking
statements include discussions as to our expectations, beliefs, plans, goals, objectives and future financial or other performance
or assumptions concerning matters discussed in this document. Forward-looking statements often use words such as “believes,”
“expects,” “plans,” “may,” “will,” “should,” “projects,”
“contemplates,” “ anticipates,” “forecasts,” “intends” or other words of similar
meaning. You can also identify them by the fact that they do not relate strictly to historical or current facts. Forward-looking
statements in this Annual Report on Form 10-K include, without limitation, statements regarding the Corporation’s beliefs
regarding the future strength of the economy and labor markets and anticipated interest rates and the effect of such rates on
the Corporation’s performance and net interest margin and the volume of future mortgage refinancing, as well as the Corporation’s
expectations concerning operating losses and the profitability of its mortgage segment. Forward-looking statements are subject
to numerous assumptions, risks and uncertainties, and actual results could differ materially from historical results or those
anticipated by such statements. Factors that could have a material adverse effect on the operations and future prospects of the
Corporation include, but are not limited to, changes in: collateral values, especially in the real estate market; stagnation,
continued challenging conditions or deterioration in general business and economic conditions and in the financial markets; mergers
and acquisitions, including merger integration risk in connection with the Corporation’s pending merger with Middleburg
such as potential deposit attrition, higher than expected costs, customer loss and business disruption associated with the integration
of Middleburg, including, without limitation, potential difficulties in maintaining relationships with key personnel and other
integration-related matters; the impact of any policies or programs implemented pursuant to the Dodd-Frank Act or other legislation
or regulation; unemployment levels; branch expansion plans; interest rates; general economic conditions; monetary and fiscal policies
of the U.S. Government, including policies of the Comptroller, U.S. Treasury and the Federal Reserve Board; the economy of Northern
Virginia, including governmental spending and real estate markets; the quality or composition of the loan or investment portfolios;
demand for loan products; deposit flows; competition; the liquidity of the Corporation and accounting principles, policies, and
guidelines. These risks and uncertainties should be considered in evaluating the forward-looking statements contained herein,
and readers are cautioned not to place undue reliance on such statements. Any forward-looking statement speaks only as of the
date on which it is made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances
after the date on which it is made. For additional discussion of risk factors that may cause our actual future results to differ
materially from the results indicated within forward-looking statements, please see “Item 1A – Risk Factors”
herein.
CRITICAL ACCOUNTING POLICIES
The Corporation’s consolidated financial statements have
been prepared in accordance with accounting principles generally accepted in the United States. In preparing the Corporation’s
financial statements management makes estimates and judgments that affect the reported amounts of assets, liabilities, revenues,
and expenses. Our significant accounting policies are presented in Note 1 to the consolidated financial statements. Management
believes that the most significant subjective judgments that it makes include the following:
Allowance for Loan Losses
The allowance for loan losses is an estimate of the losses
that may be sustained in our loan portfolio. The allowance is based on two basic principles of accounting: (i)
Accounting Standards
Codification (ASC) No. 450-10 Contingencies
, which requires that losses be accrued when they are probable of occurring and
estimable and (ii)
ASC 310-10, Receivables
, which requires that losses be accrued based on the differences between the
value of collateral, present value of future cash flows or values that are observable in the secondary market and the loan balance.
An allowance for loan losses is established through a provision
for loan losses based upon industry standards, known risk characteristics, and management’s evaluation of the risk inherent
in the loan portfolio and changes in the nature and volume of loan activity. Such evaluation considers, among other factors, the
estimated market value of the underlying collateral and current economic conditions. For further information about our practices
with respect to allowance for loan losses, please see the subsection “Allowance for Loan Losses” below.
Other Than Temporary Impairment of Investment Securities
Securities in the Bank’s investment portfolio are classified
as either held-to-maturity or available-for-sale. Securities classified as held-to-maturity are recorded at cost or amortized
cost. Available-for-sale securities are carried at fair value. The estimated fair value of the available-for-sale portfolio fluctuates
due to changes in market interest rates and other factors. Changes in estimated fair value are recorded in shareholders’
equity as a component of other comprehensive income. Securities are monitored to determine whether a decline in their value is
other than temporary. Management evaluates the investment portfolio on a quarterly basis to determine the collectability of amounts
due per the contractual terms of the investment security. A decline in the fair value of an investment below its amortized cost
attributable to factors that indicate the decline will not be recovered over the anticipated holding period of the investment
will cause the security to be considered other than temporarily impaired. Other than temporary impairments result in reducing
the security’s carrying value by the amount of the estimated credit loss. The credit component of the other than temporary
impairment loss is realized through the statement of income and the remainder of the loss remains in other comprehensive income.
At December 31, 2016 there were no securities in the securities portfolio with other than temporary impairment.
Income Taxes
The Corporation uses the liability method of accounting for
income taxes. This method results in the recognition of deferred tax assets and liabilities that are reflected at currently enacted
income tax rates applicable to the period in which the deferred tax assets or liabilities are expected to be realized or settled.
As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income
taxes. The deferred provision for income taxes is the result of the net change in the deferred tax asset and deferred tax liability
balances during the year. This amount combined with the current taxes payable or refundable results in the income tax expense
for the current year. Our evaluation of the deductibility or taxability of items included in the Corporation’s tax returns
has not resulted in the identification of any material uncertain tax positions.
Fair Value
Fair values of financial instruments are estimated using relevant
market information and other assumptions. Fair value estimates involve uncertainties and matters of significant judgment regarding
interest rates, credit risk, prepayments and other factors, especially in the absence of broad markets for particular items. Changes
in assumptions or in market conditions could significantly affect the estimates. The fair value estimates of existing on and off-balance
sheet financial instruments do not include the value of anticipated future business or the values of assets and liabilities not
considered financial instruments. For additional information about our financial assets carried at fair value, refer to Note 16
to the consolidated financial statements.
Executive Summary
The Corporation completed its seventeenth year of operation
and recorded net income of $16.4 million or $1.54 per diluted common share in 2016 compared to $15.4 million or $1.46 per diluted
common share and $13.9 million or $1.33 per diluted common share in 2015 and 2014, respectively. The increase in net interest
income before provision over last year of $4.2 million reflects the continued growth in both the loans held for investment portfolio
and the investment securities portfolio. During 2016, loan origination volumes in the Mortgage Division increased, from $485 million
in 2015 to $545 million in 2016, which led to higher gain on sale of loans, from $19.6 million in 2015 to $25.2 million in 2016.
The increased income in the Mortgage Division when comparing 2015 to 2014 were the gains recognized on hedging activities as well
as the fair value marks, from a loss of $690 thousand in 2014 to a gain of $333 thousand in 2015.
At December 31, 2016, assets totaled $1.43 billion compared
to $1.18 billion at December 31, 2015, an overall increase of $252.2 million. An increase in loans held for investment of $162.2
million, a $57.3 million growth in interest-bearing balances and federal funds sold, a $28.8 million growth in investment securities,
and a $13.6 million growth in other assets accounted for the increase and was mainly offset by an $8.5 million decrease in loans
held for sale. During 2016, loan growth was reflected in all but the consumer category of the loans held for investment portfolio.
During 2015, loan origination volumes in the Mortgage Division increased, from $408 million in 2014 to $485 million in 2015, which
led to higher gain on sale of loans, from $15.1 million in 2014 to $19.6 million in 2015. The largest dollar growth occurred in
the commercial loan portfolio due in part to our focus on small to medium sized businesses.
Investment securities totaled $203.3 million at December 31,
2016 compared to $174.4 million at December 31, 2015 as the Corporation continues to build its portfolio judiciously in a manner
that is consistent with the Corporation’s planned liquidity and asset management goals.
Deposits totaled $1.054 billion at December 31, 2016 compared
to $913.7 million at December 31, 2015. The $140.6 million increase was due mainly to increases in savings and money market deposits
of $120.3 million, demand deposits of $54.2 million, and time deposits of $27.2 million, and was offset by a net decrease in wholesale
funding of $59.3 million. Management continues to focus on expanding business banking relationships as evidenced by the 12.0%
annual growth in demand deposits.
Non-performing assets (“NPA”) totaled approximately
$6.9 million or 0.48% of total assets at December 31, 2016, down from $7.4 million or 0.63% of total assets at December 31, 2015.
NPAs are comprised of non-accrual loans solely at December 31, 2016, and 2015, as the Bank did not have any other real estate
owned. Included in non-accrual loans at December 31, 2016 is a restructured residential lot loan, categorized as a construction
loan, to one borrower with an outstanding balance of $940 thousand as well as two commercial loans to one borrower with an outstanding
balance of $2.0 million. The allowance for loan losses totaled $16.0 million or 1.5% of total loans held for investment as of
December 31, 2016, compared to $13.6 million or 1.5% at December 31, 2015.
During 2014, ARE transferred an undeveloped commercial lot
in Fredericksburg, that was originally purchased for possible banking center expansion to other real estate owned when management
decided to market the land for sale. The land, originally purchased for $1.2 million was written down to its appraised value less
costs to sell and is included in other assets at $500 thousand at December 31, 2015. During 2016 the property was sold.
The economy continues to show signs of improvement with unemployment
rates declining, and we are continuing to see price appreciation in the local residential real estate market. Notwithstanding
the foregoing, there is no guarantee that these positive trends will continue. Although we believe that the credit quality of
our primary business and professional customers has stabilized and improved, we will continue to focus on improving the credit
quality of our loan portfolio with special attention paid to the non-performing assets. The Corporation is optimistic going into
2017 with a strong capital base and being positioned for continued growth.
RESULTS OF OPERATIONS
Net income for 2016 totaled $16.4 million, or $1.54 per diluted
common share compared to $15.4 million or $1.46 per diluted common share in 2015. Net income in 2016 was favorably impacted by
an increase in net interest income of $4.2 million as average earning assets increased $167.6 million, from $1.08 billion to $1.24
billion as of December 31, 2015 and 2016, respectively. The increase in noninterest income of $5.7 million from $26.1 million
to $31.8 million as of December 31, 2015 and 2016, respectively, was offset by an increase in noninterest expense of $5.9 million,
from $41.9 million to $47.8 million as of December 31, 2015 and 2016, respectively.
Net income for 2015 totaled $15.4 million, or $1.46 per diluted
common share compared to $13.9 million or $1.33 per diluted common share in 2014. Net income in 2015 was favorably impacted by
an increase in net interest income of $4.3 million as average earning assets increased $147 million, from $928 million to $1.08
billion as of December 31, 2014 and 2015, respectively. The increase in noninterest income from $19.3 million to $26.1 million
as of December 31, 2014 and 2015, respectively, was offset by an increase in noninterest expense of $8.9 million, from $33.0 million
to $41.9 million as of December 31, 2014 and 2015, respectively. The increase in noninterest expense, such as compensation due
to the increased mortgage production volume, coupled with the mortgage reserve release in 2014 of $3.25 million, worked to offset
the $6.8 million or 35.1% increase in noninterest income between 2015 and 2014.
Net Interest Income
Net interest income is the amount of income generated by earning
assets (primarily loans and investment securities) less the interest expense incurred on interest-bearing liabilities (primarily
deposits) used to fund earning assets. Net interest income and margin are influenced by many factors, primarily the volume and
mix of earning assets, funding sources, yields on earning assets and interest rate fluctuations. Net interest income totaled $43.7
million in 2016, up from $39.5 million in 2015. Average noninterest-bearing deposits increased $55.8 million in 2016. Net interest
margin was 3.52% in 2016 and 3.68% in 2015, with the decrease primarily due to the weighted average rate paid on interest-bearing
deposits and borrowings increasing 19 basis points to 0.78% in 2016 from 0.59% in 2015.
During 2016, average earning assets increased $167.6 million
or 15.6%. Average loans held for investment increased by $115.5 million or 14.0%, average securities increased $32.4 million or
20.7%, average loans held for sale increased $5.0 million or 11.8%, and average interest-bearing balances increased $14.7 million
or 28.0%. On the funding side total average interest-bearing deposits increased by $99.2 million or 17.6%.
Net interest income totaled $39.5 million in 2015, up from
$35.2 million in 2014. Average noninterest-bearing deposits increased $65.5 million in 2015. Net interest margin was 3.68% in
2015 and 3.80% in 2014, with the decrease primarily due to the weighted average rate earned on interest-earning assets decreasing
9 basis points to 4.06% in 2015 from 4.15% in 2014.
The table below, Yield on Average Earning Assets and Rates
on Average Interest-Bearing Liabilities, summarizes the major components of net interest income for the past three years and also
provides yields, rates, and average balances.
|
|
Yield
on Average Earning Assets and Rates on Average Interest-Bearing Liabilities
|
|
|
|
For
the Year Ended
|
|
|
|
December
31, 2016
|
|
|
December
31, 2015
|
|
|
December
31, 2014
|
|
|
|
Average
|
|
|
Income
/
|
|
|
Yield
/
|
|
|
Average
|
|
|
Income
/
|
|
|
Yield
/
|
|
|
Average
|
|
|
Income
/
|
|
|
Yield
/
|
|
|
|
Balance
|
|
|
Expense
|
|
|
Rate
|
|
|
Balance
|
|
|
Expense
|
|
|
Rate
|
|
|
Balance
|
|
|
Expense
|
|
|
Rate
|
|
|
|
(Dollars
In Thousands)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
|
|
$
|
188,569
|
|
|
$
|
4,039
|
|
|
|
2.14
|
%
|
|
$
|
156,204
|
|
|
$
|
3,482
|
|
|
|
2.23
|
%
|
|
$
|
129,755
|
|
|
$
|
2,697
|
|
|
|
2.08
|
%
|
Loans
held for sale
|
|
|
47,060
|
|
|
|
1,767
|
|
|
|
3.75
|
%
|
|
|
42,076
|
|
|
|
1,650
|
|
|
|
3.92
|
%
|
|
|
31,288
|
|
|
|
1,297
|
|
|
|
4.15
|
%
|
Loans
(1)
|
|
|
939,837
|
|
|
|
43,872
|
|
|
|
4.67
|
%
|
|
|
824,288
|
|
|
|
38,405
|
|
|
|
4.66
|
%
|
|
|
721,863
|
|
|
|
34,405
|
|
|
|
4.77
|
%
|
Interest-bearing
balances and federal funds sold
|
|
|
67,457
|
|
|
|
337
|
|
|
|
0.50
|
%
|
|
|
52,716
|
|
|
|
129
|
|
|
|
0.24
|
%
|
|
|
44,939
|
|
|
|
102
|
|
|
|
0.23
|
%
|
Total
interest earning assets
|
|
|
1,242,923
|
|
|
|
50,015
|
|
|
|
4.02
|
%
|
|
|
1,075,284
|
|
|
|
43,666
|
|
|
|
4.06
|
%
|
|
|
927,845
|
|
|
|
38,501
|
|
|
|
4.15
|
%
|
Noninterest
earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and due from banks
|
|
|
12,732
|
|
|
|
|
|
|
|
|
|
|
|
10,650
|
|
|
|
|
|
|
|
|
|
|
|
8,925
|
|
|
|
|
|
|
|
|
|
Premises,
land and equipment
|
|
|
6,834
|
|
|
|
|
|
|
|
|
|
|
|
6,882
|
|
|
|
|
|
|
|
|
|
|
|
7,995
|
|
|
|
|
|
|
|
|
|
Other
assets
|
|
|
40,172
|
|
|
|
|
|
|
|
|
|
|
|
33,110
|
|
|
|
|
|
|
|
|
|
|
|
26,523
|
|
|
|
|
|
|
|
|
|
Less:
allowance for loan losses
|
|
|
(14,079
|
)
|
|
|
|
|
|
|
|
|
|
|
(13,456
|
)
|
|
|
|
|
|
|
|
|
|
|
(13,221
|
)
|
|
|
|
|
|
|
|
|
Total
noninterest earning assets
|
|
|
45,659
|
|
|
|
|
|
|
|
|
|
|
|
37,186
|
|
|
|
|
|
|
|
|
|
|
|
30,222
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$
|
1,288,582
|
|
|
|
|
|
|
|
|
|
|
$
|
1,112,470
|
|
|
|
|
|
|
|
|
|
|
$
|
958,067
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and Shareholders' Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
demand deposits
|
|
$
|
132,734
|
|
|
$
|
486
|
|
|
|
0.37
|
%
|
|
$
|
119,732
|
|
|
$
|
265
|
|
|
|
0.22
|
%
|
|
$
|
114,853
|
|
|
$
|
256
|
|
|
|
0.22
|
%
|
Money
market deposit accounts
|
|
|
204,897
|
|
|
|
846
|
|
|
|
0.41
|
%
|
|
|
126,850
|
|
|
|
264
|
|
|
|
0.21
|
%
|
|
|
115,192
|
|
|
|
232
|
|
|
|
0.20
|
%
|
Savings
accounts
|
|
|
37,950
|
|
|
|
196
|
|
|
|
0.52
|
%
|
|
|
13,606
|
|
|
|
66
|
|
|
|
0.49
|
%
|
|
|
3,884
|
|
|
|
14
|
|
|
|
0.36
|
%
|
Time
deposits
|
|
|
286,690
|
|
|
|
3,622
|
|
|
|
1.26
|
%
|
|
|
302,924
|
|
|
|
3,053
|
|
|
|
1.01
|
%
|
|
|
243,338
|
|
|
|
2,479
|
|
|
|
1.02
|
%
|
Total
interest-bearing deposits
|
|
|
662,271
|
|
|
|
5,150
|
|
|
|
0.78
|
%
|
|
|
563,112
|
|
|
|
3,648
|
|
|
|
0.65
|
%
|
|
|
477,267
|
|
|
|
2,981
|
|
|
|
0.62
|
%
|
Borrowings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FHLB
Advances
|
|
|
56,522
|
|
|
|
386
|
|
|
|
0.68
|
%
|
|
|
91,992
|
|
|
|
231
|
|
|
|
0.25
|
%
|
|
|
115,471
|
|
|
|
271
|
|
|
|
0.23
|
%
|
Securities
sold under agreements to repurchase and federal funds purchased
|
|
|
16,270
|
|
|
|
16
|
|
|
|
0.10
|
%
|
|
|
22,017
|
|
|
|
21
|
|
|
|
0.10
|
%
|
|
|
21,129
|
|
|
|
21
|
|
|
|
0.10
|
%
|
FHLB
Long-term borrowings
|
|
|
68,525
|
|
|
|
752
|
|
|
|
1.10
|
%
|
|
|
18,890
|
|
|
|
219
|
|
|
|
1.16
|
%
|
|
|
-
|
|
|
|
-
|
|
|
|
0.00
|
%
|
Total
borrowings
|
|
|
141,317
|
|
|
|
1,154
|
|
|
|
0.82
|
%
|
|
|
132,899
|
|
|
|
471
|
|
|
|
0.35
|
%
|
|
|
136,600
|
|
|
|
292
|
|
|
|
0.21
|
%
|
Total
interest-bearing deposits and borrowings
|
|
|
803,588
|
|
|
|
6,304
|
|
|
|
0.78
|
%
|
|
|
696,011
|
|
|
|
4,119
|
|
|
|
0.59
|
%
|
|
|
613,867
|
|
|
|
3,273
|
|
|
|
0.53
|
%
|
Noninterest-bearing
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand
deposits
|
|
|
359,352
|
|
|
|
|
|
|
|
|
|
|
|
303,583
|
|
|
|
|
|
|
|
|
|
|
|
238,118
|
|
|
|
|
|
|
|
|
|
Other
liabilities
|
|
|
9,346
|
|
|
|
|
|
|
|
|
|
|
|
8,928
|
|
|
|
|
|
|
|
|
|
|
|
9,855
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
1,172,286
|
|
|
|
|
|
|
|
|
|
|
|
1,008,522
|
|
|
|
|
|
|
|
|
|
|
|
861,840
|
|
|
|
|
|
|
|
|
|
Shareholders'
Equity
|
|
|
116,296
|
|
|
|
|
|
|
|
|
|
|
|
103,948
|
|
|
|
|
|
|
|
|
|
|
|
96,227
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Shareholders' Equity
|
|
$
|
1,288,582
|
|
|
|
|
|
|
|
|
|
|
$
|
1,112,470
|
|
|
|
|
|
|
|
|
|
|
$
|
958,067
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Spread
(2)
|
|
|
|
|
|
|
|
|
|
|
3.24
|
%
|
|
|
|
|
|
|
|
|
|
|
3.47
|
%
|
|
|
|
|
|
|
|
|
|
|
3.62
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Interest Margin
(3)
|
|
|
|
|
|
$
|
43,711
|
|
|
|
3.52
|
%
|
|
|
|
|
|
$
|
39,547
|
|
|
|
3.68
|
%
|
|
|
|
|
|
$
|
35,228
|
|
|
|
3.80
|
%
|
(1)
Loans placed on nonaccrual status are included
in loan balances
(2)
Interest spread is the average yield earned
on earning assets, less the average rate incurred on interest-bearing liabilities.
(3)
Net interest margin is net interest income,
expressed as a percentage of average earning assets.
The following table shows fluctuations in net interest income
attributable to changes in the average balances of assets and liabilities and the yields earned or rates paid for the years ended
December 31:
|
|
Years Ended December 31,
|
|
|
|
2016 compared to 2015
|
|
|
2015 compared to 2014
|
|
|
2014 compared to 2013
|
|
|
|
Change Due To:
|
|
|
Change Due To:
|
|
|
Change Due To:
|
|
|
|
Increase /
|
|
|
|
|
|
|
|
|
Increase /
|
|
|
|
|
|
|
|
|
Increase /
|
|
|
|
|
|
|
|
|
|
(Decrease)
|
|
|
Volume
|
|
|
Rate
|
|
|
(Decrease)
|
|
|
Volume
|
|
|
Rate
|
|
|
(Decrease)
|
|
|
Volume
|
|
|
Rate
|
|
|
|
(In Thousands)
|
|
Interest Earning Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments
|
|
$
|
557
|
|
|
$
|
702
|
|
|
$
|
(145
|
)
|
|
$
|
785
|
|
|
$
|
580
|
|
|
$
|
205
|
|
|
$
|
769
|
|
|
$
|
643
|
|
|
$
|
126
|
|
Loans
|
|
|
5,584
|
|
|
|
5,555
|
|
|
|
29
|
|
|
|
4,353
|
|
|
|
5,250
|
|
|
|
(897
|
)
|
|
|
1,861
|
|
|
|
2,952
|
|
|
|
(1,091
|
)
|
Interest-bearing deposits
|
|
|
208
|
|
|
|
43
|
|
|
|
165
|
|
|
|
27
|
|
|
|
22
|
|
|
|
5
|
|
|
|
(5
|
)
|
|
|
(3
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total increase (decrease) in interest income
|
|
|
6,349
|
|
|
|
6,300
|
|
|
|
49
|
|
|
|
5,165
|
|
|
|
5,852
|
|
|
|
(687
|
)
|
|
|
2,625
|
|
|
|
3,592
|
|
|
|
(967
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-Bearing Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing demand deposits
|
|
|
221
|
|
|
|
32
|
|
|
|
189
|
|
|
|
9
|
|
|
|
9
|
|
|
|
-
|
|
|
|
108
|
|
|
|
85
|
|
|
|
23
|
|
Money market deposit accounts
|
|
|
582
|
|
|
|
228
|
|
|
|
354
|
|
|
|
32
|
|
|
|
21
|
|
|
|
11
|
|
|
|
(50
|
)
|
|
|
(12
|
)
|
|
|
(38
|
)
|
Savings accounts
|
|
|
130
|
|
|
|
126
|
|
|
|
4
|
|
|
|
52
|
|
|
|
45
|
|
|
|
7
|
|
|
|
9
|
|
|
|
4
|
|
|
|
5
|
|
Time deposits
|
|
|
569
|
|
|
|
(171
|
)
|
|
|
740
|
|
|
|
574
|
|
|
|
599
|
|
|
|
(25
|
)
|
|
|
(572
|
)
|
|
|
(452
|
)
|
|
|
(120
|
)
|
Total interest-bearing deposits
|
|
|
1,502
|
|
|
|
215
|
|
|
|
1,287
|
|
|
|
667
|
|
|
|
674
|
|
|
|
(7
|
)
|
|
|
(505
|
)
|
|
|
(375
|
)
|
|
|
(130
|
)
|
FHLB Advances
|
|
|
155
|
|
|
|
(117
|
)
|
|
|
272
|
|
|
|
(40
|
)
|
|
|
(60
|
)
|
|
|
20
|
|
|
|
174
|
|
|
|
170
|
|
|
|
4
|
|
Securities sold under agreements to repurchase and federal funds purchased
|
|
|
(5
|
)
|
|
|
(5
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(5
|
)
|
|
|
(4
|
)
|
|
|
(1
|
)
|
Long-term borrowings
|
|
|
533
|
|
|
|
545
|
|
|
|
(12
|
)
|
|
|
219
|
|
|
|
219
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Trust preferred
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(103
|
)
|
|
|
(52
|
)
|
|
|
(51
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total (decrease) increase in interest expense
|
|
|
2,185
|
|
|
|
638
|
|
|
|
1,547
|
|
|
|
846
|
|
|
|
833
|
|
|
|
13
|
|
|
|
(439
|
)
|
|
|
(261
|
)
|
|
|
(178
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in net interest income
|
|
$
|
4,164
|
|
|
$
|
5,662
|
|
|
$
|
(1,498
|
)
|
|
$
|
4,319
|
|
|
$
|
5,019
|
|
|
$
|
700
|
|
|
$
|
3,064
|
|
|
$
|
3,853
|
|
|
$
|
(789
|
)
|
Provision for Loan Losses
In 2016, the Bank charged $2.1 million to operating expenses
for the loan loss reserve compared to $150 thousand for loan losses in 2015, and no loan loss provision in 2014. The amount of
the provision is determined by management to ensure the allowance for loan losses is at a level believed to be adequate to absorb
inherent losses in the loan portfolio based on evaluations as of December 31, 2016.
Noninterest Income
Noninterest income consists of revenue generated from gains
on sale of loans, service fees on deposit accounts, and other charges and fees. The Mortgage Division provides the most significant
contributions towards noninterest income and is subject to wide fluctuations due to the general interest rate environment and
economic conditions. Total noninterest income was $31.8 million in 2016 compared to $26.1 million in 2015. Gains on the sale of
loans originated by the Mortgage Division totaled $25.2 million in 2016 compared to $19.6 million in 2015 due to the mortgage
loan volume increase in 2016, from $485 million in 2015 to $545 million in 2016. Offsetting this increase in revenue were the
losses recognized on hedging activities as well as the fair value marks associated with the origination of mortgage loans held
for sale. In 2016, the Mortgage Division recorded a loss of $429 thousand compared to a gain of $333 thousand in 2015.
Total noninterest income was $26.1 million in 2015 compared
to $19.3 million in 2014. Gains on the sale of loans originated by the Mortgage Division totaled $19.6 million in 2015 compared
to $15.1 million in 2014 due to the mortgage loan volume increase in 2015, from $408 million in 2014 to $485 million in 2015.
Adding to this increase in revenue were the gains recognized on hedging activities as well as the fair value marks associated
with the origination of mortgage loans held for sale. In 2015, the Mortgage Division recorded a gain of $333 thousand compared
to a loss of $690 thousand in 2014 increasing other income by $1.0 million when comparing 2015 to 2014.
Noninterest Expense
Noninterest expense totaled $47.8 million in 2016 compared
to $41.9 million in 2015. Compensation and employee benefits, the largest component of noninterest expense, totaled $31.8 million
in 2016 compared to $27.0 million in 2015, an increase of $4.8 million or 17.8% due mainly to the addition of staffing in the
Banking Division as well as increased variable compensation paid in the Mortgage Division as a direct result of the increased
mortgage volumes between 2016 and 2015. Other operating expense totaled $13.0 million in 2016, up from $11.9 million for the year
ended December 31, 2015. A further breakdown of other operating expenses is provided for in Note 15 of the consolidated financial
statements.
Noninterest expense totaled $41.9 million in 2015 compared
to $33.0 million in 2014. Compensation and employee benefits, the largest component of noninterest expense, totaled $27.0 million
in 2015 compared to $22.7 million in 2014, an increase of $4.3 million or 19.0% due mainly to the addition of staffing in the
Banking Division and increased group health costs as well as increased variable compensation paid in the Mortgage Division as
a direct result of the increased mortgage volumes between 2015 and 2014. Other operating expense totaled $11.9 million in 2015,
up from $7.5 million for the year ended December 31, 2014, due in part to increased activity in the Mortgage Division as a direct
result of the increase in mortgage production volume as well as the $3.25 million mortgage reserve release recognized in 2014
and included in other noninterest expense.
Income Taxes
Income tax expense totaled $9.2 million in 2016 compared to
$8.2 million in 2015 and $7.6 million in 2014, an increase of $1.0 million and $600 thousand, respectively. The increase in taxes
between 2016 and 2015 as well as 2015 to 2014 was due to the increase in pre-tax earnings for those years. Note 7 to the consolidated
financial statements shows the components of federal income tax.
Quarterly Results
(unaudited)
The following is a summary of the results of operations for
each quarter of 2016, 2015, and 2014.
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
Total
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
YTD
|
|
|
|
(In Thousands, Except for Per
Share Data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest
income
|
|
$
|
11,981
|
|
|
$
|
12,336
|
|
|
$
|
12,778
|
|
|
$
|
12,920
|
|
|
$
|
50,015
|
|
Total interest expense
|
|
|
1,431
|
|
|
|
1,575
|
|
|
|
1,635
|
|
|
|
1,663
|
|
|
|
6,304
|
|
Net interest income
|
|
|
10,550
|
|
|
|
10,761
|
|
|
|
11,143
|
|
|
|
11,257
|
|
|
|
43,711
|
|
Provision for loan losses
|
|
|
-
|
|
|
|
120
|
|
|
|
750
|
|
|
|
1,250
|
|
|
|
2,120
|
|
Net interest income after provision
for loan losses
|
|
|
10,550
|
|
|
|
10,641
|
|
|
|
10,393
|
|
|
|
10,007
|
|
|
|
41,591
|
|
Total noninterest income
|
|
|
6,819
|
|
|
|
9,173
|
|
|
|
8,685
|
|
|
|
7,126
|
|
|
|
31,803
|
|
Total noninterest expense
|
|
|
11,129
|
|
|
|
12,303
|
|
|
|
12,169
|
|
|
|
12,189
|
|
|
|
47,790
|
|
Income
tax expense
|
|
|
2,145
|
|
|
|
2,633
|
|
|
|
2,484
|
|
|
|
1,938
|
|
|
|
9,200
|
|
Net
income
|
|
$
|
4,095
|
|
|
$
|
4,878
|
|
|
$
|
4,425
|
|
|
$
|
3,006
|
|
|
$
|
16,404
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings Per Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.39
|
|
|
$
|
0.46
|
|
|
$
|
0.42
|
|
|
$
|
0.28
|
|
|
$
|
1.55
|
|
Diluted
|
|
$
|
0.39
|
|
|
$
|
0.46
|
|
|
$
|
0.41
|
|
|
$
|
0.28
|
|
|
$
|
1.54
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
Total
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
YTD
|
|
|
|
(In Thousands, Except for Per
Share Data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest
income
|
|
$
|
10,276
|
|
|
$
|
10,787
|
|
|
$
|
11,156
|
|
|
$
|
11,447
|
|
|
$
|
43,666
|
|
Total interest expense
|
|
|
834
|
|
|
|
980
|
|
|
|
1,059
|
|
|
|
1,246
|
|
|
|
4,119
|
|
Net interest income
|
|
|
9,442
|
|
|
|
9,807
|
|
|
|
10,097
|
|
|
|
10,201
|
|
|
|
39,547
|
|
Provision for loan losses
|
|
|
-
|
|
|
|
150
|
|
|
|
-
|
|
|
|
-
|
|
|
|
150
|
|
Net interest income after provision
for loan losses
|
|
|
9,442
|
|
|
|
9,657
|
|
|
|
10,097
|
|
|
|
10,201
|
|
|
|
39,397
|
|
Total noninterest income
|
|
|
6,305
|
|
|
|
7,081
|
|
|
|
6,412
|
|
|
|
6,267
|
|
|
|
26,065
|
|
Total noninterest expense
|
|
|
10,246
|
|
|
|
10,654
|
|
|
|
10,479
|
|
|
|
10,487
|
|
|
|
41,866
|
|
Income
tax expense
|
|
|
1,928
|
|
|
|
2,100
|
|
|
|
2,086
|
|
|
|
2,063
|
|
|
|
8,177
|
|
Net
income
|
|
$
|
3,573
|
|
|
$
|
3,984
|
|
|
$
|
3,944
|
|
|
$
|
3,918
|
|
|
$
|
15,419
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings Per Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.34
|
|
|
$
|
0.38
|
|
|
$
|
0.37
|
|
|
$
|
0.37
|
|
|
$
|
1.46
|
|
Diluted
|
|
$
|
0.34
|
|
|
$
|
0.38
|
|
|
$
|
0.37
|
|
|
$
|
0.37
|
|
|
$
|
1.46
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
Total
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
YTD
|
|
|
|
(In Thousands, Except for Per
Share Data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest
income
|
|
$
|
8,945
|
|
|
$
|
9,502
|
|
|
$
|
9,915
|
|
|
$
|
10,139
|
|
|
$
|
38,501
|
|
Total interest expense
|
|
|
804
|
|
|
|
839
|
|
|
|
831
|
|
|
|
799
|
|
|
|
3,273
|
|
Net interest income
|
|
|
8,141
|
|
|
|
8,663
|
|
|
|
9,084
|
|
|
|
9,340
|
|
|
|
35,228
|
|
Net interest income after provision
for loan losses
|
|
|
8,141
|
|
|
|
8,663
|
|
|
|
9,084
|
|
|
|
9,340
|
|
|
|
35,228
|
|
Total noninterest income
|
|
|
3,256
|
|
|
|
5,316
|
|
|
|
5,213
|
|
|
|
5,515
|
|
|
|
19,300
|
|
Total noninterest expense
|
|
|
7,657
|
|
|
|
9,218
|
|
|
|
6,683
|
|
|
|
9,460
|
|
|
|
33,018
|
|
Income
tax expense
|
|
|
1,326
|
|
|
|
1,697
|
|
|
|
2,682
|
|
|
|
1,880
|
|
|
|
7,585
|
|
Net
income
|
|
$
|
2,414
|
|
|
$
|
3,064
|
|
|
$
|
4,932
|
|
|
$
|
3,515
|
|
|
$
|
13,925
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings Per Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.23
|
|
|
$
|
0.29
|
|
|
$
|
0.47
|
|
|
$
|
0.34
|
|
|
$
|
1.33
|
|
Diluted
|
|
$
|
0.23
|
|
|
$
|
0.29
|
|
|
$
|
0.47
|
|
|
$
|
0.34
|
|
|
$
|
1.33
|
|
FINANCIAL CONDITION
Summary
Total assets at December 31, 2016 were $1.43 billion compared
to $1.18 billion at December 31, 2015, an increase of $252.2 million. An increase in loans held for investment of $162.2 million,
a $57.3 million growth in interest-bearing balances and federal funds sold, and a $28.8 million growth in investment securities
accounted for the majority of this increase and was partially offset by an $8.5 million decrease in loans held for sale.
The following discussions by major categories
explain the changes in financial condition.
Cash and Due From Banks
Cash and due from banks represents cash
and noninterest-bearing balances at other banks and cash letters in process of collection at the Federal Reserve Bank. At December
31, 2016 cash and due from banks totaled $9.2 million compared to $11.3 million at December 31, 2015. The balance fluctuates depending
on the volume of cash letters in process of collection at the Federal Reserve Bank.
Interest-Bearing Deposits in Other
Banks and Federal Funds Sold
At December 31, 2016 interest-bearing
balances in other banks totaled $81.9 million compared to $24.6 million at December 31, 2015. These balances are maintained at
the FRB and the FHLB of Atlanta and provide liquidity for managing daily cash inflows and outflows from deposits and loans.
Investment Securities
The Corporation’s investment securities portfolio is
comprised of U.S. Government Agency securities, municipal securities, CRA mutual fund, mortgage backed securities issued by U.S.
government sponsored agencies, corporate bonds, certificates of deposit, and other asset backed securities. The investment portfolio
is used to provide liquidity and as a tool for managing interest sensitivity in the balance sheet, while generating income.
At December 31, 2016, securities totaled $203.3 million compared
to $174.4 million at December 31, 2015, an increase of $28.9 million. The increase is in response to management’s planned
liquidity and asset management goals. The securities portfolio at December 31, 2016 is comprised of $194.1 million in securities
classified as available-for-sale and $9.2 million in securities classified as held-to-maturity. Securities classified as available-for-sale
are carried at fair market value. Unrealized gains and losses are recorded directly to a separate component of shareholders' equity.
Held-to-maturity securities are carried at cost or amortized cost.
The following tables present the types, amounts and maturity
distribution of the investment securities portfolio.
|
|
Maturity
Schedule of Investment Securities
|
|
|
|
Year
Ended December 31, 2016
|
|
|
|
|
|
|
After
One Year
|
|
|
After
Five Years
|
|
|
After
Ten Years
|
|
|
|
|
|
|
Within
|
|
|
But
Within
|
|
|
But
Within
|
|
|
and
|
|
|
|
|
|
|
One
Year
|
|
|
Five
Years
|
|
|
Ten
Years
|
|
|
Over
|
|
|
Total
|
|
|
|
Amount
|
|
|
Yield
|
|
|
Amount
|
|
|
Yield
|
|
|
Amount
|
|
|
Yield
|
|
|
Amount
|
|
|
Yield
|
|
|
Amount
|
|
|
Yield
|
|
|
|
(Dollars
In Thousands)
|
|
Investment
securities available-for-sale
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US
Government Agency
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
4,994
|
|
|
|
1.82
|
%
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
4,994
|
|
|
|
1.82
|
%
|
Mortgage
backed
|
|
|
-
|
|
|
|
-
|
|
|
|
24,916
|
|
|
|
2.06
|
%
|
|
|
24,895
|
|
|
|
2.29
|
%
|
|
|
69,996
|
|
|
|
1.88
|
%
|
|
|
119,807
|
|
|
|
2.00
|
%
|
Corporate
bonds
|
|
|
4,144
|
|
|
|
1.67
|
%
|
|
|
4,522
|
|
|
|
2.25
|
%
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
8,666
|
|
|
|
1.97
|
%
|
Asset
backed securities
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,001
|
|
|
|
1.66
|
%
|
|
|
9,863
|
|
|
|
1.61
|
%
|
|
|
12,864
|
|
|
|
1.62
|
%
|
Certificates of deposit
|
|
|
-
|
|
|
|
-
|
|
|
|
2,009
|
|
|
|
2.23
|
%
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,009
|
|
|
|
2.23
|
%
|
Municipals
- nontaxable
|
|
|
-
|
|
|
|
-
|
|
|
|
3,500
|
|
|
|
2.22
|
%
|
|
|
4,888
|
|
|
|
2.14
|
%
|
|
|
35,971
|
|
|
|
3.17
|
%
|
|
|
44,358
|
|
|
|
2.98
|
%
|
|
|
$
|
4,144
|
|
|
|
1.67
|
%
|
|
$
|
34,947
|
|
|
|
2.11
|
%
|
|
$
|
37,778
|
|
|
|
2.16
|
%
|
|
$
|
115,830
|
|
|
|
2.26
|
%
|
|
$
|
192,698
|
|
|
|
2.20
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
securities Held-to-maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US
Government Agency
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
5,000
|
|
|
|
1.75
|
%
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
5,000
|
|
|
|
1.75
|
%
|
Municipals
|
|
|
-
|
|
|
|
-
|
|
|
|
431
|
|
|
|
3.03
|
%
|
|
|
1,617
|
|
|
|
3.55
|
%
|
|
|
555
|
|
|
|
4.11
|
%
|
|
|
2,603
|
|
|
|
3.58
|
%
|
Municipals
- nontaxable
|
|
|
-
|
|
|
|
-
|
|
|
|
1,597
|
|
|
|
1.91
|
%
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,597
|
|
|
|
1.91
|
%
|
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
7,028
|
|
|
|
1.86
|
%
|
|
$
|
1,617
|
|
|
|
3.55
|
%
|
|
$
|
555
|
|
|
|
4.11
|
%
|
|
$
|
9,200
|
|
|
|
2.30
|
%
|
(1)
Excludes FRB Stock, and FHLB Stock, and CRA
Mutual Fund
Loans
Loans held for investment totaled $1.05 billion at December
31, 2016 compared to $887.5 million at December 31, 2015. During 2016, loan demand increased over 2015 as local economic conditions
improved. Commercial loans increased $69.0 million during 2016 while commercial real estate – non-owner occupied loans increased
$37.1 million, commercial real estate – owner occupied loans increased $30.6 million, and real estate construction loans
increased $25.8 million from year end 2015.
The Bank concentrates on providing banking services to small
and medium sized businesses and professionals in our market area. As of December 31, 2016 the exposure to builders or developers
in our commercial real estate portfolio was immaterial to the portfolio as a whole. Our loan officers maintain a professional
relationship with our clients and are responsive to their financial needs. They are directly involved in the community, and it
is this involvement and commitment that leads to referrals and continued growth. The composition and growth of our loan portfolio
reflects our success in deployment of this strategy.
Loans held for sale totaled $35.7 million at December 31, 2016
compared to $44.1 million at December 31, 2015, a decrease of $8.4 million. The level of loans held for sale fluctuates with
the volume of loans originated during the month and the timing of loans purchased by investors. Loan origination volume totaled
$544.9 million in 2016 compared to $484.7 million in 2015 as interest rates on residential mortgage loans continued to remain
at historic lows.
The following tables present the major classifications and
maturity distribution of loans held for investment at December 31:
|
|
Composition of Loan Portfolio
|
|
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
|
2012
|
|
|
|
Amount
|
|
|
Percentage
of Total
|
|
|
Amount
|
|
|
Percentage
of Total
|
|
|
Amount
|
|
|
Percentage
of Total
|
|
|
Amount
|
|
|
Percentage
of Total
|
|
|
Amount
|
|
|
Percentage
of Total
|
|
|
|
(Dollars In Thousands)
|
|
Commercial real estate - owner occupied
|
|
$
|
250,440
|
|
|
|
23.87
|
%
|
|
$
|
219,877
|
|
|
|
24.77
|
%
|
|
$
|
199,442
|
|
|
|
25.68
|
%
|
|
$
|
196,804
|
|
|
|
28.65
|
%
|
|
$
|
182,655
|
|
|
|
29.60
|
%
|
Commercial real estate - non-owner occupied
|
|
|
184,688
|
|
|
|
17.59
|
|
|
|
147,580
|
|
|
|
16.63
|
|
|
|
125,442
|
|
|
|
16.15
|
|
|
|
90,676
|
|
|
|
13.20
|
|
|
|
107,213
|
|
|
|
17.38
|
|
Residential real estate
|
|
|
204,413
|
|
|
|
19.47
|
|
|
|
201,447
|
|
|
|
22.70
|
|
|
|
194,213
|
|
|
|
25.01
|
|
|
|
173,639
|
|
|
|
25.27
|
|
|
|
144,521
|
|
|
|
23.43
|
|
Commercial
|
|
|
311,486
|
|
|
|
29.67
|
|
|
|
242,527
|
|
|
|
27.33
|
|
|
|
210,278
|
|
|
|
27.08
|
|
|
|
182,220
|
|
|
|
26.52
|
|
|
|
149,389
|
|
|
|
24.21
|
|
Real estate construction
|
|
|
91,822
|
|
|
|
8.75
|
|
|
|
66,003
|
|
|
|
7.44
|
|
|
|
41,080
|
|
|
|
5.29
|
|
|
|
38,842
|
|
|
|
5.65
|
|
|
|
30,038
|
|
|
|
4.87
|
|
Consumer
|
|
|
6,849
|
|
|
|
0.65
|
|
|
|
10,044
|
|
|
|
1.13
|
|
|
|
6,148
|
|
|
|
0.79
|
|
|
|
4,874
|
|
|
|
0.71
|
|
|
|
3,162
|
|
|
|
0.51
|
|
Total loans
|
|
$
|
1,049,698
|
|
|
|
100.00
|
%
|
|
$
|
887,478
|
|
|
|
100.00
|
%
|
|
$
|
776,603
|
|
|
|
100.00
|
%
|
|
$
|
687,055
|
|
|
|
100.00
|
%
|
|
$
|
616,978
|
|
|
|
100.00
|
%
|
|
|
Loan Maturity Distribution
|
|
|
|
Year
Ended December 31, 2016
|
|
|
|
Three Months or
|
|
|
Over Three Months
|
|
|
Over One Year
|
|
|
Over
|
|
|
|
|
|
|
Less
|
|
|
Through
One Year
|
|
|
Through
Five Years
|
|
|
Five
Years
|
|
|
Total
|
|
|
|
(In Thousands)
|
|
Commercial real estate - owner occupied
|
|
$
|
7,372
|
|
|
$
|
11,542
|
|
|
$
|
52,940
|
|
|
$
|
178,586
|
|
|
$
|
250,440
|
|
Commercial real estate - non-owner occupied
|
|
|
3,967
|
|
|
|
16,872
|
|
|
|
66,489
|
|
|
|
97,360
|
|
|
|
184,688
|
|
Residential real estate
|
|
|
8,056
|
|
|
|
13,206
|
|
|
|
53,132
|
|
|
|
130,019
|
|
|
|
204,413
|
|
Commercial
|
|
|
40,761
|
|
|
|
75,499
|
|
|
|
121,845
|
|
|
|
73,381
|
|
|
|
311,486
|
|
Real estate construction
|
|
|
24,909
|
|
|
|
53,965
|
|
|
|
11,373
|
|
|
|
1,575
|
|
|
|
91,822
|
|
Consumer and other
|
|
|
86
|
|
|
|
739
|
|
|
|
1,874
|
|
|
|
4,150
|
|
|
|
6,849
|
|
Total
|
|
$
|
85,151
|
|
|
$
|
171,823
|
|
|
$
|
307,653
|
|
|
$
|
485,071
|
|
|
$
|
1,049,698
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans with fixed interest rates
|
|
$
|
35,229
|
|
|
$
|
45,301
|
|
|
$
|
171,306
|
|
|
$
|
234,914
|
|
|
$
|
486,750
|
|
Loans with floating interest rates
|
|
|
49,922
|
|
|
|
126,522
|
|
|
|
136,347
|
|
|
|
250,157
|
|
|
|
562,948
|
|
Total
|
|
$
|
85,151
|
|
|
$
|
171,823
|
|
|
$
|
307,653
|
|
|
$
|
485,071
|
|
|
$
|
1,049,698
|
|
Allowance for Loan Losses
The allowance for loan losses totaled $16.0 million at December
31, 2016 compared to $13.6 million at year end 2015. The allowance for loan losses was equivalent to 1.53% of total loans held
for investment at December 31, 2016 and December 31, 2015. Adequacy of the allowance is assessed and increased as determined necessary
by management by provisions for loan losses charged to expense no less than quarterly. Charge-offs are taken when a loan is identified
as uncollectible.
The methodology by which we systematically determine the amount
of our allowance is set forth by the Board of Directors in our Loan Policy and implemented by management. The results of the analysis
are documented, reviewed and approved by the Board of Directors no less than quarterly.
The level of the allowance for loan losses is determined by
management through an ongoing, detailed analysis of historical loss rates and risk characteristics. During each quarter, management
evaluates the collectability of all loans in the portfolio and ensures an accurate risk rating is assigned to each loan. The risk
rating scale and definitions jointly adopted by the Federal banking regulators are used within the framework prescribed by the
Bank’s Loan Policy. Any loan that is deemed to have potential or well defined weaknesses that may jeopardize collection
in full is then analyzed to ascertain its level of weakness. If appropriate, the loan may be charged-off or a specific reserve
may be assigned if the loan is deemed to be impaired.
During the risk rating verification process, each loan identified
as inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged is considered
impaired and is placed on non-accrual status. On these loans, management analyzes the potential impairment of the individual loan
and may set aside a specific reserve. Any amounts deemed uncollectible during that analysis are charged-off.
For the remaining loans in each segment, management calculates
the probability of loss as a group using the risk rating for each of the following loan types: Commercial Real Estate –
owner occupied, Commercial Real Estate – non-owner occupied, Residential Real Estate, Commercial, Real Estate Construction,
and Consumer. Management calculates the historical loss rate in each group by risk rating using a period of at least six years.
This historical loss rate may then be adjusted based on management’s assessment of internal and external environmental factors.
This adjustment is meant to account for changes between the historical economic environment and current conditions and for changes
in the ongoing management of the portfolio which affects the loans’ potential losses.
Once complete, management compares the condition of the portfolio
using several different characteristics as well as its experience to the experience of other banks in its peer group in order
to determine if it is directionally consistent with others’ experiences in our area and line of business. Based on that
analysis, management aggregates the probabilities of loss of the remaining portfolio based on the specific and general allowances
and may provide additional amounts to the allowance for loan losses as needed. Since this process involves estimates, the allowance
for loan losses may also contain an immaterial amount that is not allocated to a specific loan or to a group of loans but is deemed
necessary to absorb additional losses in the portfolio.
Management and the Board of Directors subject the reserve adequacy
and methodology to review on a regular basis to internal auditors and bank regulators, and such reviews have not resulted in any
material adjustment to the reserve.
The
following tables present an analysis of the allowance for loan losses for the periods indicated
.
|
|
Allowance
for Loan Losses
|
|
|
|
Year
Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
|
2012
|
|
|
|
(In Thousands)
|
|
Balance, beginning of year
|
|
$
|
13,563
|
|
|
$
|
13,399
|
|
|
$
|
13,136
|
|
|
$
|
12,500
|
|
|
$
|
11,738
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses
|
|
|
2,120
|
|
|
|
150
|
|
|
|
-
|
|
|
|
675
|
|
|
|
1,515
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate - owner
occupied
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
429
|
|
Commercial real estate - non-owner
occupied
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
103
|
|
Residential real estate
|
|
|
-
|
|
|
|
-
|
|
|
|
21
|
|
|
|
97
|
|
|
|
790
|
|
Commercial
|
|
|
-
|
|
|
|
185
|
|
|
|
22
|
|
|
|
444
|
|
|
|
808
|
|
Real estate construction
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Consumer
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
35
|
|
Total charge-offs
|
|
|
-
|
|
|
|
185
|
|
|
|
43
|
|
|
|
541
|
|
|
|
2,165
|
|
Recoveries:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate - owner
occupied
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Commercial real estate - non-owner
occupied
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
199
|
|
|
|
416
|
|
Residential real estate
|
|
|
40
|
|
|
|
61
|
|
|
|
213
|
|
|
|
111
|
|
|
|
410
|
|
Commercial
|
|
|
285
|
|
|
|
102
|
|
|
|
93
|
|
|
|
179
|
|
|
|
566
|
|
Real estate construction
|
|
|
-
|
|
|
|
36
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Consumer
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
13
|
|
|
|
20
|
|
Total recoveries
|
|
|
325
|
|
|
|
199
|
|
|
|
306
|
|
|
|
502
|
|
|
|
1,412
|
|
Net (charge-offs) recoveries
|
|
|
325
|
|
|
|
14
|
|
|
|
263
|
|
|
|
(39
|
)
|
|
|
(753
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of year
|
|
$
|
16,008
|
|
|
$
|
13,563
|
|
|
$
|
13,399
|
|
|
$
|
13,136
|
|
|
$
|
12,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio
of net charge-offs during the period to average loans outstanding during the period
|
|
|
-0.03
|
%
|
|
|
0.00
|
%
|
|
|
-0.04
|
%
|
|
|
0.01
|
%
|
|
|
0.13
|
%
|
|
|
Allocation of the Allowance
for Loan Losses
|
|
|
|
Year
Ended December 31,
|
|
|
|
2016
|
|
|
Percentage
of total
|
|
|
2015
|
|
|
Percentage
of total
|
|
|
2014
|
|
|
Percentage
of total
|
|
|
2013
|
|
|
Percentage
of total
|
|
|
2012
|
|
|
Percentage
of total
|
|
|
|
(Dollars In Thousands)
|
|
Commercial real estate - owner occupied
|
|
$
|
2,943
|
|
|
|
18.38
|
%
|
|
$
|
3,042
|
|
|
|
22.43
|
%
|
|
$
|
3,229
|
|
|
|
24.10
|
%
|
|
$
|
3,763
|
|
|
|
28.65
|
%
|
|
$
|
3,701
|
|
|
|
29.61
|
%
|
Commercial real estate - non-owner occupied
|
|
|
2,145
|
|
|
|
13.40
|
|
|
|
1,862
|
|
|
|
13.73
|
|
|
|
1,894
|
|
|
|
14.14
|
|
|
|
1,734
|
|
|
|
13.20
|
|
|
|
2,173
|
|
|
|
17.39
|
|
Residential real estate
|
|
|
2,510
|
|
|
|
15.68
|
|
|
|
2,862
|
|
|
|
21.10
|
|
|
|
3,308
|
|
|
|
24.69
|
|
|
|
3,320
|
|
|
|
25.27
|
|
|
|
2,924
|
|
|
|
23.39
|
|
Commercial
|
|
|
7,053
|
|
|
|
44.06
|
|
|
|
4,612
|
|
|
|
34.00
|
|
|
|
4,284
|
|
|
|
31.97
|
|
|
|
3,484
|
|
|
|
26.52
|
|
|
|
3,028
|
|
|
|
24.22
|
|
Real estate construction
|
|
|
1,277
|
|
|
|
7.98
|
|
|
|
1,056
|
|
|
|
7.79
|
|
|
|
596
|
|
|
|
4.45
|
|
|
|
743
|
|
|
|
5.66
|
|
|
|
610
|
|
|
|
4.88
|
|
Consumer
|
|
|
80
|
|
|
|
0.50
|
|
|
|
129
|
|
|
|
0.95
|
|
|
|
88
|
|
|
|
0.65
|
|
|
|
92
|
|
|
|
0.70
|
|
|
|
64
|
|
|
|
0.51
|
|
Total
|
|
$
|
16,008
|
|
|
|
100.00
|
%
|
|
$
|
13,563
|
|
|
|
100.00
|
%
|
|
$
|
13,399
|
|
|
|
100.00
|
%
|
|
$
|
13,136
|
|
|
|
100.00
|
%
|
|
$
|
12,500
|
|
|
|
100.00
|
%
|
Non-performing Assets And Loans Past Due
The following table presents information with respect to non-performing
assets and 90 day delinquencies as of the dates indicated.
|
|
Non-performing
Assets and Accruing Loans Past Due 90 Days or More
|
|
|
|
Year
Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
|
2012
|
|
|
|
(Dollars
In Thousands)
|
|
Non-accrual loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
real estate - owner occupied
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Commercial
real estate - non-owner occupied
|
|
|
-
|
|
|
|
5,486
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Residential
real estate
|
|
|
431
|
|
|
|
163
|
|
|
|
129
|
|
|
|
871
|
|
|
|
922
|
|
Commercial
|
|
|
5,551
|
|
|
|
722
|
|
|
|
1,493
|
|
|
|
1,664
|
|
|
|
1,821
|
|
Real
estate construction
|
|
|
940
|
|
|
|
1,046
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Consumer
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total
non-accrual loans
|
|
|
6,922
|
|
|
|
7,417
|
|
|
|
1,622
|
|
|
|
2,535
|
|
|
|
2,743
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
real estate owned ("OREO")
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
non-performing assets
|
|
$
|
6,922
|
|
|
$
|
7,417
|
|
|
$
|
1,622
|
|
|
$
|
2,535
|
|
|
$
|
2,743
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructured
loans included above in non-accrual loans
|
|
$
|
2,940
|
|
|
$
|
1,046
|
|
|
$
|
698
|
|
|
$
|
931
|
|
|
$
|
759
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of non-performing
assets to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
loans plus OREO
|
|
|
0.66
|
%
|
|
|
0.84
|
%
|
|
|
0.21
|
%
|
|
|
0.37
|
%
|
|
|
0.44
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
|
0.48
|
%
|
|
|
0.63
|
%
|
|
|
0.15
|
%
|
|
|
0.30
|
%
|
|
|
0.32
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accruing past due loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90
or more days past due
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Non-accrual loans totaled $6.9 million at December 31, 2016
and were comprised of seven borrowers. The loans are carried at the current net realizable value after consideration of $3.0 million
in specific reserves. Included in non-accrual loans at December 31, 2016 is a restructured construction loan in the amount of
$940 thousand as well as two commercial loans totaling $2.0 million. There were no restructured loans prior to 2010. The Bank
considers restructurings of loans to troubled borrowers when it is deemed to be beneficial to the borrower and improves the prospects
for complete recovery of the debt.
The accrual of interest is discontinued at the time a loan
is 90 days delinquent unless the credit is well-secured and in process of collection. When a loan is placed on non-accrual, accrued
and unpaid interest is reversed from interest income. Subsequent receipts on non-accrual loans are recorded as a reduction to
the principal balance. Interest income is recorded only after principal recovery is complete.
The loss potential for each loan has been evaluated, and in
management’s opinion, the risk of loss is adequately reserved against. Management actively works with the borrowers to maximize
the potential for repayment and reports on the status to the Board of Directors monthly.
During 2014, ARE transferred an undeveloped commercial lot
that was originally purchased for possible future banking center expansion to other assets available for sale when management
listed the property for sale. The land, originally purchased for $1.2 million, was recorded at its appraised value less costs
to sell. As such, ARE recorded an impairment charge of $707 thousand in the third quarter of 2014. The property was sold in 2016.
Deposits
Deposits totaled $1.05 billion at December 31, 2016 and
were comprised of noninterest-bearing demand deposits in the amount of $362.0 million, savings and interest-bearing deposits in
the amount of $440.6 million, and time deposits in the amount of $251.7 million. Total deposits increased $140.6 million from
December 31, 2015. Noninterest-bearing deposits increased $54.2 million from $307.8 million at December 31, 2015 to $362.0 million
at December 31, 2016. This increase in noninterest-bearing accounts is due to a combination of new accounts and increased balances
in existing commercial accounts at year end. Savings and interest-bearing deposit accounts increased $146.9 million from $293.7
million at December 31, 2015 to $440.6 million at December 31, 2016. This increase was due to targeted marketing campaigns initiated
in 2016. Time deposits decreased $60.5 million and totaled $251.7 million at December 31, 2016 compared to $312.2 million in 2015
due to a decrease in wholesale funding.
We use wholesale funding or brokered deposits to supplement
traditional customer deposits for liquidity and to maintain our desired interest rate risk position. Together with FHLB borrowings
we use brokered deposits to fund the short-term cash needs associated with the LHFS activities discussed under “Loans”
as well as other funding needs. Brokered deposits totaled $132.6 million at December 31, 2016, which included $75.2 million in
CDARS/ICS deposits as compared to $191.9 million at December 31, 2015, which included $88.5 million in CDARS/ICS deposits.
Through CDARS our depositors are able to obtain FDIC insurance
of up to $50 million. The FDIC currently classifies CDARS deposits as brokered deposits, even though the deposits originate from
our customers. These deposits are placed at other participating financial institutions to obtain FDIC insurance, and we receive
a reciprocal amount in return from these financial institutions.
True brokered deposits have decreased from $103.4 million at
December 31, 2015 to $57.4 million at December 31, 2016. Brokered deposits are viewed by many as being volatile and unstable;
however, unlike retail certificates of deposit, there are no early withdrawal options on brokered certificates of deposit for
any reason other than death of the underlying depositors. Brokered deposits provide funding flexibility and can be renewed at
maturity, allowed to roll off or increased or decreased without any impact on core deposit relationships.
We manage the roll over risk of all deposits by maintaining
liquid assets in the form of interest-bearing balances at the FRB and FHLB as well as investment securities available-for-sale
and loans held for sale. In addition we also maintain lines of credit with the FHLB, FRB, and correspondent banks. At December
31, 2016 there was $212.1 million available under these lines of credit.
Depositors have been reluctant to extend maturities on certificates
of deposits due to the low interest rate environment which has resulted in an increase in certificates of deposits maturing in
the one year or less category. We anticipate that we will renew these certificates of deposits depending on our current funding
needs. Our Asset Liability Committee monitors the level of re-pricing assets and liabilities and establishes pricing guidelines
to maintain net interest margins.
The daily average balances and weighted average rates paid
on deposits for each of the years ended December 31, 2016, 2015, and 2014 are presented below.
|
|
Average Deposits and Average Rates Paid
|
|
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
Average
|
|
|
Income /
|
|
|
Yield /
|
|
|
Average
|
|
|
Income /
|
|
|
Yield /
|
|
|
Average
|
|
|
Income /
|
|
|
Yield /
|
|
|
|
Balance
|
|
|
Expense
|
|
|
Rate
|
|
|
Balance
|
|
|
Expense
|
|
|
Rate
|
|
|
Balance
|
|
|
Expense
|
|
|
Rate
|
|
|
|
(Dollars In Thousands)
|
|
Interest-bearing demand deposits
|
|
$
|
132,734
|
|
|
$
|
486
|
|
|
|
0.37
|
%
|
|
$
|
119,732
|
|
|
$
|
265
|
|
|
|
0.22
|
%
|
|
$
|
114,853
|
|
|
$
|
256
|
|
|
|
0.22
|
%
|
Money market deposit accounts
|
|
|
204,897
|
|
|
|
846
|
|
|
|
0.41
|
%
|
|
|
126,850
|
|
|
|
264
|
|
|
|
0.21
|
%
|
|
|
115,192
|
|
|
|
232
|
|
|
|
0.20
|
%
|
Savings accounts
|
|
|
37,950
|
|
|
|
196
|
|
|
|
0.52
|
%
|
|
|
13,606
|
|
|
|
66
|
|
|
|
0.49
|
%
|
|
|
3,884
|
|
|
|
14
|
|
|
|
0.36
|
%
|
Time deposits
|
|
|
286,690
|
|
|
|
3,622
|
|
|
|
1.26
|
%
|
|
|
302,924
|
|
|
|
3,053
|
|
|
|
1.01
|
%
|
|
|
243,338
|
|
|
|
2,479
|
|
|
|
1.02
|
%
|
Total interest-bearing deposits
|
|
$
|
662,271
|
|
|
$
|
5,150
|
|
|
|
0.78
|
%
|
|
$
|
563,112
|
|
|
$
|
3,648
|
|
|
|
0.65
|
%
|
|
$
|
477,267
|
|
|
$
|
2,981
|
|
|
|
0.62
|
%
|
Noninterest-bearing demand deposits
|
|
|
359,352
|
|
|
|
|
|
|
|
|
|
|
|
303,583
|
|
|
|
|
|
|
|
|
|
|
|
238,118
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
$
|
1,021,623
|
|
|
|
|
|
|
|
|
|
|
$
|
866,695
|
|
|
|
|
|
|
|
|
|
|
$
|
715,385
|
|
|
|
|
|
|
|
|
|
The table below presents the maturity distribution of time
deposits at December 31, 2016.
|
|
Certificate of Deposit Maturity Distribution
|
|
|
|
Year Ended December
31, 2016
|
|
|
|
Three months
|
|
|
Over three
|
|
|
Over
|
|
|
|
|
|
|
or less
|
|
|
through twelve months
|
|
|
twelve months
|
|
|
Total
|
|
|
|
(In Thousands)
|
|
Less than $100,000
|
|
$
|
5,152
|
|
|
$
|
35,365
|
|
|
$
|
39,327
|
|
|
$
|
79,844
|
|
Greater than or equal to $100,000
|
|
|
15,097
|
|
|
|
103,925
|
|
|
|
52,840
|
|
|
|
171,862
|
|
|
|
$
|
20,249
|
|
|
$
|
139,290
|
|
|
$
|
92,167
|
|
|
$
|
251,706
|
|
Borrowings
Borrowed funds generally consist of advances from the FHLB,
securities sold under agreements to repurchase, and federal funds purchased. At December 31, 2016 borrowed funds totaled $246.0
million, compared to $146.1 million at December 31, 2015.
Securities sold under agreements to repurchase represent overnight
investment of funds from commercial checking accounts pursuant to sweep agreements which enable our corporate clients to receive
interest on their excess funds.
The following table provides a breakdown of all borrowed funds.
|
|
Borrowed Funds Distribution
|
|
|
|
Year Ended December
31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
(Dollars In Thousands)
|
|
Borrowings:
|
|
|
|
|
|
|
|
|
|
|
|
|
At Period End
|
|
|
|
|
|
|
|
|
|
|
|
|
FHLB short-term borrowings
|
|
$
|
129,000
|
|
|
$
|
70,000
|
|
|
$
|
160,000
|
|
Securities sold under agreements to repurchase
|
|
|
17,009
|
|
|
|
21,129
|
|
|
|
25,635
|
|
FHLB long-term borrowings
|
|
|
60,000
|
|
|
|
55,000
|
|
|
|
-
|
|
Federal funds purchased
|
|
|
40,000
|
|
|
|
-
|
|
|
|
-
|
|
Total at period end
|
|
$
|
246,009
|
|
|
$
|
146,129
|
|
|
$
|
185,635
|
|
|
|
Year
Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
(Dollars In Thousands)
|
|
Borrowings:
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Balances
|
|
|
|
|
|
|
|
|
|
|
|
|
FHLB short-term borrowings
|
|
$
|
56,522
|
|
|
$
|
91,992
|
|
|
$
|
115,471
|
|
Securities sold under agreements to repurchase
|
|
|
16,038
|
|
|
|
21,853
|
|
|
|
21,071
|
|
FHLB long-term borrowings
|
|
|
68,525
|
|
|
|
18,890
|
|
|
|
-
|
|
Federal funds purchased
|
|
|
232
|
|
|
|
164
|
|
|
|
58
|
|
Total average balance
|
|
$
|
141,317
|
|
|
$
|
132,899
|
|
|
$
|
136,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average rate paid on all borrowed
funds
|
|
|
0.82
|
%
|
|
|
0.35
|
%
|
|
|
0.21
|
%
|
|
|
Year
Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(Dollars In Thousands)
|
|
Average rate paid on all borrowed funds
|
|
Average Balances
|
|
|
Expense
|
|
|
Yield
|
|
|
Average Balances
|
|
|
Expense
|
|
|
Yield
|
|
FHLB advances and other borrowings
|
|
$
|
125,047
|
|
|
$
|
1,138
|
|
|
|
0.91
|
%
|
|
$
|
110,882
|
|
|
$
|
450
|
|
|
|
0.41
|
%
|
Securities sold under agreements to repurchase
|
|
|
16,038
|
|
|
|
16
|
|
|
|
0.10
|
%
|
|
|
21,853
|
|
|
|
20
|
|
|
|
0.09
|
%
|
Fed funds purchased
|
|
|
232
|
|
|
|
-
|
|
|
|
0.00
|
%
|
|
|
164
|
|
|
|
1
|
|
|
|
0.01
|
%
|
|
|
$
|
141,317
|
|
|
$
|
1,154
|
|
|
|
0.82
|
%
|
|
$
|
132,899
|
|
|
$
|
471
|
|
|
|
0.35
|
%
|
Maximum balances at any given month-end
during the periods of analysis are reflected in the following table:
|
|
Year Ended December
31,
|
|
|
2016
|
|
2015
|
|
2014
|
|
|
Maximum Balance at
|
|
Maximum Balance at
|
|
Maximum Balance at
|
|
|
any month-end
|
|
any month-end
|
|
any month-end
|
|
|
(Dollars In Thousands)
|
FHLB short term borrowings
|
|
$
|
129,000
|
|
|
December
|
|
$
|
160,000
|
|
|
January
|
|
$
|
161,000
|
|
|
November
|
Securities sold under agreements to repurchase
|
|
|
20,701
|
|
|
November
|
|
|
26,242
|
|
|
January
|
|
|
33,980
|
|
|
April
|
FHLB long term borrowings
|
|
|
80,000
|
|
|
February
|
|
|
-
|
|
|
|
|
|
-
|
|
|
|
Fed funds purchased
|
|
|
40,000
|
|
|
December
|
|
|
-
|
|
|
|
|
|
10,000
|
|
|
September
|
Shareholders’ Equity
Shareholders’ equity totaled $120.5 million at December
31, 2016, compared to $109.1 million at December 31, 2015. Major changes in shareholders’ equity during 2016 include net
income of $16.4 million, $532 thousand from proceeds of stock options exercised, and stock based compensation of $335 thousand,
an unrealized comprehensive loss on available-for-sale securities of $564 thousand, and cash dividends paid of $6.4 million.
Banking regulators have defined minimum regulatory capital
ratios that the Corporation and the Bank are required to maintain. These risk-based capital guidelines take into consideration
risk factors, as defined by the banking regulators, associated with various categories of assets, both on and off the balance
sheet. Both the Corporation and Bank are classified as well capitalized, which is the highest rating. The Corporation’s
capital strategy is to remain well capitalized under regulatory standards and maintain a minimum tangible common equity to asset
ratio of 8.00% but less than 10.50%.
The table below presents an analysis of risk-based capital
and outlines the regulatory components of capital and risk-based capital ratios for the Corporation.
|
|
Risk Based
Capital Analysis
|
|
|
|
Year
Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
(Dollars In Thousands)
|
|
Tier 1 Capital:
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
$
|
8,881
|
|
|
$
|
8,805
|
|
|
$
|
8,742
|
|
Additional paid in capital
|
|
|
21,779
|
|
|
|
19,953
|
|
|
|
18,538
|
|
Retained earnings
|
|
|
91,439
|
|
|
|
81,385
|
|
|
|
72,168
|
|
Less: Disallowed goodwill and
other disallowed intangible assets
|
|
|
(1,432
|
)
|
|
|
(1,380
|
)
|
|
|
(1,491
|
)
|
Less:
Disallowed servicing assets and loss on equity security
|
|
|
(350
|
)
|
|
|
(280
|
)
|
|
|
(244
|
)
|
Total Tier 1 Capital
|
|
$
|
120,317
|
|
|
$
|
108,483
|
|
|
$
|
97,713
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for loan losses
|
|
|
14,692
|
|
|
|
12,200
|
|
|
|
10,980
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Risk
Based Capital
|
|
$
|
135,009
|
|
|
$
|
120,683
|
|
|
$
|
108,693
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk weighted assets
|
|
$
|
1,173,330
|
|
|
$
|
973,908
|
|
|
$
|
875,862
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarterly average assets
|
|
$
|
1,351,708
|
|
|
$
|
1,161,080
|
|
|
$
|
1,007,628
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk-Based Capital Ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
Common equity tier 1 capital ratio
|
|
|
10.25
|
%
|
|
|
11.14
|
%
|
|
|
NA
|
|
Tier 1 capital ratio
|
|
|
10.25
|
%
|
|
|
11.14
|
%
|
|
|
11.16
|
%
|
Total capital ratio
|
|
|
11.51
|
%
|
|
|
12.39
|
%
|
|
|
12.41
|
%
|
Leverage Capital Ratio:
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 leverage ratio
|
|
|
8.90
|
%
|
|
|
9.34
|
%
|
|
|
9.70
|
%
|
Liquidity Management
Liquidity is the ability of the Corporation to meet current
and future cash flow requirements. The liquidity of a financial institution reflects its ability to convert assets into cash or
cash equivalents without significant loss and to raise additional funds by increasing liabilities. Liquidity management involves
maintaining the Corporation’s ability to meet the daily cash flow requirements of both depositors and borrowers.
Asset and liability management functions not only serve to
assure adequate liquidity in order to meet the needs of the Corporation’s customers, but also to maintain an appropriate
balance between interest sensitive assets and interest sensitive liabilities so that the Corporation can earn an appropriate return
for its shareholders.
The asset portion of the balance sheet provides liquidity primarily
through loan principal repayments and maturities of investment securities. Other short-term investments such as federal funds
sold and interest-bearing deposits with other banks are additional sources of liquidity funding. At December 31, 2016, overnight
interest-bearing balances totaled $81.9 million and securities available-for-sale totaled $194.1 million.
The liability portion of the balance sheet provides liquidity
through various interest-bearing and noninterest-bearing deposit accounts, federal funds purchased, securities sold under agreement
to repurchase and other short-term borrowings. At December 31, 2016, the Bank had a line of credit with the FHLB totaling $408.7
million with short-term borrowings of $129.0 million, long-term borrowings of $60.0 million, and a FHLB letter of credit for $35.0
million leaving approximately $184.7 million available on the line. In addition to the line of credit at the FHLB, the Bank issues
repurchase agreements. As of December 31, 2016, outstanding repurchase agreements totaled $17.0 million. The interest rate
on these instruments is variable and subject to change daily. The Bank also maintains federal funds lines of credit with its correspondent
banks and, at December 31, 2016, available credit under these lines amounted to $22.4 million as $40.0 million was advanced
upon at year end.
The Bank relies on deposits and other short and long-term resources
for liquidity from a variety of sources that substantially reduces reliance upon any single provider. The Corporation expects
its short and long-term sources of liquidity and capital to remain adequate to support expected growth.
Contractual Obligations
The following table summarizes the Corporation’s significant
fixed and determinable contractual obligations to make future payments as of December 31, 2016.
|
|
December 31, 2016
|
|
|
|
Less Than
|
|
|
1 - 3
|
|
|
More Than
|
|
|
|
|
1 Year
|
|
|
Years
|
|
|
3 Years
|
|
|
Total
|
|
|
|
(In Thousands)
|
|
Certificates of deposit
|
|
$
|
159,539
|
|
|
$
|
75,585
|
|
|
$
|
16,582
|
|
|
$
|
251,706
|
|
FHLB Advances
|
|
|
129,000
|
|
|
|
50,000
|
|
|
|
10,000
|
|
|
|
189,000
|
|
Securities sold under agreements to repurchase
|
|
|
17,009
|
|
|
|
-
|
|
|
|
-
|
|
|
|
17,009
|
|
Federal funds purchased
|
|
|
40,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
40,000
|
|
Leases
|
|
|
431
|
|
|
|
838
|
|
|
|
2,131
|
|
|
|
3,400
|
|
Total
|
|
$
|
345,979
|
|
|
$
|
126,423
|
|
|
$
|
28,713
|
|
|
$
|
501,115
|
|
The Corporation generates sufficient cash flows and has adequate
resources to meet its contractual obligations. We anticipate that substantially all of the maturing certificates of deposit will
be renewed with the exception of certain brokered deposits that we intentionally will not be renewing. Securities sold under agreements
to repurchase are likely to remain substantially the same as this item represents funds from overnight sweep agreements with our
commercial checking customers.
Off Balance Sheet Items
During the ordinary course of business, the Bank issues commitments
to extend credit and, at December 31, 2016, these commitments amounted to $364.7 million. Included in this balance are $9.6
million in performance standby letters of credit. These commitments do not necessarily represent cash requirements, since many
commitments are expected to expire without being drawn on.
The Mortgage Division had open forward contracts at December
31, 2016 with notional values totaling $54.3 million. See Notes 8 and 9 to the consolidated financial statements for further information.
The Mortgage Division has agreements with a variety of counterparties
to whom mortgage loans are sold on a non-recourse basis. As customary in the industry, the agreements require the Mortgage Division
to extend representations and warranties with respect to program compliance, borrower misrepresentation, fraud, and early payment
performance. Under the agreements, the counterparties are entitled to make loss claims and repurchase requests of the Mortgage
Division for loans that contain covered deficiencies. The Mortgage Division has adopted a reserve methodology whereby provisions
are made to an expense account to fund a reserve maintained as a liability account on the balance sheet for potential losses.
The amount of the provision and adequacy of the reserve is recommended by management and approved by the Board no less than quarterly.
Management estimates the reserve based upon an analysis of historical loss experiences and actual settlements with our counterparties.
A schedule of expected losses on loans with claims or indemnifications is maintained to ensure the reserve equals or exceeds the
estimate of loss. Claims in process are recognized in the period received, actively monitored and subject to validation prior
to payment. Often times, claims are not factually validated and the claim is rescinded. Once claims are validated
and the actual or potential loss is agreed upon with the counterparty, the reserve is charged and a cash payment is made to settle
the claim. The loan performance data of sold loans is not always made available to the Mortgage Division by the counterparties,
thereby making it difficult to estimate the timing and amount of claims until such time as claims are actually presented. Through
careful monitoring and conservative estimates, the balance of the reserve has adequately provided for all claims since established.
At December 31, 2016 and 2015 the balance in this reserve totaled approximately $1.0 million and is included in “Other liabilities
and accrued expenses” on the balance sheet.
Recent Accounting Pronouncements
Refer to Note 1 to the consolidated financial statements.
ITEM 8 – FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA
Report of Independent Registered Public
Accounting Firm
Board of Directors and Shareholders
Access National Corporation
Reston, Virginia
We have audited the accompanying
consolidated balance sheets of Access National Corporation as of December 31, 2016 and 2015 and the related consolidated statements
of income, comprehensive income, changes in shareholders’ equity, and cash flows for each of the three years in the period
ended December 31, 2016. These financial statements are the responsibility of the Corporation’s management. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with
the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial
statements referred to above present fairly, in all material respects, the financial position of Access National Corporation at
December 31, 2016 and 2015, and the results of its operations and its cash flows for each of the three years in the period ended
December 31, 2016, in conformity with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), Access National Corporation’s internal control over financial
reporting as of December 31, 2016, based on criteria established in
Internal Control – Integrated Framework (2013)
issued
by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated March 16, 2017 expressed an
unqualified opinion thereon.
/S/
BDO USA, LLP
|
|
|
|
BDO
USA, LLP
|
|
Richmond,
Virginia
|
|
March
16, 2017
|
|
Report of Independent Registered Public Accounting Firm
Board of Directors and Shareholders
Access National Corporation
Reston, Virginia
We have audited Access National Corporation’s internal
control over financial reporting as of December 31, 2016, based on criteria established in
Internal Control-Integrated Framework
(2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Access
National Corporation’s management is responsible for maintaining effective internal control over financial reporting and
for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s
Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Corporation’s
internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of
the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the
risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based
on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting
is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles. A company’s
internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records
that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance
with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on
the financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to
future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, Access National Corporation maintained, in
all material respects, effective internal control over financial reporting as of December 31, 2016, based on the COSO criteria.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the accompanying consolidated balance sheets of Access National Corporation
as of December 31, 2016 and 2015, and the related consolidated statements of income, comprehensive income, changes in shareholders’
equity and cash flows for each of the three years in the period ended December 31, 2016, and our report dated March 16, 2017 expressed
an unqualified opinion thereon.
/S/
BDO USA, LLP
|
|
|
|
BDO
USA, LLP
|
|
Richmond,
Virginia
|
|
March
16, 2017
|
|
ACCESS NATIONAL CORPORATION
Consolidated Balance Sheets
(In Thousands, Except for Share and Per
Share Data)
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
9,186
|
|
|
$
|
11,291
|
|
Interest-bearing deposits in other banks and federal funds sold
|
|
|
81,873
|
|
|
|
24,598
|
|
Total cash and cash equivalents
|
|
|
91,059
|
|
|
|
35,889
|
|
|
|
|
|
|
|
|
|
|
Securities available-for-sale, at fair value
|
|
|
194,090
|
|
|
|
160,162
|
|
Securities held-to-maturity, at amortized cost (fair value of $9,293 and
$14,314)
|
|
|
9,200
|
|
|
|
14,287
|
|
Total investment securities
|
|
|
203,290
|
|
|
|
174,449
|
|
|
|
|
|
|
|
|
|
|
Restricted stock
|
|
|
10,092
|
|
|
|
7,259
|
|
Loans held for sale
|
|
|
35,676
|
|
|
|
44,135
|
|
Loans, net of allowance for loan losses 2016 - $16,008; 2015 - $13,563
|
|
|
1,033,690
|
|
|
|
873,915
|
|
Premises, equipment and land, net
|
|
|
7,084
|
|
|
|
6,689
|
|
Accrued interest receivable and other assets
|
|
|
49,817
|
|
|
|
36,212
|
|
Total assets
|
|
$
|
1,430,708
|
|
|
$
|
1,178,548
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders' Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
|
|
|
|
|
|
Noninterest-bearing deposits
|
|
$
|
362,036
|
|
|
$
|
307,797
|
|
Savings and interest-bearing deposits
|
|
|
440,585
|
|
|
|
293,711
|
|
Time deposits
|
|
|
251,706
|
|
|
|
312,236
|
|
Total deposits
|
|
|
1,054,327
|
|
|
|
913,744
|
|
|
|
|
|
|
|
|
|
|
Short-term borrowings
|
|
|
186,009
|
|
|
|
91,129
|
|
Long-term borrowings
|
|
|
60,000
|
|
|
|
55,000
|
|
Other liabilities and accrued expenses
|
|
|
9,842
|
|
|
|
9,537
|
|
Total liabilities
|
|
|
1,310,178
|
|
|
|
1,069,410
|
|
|
|
|
|
|
|
|
|
|
Shareholders' Equity
|
|
|
|
|
|
|
|
|
Common stock, par value $0.835, authorized 60,000,000
shares, issued and outstanding, 2016 - 10,636,242 and 2015 - 10,544,751
|
|
|
8,881
|
|
|
|
8,805
|
|
Additional paid-in capital
|
|
|
21,779
|
|
|
|
19,953
|
|
Retained earnings
|
|
|
91,439
|
|
|
|
81,385
|
|
Accumulated other comprehensive loss, net
|
|
|
(1,569
|
)
|
|
|
(1,005
|
)
|
Total shareholders' equity
|
|
|
120,530
|
|
|
|
109,138
|
|
Total liabilities and shareholders' equity
|
|
$
|
1,430,708
|
|
|
$
|
1,178,548
|
|
See accompanying notes to consolidated financial statements.
ACCESS NATIONAL CORPORATION
Consolidated Statements of Income
(In Thousands, Except for Share and Per
Share Data)
|
|
Year Ended
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Interest and Dividend Income
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$
|
45,639
|
|
|
$
|
40,055
|
|
|
$
|
35,702
|
|
Interest-bearing deposits and
federal funds sold
|
|
|
337
|
|
|
|
129
|
|
|
|
102
|
|
Securities
|
|
|
4,039
|
|
|
|
3,482
|
|
|
|
2,697
|
|
Total interest
and dividend income
|
|
|
50,015
|
|
|
|
43,666
|
|
|
|
38,501
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
5,150
|
|
|
|
3,648
|
|
|
|
2,981
|
|
Short-term borrowings
|
|
|
402
|
|
|
|
252
|
|
|
|
292
|
|
Long-term
borrowings
|
|
|
752
|
|
|
|
219
|
|
|
|
-
|
|
Total interest
expense
|
|
|
6,304
|
|
|
|
4,119
|
|
|
|
3,273
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
43,711
|
|
|
|
39,547
|
|
|
|
35,228
|
|
Provision for loan losses
|
|
|
2,120
|
|
|
|
150
|
|
|
|
-
|
|
Net interest
income after provision for loan losses
|
|
|
41,591
|
|
|
|
39,397
|
|
|
|
35,228
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest Income
|
|
|
|
|
|
|
|
|
|
|
|
|
Service fees on deposit accounts
|
|
|
971
|
|
|
|
903
|
|
|
|
695
|
|
Gain on sale of loans
|
|
|
25,164
|
|
|
|
19,633
|
|
|
|
15,146
|
|
Other income
|
|
|
5,668
|
|
|
|
5,529
|
|
|
|
3,459
|
|
Total noninterest
income
|
|
|
31,803
|
|
|
|
26,065
|
|
|
|
19,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation and employee benefits
|
|
|
31,778
|
|
|
|
26,966
|
|
|
|
22,654
|
|
Occupancy
|
|
|
1,685
|
|
|
|
1,594
|
|
|
|
1,602
|
|
Furniture and equipment
|
|
|
1,359
|
|
|
|
1,446
|
|
|
|
1,219
|
|
Other
|
|
|
12,968
|
|
|
|
11,860
|
|
|
|
7,543
|
|
Total noninterest
expense
|
|
|
47,790
|
|
|
|
41,866
|
|
|
|
33,018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
25,604
|
|
|
|
23,596
|
|
|
|
21,510
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
|
9,200
|
|
|
|
8,177
|
|
|
|
7,585
|
|
Net Income
|
|
$
|
16,404
|
|
|
$
|
15,419
|
|
|
$
|
13,925
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.55
|
|
|
$
|
1.46
|
|
|
$
|
1.33
|
|
Diluted
|
|
$
|
1.54
|
|
|
$
|
1.46
|
|
|
$
|
1.33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average outstanding shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
10,586,394
|
|
|
|
10,513,008
|
|
|
|
10,424,067
|
|
Diluted
|
|
|
10,677,561
|
|
|
|
10,581,871
|
|
|
|
10,466,841
|
|
See accompanying notes to consolidated financial statements.
ACCESS NATIONAL CORPORATION
Consolidated Statements of Comprehensive
Income
(In Thousands)
|
|
Year Ended
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Net
income
|
|
$
|
16,404
|
|
|
$
|
15,419
|
|
|
$
|
13,925
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains (losses) on
securities
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding gains (losses)
arising during period
|
|
|
(816
|
)
|
|
|
(528
|
)
|
|
|
2,206
|
|
Less: reclassification adjustment
for gains included in net income
|
|
|
(52
|
)
|
|
|
(188
|
)
|
|
|
(18
|
)
|
Tax effect
|
|
|
304
|
|
|
|
255
|
|
|
|
(766
|
)
|
Net of tax amount
|
|
|
(564
|
)
|
|
|
(461
|
)
|
|
|
1,422
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
income
|
|
$
|
15,840
|
|
|
$
|
14,958
|
|
|
$
|
15,347
|
|
See accompanying notes to consolidated financial statements.
ACCESS NATIONAL CORPORATION
Consolidated Statements of Changes in Shareholders'
Equity
(In Thousands, Except for Share and Per
Share Data)
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Compre-
|
|
|
|
|
|
|
Common
|
|
|
Paid in
|
|
|
Retained
|
|
|
hensive
|
|
|
|
|
|
|
Stock
|
|
|
Capital
|
|
|
Earnings
|
|
|
Income
(Loss)
|
|
|
Total
|
|
Balance, December
31, 2013
|
|
$
|
8,659
|
|
|
$
|
17,320
|
|
|
$
|
67,121
|
|
|
$
|
(1,966
|
)
|
|
$
|
91,134
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
-
|
|
|
|
-
|
|
|
|
13,925
|
|
|
|
-
|
|
|
|
13,925
|
|
Other comprehensive loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,422
|
|
|
|
1,422
|
|
Stock options exercised (76,132
shares)
|
|
|
63
|
|
|
|
617
|
|
|
|
-
|
|
|
|
-
|
|
|
|
680
|
|
Repurchase
of common stock under share repurchase program (24,017 shares)
|
|
|
20
|
|
|
|
365
|
|
|
|
-
|
|
|
|
-
|
|
|
|
385
|
|
Cash dividends ($0.50 per share)
|
|
|
-
|
|
|
|
-
|
|
|
|
(5,214
|
)
|
|
|
-
|
|
|
|
(5,214
|
)
|
Cash dividend declared ($0.35 per share)
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,664
|
)
|
|
|
-
|
|
|
|
(3,664
|
)
|
Stock-based
compensation expense recognized in earnings
|
|
|
-
|
|
|
|
236
|
|
|
|
-
|
|
|
|
-
|
|
|
|
236
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2014
|
|
$
|
8,742
|
|
|
$
|
18,538
|
|
|
$
|
72,168
|
|
|
$
|
(544
|
)
|
|
$
|
98,904
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
-
|
|
|
|
-
|
|
|
|
15,419
|
|
|
|
-
|
|
|
|
15,419
|
|
Other comprehensive income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(461
|
)
|
|
|
(461
|
)
|
Stock options exercised (29,975
shares)
|
|
|
26
|
|
|
|
354
|
|
|
|
-
|
|
|
|
-
|
|
|
|
380
|
|
Issuance of restricted common
stock (7,500 shares)
|
|
|
6
|
|
|
|
122
|
|
|
|
-
|
|
|
|
-
|
|
|
|
128
|
|
Dividend
reinvestment plan shares issued from reserve (37,707 shares)
|
|
|
31
|
|
|
|
607
|
|
|
|
-
|
|
|
|
-
|
|
|
|
638
|
|
Cash dividends ($0.58 per share)
|
|
|
-
|
|
|
|
-
|
|
|
|
(6,202
|
)
|
|
|
-
|
|
|
|
(6,202
|
)
|
Stock-based
compensation expense recognized in earnings
|
|
|
-
|
|
|
|
332
|
|
|
|
-
|
|
|
|
-
|
|
|
|
332
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December
31, 2015
|
|
$
|
8,805
|
#
|
|
$
|
19,953
|
#
|
|
$
|
81,385
|
#
|
|
$
|
(1,005
|
)#
|
|
$
|
109,138
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
-
|
|
|
|
-
|
|
|
|
16,404
|
|
|
|
-
|
|
|
|
16,404
|
|
Other comprehensive loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(564
|
)
|
|
|
(564
|
)
|
Stock options exercised (43,801
shares)
|
|
|
36
|
|
|
|
496
|
|
|
|
-
|
|
|
|
-
|
|
|
|
532
|
|
Issuance of restricted common
stock (6,205 shares)
|
|
|
5
|
|
|
|
123
|
|
|
|
-
|
|
|
|
-
|
|
|
|
128
|
|
Dividend
reinvestment plan shares issued from reserve (41,485 shares)
|
|
|
35
|
|
|
|
872
|
|
|
|
-
|
|
|
|
-
|
|
|
|
907
|
|
Cash dividends ($0.60 per share)
|
|
|
-
|
|
|
|
-
|
|
|
|
(6,350
|
)
|
|
|
-
|
|
|
|
(6,350
|
)
|
Stock-based
compensation expense recognized in earnings
|
|
|
-
|
|
|
|
335
|
|
|
|
-
|
|
|
|
-
|
|
|
|
335
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2016
|
|
$
|
8,881
|
|
|
$
|
21,779
|
|
|
$
|
91,439
|
|
|
$
|
(1,569
|
)
|
|
$
|
120,530
|
|
See accompanying notes to consolidated financial statements.
ACCESS NATIONAL CORPORATION
Consolidated Statements of Cash Flows
(In Thousands)
|
|
Years Ended December 31
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Cash Flows from Operating Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
16,404
|
|
|
$
|
15,419
|
|
|
$
|
13,925
|
|
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses
|
|
|
2,120
|
|
|
|
150
|
|
|
|
-
|
|
Provision for (recapture of provision for) losses on mortgage loans sold
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,250
|
)
|
Provision for off balance sheet losses
|
|
|
-
|
|
|
|
109
|
|
|
|
5
|
|
Writedown of other real estate owned
|
|
|
-
|
|
|
|
-
|
|
|
|
707
|
|
Income from bank-owned life insurance
|
|
|
(558
|
)
|
|
|
(460
|
)
|
|
|
(332
|
)
|
(Gain) loss on sale of securities
|
|
|
(109
|
)
|
|
|
89
|
|
|
|
47
|
|
Loss on sale of other real estate owned
|
|
|
35
|
|
|
|
-
|
|
|
|
-
|
|
Deferred tax (benefit) expense
|
|
|
(698
|
)
|
|
|
(534
|
)
|
|
|
866
|
|
Stock-based compensation
|
|
|
335
|
|
|
|
332
|
|
|
|
236
|
|
Valuation (allowance) release on derivatives
|
|
|
(394
|
)
|
|
|
(383
|
)
|
|
|
205
|
|
Net amortization on securities
|
|
|
2,051
|
|
|
|
1,077
|
|
|
|
790
|
|
Depreciation and amortization
|
|
|
515
|
|
|
|
507
|
|
|
|
485
|
|
Loss on disposal of assets
|
|
|
-
|
|
|
|
-
|
|
|
|
2
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease (increase) in valuation of loans held for sale carried at fair
value
|
|
|
669
|
|
|
|
240
|
|
|
|
(1,210
|
)
|
Originations of loans held for sale
|
|
|
(537,076
|
)
|
|
|
(484,747
|
)
|
|
|
(408,346
|
)
|
Proceeds from sales of loans held for sale
|
|
|
544,866
|
|
|
|
485,398
|
|
|
|
388,883
|
|
Increase in other assets
|
|
|
(2,113
|
)
|
|
|
(1,470
|
)
|
|
|
(3,342
|
)
|
Increase in other liabilities
|
|
|
230
|
|
|
|
382
|
|
|
|
1,944
|
|
Net cash provided by (used in) operating activities
|
|
|
26,277
|
|
|
|
16,109
|
|
|
|
(8,385
|
)
|
Cash Flows from Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from maturities and calls of securities available-for-sale
|
|
|
15,883
|
|
|
|
18,180
|
|
|
|
8,940
|
|
Proceeds from sale of available-for-sale securities
|
|
|
13,200
|
|
|
|
31,151
|
|
|
|
26,613
|
|
Purchases of securities available-for-sale
|
|
|
(65,734
|
)
|
|
|
(86,264
|
)
|
|
|
(82,708
|
)
|
Proceeds from maturities and calls of securities held-to-maturity
|
|
|
5,000
|
|
|
|
-
|
|
|
|
5,000
|
|
Purchase of securities held-to-maturity
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,055
|
)
|
Purchases of Federal Reserve and Federal Home Loan Bank Stock
|
|
|
(9,761
|
)
|
|
|
(13,843
|
)
|
|
|
(16,470
|
)
|
Proceeds from redemption of Federal Reserve and Federal Home Loan Bank Stock
|
|
|
6,928
|
|
|
|
15,545
|
|
|
|
16,068
|
|
Purchase of bank owned life insurance
|
|
|
(10,000
|
)
|
|
|
-
|
|
|
|
(15,000
|
)
|
Net increase in loans
|
|
|
(161,895
|
)
|
|
|
(110,861
|
)
|
|
|
(89,285
|
)
|
Proceeds from sale of equipment
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
|
Proceeds from the settlement of other real estate owned
|
|
|
463
|
|
|
|
-
|
|
|
|
-
|
|
Purchases of premises and equipment
|
|
|
(871
|
)
|
|
|
(232
|
)
|
|
|
(211
|
)
|
Net cash used in investing activities
|
|
|
(206,787
|
)
|
|
|
(146,324
|
)
|
|
|
(150,107
|
)
|
Cash Flows from Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in demand, interest-bearing demand and savings deposits
|
|
|
201,113
|
|
|
|
114,860
|
|
|
|
96,544
|
|
Net (decrease) increase in time deposits
|
|
|
(60,530
|
)
|
|
|
43,441
|
|
|
|
85,927
|
|
Net increase (decrease) in securities sold under agreement to repurchase
|
|
|
35,880
|
|
|
|
(4,506
|
)
|
|
|
(2,220
|
)
|
Net increase (decrease) in other short-term borrowings
|
|
|
59,000
|
|
|
|
(90,000
|
)
|
|
|
15,000
|
|
Net increase in long-term borrowings
|
|
|
5,000
|
|
|
|
55,000
|
|
|
|
-
|
|
Proceeds from issuance of common stock
|
|
|
1,567
|
|
|
|
1,146
|
|
|
|
1,065
|
|
Dividends paid
|
|
|
(6,350
|
)
|
|
|
(9,866
|
)
|
|
|
(5,214
|
)
|
Net cash provided by financing activities
|
|
|
235,680
|
|
|
|
110,075
|
|
|
|
191,102
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
55,170
|
|
|
|
(20,140
|
)
|
|
|
32,610
|
|
Cash and Cash Equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
|
|
|
35,889
|
|
|
|
56,029
|
|
|
|
23,419
|
|
Ending
|
|
$
|
91,059
|
|
|
$
|
35,889
|
|
|
$
|
56,029
|
|
Supplemental Disclosures of Cash Flow Information
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash payments for interest
|
|
$
|
6,324
|
|
|
$
|
4,094
|
|
|
$
|
3,202
|
|
Cash payments for income taxes
|
|
$
|
10,020
|
|
|
$
|
8,769
|
|
|
$
|
6,089
|
|
Supplemental Disclosures of Noncash Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized (loss) gain on securities available for sale
|
|
$
|
(868
|
)
|
|
$
|
(709
|
)
|
|
$
|
2,188
|
|
Transfers of loans held for investment to other real estate owned
|
|
$
|
129
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Other real estate owned transferred to other assets due to FHA guarantee
|
|
$
|
(129
|
)
|
|
$
|
-
|
|
|
$
|
-
|
|
Purchased land transferred to other assets held for sale
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,207
|
|
See accompanying notes to consolidated financial statements.
ACCESS NATIONAL CORPORATION
Notes to Consolidated
Financial Statements
Note 1. Summary of Significant Accounting Policies
Nature of Operations
- Access National Corporation (the
“Corporation “) is a bank holding company incorporated under the laws of the Commonwealth of Virginia. The holding
company was formed on June 15, 2002. The Corporation owns all of the stock of its subsidiary Access National Bank (the “Bank”),
which is an independent commercial bank chartered under federal laws as a national banking association.
The Bank has three active wholly-owned subsidiaries: Access
Real Estate LLC (“Access Real Estate”), a real estate company; ACME Real Estate LLC, a real estate holding company
of foreclosed property; and Access Capital Management Holding, LLC (“ACM”), a holding company for Capital Fiduciary
Advisors, L.L.C., Access Investment Services, L.L.C. and Access Insurance Group, L.L.C.
Basis of Presentation
- The accompanying consolidated
financial statements include the accounts of Access National Corporation and its wholly-owned subsidiary, Access National Bank.
All significant inter-company accounts and transactions have been eliminated in consolidation. The accounting and reporting policies
of the Corporation and its subsidiaries conform to accounting principles generally accepted in the United States of America and
to predominant practices within the banking industry.
Use of Estimates
- The preparation of financial statements
in conformity with accounting principles generally accepted in the United States of America requires management to make estimates
and assumptions based on available information. These estimates and assumptions affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly
susceptible to significant change in the near term relate to the determination of the allowance for loan losses, the fair values
and impairments of financial instruments, the status of contingencies and the valuation of deferred tax assets.
Cash Flow Reporting
- For purposes of the statements
of cash flows, cash and cash equivalents consists of cash and due from banks, federal funds sold and interest-bearing deposits
at other banks.
Restrictions on Cash and Cash Equivalents
- As a member
of the Federal Reserve System, the Bank is required to maintain certain average reserve balances. Those balances include usable
vault cash and amounts on deposit with the Federal Reserve Bank of Richmond (“FRB”). At December 31, 2016 and 2015,
the amount of daily average required balances was approximately $43.6 million and $38.7 million, respectively. The Mortgage Division
held escrow deposits in conjunction with mortgage loans totaling $196 thousand and $269 thousand at December 31, 2016 and 2015,
respectively.
Securities
- Debt securities that management has both
the positive intent and ability to hold to maturity are classified as “held-to-maturity” and are recorded at amortized
cost. Securities not classified as held-to-maturity, including equity securities with readily determinable fair values, are classified
as “available-for-sale” and recorded at fair value, with unrealized gains and losses excluded from net income and
reported in other comprehensive income.
Purchase premiums and discounts are recognized in interest
income using the effective interest method over the terms of the securities or call dates if applicable. Declines in the fair
value of held-to-maturity and available-for-sale securities below their cost that are deemed to be other than temporary are reflected
in net income as realized losses. Gains and losses on the sale of securities are recorded on the trade date and are determined
using the specific identification method.
Restricted Stock -
Restricted stock consists of Federal
Home Loan Bank of Atlanta (“FHLB”) stock and FRB stock. These stocks are classified as restricted stocks because
their ownership is restricted to certain types of entities and they lack a market. Restricted stock is carried at cost
on the Corporation's financial statements. Dividends are paid semiannually on FRB stock and quarterly on FHLB stock.
Notes to Consolidated
Financial Statements
Note 1. Summary of Significant Accounting Policies (continued)
Other Than Temporary Impairment of Investment Securities
–
Securities are evaluated quarterly for potential other than temporary impairment. Management considers the facts of
each security including the nature of the security, the amount and duration of the loss, credit quality of the issuer, the expectations
for that security’s performance, and the Corporation’s intent and ability to hold the security until recovery. Declines
in equity securities that are considered to be other than temporary are recorded as a charge to net income in the Consolidated
Statements of Income. Declines in debt securities that are considered to be other than temporary are separated into (1) the
amount of the total impairment related to credit loss and (2) the amount of the total impairment related to all other factors.
The amount of the total other than temporary impairment related to the credit loss is recognized in net income. The amount of
the total impairment related to all other factors is recognized in other comprehensive income.
Loans
- The Corporation grants commercial, real estate,
and consumer loans to customers in the community in and around the Greater Washington D.C. Metropolitan Area. The loan portfolio
is well diversified and generally collateralized by assets of the customers. The loans are expected to be repaid from cash flow
or proceeds from the sale of selected assets of the borrowers. The ability of the Corporation’s debtors to honor their contracts
is dependent upon the real estate and general economic conditions in the Corporation’s market area.
Loans that management has the intent and ability to hold for
the foreseeable future or until maturity or pay-off generally are reported at their outstanding unpaid principal balances less
the allowance for loan losses and any deferred fees or costs on originated loans. Interest income is accrued on the unpaid principal
balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment of the related
loan yield using the effective interest method.
The accrual of interest on mortgage and commercial loans is
discontinued at the time the loan is 90 days delinquent unless the credit is well-secured and in process of collection. Consumer
loans are typically charged off no later than 180 days past due. In all cases, loans are placed on non-accrual status or charged-off
at an earlier date if collection of principal or interest is considered doubtful. All interest accrued but not collected for loans
that are placed on non-accrual status or charged-off is reversed against interest income. The interest on these loans is accounted
for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when
all of the principal and interest amounts contractually due are brought current and future payments are reasonably assured.
Interest Income on Loans -
Interest on loans is accrued
and credited to income based on the principal amount outstanding. The accrual of interest on loans is discontinued when, in the
opinion of management, there is an indication that the borrower may be unable to meet payments as they become due. Upon such discontinuance,
all unpaid accrued interest is reversed.
Loans Held for Sale
- The Corporation accounts for all
one to four unit residential loans originated and intended for sale in the secondary market in accordance with Financial Accounting
Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 825-10. Loans held for sale are recorded
at fair value, determined individually, as of the balance sheet date.
Allowance for Loan Losses
- The allowance for loan losses
is established as losses are estimated to have occurred through a provision for loan losses charged to net income. Loan losses
are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries,
if any, are credited to the allowance.
The allowance represents an amount that, in management’s
judgment, will be adequate to absorb any losses on existing loans that may become uncollectible. Management’s judgment in
determining the adequacy of the allowance is based on evaluations of the collectability of loans while taking into consideration
such factors as changes in the nature and volume of the loan portfolio, current economic conditions which may affect a borrower’s
ability to repay, overall portfolio quality, and review of specific potential losses. This evaluation is inherently subjective,
as it requires estimates that are susceptible to significant revision as more information becomes available.
The allowance consists of specific and general components.
The specific component relates to loans that are classified as doubtful, substandard or special mention. For such loans that are
also classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market
price) of the impaired loan is lower than the carrying value of that loan. The general component covers non-classified loans and
is based on historical loss experience adjusted for qualitative factors.
Notes
to Consolidated Financial Statements
Note 1. Summary of Significant
Accounting Policies (continued)
A loan is considered impaired when,
based on current information and events, it is probable that the Corporation will be unable to collect the scheduled payments
of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in
determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest
payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired.
Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration
all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay,
the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment
is measured on a loan by loan basis by either the present value of the expected future cash flows discounted at the loan’s
effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral
dependent.
Derivative Financial Instruments
- The Mortgage Division enters into commitments to fund residential mortgage loans with the intention of selling them in the
secondary market. The Mortgage Division also enters into forward sales agreements for certain funded loans and loan commitments.
The Mortgage Division records unfunded commitments intended for loans held for sale and forward sales agreements at fair value
with changes in fair value recorded as a component of other income. Loans originated and intended for sale in the secondary market
are carried at fair value. For pipeline loans which are not pre-sold to an investor, the Mortgage Division manages the interest
rate risk on rate lock commitments by entering into forward sale contracts of mortgage backed securities, whereby the Mortgage
Division obtains the right to deliver securities to investors in the future at a specified price. Such contracts are accounted
for as derivatives and are recorded at fair value in derivative assets or liabilities, with changes in fair value recorded in
other income.
The Mortgage Division has determined
these derivative financial instruments do not meet the hedging criteria required by FASB ASC 815 and has not designated these
derivative financial instruments as hedges. Accordingly, changes in fair value are recognized currently in income.
Premises and Equipment
-
Premises and equipment are stated at cost less accumulated depreciation. Premises and equipment are depreciated over their estimated
useful lives; leasehold improvements are amortized over the lives of the respective leases or the estimated useful life of the
leasehold improvement, whichever is less. Depreciation is computed using the straight-line method over the estimated useful lives
of 39 years for office buildings and 3 to 15 years for furniture, fixtures, and equipment. Costs of maintenance and repairs are
expensed as incurred; improvements and betterments are capitalized. When items are retired or otherwise disposed of, the related
costs and accumulated depreciation are removed from the accounts and any resulting gains or losses are included in the determination
of net income.
Real Estate Owned -
Real
estate properties acquired through loan foreclosures are recorded initially at fair value, less expected sales costs. Subsequent
valuations are performed by management, and the carrying amount of a property is adjusted by a charge to expense to reflect any
subsequent declines in estimated fair value. Fair value estimates are based on recent appraisals and current market conditions.
Gains or losses on sales of real estate owned are recognized upon disposition. Real estate owned is included in other assets.
At December 31, 2016 and 2015 the Corporation did not have any real estate owned due to foreclosure. The Corporation did have
one property at December 31, 2015 which had previously been included in premises and equipment reclassified to other real estate
owned when it was determined by management the land, originally purchased for potential banking center expansion, would not be
used for those purposes. The property was subsequently sold in 2016.
Income Taxes
- Income tax
expense is the total of the current year income tax due or refundable, the change in deferred tax assets and liabilities, and
any adjustments related to unrecognized tax benefits. Deferred income tax assets and liabilities are determined using the balance
sheet method. Under this method, the net deferred tax asset or liability is determined based on the tax effects of the temporary
differences between the book and tax bases of the various balance sheet assets and liabilities and gives current recognition to
changes in tax rates and laws. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it
is more likely than not that some portion or all of the deferred tax assets will not be realized. The Corporation has not identified
any material uncertain tax positions.
Stock-Based Compensation Plans
–In accordance with FASB ASC 718-10, the Corporation measures the cost of employee services received in exchange for
an award of equity instruments based on the fair value of the award on the grant date. That cost is recognized over the period
during which the employee is required to provide service in exchange for the award, the requisite service period. No compensation
expense is recognized for equity instruments for which employees do not render the requisite service. The Corporation determines
the fair value of the employee stock options using the Black-Scholes option pricing model.
Notes
to Consolidated Financial Statements
Note 1. Summary of Significant
Accounting Policies (continued)
Earnings Per Share
- Basic
earnings per share represents income available to common shareholders divided by the weighted-average number of shares outstanding
during the period. Diluted earnings per share reflect 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. Common equivalent
shares are excluded from the computation if their effect is anti-dilutive.
Fair Value Measurements
-
The Corporation records certain of its assets and liabilities at fair value. Fair value is defined as the exchange price that
would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for
the asset or liability in an orderly transaction between market participants on the measurement date. Fair value measurements
are classified within one of three levels in a valuation hierarchy based upon the transparency of inputs to the valuation of an
asset or liability as of the measurement date. The three levels are defined as follows:
Level 1 - 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 - 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 - Significant
unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in
pricing an asset or liability.
A financial instrument’s categorization
within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. See
Note 16 - Fair Value Measurements.
Securities Sold Under Agreements
to Repurchase -
Securities sold under agreements to repurchase are accounted for as collateralized financing transactions
and are recorded at the amounts at which the securities were sold plus accrued interest. Securities, generally U.S. government
and federal agency securities, pledged as collateral under these financing arrangements cannot be sold or re-pledged by the secured
party.
Advertising Costs
- The Corporation
charges the costs of advertising to expense as incurred.
Recent Accounting Pronouncements
In May 2014, the FASB issued ASU
2014-09, “Revenue from Contracts with Customers (Topic 606)”. This ASU supersedes the revenue recognition requirements
in Topic 605, “Revenue Recognition” as well as most industry-specific guidance. The amendments also create a new Subtopic
340-40 “Other Assets and Deferred Costs – Contracts with Customers”. In summary, entities are to recognize revenue
to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity
expects to be entitled in exchange for those goods or services. The provisions of ASU 2014-09 are effective for annual periods
beginning after December 15, 2017 and interim periods within 2018. The adoption of this guidance should not have a material effect
on the Corporation’s financial condition or results of operations.
In February 2015, the FASB issued
ASU 2015-02, “Consolidation (Topic 810)”. This ASU focuses on the consolidation evaluation for reporting organizations
that are required to evaluate consolidation of certain legal entities by reducing the number of consolidation models from four
to two and is intended to improve current GAAP. The amendments in the ASU are effective beginning after December 15, 2016. The
adoption of this guidance should not have a material effect on the Corporation’s financial condition or results of operations.
In September 2015, the FASB issued
ASU 2015-16, “Business Combinations (Topic 805)”. This ASU requires an acquirer retrospectively adjust provisional
amounts recognized in a business combination during the measurement period, in the reporting period in which the adjustment is
determined as well as present separately on the face of the income statement or as a disclosure in the notes to the financial
statements the portion of the amount recorded in current period earnings that would have been recorded in previous reporting periods
if the adjustment to the provisional amounts had been recognized as of the acquisition date. The amendments in the ASU are effective
beginning after December 15, 2015. The adoption of this guidance did not have a material effect on the Corporation’s financial
condition or results of operations.
Notes
to Consolidated Financial Statements
Note 1. Summary of Significant
Accounting Policies (continued)
Recent Accounting Pronouncements
(continued)
In January 2016, the FASB issued
ASU 2016-01, “Financial Instruments – Overall (Subtopic 825-10)”. This ASU requires all equity investments to
be measured at fair value with changes in the fair value recognized through net income (other than those accounted for under equity
method of accounting or those that result in consolidation of the investee). The amendments in this update also require an entity
to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting
from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance
with the fair value option for financial instruments. The amendments in the ASU are effective beginning after December 15, 2017.
The adoption of this guidance should not have a material effect on the Corporation’s financial condition or results of operations.
In February 2016, the FASB issued
ASU 2016-02, “Leases (Topic 842)”. This ASU specifies the accounting for leases in an effort to increase transparency
and comparability among organizations. The amendments in the ASU are effective beginning after December 15, 2018. While the adoption
of this guidance should not have a material effect on the Corporation’s financial condition or results of operations, management
has yet to quantify the impact of this ASU.
In March 2016, the FASB issued ASU
2016-07, “Investments - Equity Method and Joint Ventures (Topic 323): Simplifying the Transition to the Equity Method of
Accounting.” The amendments affect all entities that have an investment that becomes qualified for the equity method of
accounting as a result of an increase in the level of ownership interest or degree of influence. This ASU simplifies the
transition to the equity method of accounting by eliminating retroactive adjustment of the investment when an investment qualifies
for use of the equity method, among other things. The amendments in the ASU are effective beginning after December 15, 2016 and
for interim periods within that year. The adoption of this guidance should not have a material effect on the Corporation’s
financial condition or results of operations.
In March 2016, the FASB issued ASU
2016-08, “Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross
versus Net).” This ASU was issued to clarify certain principal versus agent considerations within the implementation
guidance of ASC Topic 606, “Revenue from Contracts with Customers.” The effective date and transition of
ASU 2016-08 is the same as the effective date and transition of ASU 2014-09, Revenue from Contracts with Customers (Topic
606), as discussed above. We are currently evaluating the potential impact of ASU 2016-08 on our financial statements.
In March 2016, the FASB issued ASU
2016-09, “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.”
Under this ASU all excess tax benefits and tax deficiencies related to share-based payment awards should be recognized as
income tax expense or benefit in the income statement during the period in which they occur. Previously, such amounts were recorded
in the pool of excess tax benefits included in additional paid-in capital, if such pool was available. Because excess tax benefits
are no longer recognized in additional paid-in capital, the assumed proceeds from applying the treasury stock method when computing
earnings per share should exclude the amount of excess tax benefits that would have previously been recognized in additional paid-in
capital. Additionally, excess tax benefits should be classified along with other income tax cash flows as an operating activity
rather than a financing activity, as was previously the case. ASU 2016-09 also provides that an entity can make an entity-wide
accounting policy election to either estimate the number of awards that are expected to vest (current GAAP) or account for forfeitures
when they occur. ASU 2016-09 changes the threshold to qualify for equity classification (rather than as a liability) to permit
withholding up to the maximum statutory tax rates (rather than the minimum as was previously the case) in the applicable jurisdictions.
The amendments in the ASU are effective beginning after December 15, 2016 and for interim periods within that year. The adoption
of this guidance should not have a material effect on the Corporation’s financial condition or results of operations.
In April 2016, the FASB issued ASU
No. 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing.”
This ASU was issued to clarify ASC Topic 606, “Revenue from Contracts with Customers” related to (i) identifying
performance obligations; and (ii) the licensing implementation guidance. The effective date and transition of ASU 2016-10
is the same as the effective date and transition of ASU 2014-09, “Revenue from Contracts with Customers (Topic 606),”
as discussed above. We are currently evaluating the potential impact of ASU 2016-10 on our financial statements.
In June 2016, the FASB issued ASU
No. 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.”
This ASU amends guidance on reporting credit losses for assets held at amortized cost basis and available-for-sale debt securities
by eliminating the probable initial recognition threshold (incurred loss methodology) and requiring entities to reflect its current
estimate of all expected credit losses. The amendments in the ASU are effective beginning after December 15, 2019 and for interim
periods within that year. Early adoption is permitted beginning after December 15, 2018. Entities will apply the amendments in
this ASU through a cumulative-effect adjustment to retained earnings in the first period effective. Management is currently evaluating
the potential impact of ASU 2016-13 on its financial statements.
Notes
to Consolidated Financial Statements
Note 1. Summary of Significant
Accounting Policies (continued)
Recent Accounting Pronouncements
(continued)
In August 2016, the FASB issued
ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.”
This ASU was issued to reduce diversity in how certain cash receipts and cash payments are being presented and classified in the
statement of cash flows. Guidance provided in the ASU are specific to eight cash flow issues being: debt prepayment or debt extinguishment
costs; settlement of zero-coupon debt or other debt instruments with interest rates that are insignificant to the effective interest
rate of the borrowing; contingent consideration payments made after a business combination; proceeds received from the settlement
of life insurance claims; proceeds received from the settlement of bank-owned life insurance policies; distributions received
from equity method investees; beneficial interests in securitization transactions; and application of the predominance principle.
The amendments in the ASU are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal
years. Early adoption is permitted. The amendments should be applied using a retrospective transition method to each period presented.
The adoption of this guidance should not have a material effect on the Corporation’s financial condition or results of operations.
In October 2016, the FASB issued
ASU No. 2016-16, “Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory.” Under current
GAAP, recognition of current and deferred income taxes for an intra-entity asset transfer is prohibited until the asset has been
sold to a third party. The amendments in this ASU eliminate the exception for an intra-entity transfer of an asset other than
inventory thereby requiring an entity to recognize the income tax consequences when the transfer occurs. The amendments in the
ASU are effective beginning after December 15, 2017 and for interim periods within that year. Early adoption is permitted. Entities
will apply the amendments in this ASU through a cumulative-effect adjustment to retained earnings in the first period effective.
The adoption of this guidance should not have a material effect on the Corporation’s financial condition or results of operations.
In January 2017, the FASB issued
ASU No. 2017-04,
Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment
. The ASU was
issued with the intent to simplify goodwill impairment testing by eliminating the second step of the analysis under which the
implied fair value of goodwill is determined as if the reporting unit were being acquired in a business combination. The update
instead requires entities to compare the fair value of a reporting unit with its carrying amount and recognize an impairment charge
for any amount by which the carrying amount exceeds the reporting unit’s fair value, to the extent that the loss recognized
does not exceed the amount of goodwill allocated to that reporting unit. ASU 2017-04 must be applied prospectively and is effective
for the Company on January 1, 2020. Early adoption is permitted. The Company does not expect the new guidance to have a material
impact on its Consolidated Financial Statements.
Notes
to Consolidated Financial Statements
Note 2. Securities
The following table provides the
amortized cost and fair value for the categories of available-for-sale securities and held-to-maturity securities at December
31, 2016 and 2015. Held-to-maturity securities are carried at amortized cost, which reflects historical cost, adjusted for amortization
of premiums and accretion of discounts. Available-for-sale securities are carried at estimated fair value with net unrealized
gains or losses reported on an after tax basis as a component of accumulated other comprehensive income in shareholders’
equity. The estimated fair value of available-for-sale securities is impacted by interest rates, credit spreads, market volatility,
and liquidity.
|
|
December 31, 2016
|
|
|
|
Amortized Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
(Losses)
|
|
|
Estimated
Fair Value
|
|
|
|
(In Thousands)
|
|
Available-for-sale:
|
|
|
|
U.S. Government agencies
|
|
$
|
5,106
|
|
|
$
|
-
|
|
|
$
|
(112
|
)
|
|
$
|
4,994
|
|
Mortgage backed securities
|
|
|
120,794
|
|
|
|
177
|
|
|
|
(1,164
|
)
|
|
|
119,807
|
|
Corporate bonds
|
|
|
8,631
|
|
|
|
35
|
|
|
|
-
|
|
|
|
8,666
|
|
Asset Backed Securities
|
|
|
13,105
|
|
|
|
17
|
|
|
|
(258
|
)
|
|
|
12,864
|
|
Certificates of deposit
|
|
|
1,976
|
|
|
|
33
|
|
|
|
-
|
|
|
|
2,009
|
|
Municipals - nontaxable
|
|
|
45,392
|
|
|
|
172
|
|
|
|
(1,205
|
)
|
|
|
44,359
|
|
CRA Mutual fund
|
|
|
1,500
|
|
|
|
-
|
|
|
|
(109
|
)
|
|
|
1,391
|
|
|
|
$
|
196,504
|
|
|
$
|
434
|
|
|
$
|
(2,848
|
)
|
|
$
|
194,090
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government agencies
|
|
$
|
5,000
|
|
|
$
|
46
|
|
|
$
|
-
|
|
|
$
|
5,046
|
|
Municipals - nontaxable
|
|
|
1,597
|
|
|
|
18
|
|
|
|
-
|
|
|
|
1,615
|
|
Municipals
|
|
|
2,603
|
|
|
|
48
|
|
|
|
(19
|
)
|
|
|
2,632
|
|
|
|
$
|
9,200
|
|
|
$
|
112
|
|
|
$
|
(19
|
)
|
|
$
|
9,293
|
|
|
|
December 31, 2015
|
|
|
|
Amortized Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
(Losses)
|
|
|
Estimated
Fair Value
|
|
|
|
(In
Thousands)
|
|
Available-for-sale:
|
|
|
|
U.S. Government
agencies
|
|
$
|
19,124
|
|
|
$
|
5
|
|
|
$
|
(225
|
)
|
|
$
|
18,904
|
|
Mortgage backed securities
|
|
|
97,270
|
|
|
|
31
|
|
|
|
(1,224
|
)
|
|
|
96,077
|
|
Corporate bonds
|
|
|
8,967
|
|
|
|
20
|
|
|
|
(28
|
)
|
|
|
8,959
|
|
Asset Backed Securities
|
|
|
14,312
|
|
|
|
17
|
|
|
|
(299
|
)
|
|
|
14,030
|
|
Certificates of deposit
|
|
|
1,976
|
|
|
|
1
|
|
|
|
(9
|
)
|
|
|
1,968
|
|
Municipals - nontaxable
|
|
|
18,559
|
|
|
|
287
|
|
|
|
(32
|
)
|
|
|
18,814
|
|
CRA
Mutual fund
|
|
|
1,500
|
|
|
|
-
|
|
|
|
(90
|
)
|
|
|
1,410
|
|
|
|
$
|
161,708
|
|
|
$
|
361
|
|
|
$
|
(1,907
|
)
|
|
$
|
160,162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government agencies
|
|
$
|
9,987
|
|
|
$
|
50
|
|
|
$
|
(32
|
)
|
|
$
|
10,005
|
|
Municipals - nontaxable
|
|
$
|
1,686
|
|
|
$
|
-
|
|
|
$
|
(20
|
)
|
|
$
|
1,666
|
|
Municipals
|
|
|
2,614
|
|
|
|
43
|
|
|
|
(14
|
)
|
|
|
2,643
|
|
|
|
$
|
14,287
|
|
|
$
|
93
|
|
|
$
|
(66
|
)
|
|
$
|
14,314
|
|
Notes
to Consolidated Financial Statements
Note 2. Securities (continued)
The amortized cost and estimated
fair value of securities as of December 31, 2016 by contractual maturities are shown below. Actual maturities may differ from
contractual maturities because the securities may be called or prepaid without any penalties.
|
|
December 31, 2016
|
|
|
|
|
|
|
Estimated
|
|
|
|
Amortized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Value
|
|
|
|
(In Thousands)
|
|
Available-for-sale:
|
|
|
|
US Treasury and Agencies:
|
|
|
|
|
|
|
|
|
Due after five through ten years
|
|
$
|
5,106
|
|
|
$
|
4,994
|
|
Municipals - nontaxable:
|
|
|
|
|
|
|
|
|
Due after one through five years
|
|
|
3,442
|
|
|
|
3,500
|
|
Due after five through ten years
|
|
|
5,025
|
|
|
|
4,888
|
|
Due after ten through fifteen years
|
|
|
20,463
|
|
|
|
20,300
|
|
Due after fifteen years
|
|
|
16,462
|
|
|
|
15,671
|
|
Asset Backed Securities:
|
|
|
|
|
|
|
|
|
Due after five through ten years
|
|
|
3,080
|
|
|
|
3,001
|
|
Due after fifteen years
|
|
|
10,025
|
|
|
|
9,863
|
|
Certificates of deposit:
|
|
|
|
|
|
|
|
|
Due after one through five years
|
|
|
1,976
|
|
|
|
2,009
|
|
Corporate bonds:
|
|
|
|
|
|
|
|
|
Due in one year or less
|
|
|
4,141
|
|
|
|
4,144
|
|
Due after one through five years
|
|
|
4,490
|
|
|
|
4,522
|
|
Mortgage backed securities:
|
|
|
|
|
|
|
|
|
Due after one through five years
|
|
|
24,959
|
|
|
|
24,916
|
|
Due after five through ten years
|
|
|
24,996
|
|
|
|
24,895
|
|
Due after ten through fifteen years
|
|
|
12,861
|
|
|
|
12,555
|
|
Due after fifteen years
|
|
|
57,978
|
|
|
|
57,441
|
|
|
|
|
|
|
|
|
|
|
CRA Mutual fund
|
|
|
1,500
|
|
|
|
1,391
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
196,504
|
|
|
$
|
194,090
|
|
|
|
|
|
|
|
|
|
|
Held-to-maturity:
|
|
|
|
|
|
|
|
|
US Treasury and Agencies:
|
|
|
|
|
|
|
|
|
Due after one through five years
|
|
$
|
5,000
|
|
|
$
|
5,046
|
|
Municipals:
|
|
|
|
|
|
|
|
|
Due after one through five years
|
|
|
431
|
|
|
|
447
|
|
Due after five through ten years
|
|
|
1,617
|
|
|
|
1,649
|
|
Due after ten through fifteen years
|
|
|
555
|
|
|
|
536
|
|
Municipals - nontaxable:
|
|
|
|
|
|
|
|
|
Due after one through five
years
|
|
|
1,597
|
|
|
|
1,615
|
|
|
|
$
|
9,200
|
|
|
$
|
9,293
|
|
The estimated fair value of securities
pledged to secure public funds, securities sold under agreements to repurchase, and for other purposes amounted to $178.7 million
and $147.9 million at December 31, 2016 and 2015, respectively.
Restricted Stock
The Corporation’s restricted
stock consists of FHLB stock and FRB stock. The amortized costs of the restricted stock as of December 31, 2016 and 2015 are as
follows:
|
|
December
31, 2016
|
|
|
December
31, 2015
|
|
|
|
(In Thousands)
|
|
Restricted Stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FRB stock
|
|
$
|
999
|
|
|
$
|
999
|
|
|
|
|
|
|
|
|
|
|
FHLB stock
|
|
|
9,093
|
|
|
|
6,260
|
|
|
|
$
|
10,092
|
|
|
$
|
7,259
|
|
Notes to
Consolidated Financial Statements
Note 2. Securities (continued)
Investment securities available-for-sale
and held-to-maturity that had an unrealized loss position at December 31, 2016 and December 31, 2015 are detailed below.
|
|
Securities
in a loss
|
|
|
Securities
in a loss
|
|
|
|
|
|
|
|
|
|
Position
for less than
|
|
|
Position
for 12 Months
|
|
|
|
|
|
|
|
|
|
12
Months
|
|
|
or
Longer
|
|
|
Total
|
|
December
31, 2016
|
|
Estimated
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
|
(In
Thousands)
|
|
|
|
|
|
Investment
securities available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage
backed securities
|
|
$
|
62,145
|
|
|
$
|
(541
|
)
|
|
$
|
19,768
|
|
|
$
|
(623
|
)
|
|
$
|
81,913
|
|
|
$
|
(1,164
|
)
|
U.S. Government
agencies
|
|
|
4,994
|
|
|
|
(112
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
4,994
|
|
|
|
(112
|
)
|
Municipals
|
|
|
28,147
|
|
|
|
(1,205
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
28,147
|
|
|
|
(1,205
|
)
|
Asset
backed securities
|
|
|
1,286
|
|
|
|
(37
|
)
|
|
|
7,077
|
|
|
|
(221
|
)
|
|
|
8,363
|
|
|
|
(258
|
)
|
CRA
Mutual fund
|
|
|
-
|
|
|
|
-
|
|
|
|
1,391
|
|
|
|
(109
|
)
|
|
|
1,391
|
|
|
|
(109
|
)
|
Total
|
|
$
|
96,572
|
|
|
$
|
(1,895
|
)
|
|
$
|
28,236
|
|
|
$
|
(953
|
)
|
|
$
|
124,808
|
|
|
$
|
(2,848
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
securities held-to-maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipals
|
|
$
|
536
|
|
|
$
|
(19
|
)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
536
|
|
|
$
|
(19
|
)
|
Total
|
|
$
|
536
|
|
|
$
|
(19
|
)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
536
|
|
|
$
|
(19
|
)
|
|
|
Securities in a loss
|
|
|
Securities in a loss
|
|
|
|
|
|
|
|
|
|
Position for less
than
|
|
|
Position for 12 Months
|
|
|
|
|
|
|
|
|
|
12 Months
|
|
|
or Longer
|
|
|
Total
|
|
December 31, 2015
|
|
Estimated
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
|
(In Thousands)
|
|
|
|
|
|
Investment securities available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage backed securities
|
|
$
|
63,327
|
|
|
$
|
(774
|
)
|
|
$
|
29,375
|
|
|
$
|
(450
|
)
|
|
$
|
92,702
|
|
|
$
|
(1,224
|
)
|
U.S. Government agencies
|
|
|
5,040
|
|
|
|
(85
|
)
|
|
|
9,858
|
|
|
|
(140
|
)
|
|
|
14,898
|
|
|
|
(225
|
)
|
Municipals - nontaxable
|
|
|
1,452
|
|
|
|
(13
|
)
|
|
|
2,244
|
|
|
|
(19
|
)
|
|
|
3,696
|
|
|
|
(32
|
)
|
Corporate bonds
|
|
|
-
|
|
|
|
-
|
|
|
|
7,066
|
|
|
|
(28
|
)
|
|
|
7,066
|
|
|
|
(28
|
)
|
Asset backed securities
|
|
|
247
|
|
|
|
(2
|
)
|
|
|
9,531
|
|
|
|
(299
|
)
|
|
|
9,778
|
|
|
|
(301
|
)
|
Certificates of deposit
|
|
|
1,720
|
|
|
|
(7
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
1,720
|
|
|
|
(7
|
)
|
CRA Mutual fund
|
|
|
-
|
|
|
|
-
|
|
|
|
1,410
|
|
|
|
(90
|
)
|
|
|
1,410
|
|
|
|
(90
|
)
|
Total
|
|
$
|
71,786
|
|
|
$
|
(881
|
)
|
|
$
|
59,484
|
|
|
$
|
(1,026
|
)
|
|
$
|
131,270
|
|
|
$
|
(1,907
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities held-to-maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government agencies
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
4,954
|
|
|
$
|
(32
|
)
|
|
$
|
4,954
|
|
|
$
|
(32
|
)
|
Municipals - nontaxable
|
|
|
-
|
|
|
|
-
|
|
|
|
3,266
|
|
|
|
(34
|
)
|
|
|
3,266
|
|
|
|
(34
|
)
|
Total
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
8,220
|
|
|
$
|
(66
|
)
|
|
$
|
8,220
|
|
|
$
|
(66
|
)
|
The Corporation evaluates securities
for other than temporary impairment (“OTTI”) on a quarterly basis and more frequently when economic or market conditions
warrant such evaluation. Consideration is given to various factors in determining whether the Corporation anticipates a recovery
in fair value such as: the length of time and extent to which the fair value has been less than cost, and the financial condition
and underlying credit quality of the issuer. When analyzing an issuer’s financial condition, the Corporation may consider
whether the securities are issued by the federal government or its agencies, the sector or industry trends affecting the issuer,
and whether any recent downgrades by bond rating agencies have occurred.
Mortgage-backed
The Corporation’s unrealized
losses on available-for-sale mortgage backed securities were caused by interest rate fluctuations. At December 31, 2016, thirty-two
securities had unrealized losses of $1.2 million. All thirty-two securities are backed by the United States Government or a Government
Sponsored Entity. The Corporation’s intent is to hold these securities until a market price recovery or maturity, and it
has been determined that it is more likely than not that the Corporation will not be required to sell these securities before
their anticipated recovery. As such, the Corporation does not consider these investments other than temporarily impaired.
US Government agencies
The Corporation’s unrealized
loss on its U.S. Government Agency obligation was caused by interest rate fluctuations. On December 31, 2016, one available for
sale security had an unrealized loss of $112 thousand. The severity and duration of this unrealized loss will fluctuate with interest
rates in the economy. Based on the credit quality of the agency, the Corporation’s intent to hold this security until a
market price recovery or maturity, and the determination that it is more likely than not that the Corporation will not be required
to sell the security before its anticipated recovery, the Corporation does not consider this investment other than temporarily
impaired.
Notes
to Consolidated Financial Statements
Note 2. Securities (continued)
Asset backed securities
The Corporation’s unrealized
losses on its other investments were caused by interest rate fluctuations. At December 31, 2016, five securities had unrealized
losses of $258 thousand. Based on the credit quality of the issuers, the Corporation’s intent to hold these securities until
a market price recovery, and the determination that it is more likely than not that the Corporation will not be required to sell
the securities before their anticipated recoveries, the Corporation does not consider these investments other than temporarily
impaired.
Municipals
The Corporation’s unrealized
losses on its municipal investments were caused by interest rate fluctuations. At December 31, 2016, one held-to-maturity municipal
had an unrealized loss of $19 thousand while twenty-six available-for-sale municipals had unrealized losses of $1.2 million. Based
on the credit quality of the issuers, the Corporation’s intent to hold these securities until a market price recovery, and
the determination that it is more likely than not that the Corporation will not be required to sell the securities before their
anticipated recovery, the Corporation does not consider these investments other than temporarily impaired.
Mutual fund
The Corporation’s unrealized
loss on its CRA mutual fund investment was caused by interest rate fluctuations. At December 31, 2016, one security had an unrealized
loss of $109 thousand. Based on the credit quality of the issuer, the Corporation’s intent to hold this security until a
market price recovery, and the determination that it is more likely than not that the Corporation will not be required to sell
the security before its anticipated recovery, the Corporation does not consider this investment other than temporarily impaired.
Securities Sold Under Agreements
to Repurchase (Repurchase Agreements)
The Corporation enters into agreements
under which it sells securities subject to an obligation to repurchase the same or similar securities. Under these arrangements,
the Corporation may transfer legal control over the assets but still retain effective control through an agreement that both entitles
and obligates the Corporation to repurchase the assets. As a result, these repurchase agreements are accounted for as collateralized
financing agreements (i.e., secured borrowings) and not as a sale and subsequent repurchase of securities. The obligation to repurchase
the securities is reflected as a liability in the Corporation’s consolidated balance sheets, while the securities underlying
the repurchase agreements remain in the respective investment securities asset accounts. In other words, there is no offsetting
or netting of the investment securities assets with the repurchase agreement liabilities. In addition, as the Corporation does
not enter into reverse repurchase agreements, there is no such offsetting to be done with the repurchase agreements.
The right of setoff for a repurchase
agreement resembles a secured borrowing, whereby the collateral would be used to settle the fair value of the repurchase agreement
should the Corporation be in default (e.g., fails to make an interest payment to the counterparty). The collateral is held by
a third-party financial institution in the Corporation’s custodial account. The Corporation has the right to sell or repledge
the investment securities. The risks and rewards associated with the investment securities pledged as collateral (e.g. a decline
or rise in the fair value of the investments) remains with the Corporation. As of December 31, 2016 and 2015, the obligations
outstanding under these repurchase agreements totaled $17.0 million and $21.1 million, respectively, and were comprised of overnight
sweep accounts. The fair value of the securities pledged in connection with these repurchase agreements at December 31, 2016 was
$21.4 million in total and consisted of $4.7 million in municipal securities, $6.9 million in mortgage-backed securities, $5.9
million in corporate bonds, $2.5 million in asset-backed securities, and $1.4 million in CRA mutual funds. The fair value of the
securities pledged in connection with these repurchase agreements at December 31, 2015 was $24.3 million in total and consisted
of $6.7 million in municipal securities, $4.9 million in mortgage backed securities, $6.2 million in corporate bonds, and $6.5
million in asset-backed securities.
Notes to
Consolidated Financial Statements
Note 3. Loans and the Allowance
for Loan Losses
The composition of net loans is
summarized as follows:
|
|
Year Ended December 31,
|
|
(Dollars In Thousands)
|
|
2016
|
|
|
Percentage
of Total
|
|
|
2015
|
|
|
Percentage
of Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate - owner occupied
|
|
$
|
250,440
|
|
|
|
23.87
|
%
|
|
$
|
219,877
|
|
|
|
24.77
|
%
|
Commercial real estate - non-owner occupied
|
|
|
184,688
|
|
|
|
17.59
|
|
|
|
147,580
|
|
|
|
16.63
|
|
Residential real estate
|
|
|
204,413
|
|
|
|
19.47
|
|
|
|
201,447
|
|
|
|
22.70
|
|
Commercial
|
|
|
311,486
|
|
|
|
29.67
|
|
|
|
242,527
|
|
|
|
27.33
|
|
Real estate construction
|
|
|
91,822
|
|
|
|
8.75
|
|
|
|
66,003
|
|
|
|
7.44
|
|
Consumer
|
|
|
6,849
|
|
|
|
0.65
|
|
|
|
10,044
|
|
|
|
1.13
|
|
Total loans
|
|
$
|
1,049,698
|
|
|
|
100.00
|
%
|
|
$
|
887,478
|
|
|
|
100.00
|
%
|
Less allowance for loan losses
|
|
|
16,008
|
|
|
|
|
|
|
|
13,563
|
|
|
|
|
|
Net loans
|
|
$
|
1,033,690
|
|
|
|
|
|
|
$
|
873,915
|
|
|
|
|
|
Unearned income and net deferred
loan fees and costs totaled $2.4 million and $2.0 million at December 31, 2016 and 2015, respectively. Loans pledged to secure
borrowings at the FHLB totaled $266.6 million and $247.9 million at December 31, 2016 and 2015, respectively.
Allowance for Loan Losses
The allowance for loan losses totaled
$16.0 million and $13.6 million at year end December 31, 2016 and 2015, respectively. The allowance for loan losses was equivalent
to 1.53% of total loans held for investment at December 31, 2016 and 2015. Adequacy of the allowance is assessed and the allowance
is increased by provisions for loan losses charged to expense no less than quarterly. Charge-offs are taken when a loan is identified
as uncollectible.
The methodology by which the Corporation
systematically determines the amount of its allowance is set forth by the Board of Directors in its Loan Policy and implemented
by management. The results of the analysis are documented, reviewed, and approved by the Board of Directors no less than quarterly.
The level of the allowance for loan
losses is determined by management through an ongoing, detailed analysis of historical loss rates and risk characteristics. During
each quarter, management evaluates the collectability of all loans in the portfolio and ensures an accurate risk rating is assigned
to each loan. The risk rating scale and definitions commonly adopted by the Federal Banking Agencies is contained within the framework
prescribed by the Bank’s Loan Policy. Any loan that is deemed to have potential or well defined weaknesses that may jeopardize
collection in full is then analyzed to ascertain its level of weakness. If appropriate, the loan may be charged-off or a specific
reserve may be assigned if the loan is deemed to be impaired.
During the risk rating verification
process, each loan identified as inadequately protected by the current sound worth and paying capacity of the obligor or of the
collateral pledged is considered impaired and is placed on non-accrual status. On these loans, management analyzes the potential
impairment of the individual loan and may set aside a specific reserve. Any amounts deemed uncollectible during that analysis
are charged-off.
For the remaining loans in each
segment, the Bank calculates the probability of loss as a group using the risk rating for each of the following loan types: Commercial
Real Estate - Owner Occupied, Commercial Real Estate - Non-Owner Occupied, Residential Real Estate, Commercial, Real Estate Construction,
and Consumer. Management calculates the historical loss rate in each group by risk rating using a period of at least six years.
This historical loss rate may then be adjusted based on management’s assessment of internal and external environmental factors.
While management may consider other factors, the analysis generally includes factors such as unemployment, office vacancy rates,
and any concentrations that exist within the portfolio. This adjustment is meant to account for changes between the historical
economic environment and current conditions and for changes in the ongoing management of the portfolio which affects the loans’
potential losses.
Once complete, management compares
the condition of the portfolio using several different characteristics, as well as its experience, to the experience of other
banks in its peer group in order to determine if it is directionally consistent with others’ experience in our area and
line of business. Based on that analysis, management aggregates the probabilities of loss of the remaining portfolio based on
the specific and general allowances and may provide additional amounts to the allowance for loan losses as needed. Since this
process involves estimates, the allowance for loan losses may also contain an amount that is non-material which is not allocated
to a specific loan or to a group of loans but is deemed necessary to absorb additional losses in the portfolio.
Notes to
Consolidated Financial Statements
Note 3. Loans and the Allowance
for Loan Losses (continued)
Management and the Board of Directors
subject the reserve adequacy and methodology to a review on a regular basis by internal auditors and bank regulators, and such
reviews have not resulted in any material adjustment to the allowance.
The following provides detailed
information about the changes in the allowance for loan losses for the years ended December 31, 2016, 2015 and 2014 as well as
the recorded investment in loans at December 31, 2016 and 2015.
|
|
Allowance for Loan
Losses
|
|
Twelve months
ended December 31, 2016
|
|
Commercial
real
estate - owner
occupied
|
|
|
Commercial
real
estate - non-owner
occupied
|
|
|
Residential
real estate
|
|
|
Commercial
|
|
|
Real
estate
construction
|
|
|
Consumer
|
|
|
Total
|
|
|
|
(In
Thousands)
|
|
Allowance for credit losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning Balance
|
|
$
|
3,042
|
|
|
$
|
1,862
|
|
|
$
|
2,862
|
|
|
$
|
4,612
|
|
|
$
|
1,056
|
|
|
$
|
129
|
|
|
$
|
13,563
|
|
Charge-offs
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Recoveries
|
|
|
-
|
|
|
|
-
|
|
|
|
40
|
|
|
|
285
|
|
|
|
-
|
|
|
|
-
|
|
|
|
325
|
|
Provisions
|
|
|
(99
|
)
|
|
|
283
|
|
|
|
(392
|
)
|
|
|
2,156
|
|
|
|
221
|
|
|
|
(49
|
)
|
|
|
2,120
|
|
Ending Balance
|
|
$
|
2,943
|
|
|
$
|
2,145
|
|
|
$
|
2,510
|
|
|
$
|
7,053
|
|
|
$
|
1,277
|
|
|
$
|
80
|
|
|
$
|
16,008
|
|
Twelve months
ended December 31, 2015
|
|
Commercial
real
estate - owner
occupied
|
|
|
Commercial
real
estate - non-owner
occupied
|
|
|
Residential
real estate
|
|
|
Commercial
|
|
|
Real
estate
construction
|
|
|
Consumer
|
|
|
Total
|
|
|
|
(In
Thousands)
|
|
Allowance for credit losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning Balance
|
|
$
|
3,229
|
|
|
$
|
1,894
|
|
|
$
|
3,308
|
|
|
$
|
4,284
|
|
|
$
|
596
|
|
|
$
|
88
|
|
|
$
|
13,399
|
|
Charge-offs
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(186
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(186
|
)
|
Recoveries
|
|
|
-
|
|
|
|
-
|
|
|
|
61
|
|
|
|
102
|
|
|
|
37
|
|
|
|
-
|
|
|
|
200
|
|
Provisions
|
|
|
(187
|
)
|
|
|
(32
|
)
|
|
|
(507
|
)
|
|
|
412
|
|
|
|
423
|
|
|
|
41
|
|
|
|
150
|
|
Ending Balance
|
|
$
|
3,042
|
|
|
$
|
1,862
|
|
|
$
|
2,862
|
|
|
$
|
4,612
|
|
|
$
|
1,056
|
|
|
$
|
129
|
|
|
$
|
13,563
|
|
Twelve months
ended December 31, 2014
|
|
Commercial
real
estate - owner
occupied
|
|
|
Commercial
real
estate - non-owner
occupied
|
|
|
Residential
real estate
|
|
|
Commercial
|
|
|
Real
estate
construction
|
|
|
Consumer
|
|
|
Total
|
|
|
|
(In
Thousands)
|
|
Allowance for credit losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning Balance
|
|
$
|
3,763
|
|
|
$
|
1,734
|
|
|
$
|
3,320
|
|
|
$
|
3,484
|
|
|
$
|
743
|
|
|
$
|
92
|
|
|
$
|
13,136
|
|
Charge-offs
|
|
|
-
|
|
|
|
-
|
|
|
|
(21
|
)
|
|
|
(22
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(43
|
)
|
Recoveries
|
|
|
-
|
|
|
|
-
|
|
|
|
213
|
|
|
|
93
|
|
|
|
-
|
|
|
|
-
|
|
|
|
306
|
|
Provisions
|
|
|
(534
|
)
|
|
|
160
|
|
|
|
(204
|
)
|
|
|
729
|
|
|
|
(147
|
)
|
|
|
(4
|
)
|
|
|
-
|
|
Ending Balance
|
|
$
|
3,229
|
|
|
$
|
1,894
|
|
|
$
|
3,308
|
|
|
$
|
4,284
|
|
|
$
|
596
|
|
|
$
|
88
|
|
|
$
|
13,399
|
|
|
|
Recorded Investment
in Loans
|
|
December 31, 2016
|
|
Commercial
real
estate - owner
occupied
|
|
|
Commercial
real
estate - non-owner
occupied
|
|
|
Residential
real estate
|
|
|
Commercial
|
|
|
Real
estate
construction
|
|
|
Consumer
|
|
|
Total
|
|
|
|
(In Thousands)
|
|
Allowance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance:
|
|
$
|
2,943
|
|
|
$
|
2,145
|
|
|
$
|
2,510
|
|
|
$
|
7,053
|
|
|
$
|
1,277
|
|
|
$
|
80
|
|
|
$
|
16,008
|
|
Ending balance: individually
evaluated for impairment
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
2,805
|
|
|
$
|
221
|
|
|
$
|
-
|
|
|
$
|
3,026
|
|
Ending balance: collectively
evaluated for impairment
|
|
$
|
2,943
|
|
|
$
|
2,145
|
|
|
$
|
2,510
|
|
|
$
|
4,248
|
|
|
$
|
1,056
|
|
|
$
|
80
|
|
|
$
|
12,982
|
|
Ending balance: loans acquired
with deteriorated credit quality
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
250,440
|
|
|
$
|
184,688
|
|
|
$
|
204,413
|
|
|
$
|
311,486
|
|
|
$
|
91,822
|
|
|
$
|
6,849
|
|
|
$
|
1,049,698
|
|
Ending balance: individually
evaluated for impairment
|
|
$
|
335
|
|
|
$
|
-
|
|
|
$
|
606
|
|
|
$
|
6,182
|
|
|
$
|
940
|
|
|
$
|
-
|
|
|
$
|
8,063
|
|
Ending balance: collectively
evaluated for impairment
|
|
$
|
250,105
|
|
|
$
|
184,688
|
|
|
$
|
203,807
|
|
|
$
|
305,304
|
|
|
$
|
90,882
|
|
|
$
|
6,849
|
|
|
$
|
1,041,635
|
|
Ending balance: loans acquired
with deteriorated credit quality
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
December 31, 2015
|
|
Commercial
real
estate - owner
occupied
|
|
|
Commercial
real
estate - non-owner
occupied
|
|
|
Residential
real estate
|
|
|
Commercial
|
|
|
Real
estate
construction
|
|
|
Consumer
|
|
|
Total
|
|
|
|
(In Thousands)
|
|
Allowance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance:
|
|
$
|
3,042
|
|
|
$
|
1,862
|
|
|
$
|
2,862
|
|
|
$
|
4,612
|
|
|
$
|
1,056
|
|
|
$
|
129
|
|
|
$
|
13,563
|
|
Ending balance: individually
evaluated for impairment
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
200
|
|
|
$
|
-
|
|
|
$
|
200
|
|
Ending balance: collectively
evaluated for impairment
|
|
$
|
3,042
|
|
|
$
|
1,862
|
|
|
$
|
2,862
|
|
|
$
|
4,612
|
|
|
$
|
856
|
|
|
$
|
129
|
|
|
$
|
13,363
|
|
Ending balance: loans acquired
with deteriorated credit quality
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance:
|
|
$
|
219,877
|
|
|
$
|
147,580
|
|
|
$
|
201,447
|
|
|
$
|
242,527
|
|
|
$
|
66,003
|
|
|
$
|
10,044
|
|
|
$
|
887,478
|
|
Ending balance: individually
evaluated for impairment
|
|
$
|
349
|
|
|
$
|
5,487
|
|
|
$
|
346
|
|
|
$
|
1,389
|
|
|
$
|
1,046
|
|
|
$
|
-
|
|
|
$
|
8,617
|
|
Ending balance: collectively
evaluated for impairment
|
|
$
|
219,528
|
|
|
$
|
142,093
|
|
|
$
|
201,101
|
|
|
$
|
241,138
|
|
|
$
|
64,957
|
|
|
$
|
10,044
|
|
|
$
|
878,861
|
|
Ending balance: loans acquired
with deteriorated credit quality
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Notes to
Consolidated Financial Statements
Note 3. Loans and the Allowance
for Loan Losses (continued)
Identifying and Classifying Portfolio
Risks by Risk Rating
At origination, loans are categorized
into risk categories based upon original underwriting. Subsequent to origination, management evaluates the collectability of all
loans in the portfolio and assigns a proprietary risk rating on a quarterly basis as of the 15
th
of the last month
in the quarter. Ratings range from the highest to lowest quality based on factors including measurements of ability to pay, collateral
type and value, borrower stability, management experience, and credit enhancements. These ratings are consistent with the bank
regulatory rating system.
A loan may have portions of its
balance in one rating and other portions in a different rating. The Bank may use these “split ratings” when factors
cause loan loss risk to exist for part but not all of the principal balance. Split ratings may also be used where cash collateral
or a government agency has provided a guaranty that partially covers a loan.
For clarity of presentation, the
Corporation’s loan portfolio is profiled below in accordance with the risk rating framework that has been commonly adopted
by the federal banking agencies. The definitions of the various risk rating categories are as follows:
Pass - The condition of the borrower
and the performance of the loan is satisfactory or better.
Special mention - A special mention
asset has one or more potential weaknesses that deserve management’s close attention. If left uncorrected, these potential
weaknesses may result in deterioration of the repayment prospects for the asset or in the institution’s credit position
at some future date.
Substandard - A substandard asset
is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any.
Assets so classified must have a well-defined weakness, or weaknesses, that jeopardize the liquidation of the debt. They are characterized
by the distinct possibility that the bank will sustain some loss if the deficiencies are not corrected.
Doubtful - An asset classified doubtful
has all the weaknesses inherent in one classified substandard with the added characteristic that the weaknesses make collection
or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.
Loss - Assets classified loss are
considered uncollectible and their continuance as bankable assets is not warranted. This classification does not mean that the
asset has absolutely no recovery or salvage value, and a partial recovery may be effected in the future.
The Bank did not have any loans
classified as loss or doubtful at December 31, 2016 and 2015. It is the Bank’s policy to charge-off any loan once the risk
rating is classified as loss.
The profile of the loan portfolio,
as indicated by risk rating, as of December 31, 2016 and 2015 is shown below.
|
|
December 31, 2016
|
|
Credit Risk Profile by Risk Rating
|
|
Pass
|
|
|
Special Mention
|
|
|
Substandard
|
|
|
Doubtful
|
|
|
Loss
|
|
|
Unearned
Income
|
|
|
Total Loans
|
|
|
|
(In Thousands)
|
|
Commercial real estate - owner occupied
|
|
$
|
247,001
|
|
|
$
|
1,213
|
|
|
$
|
2,807
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(581
|
)
|
|
$
|
250,440
|
|
Commercial real estate - non-owner occupied
|
|
|
185,020
|
|
|
|
300
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(632
|
)
|
|
|
184,688
|
|
Residential real estate
|
|
|
202,762
|
|
|
|
932
|
|
|
|
878
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(159
|
)
|
|
|
204,413
|
|
Commercial
|
|
|
287,978
|
|
|
|
4,544
|
|
|
|
19,561
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(597
|
)
|
|
|
311,486
|
|
Real estate construction
|
|
|
91,296
|
|
|
|
-
|
|
|
|
940
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(414
|
)
|
|
|
91,822
|
|
Consumer
|
|
|
6,848
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
|
|
|
6,849
|
|
Total
|
|
$
|
1,020,905
|
|
|
$
|
6,989
|
|
|
$
|
24,186
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(2,382
|
)
|
|
$
|
1,049,698
|
|
|
|
December 31, 2015
|
|
Credit Risk Profile by Risk Rating
|
|
Pass
|
|
|
Special Mention
|
|
|
Substandard
|
|
|
Doubtful
|
|
|
Loss
|
|
|
Unearned
Income
|
|
|
Total Loans
|
|
|
|
(In Thousands)
|
|
Commercial real estate - owner occupied
|
|
$
|
214,613
|
|
|
$
|
2,506
|
|
|
$
|
3,245
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(487
|
)
|
|
$
|
219,877
|
|
Commercial real estate - non-owner occupied
|
|
|
142,146
|
|
|
|
316
|
|
|
|
5,487
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(369
|
)
|
|
|
147,580
|
|
Residential real estate
|
|
|
201,308
|
|
|
|
-
|
|
|
|
346
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(207
|
)
|
|
|
201,447
|
|
Commercial
|
|
|
213,559
|
|
|
|
11,653
|
|
|
|
17,732
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(417
|
)
|
|
|
242,527
|
|
Real estate construction
|
|
|
65,476
|
|
|
|
-
|
|
|
|
1,046
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(519
|
)
|
|
|
66,003
|
|
Consumer
|
|
|
10,042
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2
|
|
|
|
10,044
|
|
Total
|
|
$
|
847,144
|
|
|
$
|
14,475
|
|
|
$
|
27,856
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(1,997
|
)
|
|
$
|
887,478
|
|
Notes to
Consolidated Financial Statements
Note 3. Loans and the Allowance
for Loan Losses (continued)
Loans listed as non-performing are
also placed on non-accrual status. The accrual of interest is discontinued at the time a loan is 90 days delinquent or when the
credit deteriorates and there is doubt that the credit will be paid as agreed, unless the credit is well-secured and in process
of collection. Once the loan is on non-accrual status, all accrued but unpaid interest is also charged-off, and all payments are
used to reduce the principal balance. Once the principal balance is repaid in full, additional payments are taken into income.
A loan may be returned to accrual status if the borrower shows renewed willingness and ability to repay under the term of the
loan agreement. The risk profile based upon payment activity is shown below.
|
|
December 31, 2016
|
|
Credit Risk Profile Based on Payment Activity
|
|
Performing
|
|
|
Non-Performing
|
|
|
Total Loans
|
|
|
|
(In Thousands)
|
|
Commercial real estate - owner occupied
|
|
$
|
250,440
|
|
|
$
|
-
|
|
|
$
|
250,440
|
|
Commercial real estate - non-owner occupied
|
|
|
184,688
|
|
|
|
-
|
|
|
|
184,688
|
|
Residential real estate
|
|
|
203,982
|
|
|
|
431
|
|
|
|
204,413
|
|
Commercial
|
|
|
305,935
|
|
|
|
5,551
|
|
|
|
311,486
|
|
Real estate construction
|
|
|
90,882
|
|
|
|
940
|
|
|
|
91,822
|
|
Consumer
|
|
|
6,849
|
|
|
|
-
|
|
|
|
6,849
|
|
Total
|
|
$
|
1,042,776
|
|
|
$
|
6,922
|
|
|
$
|
1,049,698
|
|
|
|
December 31, 2015
|
|
Credit Risk Profile Based on Payment Activity
|
|
Performing
|
|
|
Non-Performing
|
|
|
Total Loans
|
|
|
|
(In Thousands)
|
|
Commercial real estate - owner occupied
|
|
$
|
219,877
|
|
|
$
|
-
|
|
|
$
|
219,877
|
|
Commercial real estate - non-owner occupied
|
|
|
142,094
|
|
|
|
5,486
|
|
|
|
147,580
|
|
Residential real estate
|
|
|
201,284
|
|
|
|
163
|
|
|
|
201,447
|
|
Commercial
|
|
|
241,805
|
|
|
|
722
|
|
|
|
242,527
|
|
Real estate construction
|
|
|
64,957
|
|
|
|
1,046
|
|
|
|
66,003
|
|
Consumer
|
|
|
10,044
|
|
|
|
-
|
|
|
|
10,044
|
|
Total
|
|
$
|
880,061
|
|
|
$
|
7,417
|
|
|
$
|
887,478
|
|
Loans are considered past due if
a contractual payment is not made by the calendar day after the payment is due. For reporting purposes, however, loans past due
1 to 29 days are excluded. The delinquency status of the loans in the portfolio is shown below as of December 31, 2016 and 2015.
Loans that were on non-accrual status are not included in any past due amounts.
|
|
Age Analysis of Past Due Loans
|
|
|
|
December 31, 2016
|
|
|
|
30-59 Days
Past Due
|
|
|
60-89 Days
Past Due
|
|
|
Greater than
90 Days
|
|
|
Total Past
Due
|
|
|
Non-accrual
Loans
|
|
|
Current
Loans
|
|
|
Total
Loans
|
|
|
|
(In Thousands)
|
|
Commercial real estate - owner occupied
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
250,440
|
|
|
$
|
250,440
|
|
Commercial real estate - non-owner occupied
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
184,688
|
|
|
|
184,688
|
|
Residential real estate
|
|
|
-
|
|
|
|
97
|
|
|
|
-
|
|
|
|
97
|
|
|
|
431
|
|
|
|
203,885
|
|
|
|
204,413
|
|
Commercial
|
|
|
438
|
|
|
|
-
|
|
|
|
-
|
|
|
|
438
|
|
|
|
5,551
|
|
|
|
305,497
|
|
|
|
311,486
|
|
Real estate construction
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
940
|
|
|
|
90,882
|
|
|
|
91,822
|
|
Consumer
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6,849
|
|
|
|
6,849
|
|
Total
|
|
$
|
438
|
|
|
$
|
97
|
|
|
$
|
-
|
|
|
$
|
535
|
|
|
$
|
6,922
|
|
|
$
|
1,042,241
|
|
|
$
|
1,049,698
|
|
|
|
December 31, 2015
|
|
|
|
30-59 Days
Past Due
|
|
|
60-89 Days
Past Due
|
|
|
Greater than
90 Days
|
|
|
Total Past
Due
|
|
|
Non-accrual
Loans
|
|
|
Current
Loans
|
|
|
Total
Loans
|
|
|
|
(In Thousands)
|
|
Commercial real estate - owner occupied
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
219,877
|
|
|
$
|
219,877
|
|
Commercial real estate - non-owner occupied
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,486
|
|
|
|
142,094
|
|
|
|
147,580
|
|
Residential real estate
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
163
|
|
|
|
201,284
|
|
|
|
201,447
|
|
Commercial
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
722
|
|
|
|
241,805
|
|
|
|
242,527
|
|
Real estate construction
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,046
|
|
|
|
64,957
|
|
|
|
66,003
|
|
Consumer
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
10,044
|
|
|
|
10,044
|
|
Total
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
7,417
|
|
|
$
|
880,061
|
|
|
$
|
887,478
|
|
Notes
to Consolidated Financial Statements
Note 3. Loans and the Allowance
for Loan Losses (continued)
Impaired Loans
A loan is classified as impaired
when it is deemed probable by management’s analysis that the Bank will be unable to collect all amounts due according to
the contractual terms of the loan agreement, or the recorded investment in the impaired loan is greater than the present value
of expected future cash flows, discounted at the loan's effective interest rate. In the case of an impaired loan, management conducts
an analysis which identifies if a quantifiable potential loss exists, and takes the necessary steps to record that loss when it
has been identified as uncollectible.
As the ultimate collectability of
the total principal of an impaired loan is in doubt, the loan is placed on nonaccrual status with all payments applied to principal
under the cost-recovery method. As such, the Bank did not recognize any interest income on its impaired loans for the years ended
December 31, 2016, 2015 and 2014.
The table below shows the results
of management’s analysis of impaired loans as of December 31, 2016 and 2015.
|
|
Impaired
Loans
|
|
|
|
December
31, 2016
|
|
|
December
31, 2015
|
|
|
|
Recorded
|
|
|
Unpaid principal
|
|
|
Related
|
|
|
Recorded
|
|
|
Unpaid principal
|
|
|
Related
|
|
|
|
investment
|
|
|
balance
|
|
|
allowance
|
|
|
investment
|
|
|
balance
|
|
|
allowance
|
|
|
|
(In Thousands)
|
|
With no specific related allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate - owner occupied
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Commercial real estate - non-owner occupied
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,486
|
|
|
|
5,783
|
|
|
|
-
|
|
Residential real estate
|
|
|
431
|
|
|
|
431
|
|
|
|
-
|
|
|
|
163
|
|
|
|
163
|
|
|
|
-
|
|
Commercial
|
|
|
2,748
|
|
|
|
3,771
|
|
|
|
-
|
|
|
|
722
|
|
|
|
1,743
|
|
|
|
-
|
|
Real estate construction
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Consumer
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
With a specific related allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate - owner occupied
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Commercial real estate - non-owner occupied
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Residential real estate
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Commercial
|
|
|
2,803
|
|
|
|
1,400
|
|
|
|
2,805
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Real estate construction
|
|
|
940
|
|
|
|
994
|
|
|
|
221
|
|
|
|
1,046
|
|
|
|
1,046
|
|
|
|
200
|
|
Consumer
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate - owner occupied
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Commercial real estate - non-owner occupied
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,486
|
|
|
|
5,783
|
|
|
|
-
|
|
Residential real estate
|
|
|
431
|
|
|
|
431
|
|
|
|
-
|
|
|
|
163
|
|
|
|
163
|
|
|
|
-
|
|
Commercial
|
|
|
5,551
|
|
|
|
5,171
|
|
|
|
2,805
|
|
|
|
722
|
|
|
|
1,743
|
|
|
|
-
|
|
Real estate construction
|
|
|
940
|
|
|
|
994
|
|
|
|
221
|
|
|
|
1,046
|
|
|
|
1,046
|
|
|
|
200
|
|
Consumer
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
$
|
6,922
|
|
|
$
|
6,596
|
|
|
$
|
3,026
|
|
|
$
|
7,417
|
|
|
$
|
8,735
|
|
|
$
|
200
|
|
The table below shows the average
recorded investment in impaired loans for the years ended December 31, 2016, 2015 and 2014.
|
|
Twelve
Months Ended
|
|
|
|
December
31, 2016
|
|
|
December
31, 2015
|
|
|
December
31, 2014
|
|
|
|
Average Recorded
|
|
|
Average Recorded
|
|
|
Average Recorded
|
|
|
|
Investment
|
|
|
Investment
|
|
|
Investment
|
|
|
|
(In Thousands)
|
|
Commercial real estate - owner occupied
|
|
$
|
59
|
|
|
$
|
-
|
|
|
$
|
360
|
|
Commercial real estate - non-owner occupied
|
|
|
2,099
|
|
|
|
5,572
|
|
|
|
-
|
|
Residential real estate
|
|
|
120
|
|
|
|
163
|
|
|
|
324
|
|
Commercial
|
|
|
4,885
|
|
|
|
917
|
|
|
|
1,590
|
|
Real estate construction
|
|
|
1,009
|
|
|
|
1,086
|
|
|
|
-
|
|
Consumer
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
$
|
8,172
|
|
|
$
|
7,738
|
|
|
$
|
2,274
|
|
Notes to
Consolidated Financial Statements
Note 3. Loans and the Allowance
for Loan Losses (continued)
Troubled Debt Restructurings
A troubled debt restructuring ("TDR")
is a formal restructure of a loan when the Bank, for economic or legal reasons related to the borrower's financial difficulties,
grants a concession to a borrower. The Bank classifies these transactions as a TDR if the transaction meets the following conditions:
an existing credit agreement must be formally renewed, extended and/or modified; the borrower must be experiencing financial difficulty;
and the Bank has granted a concession that it would not otherwise consider.
Once identified as a TDR, a loan
is considered to be impaired, and an impairment analysis is performed for the loan individually, rather than under a general loss
allowance based on the loan type and risk rating. Any resulting shortfall is charged off. This method is used consistently for
all segments of the portfolio.
Normally, loans identified as TDRs
would be placed on non-accrual status and considered non-performing until sufficient history of timely collection or payment has
occurred that allows them to return to performing status, generally 6 months.
During 2016, two commercial loans
to one borrower totaling $2.0 million at December 31, 2016 were modified in connection with a troubled debt restructuring. The
modification granted the borrower an extension of the maturity date and was deemed to have no material financial effects as a
direct result of this modification. One construction loan totaling $1.0 million at the time of restructure was modified in connection
with a troubled debt restructuring during the year ended December 31, 2015. The modification granted the borrower reduced payments
for a period of two years as well as a reduction in the interest rate. There were no material financial effects as a direct result
of this modification.
No payment defaults occurred during
the year ended December 31, 2016 or December 31, 2015 for loans restructured during the preceding 12 month period.
The table below shows the results
of management’s analysis of troubled debt restructurings as of December 31, 2016 and 2015.
|
|
Troubled Debt Restructurings
|
|
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
|
|
Number of
loans
|
|
|
Outstanding
balance
|
|
|
Recorded
investment
|
|
|
Number of
loans
|
|
|
Outstanding
balance
|
|
|
Recorded
investment
|
|
|
|
(Dollars in Thousands)
|
|
Performing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate - owner occupied
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
1
|
|
|
$
|
349
|
|
|
$
|
349
|
|
Commercial real estate - non-owner occupied
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Residential real estate
|
|
|
1
|
|
|
|
217
|
|
|
|
175
|
|
|
|
1
|
|
|
|
225
|
|
|
|
183
|
|
Commercial
|
|
|
2
|
|
|
|
967
|
|
|
|
967
|
|
|
|
1
|
|
|
|
667
|
|
|
|
667
|
|
Real estate construction
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Consumer
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Performing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate - owner occupied
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Commercial real estate - non-owner occupied
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Residential real estate
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Commercial
|
|
|
2
|
|
|
|
2,000
|
|
|
|
2,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Real estate construction
|
|
|
1
|
|
|
|
994
|
|
|
|
940
|
|
|
|
1
|
|
|
|
1,046
|
|
|
|
1,046
|
|
Consumer
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
6
|
|
|
$
|
4,178
|
|
|
$
|
4,082
|
|
|
|
4
|
|
|
$
|
2,287
|
|
|
$
|
2,245
|
|
Notes to
Consolidated Financial Statements
Note 4. Premises and Equipment
Premises and equipment, net, are
summarized as follows:
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(In Thousands)
|
|
Land
|
|
$
|
1,342
|
|
|
$
|
1,342
|
|
Premises
|
|
|
5,832
|
|
|
|
5,832
|
|
Leasehold improvements
|
|
|
1,351
|
|
|
|
1,228
|
|
Furniture and equipment
|
|
|
4,661
|
|
|
|
3,914
|
|
|
|
|
13,186
|
|
|
|
12,316
|
|
Less accumulated depreciation
|
|
|
(6,102
|
)
|
|
|
(5,627
|
)
|
|
|
$
|
7,084
|
|
|
$
|
6,689
|
|
Depreciation and amortization expense
included in operating expenses for the years ended December 31, 2016, 2015, and 2014, was $515 thousand, $507 thousand, and $485
thousand, respectively.
Note 5. Deposits
The composition of deposits is summarized
as follows at December 31:
|
|
2016
|
|
|
2015
|
|
|
|
Amount
|
|
|
Percentage
of
Total
|
|
|
Amount
|
|
|
Percentage
of
Total
|
|
|
|
(Dollars In Thousands)
|
|
Interest-bearing demand deposits
|
|
$
|
126,189
|
|
|
|
11.97
|
%
|
|
$
|
127,980
|
|
|
|
14.00
|
%
|
Savings and money market
|
|
|
270,310
|
|
|
|
25.64
|
|
|
|
150,021
|
|
|
|
16.42
|
|
CDARS - time deposits
|
|
|
34,290
|
|
|
|
3.25
|
|
|
|
73,017
|
|
|
|
7.99
|
|
CDARS/ICS non-maturity deposits
|
|
|
40,925
|
|
|
|
3.88
|
|
|
|
15,517
|
|
|
|
1.70
|
|
Brokered deposits
|
|
|
57,389
|
|
|
|
5.44
|
|
|
|
103,390
|
|
|
|
11.31
|
|
Time deposits
|
|
|
163,188
|
|
|
|
15.48
|
|
|
|
136,022
|
|
|
|
14.89
|
|
Total interest-bearing deposits
|
|
|
692,291
|
|
|
|
65.66
|
|
|
|
605,947
|
|
|
|
66.31
|
|
Noninterest-bearing demand deposits
|
|
|
362,036
|
|
|
|
34.34
|
|
|
|
307,797
|
|
|
|
33.69
|
|
Total deposits
|
|
$
|
1,054,327
|
|
|
|
100.00
|
%
|
|
$
|
913,744
|
|
|
|
100.00
|
%
|
The aggregate amount of time deposits
with a minimum denomination of $250,000 was $96 million for 2016 and $161 million for 2015.
At December 31, 2016, the scheduled
maturities of time deposits were as follows:
Year
|
|
Amount
|
|
|
|
(In Thousands)
|
|
2017
|
|
$
|
159,539
|
|
2018
|
|
|
61,483
|
|
2019
|
|
|
14,102
|
|
2020
|
|
|
6,510
|
|
2021
|
|
|
2,883
|
|
Later years
|
|
|
7,189
|
|
|
|
$
|
251,706
|
|
Brokered deposits totaled $133 million
and $192 million at December 31, 2016 and 2015, respectively, which includes $75 million and $89 million, respectively, in CDARS
deposits.
Notes to
Consolidated Financial Statements
Note 6. Borrowings
The Bank is a member of the FHLB
and may borrow funds based on criteria established by the FHLB. The FHLB may call these borrowings if the adjusted collateral
balance falls below the borrowing level. The borrowing arrangements available from the FHLB could be either short-term or long-term
borrowings, depending upon the Bank’s related cost and needs.
Advances from the FHLB for the years
ended December 31, 2016 and 2015 are summarized below:
|
|
2016
|
|
|
2015
|
|
|
|
(Dollars In Thousands)
|
|
Balance outstanding at end of year
|
|
$
|
189,000
|
|
|
$
|
125,000
|
|
Average balance outstanding
|
|
$
|
125,047
|
|
|
$
|
110,882
|
|
Maximum outstanding at any month-end
|
|
$
|
189,000
|
|
|
$
|
160,000
|
|
Average interest rate during the year
|
|
|
0.91
|
%
|
|
|
0.41
|
%
|
Average interest rate at end of year
|
|
|
0.91
|
%
|
|
|
0.75
|
%
|
The scheduled maturity dates and
related fixed interest rates on advances from the FHLB at December 31, 2016 are summarized as follows (dollars in thousands):
Maturity Date
|
|
Interest Rate
|
|
|
Outstanding
Amount
|
|
DRC
|
|
|
0.80
|
%
|
|
$
|
69,000
|
|
2/27/2017
|
|
|
0.74
|
%
|
|
|
25,000
|
|
3/20/2017
|
|
|
0.69
|
%
|
|
|
20,000
|
|
10/2/2017
|
|
|
0.72
|
%
|
|
|
15,000
|
|
3/27/2018
|
|
|
1.22
|
%
|
|
|
10,000
|
|
10/2/2018
|
|
|
1.02
|
%
|
|
|
10,000
|
|
4/4/2019
|
|
|
1.13
|
%
|
|
|
20,000
|
|
10/2/2019
|
|
|
1.32
|
%
|
|
|
10,000
|
|
10/2/2020
|
|
|
1.54
|
%
|
|
|
10,000
|
|
|
|
|
|
|
|
$
|
189,000
|
|
Information concerning securities
sold under agreements to repurchase and federal funds purchased for the years ended December 31, 2016 and 2015 is summarized below:
|
|
2016
|
|
|
2015
|
|
|
|
(Dollars In Thousands)
|
|
Balance outstanding at end of year
|
|
$
|
57,009
|
|
|
$
|
21,129
|
|
Average balance outstanding
|
|
$
|
16,270
|
|
|
$
|
22,017
|
|
Maximum outstanding at any month-end
|
|
$
|
57,009
|
|
|
$
|
26,242
|
|
Average interest rate during the year
|
|
|
0.10
|
%
|
|
|
0.10
|
%
|
Average interest rate at end of year
|
|
|
0.68
|
%
|
|
|
0.10
|
%
|
Repurchase agreements totaled $17.0
million and $21.1 million at December 31, 2016 and 2015, respectively. They are classified as secured borrowings and generally
mature within one business day from the transaction date. They are reflected as the amount of cash received in connection with
the transaction. In addition, $40.0 million in federal funds lines with other financial institutions were outstanding at December
31, 2016, leaving $22.4 million available for short-term funding needs. Federal funds purchased are overnight, unsecured borrowings.
The Bank has remaining lines of
credit available with the FHLB which totaled $184.7 million at December 31, 2016. The FHLB advances are secured by a blanket floating
lien on certain 1-4 family residential, HELOCS, second mortgages, commercial mortgages and investment securities with carrying
values of $224.6 million at December 31, 2016.
Notes to
Consolidated Financial Statements
Note 7. Income Taxes
Net deferred tax assets consisted
of the following components as of December 31, 2016 and 2015:
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(In Thousands)
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Allowance for loan losses
|
|
$
|
5,760
|
|
|
$
|
4,838
|
|
Deferred fees
|
|
|
857
|
|
|
|
713
|
|
Allowance for loan losses on mortgage
loans sold
|
|
|
557
|
|
|
|
573
|
|
Allowance for off balance sheet losses
|
|
|
270
|
|
|
|
268
|
|
Stock options
|
|
|
79
|
|
|
|
52
|
|
Securities available for sale
|
|
|
869
|
|
|
|
551
|
|
Land impairment
|
|
|
-
|
|
|
|
252
|
|
Other
|
|
|
197
|
|
|
|
141
|
|
|
|
$
|
8,589
|
|
|
$
|
7,388
|
|
Deferred tax liability:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
$
|
147
|
|
|
$
|
173
|
|
Other
|
|
|
88
|
|
|
|
58
|
|
|
|
$
|
235
|
|
|
$
|
231
|
|
Net deferred tax
assets included in other assets
|
|
$
|
8,354
|
|
|
$
|
7,157
|
|
The provision for income taxes charged
to operations for the years ended December 31, 2016, 2015, and 2014 consisted of the following:
|
|
Year Ended
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
(In Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Current tax expense
|
|
$
|
9,898
|
|
|
$
|
8,711
|
|
|
$
|
6,691
|
|
Deferred tax (benefit)
|
|
|
(698
|
)
|
|
|
(534
|
)
|
|
|
894
|
|
|
|
$
|
9,200
|
|
|
$
|
8,177
|
|
|
$
|
7,585
|
|
The income tax provision differs
from the amount of income tax determined by applying the U.S. Federal income tax rate to pretax income for the years ended December
31, 2016, 2015, and 2014 as follows:
|
|
Year Ended
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
(In Thousands)
|
|
Computed "expected" tax expense
|
|
$
|
8,961
|
|
|
$
|
8,259
|
|
|
$
|
7,529
|
|
Increase (decrease) in income taxes resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|
State income taxes
|
|
|
117
|
|
|
|
92
|
|
|
|
62
|
|
Tax exempt income and interest
|
|
|
(409
|
)
|
|
|
(257
|
)
|
|
|
(164
|
)
|
Merger related expenses
|
|
|
344
|
|
|
|
-
|
|
|
|
-
|
|
Other
|
|
|
187
|
|
|
|
83
|
|
|
|
158
|
|
|
|
$
|
9,200
|
|
|
$
|
8,177
|
|
|
$
|
7,585
|
|
As of December 31, 2016 and 2015,
the Corporation did not have any unrecognized tax benefits. The Corporation does not expect a significant increase or decrease
in the next 12 months of unrecognized tax benefits. The Corporation recognizes interest and penalties related to unrecognized
tax benefits as Interest Expense and Other Noninterest Expense, respectively, and not as part of the tax provision. The Corporation
did not recognize a material amount of interest expense or penalties for the years ended December 31, 2016, 2015 and 2014. In
addition, there were no interest or penalties accrued at December 31, 2016 or 2015. The Corporation is no longer subject to examination
for federal and state purposes for tax years prior to 2013.
Notes to
Consolidated Financial Statements
Note 8. Commitments and Contingent
Liabilities
The Corporation is committed under
non-cancelable and month-to-month operating leases for its office locations. Rent expense associated with these operating leases
for the years ended December 31, 2016, 2015, and 2014 totaled $878 thousand, $807 thousand, and $850 thousand, respectively.
The following is a schedule of future
minimum lease payments required under operating leases that have initial or remaining lease terms in excess of one year.
Year
|
|
Amount
|
|
|
|
(In Thousands)
|
|
2017
|
|
$
|
431
|
|
2018
|
|
|
428
|
|
2019
|
|
|
410
|
|
2020
|
|
|
329
|
|
2021
|
|
|
317
|
|
Thereafter
|
|
|
1,485
|
|
|
|
$
|
3,400
|
|
In the normal course of business,
there are outstanding various commitments and contingent liabilities, which are not reflected in the accompanying financial statements.
The Corporation does not anticipate any material loss as a result of these transactions. See Note 9 for additional information.
As part of its mortgage banking
activities, the Mortgage Division enters into interest rate lock commitments, which are commitments to originate loans whereby
the interest rate on the loan is determined prior to funding and the customers have locked into that interest rate. The Mortgage
Division then either locks the loan and rate in with an investor and commits to deliver the loan if settlement occurs (“Best
Efforts”) or commits to deliver the locked loan in a binding (“Mandatory”) delivery program with an investor.
Certain loans under rate lock commitments are covered under forward sales contracts of mortgage backed securities (“MBS”).
Forward sales contracts of MBS are recorded at fair value with changes in fair value recorded in noninterest income. Interest
rate lock commitments and commitments to deliver loans to investors are considered derivatives. The market value of interest rate
lock commitments and best efforts contracts are not readily ascertainable with precision because they are not actively traded
in stand-alone markets. The Mortgage Division determines the fair value of rate lock commitments and delivery contracts by measuring
the fair value of the underlying asset, which is impacted by current interest rates and taking into consideration the probability
that the rate lock commitments will close or will be funded.
Since the Mortgage Division’s
derivative instruments are not designated as hedging instruments, the fair value of the derivatives are recorded as a freestanding
asset or liability with the change in value being recognized in current net income during the period of change.
At December 31, 2016 and 2015 the
Mortgage Division had open forward contracts with notional values of $54.3 million and $49.0 million, respectively. At December
31, 2016 and 2015, the Mortgage Division did not have any open mandatory delivery contracts. The open forward delivery contracts
are composed of forward sales of MBS. The fair value of these open forward contracts was $102 thousand and ($54) thousand at December
31, 2016 and 2015, respectively. Certain additional risks arise from these forward delivery contracts in that the counterparties
to the contracts may not be able to meet the terms of the contracts. The Mortgage Division does not expect any counterparty to
fail to meet its obligation. Additional risks inherent in mandatory delivery programs include the risk that if the Mortgage Division
does not close the loans subject to interest rate risk lock commitments, they will be obligated to deliver MBS to the counterparty
under the forward sales agreement. Should this be required, the Mortgage Division could incur significant costs in acquiring replacement
loans or MBS and such costs could have an adverse effect on mortgage banking operations in future periods.
Interest rate lock commitments totaled
$37.9 million and $26.6 million at December 31, 2016 and 2015, respectively, and included $7.3 million and $6.2 million that were
made on a Best Efforts basis at December 31, 2016 and 2015, respectively. Fair values of these best efforts commitments were $82
thousand and $53 thousand at December 31, 2016 and 2015, respectively. The remaining hedged interest rate lock commitments totaling
$30.6 million and $20.4 million at December 31 2016 and 2015 had a fair value of $484 thousand and $275 thousand, respectively.
Notes to
Consolidated Financial Statements
Note 8. Commitments and Contingent
Liabilities (continued)
The
Mortgage Division makes representations and warranties that loans sold to investors meet their program’s guidelines and
that the information provided by the borrowers is accurate and complete. In the event of a default on a loan sold, the investor
may make a claim for losses due to document deficiencies, program compliance, early payment default, and fraud or borrower misrepresentations.
The Mortgage Division maintains a reserve in other liabilities for potential losses on mortgage loans sold. At December 31, 2016
and 2015 the balance in this reserve totaled $1.0 million.
Allowance
For Losses on Mortgage Loans Sold
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(In Thousands)
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
$
|
1,029
|
|
|
$
|
1,198
|
|
Provision charged to operating expense
|
|
|
-
|
|
|
|
-
|
|
Recoveries
|
|
|
-
|
|
|
|
-
|
|
Charge-offs
|
|
|
-
|
|
|
|
(169
|
)
|
Balance at end of year
|
|
$
|
1,029
|
|
|
$
|
1,029
|
|
Note 9. Financial Instruments
with Off-Balance-Sheet Risk
The Corporation is a party to financial
instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial
instruments consist primarily of commitments to extend credit. These instruments involve, to varying degrees, elements of credit
risk in excess of the amount recognized in the balance sheet. The contract or notional amounts of those instruments reflect the
extent of involvement the Corporation has in particular classes of financial instruments.
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 payment of a fee by the customer. Since many of the commitments
are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.
The Corporation evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral, if any, deemed
necessary by the Corporation upon extension of credit is based on management’s credit evaluation of the counterparty. Collateral
normally consists of real property, liquid assets or business assets. The Corporation had approximately $25.1 million and $53.2
million in outstanding commitments at December 31, 2016 and 2015, respectively.
The Corporation’s exposure
to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit
is represented by the contractual notional amount of those instruments. The Corporation uses the same credit policies in making
commitments and conditional obligations as it does for on-balance-sheet instruments. The Corporation had approximately $330.0
million and $304.9 million in unfunded lines of credit whose contract amounts represent credit risk at December 31, 2016 and 2015,
respectively.
Standby letters of credit are conditional
commitments issued by the Corporation to guarantee the performance of a customer to a third party. Those letters of credit are
primarily issued to support public and private borrowing arrangements. Essentially all letters of credit issued have expiration
dates within one year. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending
loan facilities to customers. The Corporation generally holds collateral supporting those commitments if deemed necessary. The
Corporation had standby letters of credit outstanding in the amount of $9.6 million and $7.6 million at December 31, 2016 and
2015, respectively.
In August 2016, the Bank entered
into a letter of credit agreement with the Commonwealth of Virginia Treasury Board pertaining to its public deposits program.
Under the terms of the letters of credit agreement, the Commonwealth of Virginia Treasury Board in accordance with the Security
for Public Deposits Act has approved the use of a letter of credit issued by the FHLB as collateral by the Bank. The maximum amount
available under the letter of credit is $35 million. The letter of credit expires in August 2017 with an automatic one year extension
until August 2018.
In addition to the above, the Corporation
is subject to risks related to the mortgage origination operations of the Mortgage Division of the Bank. See Note 8 for a discussion
of those risks.
Notes to
Consolidated Financial Statements
Note 10. Related Party Transactions
The Corporation has had, and may
be expected to have in the future, banking transactions in the ordinary course of business with directors, principal officers,
their immediate families and affiliated companies in which they are principal shareholders (commonly referred to as related parties),
on the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with parties
not related to the Corporation and which did not present more than the normal risk of collectability or other unfavorable terms.
These related parties were indebted to the Corporation for loans totaling $10.8 million at December 31, 2016, and $11.4 million
at December 31, 2015. During 2016, total principal additions were $132 thousand and total principal payments and changes in related
parties’ debt were $691 thousand. The Corporation also has outstanding unused commitments to related parties amounting to
$150 thousand at December 31, 2016. The aggregate amount of deposits at December 31, 2016 and 2015 from directors and officers
or their immediate family members was $35.6 million and $36.4 million, respectively.
Note 11. Stock Option Plan
The Corporation established the
Access National Corporation 2009 Stock Option Plan (“the Plan”) and it was approved by shareholders on May 19, 2009.
The Plan reserves 975,000 shares of the Corporation’s common stock, $0.835 par value, for issuance under the Plan. The Plan
allows for stock options to be granted with an exercise price equal to the fair market value at the date of grant. The expiration
dates on options granted under this plan are generally five years from the grant date.
Total compensation cost for share-based
payment arrangements recognized in 2016, 2015, and 2014 was $335 thousand, $332 thousand, and $236 thousand, respectively.
Cash received from option exercises
under share-based payment arrangements for 2016, 2015, and 2014 was $532 thousand, $380 thousand, and $680 thousand, respectively.
Changes in the stock options outstanding
under the Plan, for the years ended December 31, 2016, 2015 and 2014 are summarized as follows:
|
|
Year Ended December
31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
Number of
|
|
|
Average
|
|
|
Number of
|
|
|
Average
|
|
|
Number of
|
|
|
Average
|
|
|
|
Options
|
|
|
Exercise
Price
|
|
|
Options
|
|
|
Exercise
Price
|
|
|
Options
|
|
|
Exercise
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at beginning of year
|
|
|
407,832
|
|
|
$
|
15.33
|
|
|
|
316,423
|
|
|
$
|
14.02
|
|
|
|
281,380
|
|
|
$
|
11.77
|
|
Granted
|
|
|
129,550
|
|
|
|
18.77
|
|
|
|
125,434
|
|
|
|
18.03
|
|
|
|
123,000
|
|
|
|
15.96
|
|
Exercised
|
|
|
(43,801
|
)
|
|
|
12.15
|
|
|
|
(29,975
|
)
|
|
|
12.62
|
|
|
|
(76,132
|
)
|
|
|
8.95
|
|
Lapsed or canceled
|
|
|
(12,200
|
)
|
|
|
16.54
|
|
|
|
(4,050
|
)
|
|
|
16.40
|
|
|
|
(11,825
|
)
|
|
|
13.34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of year
|
|
|
481,381
|
|
|
$
|
16.52
|
|
|
|
407,832
|
|
|
$
|
15.33
|
|
|
|
316,423
|
|
|
$
|
14.02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at end of year
|
|
|
173,781
|
|
|
$
|
14.49
|
|
|
|
105,889
|
|
|
$
|
12.99
|
|
|
|
43,697
|
|
|
$
|
11.88
|
|
Options outstanding at year end
2016 were as follows:
|
|
|
Options
Outstanding
|
|
|
Options
Exercisable
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
Average
|
|
|
Weighted
|
|
|
|
|
Range of
|
|
|
|
|
|
Remaining
|
|
|
Average
|
|
|
|
|
|
|
|
|
Remaining
|
|
|
Average
|
|
|
|
|
Exercise
|
|
|
Number
|
|
|
Contractual
|
|
|
Exercise
|
|
|
Intrinsic
|
|
|
Number
|
|
|
Contractual
|
|
|
Exercise
|
|
|
Intrinsic
|
|
Price
|
|
|
Outstanding
|
|
|
Life (in
yrs)
|
|
|
Price
|
|
|
Value
|
|
|
Exercisable
|
|
|
Life (in
yrs)
|
|
|
Price
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$7.55-$9.58
|
|
|
|
38,963
|
|
|
|
0.08
|
|
|
$
|
9.24
|
|
|
$
|
721,595
|
|
|
|
38,963
|
|
|
|
0.08
|
|
|
$
|
9.24
|
|
|
$
|
721,595
|
|
$9.59-$25.00
|
|
|
|
442,418
|
|
|
|
2.71
|
|
|
|
16.99
|
|
|
|
4,690,548
|
|
|
|
134,818
|
|
|
|
1.83
|
|
|
|
16.01
|
|
|
|
1,584,336
|
|
|
|
|
|
481,381
|
|
|
|
2.50
|
|
|
$
|
16.52
|
|
|
$
|
5,412,143
|
|
|
|
173,781
|
|
|
|
1.44
|
|
|
$
|
14.49
|
|
|
$
|
2,305,931
|
|
Notes
to Consolidated Financial Statements
Note 11. Stock Option Plan (continued)
The fair value of stock options
granted was estimated using the Black Scholes option pricing model with the following weighted average assumptions:
|
|
Year Ended
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
Expected life of options granted
|
|
|
4.12
Years
|
|
|
|
4.09
Years
|
|
|
|
4.07
Years
|
|
Risk-free interest rate
|
|
|
1.25
|
%
|
|
|
1.06
|
%
|
|
|
0.69
|
%
|
Expected volatility of stock
|
|
|
30
|
%
|
|
|
30
|
%
|
|
|
36
|
%
|
Annual expected dividend yield
|
|
|
3
|
%
|
|
|
3
|
%
|
|
|
3
|
%
|
Fair value of granted options
|
|
$
|
473,272
|
|
|
$
|
357,456
|
|
|
$
|
305,143
|
|
Nonvested Options
|
|
|
307,600
|
|
|
|
301,943
|
|
|
|
272,726
|
|
The total intrinsic value of options
exercised during the years ended December 31, 2016, 2015, and 2014 was $340 thousand, $239 thousand, and $525 thousand, respectively.
The weighted average grant date fair value of options granted during the years 2016, 2015, and 2014 were $4.12, $2.85, and $2.48,
respectively.
The total unrecognized compensation
cost related to non-vested share based compensation arrangements granted under the plan as of December 31, 2016 was $553 thousand.
The cost is expected to be recognized over a weighted average period of 2.41 years.
Notes
to Consolidated Financial Statements
Note 12. Capital Requirements
The Corporation (on a consolidated
basis) and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure
to meet minimum capital requirements can initiate certain mandatory - possibly additional discretionary - actions by regulators
that, if undertaken, could have a direct material effect on the Corporation’s and the Bank’s financial statements.
Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Corporation and the Bank must
meet specific capital guidelines that involve quantitative measures of the Corporation’s and the Bank’s assets, liabilities,
and certain off-balance-sheet items as calculated under regulatory accounting practices. The Corporation’s and the Bank’s
capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings,
and other factors.
Quantitative measures established
by regulation to ensure capital adequacy require the Corporation and Bank to maintain minimum amounts and ratios (set forth in
the table below) of total Tier 1, and Common Equity Tier 1 capital (as defined in the regulations) to risk-weighted assets (as
defined), and of Tier 1 capital (as defined) to average assets (as defined). Management believes, as of December 31, 2016 and
2015, that the Corporation and the Bank meet all capital adequacy requirements to which they are subject.
At December 31, 2016 the Corporation
and Bank exceeded the minimum required ratios for “well capitalized” as defined by the federal banking regulators.
To be categorized as well capitalized, the Bank must maintain minimum total risk-based, Tier 1 risk-based, Common Equity Tier
1 risk-based and Tier 1 leverage ratios as set forth in the table. There are no conditions or events that management believes
have changed the institutions’ category.
The Corporation’s and Bank’s
actual capital amounts and ratios as of December 31, 2016 and 2015 are presented in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
To Be Well
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalized Under
|
|
|
|
|
|
|
|
|
|
Minimum Capital
|
|
|
Prompt Corrective
|
|
|
|
Actual
|
|
|
Requirement
|
|
|
Action
Provisions
|
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
|
(Dollars In Thousands)
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(to Risk-Weighted Assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporation
|
|
$
|
135,009
|
|
|
|
11.51
|
%
|
|
$
|
93,866
|
|
|
|
8.625
|
%
|
|
$
|
117,333
|
|
|
|
10.00
|
%
|
Bank
|
|
$
|
124,149
|
|
|
|
10.58
|
%
|
|
$
|
93,866
|
|
|
|
8.625
|
%
|
|
$
|
117,332
|
|
|
|
10.00
|
%
|
Tier 1 Capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(to Risk-Weighted Assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporation
|
|
$
|
120,317
|
|
|
|
10.25
|
%
|
|
$
|
70,400
|
|
|
|
6.625
|
%
|
|
$
|
93,866
|
|
|
|
8.00
|
%
|
Bank
|
|
$
|
109,457
|
|
|
|
9.33
|
%
|
|
$
|
70,399
|
|
|
|
6.625
|
%
|
|
$
|
93,866
|
|
|
|
8.00
|
%
|
Tier 1 Capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(to Average Assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporation
|
|
$
|
120,317
|
|
|
|
8.90
|
%
|
|
$
|
52,800
|
|
|
|
5.125
|
%
|
|
$
|
58,667
|
|
|
|
5.00
|
%
|
Bank
|
|
$
|
109,457
|
|
|
|
8.11
|
%
|
|
$
|
60,793
|
|
|
|
5.125
|
%
|
|
$
|
67,547
|
|
|
|
5.00
|
%
|
Common Equity Tier 1 Capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(to Risk-Weighted Assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporation
|
|
$
|
120,317
|
|
|
|
10.25
|
%
|
|
$
|
54,068
|
|
|
|
4.00
|
%
|
|
$
|
87,861
|
|
|
|
6.50
|
%
|
Bank
|
|
$
|
109,457
|
|
|
|
9.33
|
%
|
|
$
|
46,933
|
|
|
|
4.00
|
%
|
|
$
|
76,266
|
|
|
|
6.50
|
%
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(to Risk-Weighted Assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporation
|
|
$
|
120,682
|
|
|
|
12.39
|
%
|
|
$
|
77,913
|
|
|
|
8.00
|
%
|
|
$
|
97,391
|
|
|
|
10.00
|
%
|
Bank
|
|
$
|
111,031
|
|
|
|
11.41
|
%
|
|
$
|
77,865
|
|
|
|
8.00
|
%
|
|
$
|
97,331
|
|
|
|
10.00
|
%
|
Tier 1 Capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(to Risk-Weighted Assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporation
|
|
$
|
108,482
|
|
|
|
11.14
|
%
|
|
$
|
38,956
|
|
|
|
6.00
|
%
|
|
$
|
58,434
|
|
|
|
8.00
|
%
|
Bank
|
|
$
|
98,838
|
|
|
|
10.15
|
%
|
|
$
|
38,932
|
|
|
|
6.00
|
%
|
|
$
|
77,865
|
|
|
|
8.00
|
%
|
Tier 1 Capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(to Average Assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporation
|
|
$
|
108,482
|
|
|
|
9.34
|
%
|
|
$
|
46,443
|
|
|
|
4.50
|
%
|
|
$
|
58,054
|
|
|
|
5.00
|
%
|
Bank
|
|
$
|
98,838
|
|
|
|
8.53
|
%
|
|
$
|
46,371
|
|
|
|
4.50
|
%
|
|
$
|
57,964
|
|
|
|
5.00
|
%
|
Common Equity Tier 1 Capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(to Risk-Weighted Assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporation
|
|
$
|
108,482
|
|
|
|
11.14
|
%
|
|
$
|
38,956
|
|
|
|
4.00
|
%
|
|
$
|
63,304
|
|
|
|
6.50
|
%
|
Bank
|
|
$
|
98,838
|
|
|
|
10.15
|
%
|
|
$
|
38,932
|
|
|
|
4.00
|
%
|
|
$
|
63,265
|
|
|
|
6.50
|
%
|
Notes to
Consolidated Financial Statements
Note 13. Earnings Per Share
The following table shows the weighted
average number of shares used in computing earnings per share and the effect on weighted average number of shares of potential
diluted common stock. Potential dilutive common stock has no effect on income available to common shareholders.
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
Net
|
|
|
|
|
|
Per Share
|
|
|
Net
|
|
|
|
|
|
Per Share
|
|
|
Net
|
|
|
|
|
|
Per Share
|
|
|
|
Income
|
|
|
Shares
|
|
|
Amount
|
|
|
Income
|
|
|
Shares
|
|
|
Amount
|
|
|
Income
|
|
|
Shares
|
|
|
Amount
|
|
|
|
(In Thousands, Except for Per Share Data)
|
|
Earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
16,404
|
|
|
|
10,586
|
|
|
$
|
1.55
|
|
|
$
|
15,419
|
|
|
|
10,513
|
|
|
$
|
1.46
|
|
|
$
|
13,925
|
|
|
|
10,424
|
|
|
$
|
1.33
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options and warrants
|
|
|
-
|
|
|
|
92
|
|
|
|
-
|
|
|
|
-
|
|
|
|
69
|
|
|
|
-
|
|
|
|
-
|
|
|
|
43
|
|
|
|
-
|
|
Diluted
|
|
|
-
|
|
|
|
-
|
|
|
|
1.54
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1.46
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1.33
|
|
Diluted earnings per share
|
|
$
|
16,404
|
|
|
|
10,678
|
|
|
$
|
1.54
|
|
|
$
|
15,419
|
|
|
|
10,582
|
|
|
$
|
1.46
|
|
|
$
|
13,925
|
|
|
|
10,467
|
|
|
$
|
1.33
|
|
Note 14.
Employee Benefits
The Corporation
maintains a Defined Contribution 401(k) Profit Sharing Plan (the “401(k) Plan”), which authorizes a maximum voluntary
salary deferral of up to IRS limitations. All full-time employees are eligible to participate after 6 months of employment. The
Corporation reserves the right to make an annual discretionary contribution to the account of each eligible employee based in
part on the Corporation’s profitability for a given year, and on each participant’s yearly earnings. Approximately
$759 thousand, $638 thousand, and $540 thousand were charged to expense under the 401(k) Plan for 2016, 2015, and 2014, respectively.
Notes
to Consolidated Financial Statements
Note 15. Other Expenses
The Corporation had the following
other expenses for the years ended December 31, 2016, 2015, and 2014:
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
(In Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Management fees
|
|
$
|
1,187
|
|
|
$
|
1,151
|
|
|
$
|
799
|
|
Merger related costs
|
|
|
984
|
|
|
|
-
|
|
|
|
-
|
|
Business and franchise tax
|
|
|
953
|
|
|
|
875
|
|
|
|
806
|
|
Data processing
|
|
|
947
|
|
|
|
1,029
|
|
|
|
676
|
|
FDIC insurance
|
|
|
789
|
|
|
|
634
|
|
|
|
444
|
|
Investor fees
|
|
|
759
|
|
|
|
570
|
|
|
|
453
|
|
Advertising and promotional expense
|
|
|
735
|
|
|
|
754
|
|
|
|
873
|
|
Consulting fees
|
|
|
681
|
|
|
|
618
|
|
|
|
481
|
|
Accounting and auditing service
|
|
|
613
|
|
|
|
612
|
|
|
|
612
|
|
Telephone
|
|
|
385
|
|
|
|
346
|
|
|
|
309
|
|
Director fees
|
|
|
352
|
|
|
|
395
|
|
|
|
492
|
|
Stock option expense
|
|
|
335
|
|
|
|
332
|
|
|
|
236
|
|
Business development, meals, and travel
|
|
|
293
|
|
|
|
260
|
|
|
|
270
|
|
Regulatory examinations
|
|
|
282
|
|
|
|
257
|
|
|
|
217
|
|
Credit report
|
|
|
281
|
|
|
|
197
|
|
|
|
208
|
|
Publication and subscription
|
|
|
280
|
|
|
|
249
|
|
|
|
251
|
|
Early payoff
|
|
|
260
|
|
|
|
133
|
|
|
|
58
|
|
Insurance
|
|
|
255
|
|
|
|
206
|
|
|
|
182
|
|
Disaster recovery
|
|
|
199
|
|
|
|
190
|
|
|
|
241
|
|
Stationary and supplies
|
|
|
197
|
|
|
|
294
|
|
|
|
308
|
|
Employee education and development
|
|
|
186
|
|
|
|
198
|
|
|
|
96
|
|
FRB and Bank analysis charges
|
|
|
163
|
|
|
|
147
|
|
|
|
121
|
|
Verification fees
|
|
|
150
|
|
|
|
106
|
|
|
|
89
|
|
SBA guarantee fee
|
|
|
145
|
|
|
|
160
|
|
|
|
183
|
|
Postage
|
|
|
97
|
|
|
|
93
|
|
|
|
97
|
|
Dues and memberships
|
|
|
95
|
|
|
|
108
|
|
|
|
104
|
|
Common stock expense
|
|
|
95
|
|
|
|
97
|
|
|
|
89
|
|
Legal fees
|
|
|
79
|
|
|
|
363
|
|
|
|
277
|
|
Donations
|
|
|
64
|
|
|
|
73
|
|
|
|
16
|
|
Courier
|
|
|
57
|
|
|
|
59
|
|
|
|
93
|
|
Impairment of long lived asset
|
|
|
-
|
|
|
|
-
|
|
|
|
707
|
|
Provision release for LHFS
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,250
|
)
|
Other
|
|
|
1,070
|
|
|
|
1,354
|
|
|
|
1,005
|
|
|
|
$
|
12,968
|
|
|
$
|
11,860
|
|
|
$
|
7,543
|
|
Note 16. Fair Value Measurements
FASB ASC 820-10 defines fair value
as the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most
advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.
FASB ASC 820-10 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and
minimize the use of unobservable inputs when measuring fair value. Transfers between levels of the fair value hierarchy are recognized
on the actual dates of the event or circumstances that caused the transfer, which generally coincides with the Corporation’s
monthly and or quarterly valuation process. The standard describes three levels of inputs that may be used to measure fair values:
Notes to
Consolidated Financial Statements
Note 16. Fair Value Measurements
(continued)
Level 1 - 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 - 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 - 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 Corporation used the following
methods to determine the fair value of each type of financial instrument:
Investment securities
: The
fair values for investment securities are determined by quoted market prices for similar securities from active markets (Level
2) or by independent valuations (Level 3) for securities not traded in active markets.
Residential loans held for sale
:
The fair value of loans held for sale is determined using quoted prices for a similar asset, adjusted for specific attributes
of that loan (Level 2).
Derivative financial instruments
:
Derivative instruments are used to hedge residential mortgage loans held for sale and the related interest-rate lock commitments
and include forward commitments to sell mortgage loans and mortgage backed securities. The fair values of derivative financial
instruments are based on derivative market data inputs as of the valuation date and the underlying value of mortgage loans for
rate lock commitments (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 non-recurring basis. Collateral may be in the form of real estate or business assets including equipment, inventory
and accounts receivable. The use of discounted cash flow models and management’s best judgment are significant
inputs in arriving at the fair value measure of the underlying collateral (Level 3).
Other real estate owned
:
The fair value of other real estate owned, which is included in other assets on the balance sheet, consists of real estate that
has been foreclosed. Foreclosed real estate is recorded at the lower of fair value less selling expenses or the book balance prior
to foreclosure. Write downs are provided for subsequent declines in value and are recorded in other noninterest expense (Level
2).
Notes to Consolidated Financial Statements
Note 16. Fair Value Measurements (continued)
Assets and liabilities measured at fair value under FASB ASC 820-10
on a recurring and non-recurring basis, including financial assets and liabilities for which the Corporation has elected the fair
value option, are summarized below:
|
|
Fair Value Measurement
|
|
|
|
at December 31, 2016
Using
|
|
Description
|
|
Carrying
Value
|
|
|
Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
|
|
|
Other
Observable
Inputs (Level 2)
|
|
|
Significant
Unobservable
Inputs (Level 3)
|
|
|
|
(In
Thousands)
|
|
Financial Assets-Recurring
|
|
|
|
Available-for-sale investment securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US Government agency
|
|
$
|
4,994
|
|
|
$
|
-
|
|
|
$
|
4,994
|
|
|
$
|
-
|
|
Mortgage backed
|
|
|
119,807
|
|
|
|
-
|
|
|
|
119,807
|
|
|
|
-
|
|
Corporate bonds
|
|
|
8,666
|
|
|
|
-
|
|
|
|
8,666
|
|
|
|
-
|
|
Asset backed securities
|
|
|
12,864
|
|
|
|
-
|
|
|
|
8,364
|
|
|
|
4,500
|
|
Certificates of deposit
|
|
|
2,009
|
|
|
|
-
|
|
|
|
2,009
|
|
|
|
-
|
|
Municipals - nontaxable
|
|
|
44,359
|
|
|
|
-
|
|
|
|
44,359
|
|
|
|
-
|
|
CRA Mutual fund
|
|
|
1,391
|
|
|
|
-
|
|
|
|
1,391
|
|
|
|
-
|
|
Total available-for-sale investment securities
|
|
|
194,090
|
|
|
|
-
|
|
|
|
189,590
|
|
|
|
4,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential loans held for sale
|
|
|
35,676
|
|
|
|
-
|
|
|
|
35,676
|
|
|
|
-
|
|
Derivative assets
|
|
|
993
|
|
|
|
-
|
|
|
|
-
|
|
|
|
993
|
|
Total Financial Assets-Recurring
|
|
$
|
230,759
|
|
|
$
|
-
|
|
|
$
|
225,266
|
|
|
$
|
5,493
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Liabilities-Recurring
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
|
$
|
325
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
325
|
|
Total Financial Liabilities-Recurring
|
|
$
|
325
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
325
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Assets-Non-Recurring
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired
loans
(1)
|
|
$
|
6,922
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
6,922
|
|
Total Financial Assets-Non-Recurring
|
|
$
|
6,922
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
6,922
|
|
(1)
Represents the carrying value of loans
for which adjustments are based on the appraised value of the collateral, if collateral dependent, or the present value of expected
future cash flows, discounted at the loan's effective interest rate.
|
|
Fair Value Measurement
|
|
|
|
at December 31, 2015
Using
|
|
Description
|
|
Carrying
Value
|
|
|
Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
|
|
|
Other
Observable
Inputs (Level 2)
|
|
|
Significant
Unobservable
Inputs (Level 3)
|
|
|
|
(In
Thousands)
|
|
Financial Assets-Recurring
|
|
|
|
Available-for-sale investment securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US Government agency
|
|
$
|
18,904
|
|
|
$
|
-
|
|
|
$
|
18,904
|
|
|
$
|
-
|
|
Mortgage backed
|
|
|
96,077
|
|
|
|
-
|
|
|
|
96,077
|
|
|
|
-
|
|
Corporate bonds
|
|
|
8,959
|
|
|
|
-
|
|
|
|
8,959
|
|
|
|
-
|
|
Asset backed securities
|
|
|
15,998
|
|
|
|
-
|
|
|
|
15,998
|
|
|
|
-
|
|
Municipals - nontaxable
|
|
|
12,005
|
|
|
|
-
|
|
|
|
12,005
|
|
|
|
-
|
|
Municipals
|
|
|
6,809
|
|
|
|
-
|
|
|
|
6,809
|
|
|
|
-
|
|
CRA Mutual fund
|
|
|
1,410
|
|
|
|
-
|
|
|
|
1,410
|
|
|
|
-
|
|
Total available-for-sale investment securities
|
|
|
160,162
|
|
|
|
-
|
|
|
|
160,162
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential loans held for sale
|
|
|
44,135
|
|
|
|
-
|
|
|
|
44,135
|
|
|
|
-
|
|
Derivative assets
|
|
|
523
|
|
|
|
-
|
|
|
|
-
|
|
|
|
523
|
|
Total Financial Assets-Recurring
|
|
$
|
204,820
|
|
|
$
|
-
|
|
|
$
|
204,297
|
|
|
$
|
523
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Liabilities-Recurring
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
|
$
|
250
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
250
|
|
Total Financial Liabilities-Recurring
|
|
$
|
250
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Assets-Non-Recurring
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired
loans
(1)
|
|
$
|
7,417
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
7,417
|
|
Total Financial Assets-Non-Recurring
|
|
$
|
7,417
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
7,417
|
|
(1)
Represents the carrying value of loans
for which adjustments are based on the appraised value of the collateral, if collateral dependent, or the present value of expected
future cash flows, discounted at the loan's effective interest rate.
Notes to Consolidated Financial Statements
Note 16. Fair Value Measurements (continued)
The changes in Level 3 assets and liabilities measured at fair
value on a recurring basis are summarized as follows for the twelve month period ended December 31, 2016 and 2015.
|
|
Net Derivatives
|
|
|
Securites
Available-For-
Sale
|
|
|
Total
|
|
|
|
(In Thousands)
|
|
Balance January 1, 2016
|
|
$
|
273
|
|
|
$
|
-
|
|
|
$
|
273
|
|
Realized and unrealized gains included in earnings
|
|
|
395
|
|
|
|
-
|
|
|
|
395
|
|
Unrealized gains (losses) included in other comprehensive income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Purchases, settlements, paydowns, and maturities
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Transfer into Level 3
|
|
|
-
|
|
|
|
4,500
|
|
|
|
4,500
|
|
Balance December 31, 2016
|
|
$
|
668
|
|
|
$
|
4,500
|
|
|
$
|
5,168
|
|
|
|
Net Derivatives
|
|
|
|
(In Thousands)
|
|
Balance January 1, 2015
|
|
$
|
(110
|
)
|
Realized and unrealized gains included in earnings
|
|
|
383
|
|
Unrealized gains (losses) included in other comprehensive income
|
|
|
-
|
|
Purchases, settlements, paydowns, and maturities
|
|
|
-
|
|
Transfer into Level 3
|
|
|
-
|
|
Balance December 31, 2015
|
|
$
|
273
|
|
During the fourth quarter of 2016, management transferred two asset
backed securities into Level 3 from Level 2 due to the lack of readily available pricing information on these particular securities.
Pricing for these securities is now obtained through an independent valuation service.
Notes to Consolidated Financial Statements
Note 16. Fair Value Measurements (continued)
The following table presents qualitative information about level
3 fair value measurements for financial instruments measured at fair value at December 31, 2016 and 2015:
2016
|
Description
|
|
Fair Value
Estimate
|
|
|
Valuation
Techniques
|
|
Unobservable
Input
|
|
Range (Weighted
Average)
|
|
|
(In Thousands)
|
Financial Assets - Recurring
|
|
|
|
|
|
|
|
|
|
|
Asset-backed securities
|
|
$
|
4,500
|
|
|
Valuation service
|
|
Discounted cash flows
|
|
3% - 6% (5.0%)
|
Derivative assets
|
|
$
|
993
|
|
|
Market pricing (3)
|
|
Estimated pullthrough
|
|
75% - 90% (89.0%)
|
Derivative liabilities
|
|
$
|
325
|
|
|
Market pricing (3)
|
|
Estimated pullthrough
|
|
75% - 90% (89.0%)
|
|
|
|
|
|
|
|
|
|
|
|
Financial Assets - Non-recurring
|
|
|
|
|
|
|
|
|
|
|
Impaired loans - Real estate secured
|
|
$
|
1,371
|
|
|
Appraisal of collateral (1)
|
|
Liquidation expenses (2)
|
|
0% - 15% (10%)
|
Impaired loans - Non-real estate secured
|
|
$
|
5,551
|
|
|
Cash flow basis
|
|
Liquidation expenses (2)
|
|
0% - 10% (5%)
|
|
(1)
|
Fair value is generally
determined through independent appraisals of the underlying collateral on real estate
secured loans, which generally include various level 3 inputs which are not identifiable.
|
|
(2)
|
Valuations of impaired
loans may be adjusted by management for qualitative factors such as liquidation expenses.
The range and weighted average of liquidation expense adjustments are presented as a
percent of the appraisal.
|
|
(3)
|
Market pricing on derivative
assets and liabilities is adjusted by management for the anticipated percent of derivative
assets and liabilities that will create a realized gain or loss. The range and weighted
average of estimated pull-through is presented.
|
2015
|
Description
|
|
Fair Value
Estimate
|
|
|
Valuation
Techniques
|
|
Unobservable
Input
|
|
Range (Weighted
Average)
|
|
|
(In Thousands)
|
Financial Assets - Recurring
|
|
|
|
|
|
|
|
|
|
|
Derivative assets
|
|
$
|
523
|
|
|
Market pricing (3)
|
|
Estimated pullthrough
|
|
75% - 90% (86.2%)
|
Derivative liabilities
|
|
$
|
250
|
|
|
Market pricing (3)
|
|
Estimated pullthrough
|
|
75% - 90% (86.2%)
|
|
|
|
|
|
|
|
|
|
|
|
Financial Assets - Non-recurring
|
|
|
|
|
|
|
|
|
|
|
Impaired loans - Real estate secured
|
|
$
|
6,695
|
|
|
Appraisal of collateral (1)
|
|
Liquidation expenses (2)
|
|
0% - 15% (14%)
|
Impaired loans - Non-real estate secured
|
|
$
|
722
|
|
|
Cash flow basis
|
|
Liquidation expenses (2)
|
|
0% - 10% (4%)
|
|
(1)
|
Fair value is generally
determined through independent appraisals of the underlying collateral on real estate
secured loans, which generally include various level 3 inputs which are not identifiable.
|
|
(2)
|
Valuations of impaired
loans may be adjusted by management for qualitative factors such as liquidation expenses.
The range and weighted average of liquidation expense adjustments are presented as a
percent of the appraisal.
|
|
(3)
|
Market pricing on derivative
assets and liabilities is adjusted by management for the anticipated percent of derivative
assets and liabilities that will create a realized gain or loss. The range and weighted
average of estimated pull-through is presented.
|
Notes to Consolidated Financial Statements
Note 16. Fair Value Measurements (continued)
Financial instruments recorded using FASB ASC 825-10
Under FASB ASC 825-10, the Corporation may elect to report most
financial instruments and certain other items at fair value on an instrument-by-instrument basis with changes in fair value reported
in net income. After the initial adoption, the election is made at the acquisition of an eligible financial asset, financial liability
or firm commitment or when certain specified reconsideration events occur. The fair value election, with respect to an item, may
not be revoked once an election is made.
The following tables reflect the difference between the fair value
carrying amount of residential mortgage loans held for sale, measured at fair value under FASB ASC 825-10, and the aggregate unpaid
principal amount the Corporation is contractually entitled to receive at maturity.
|
|
December 31, 2016
|
|
(In Thousands)
|
|
Aggregate
Fair Value
|
|
|
Difference
|
|
|
Contractual
Principal
|
|
Residential mortgage loans held for sale
|
|
$
|
35,676
|
|
|
$
|
1,004
|
|
|
$
|
34,672
|
|
|
|
December 31, 2015
|
|
(In Thousands)
|
|
Aggregate
Fair Value
|
|
|
Difference
|
|
|
Contractual
Principal
|
|
Residential mortgage loans held for sale
|
|
$
|
44,135
|
|
|
$
|
1,673
|
|
|
$
|
42,462
|
|
The Corporation has elected to account for residential loans held
for sale at fair value to eliminate the mismatch that would occur by recording changes in market value on derivative instruments
used to hedge loans held for sale while carrying the loans at the lower of cost or market.
The following methods and assumptions not previously presented
were used in estimating the fair value of financial assets and financial liabilities that are not measured and reported at fair
value on a recurring basis or non-recurring basis:
Cash and Short-Term Investments
For those short-term instruments, the carrying amount is a reasonable
estimate of fair value. As such they are classified as Level 1 for noninterest-bearing deposits and Level 2 for interest-bearing
deposits due from banks or federal funds sold.
Restricted Stock
It is not practical to determine the fair value of restricted stock
due to the restrictions placed on its transferability.
Loans, Net of Allowance
For certain homogeneous categories of loans, such as some residential
mortgages, and other consumer loans, fair value is estimated using the quoted market prices for securities backed by similar loans,
adjusted for differences in loan characteristics resulting in a Level 3 classification. The fair value of other types of loans
is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with
similar credit ratings and for the same remaining maturities resulting in a Level 3 classification.
Deposits and Borrowings
The fair value of demand deposits, savings accounts, and certain
money market deposits is the amount payable on demand at the reporting date resulting in a Level 1 classification. The fair value
of fixed-maturity certificates of deposit is estimated using the rates currently offered for deposits of similar remaining maturities
also resulting in a Level 1 classification. The fair value of all other deposits and borrowings is determined using the discounted
cash flow method thereby resulting in a Level 2 classification. The discount rate was equal to the rate currently offered on similar
products.
Notes to Consolidated Financial Statements
Note 16. Fair Value Measurements (continued)
Accrued Interest
The carrying amounts of accrued interest approximate fair value
resulting in a Level 2 or Level 3 classification depending upon the level of the asset or liability, with which, the accrual is
associated.
Off-Balance-Sheet Financial Instruments
The fair value of commitments to extend credit is estimated using
the fees currently charged to enter similar agreements, taking into account the remaining terms of the agreements and the present
creditworthiness of the counterparties. For fixed-rate loan commitments, fair value also considers the difference between current
levels of interest rates and the committed interest rates. The fair value of stand-by letters of credit is based on fees currently
charged for similar agreements or on the estimated cost to terminate them or otherwise settle the obligations with the counterparties
at the reporting date.
At December 31, 2016 and 2015, the majority of off-balance-sheet
items are variable rate instruments or convert to variable rate instruments if drawn upon. Therefore, the fair value of these
items is largely based on fees, which are nominal and immaterial.
The carrying amounts and estimated fair values of financial instruments
at December 31, 2016 and 2015 were as follows:
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
Estimated
|
|
|
|
Carrying
|
|
|
Fair
|
|
|
Carrying
|
|
|
Fair
|
|
|
|
Amount
|
|
|
Value
|
|
|
Amount
|
|
|
Value
|
|
|
|
(In Thousands)
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and short-term investments
|
|
$
|
91,059
|
|
|
$
|
91,059
|
|
|
$
|
35,889
|
|
|
$
|
35,889
|
|
Securities available-for-sale
|
|
|
194,090
|
|
|
|
194,090
|
|
|
|
160,162
|
|
|
|
160,162
|
|
Securities held-to-maturity
|
|
|
9,200
|
|
|
|
9,293
|
|
|
|
14,287
|
|
|
|
14,314
|
|
Restricted stock
|
|
|
10,092
|
|
|
|
10,092
|
|
|
|
7,259
|
|
|
|
7,259
|
|
Loans, net of allowance
|
|
|
1,069,366
|
|
|
|
1,080,820
|
|
|
|
918,050
|
|
|
|
982,811
|
|
Derivatives
|
|
|
993
|
|
|
|
993
|
|
|
|
523
|
|
|
|
523
|
|
Total financial assets
|
|
$
|
1,374,800
|
|
|
$
|
1,386,347
|
|
|
$
|
1,136,170
|
|
|
$
|
1,200,958
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
1,054,327
|
|
|
$
|
1,040,402
|
|
|
$
|
913,744
|
|
|
$
|
905,951
|
|
Short-term borrowings
|
|
|
186,009
|
|
|
|
185,910
|
|
|
|
91,129
|
|
|
|
90,269
|
|
Long-term borrowings
|
|
|
60,000
|
|
|
|
59,954
|
|
|
|
55,000
|
|
|
|
54,324
|
|
Derivatives
|
|
|
325
|
|
|
|
325
|
|
|
|
250
|
|
|
|
250
|
|
Total financial liabilities
|
|
$
|
1,300,661
|
|
|
$
|
1,286,591
|
|
|
$
|
1,060,123
|
|
|
$
|
1,050,794
|
|
Notes to Consolidated Financial Statements
Note 16. Fair Value Measurements (continued)
Current accounting pronouncements require disclosure of the estimated
fair value of financial instruments. Effective January 1, 2008, fair value is defined in accordance with FASB ASC 820-10
as disclosed above. Given the current market conditions, a portion of our loan portfolio is not readily marketable
and market prices do not exist. We have not attempted to market our loans to potential buyers, if any exist, to determine
the fair value of those instruments in accordance with the definition of FASB ASC 820-10. Since negotiated prices in
illiquid markets depends upon the then present motivations of the buyer and seller, it is reasonable to assume that actual sales
prices could vary widely from any estimate of fair value made without the benefit of negotiations. Additionally, changes
in market interest rates can dramatically impact the value of financial instruments in a short period of time. Accordingly,
the fair value measurements for loans included in the table above are unlikely to represent the instruments’ liquidation
values.
Note 17. Segment Reporting
The Corporation has three reportable segments: traditional commercial
banking, a mortgage banking business and a wealth management business. Revenues from commercial banking operations consist primarily
of interest earned on loans and investment 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. Wealth management operating revenues consist of transactional fees charged to clients as well as
fees for portfolio asset management.
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 a premium over their cost to borrow funds. These transactions are eliminated in the consolidation process.
Notes to Consolidated Financial Statements
Note 17. Segment Reporting (continued)
The following table presents segment information for the years
ended December 31, 2016, 2015, and 2014.
|
|
Commercial
|
|
|
Mortgage
|
|
|
Wealth
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
Banking
|
|
|
Banking
|
|
|
Management
|
|
|
Other
|
|
|
Eliminations
|
|
|
Totals
|
|
|
|
(In Thousands)
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
$
|
49,063
|
|
|
$
|
1,767
|
|
|
$
|
-
|
|
|
$
|
20
|
|
|
$
|
(835
|
)
|
|
$
|
50,015
|
|
Gain on sale of loans
|
|
|
-
|
|
|
|
25,164
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
25,164
|
|
Other revenues
|
|
|
3,893
|
|
|
|
(424
|
)
|
|
|
3,034
|
|
|
|
1,401
|
|
|
|
(1,265
|
)
|
|
|
6,639
|
|
Total operating income
|
|
|
52,956
|
|
|
|
26,507
|
|
|
|
3,034
|
|
|
|
1,421
|
|
|
|
(2,100
|
)
|
|
|
81,818
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
6,324
|
|
|
|
548
|
|
|
|
-
|
|
|
|
267
|
|
|
|
(835
|
)
|
|
|
6,304
|
|
Salaries and employee benefits
|
|
|
16,015
|
|
|
|
13,541
|
|
|
|
2,222
|
|
|
|
-
|
|
|
|
-
|
|
|
|
31,778
|
|
Other expenses
|
|
|
9,232
|
|
|
|
5,354
|
|
|
|
1,034
|
|
|
|
3,777
|
|
|
|
(1,265
|
)
|
|
|
18,132
|
|
Total operating expenses
|
|
|
31,571
|
|
|
|
19,443
|
|
|
|
3,256
|
|
|
|
4,044
|
|
|
|
(2,100
|
)
|
|
|
56,214
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
$
|
21,385
|
|
|
$
|
7,064
|
|
|
$
|
(222
|
)
|
|
$
|
(2,623
|
)
|
|
$
|
-
|
|
|
$
|
25,604
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,394,061
|
|
|
$
|
39,356
|
|
|
$
|
2,841
|
|
|
$
|
18,037
|
|
|
$
|
(23,587
|
)
|
|
$
|
1,430,708
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
$
|
826
|
|
|
$
|
3
|
|
|
$
|
2
|
|
|
$
|
40
|
|
|
$
|
-
|
|
|
$
|
871
|
|
|
|
Commercial
|
|
|
Mortgage
|
|
|
Wealth
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
Banking
|
|
|
Banking
|
|
|
Management
|
|
|
Other
|
|
|
Eliminations
|
|
|
Totals
|
|
|
|
(In Thousands)
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
$
|
42,763
|
|
|
$
|
1,650
|
|
|
$
|
-
|
|
|
$
|
16
|
|
|
$
|
(763
|
)
|
|
$
|
43,666
|
|
Gain on sale of loans
|
|
|
-
|
|
|
|
19,633
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
19,633
|
|
Other revenues
|
|
|
3,229
|
|
|
|
388
|
|
|
|
2,671
|
|
|
|
1,391
|
|
|
|
(1,247
|
)
|
|
|
6,432
|
|
Total operating income
|
|
|
45,992
|
|
|
|
21,671
|
|
|
|
2,671
|
|
|
|
1,407
|
|
|
|
(2,010
|
)
|
|
|
69,731
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
4,135
|
|
|
|
467
|
|
|
|
-
|
|
|
|
280
|
|
|
|
(763
|
)
|
|
|
4,119
|
|
Salaries and employee benefits
|
|
|
13,519
|
|
|
|
11,470
|
|
|
|
1,977
|
|
|
|
-
|
|
|
|
-
|
|
|
|
26,966
|
|
Other expenses
|
|
|
7,732
|
|
|
|
5,087
|
|
|
|
1,116
|
|
|
|
2,362
|
|
|
|
(1,247
|
)
|
|
|
15,050
|
|
Total operating expenses
|
|
|
25,386
|
|
|
|
17,024
|
|
|
|
3,093
|
|
|
|
2,642
|
|
|
|
(2,010
|
)
|
|
|
46,135
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
$
|
20,606
|
|
|
$
|
4,647
|
|
|
$
|
(422
|
)
|
|
$
|
(1,235
|
)
|
|
$
|
-
|
|
|
$
|
23,596
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,133,916
|
|
|
$
|
46,077
|
|
|
$
|
3,205
|
|
|
$
|
16,837
|
|
|
$
|
(21,487
|
)
|
|
$
|
1,178,548
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
$
|
252
|
|
|
$
|
15
|
|
|
$
|
24
|
|
|
$
|
9
|
|
|
$
|
-
|
|
|
$
|
300
|
|
|
|
Commercial
|
|
|
Mortgage
|
|
|
Wealth
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
Banking
|
|
|
Banking
|
|
|
Management
|
|
|
Other
|
|
|
Eliminations
|
|
|
Totals
|
|
|
|
(In Thousands)
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
$
|
37,816
|
|
|
$
|
1,297
|
|
|
$
|
-
|
|
|
$
|
13
|
|
|
$
|
(625
|
)
|
|
$
|
38,501
|
|
Gain on sale of loans
|
|
|
-
|
|
|
|
15,146
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
15,146
|
|
Other revenues
|
|
|
2,454
|
|
|
|
(614
|
)
|
|
|
2,126
|
|
|
|
1,388
|
|
|
|
(1,200
|
)
|
|
|
4,154
|
|
Total operating income
|
|
|
40,270
|
|
|
|
15,829
|
|
|
|
2,126
|
|
|
|
1,401
|
|
|
|
(1,825
|
)
|
|
|
57,801
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
3,264
|
|
|
|
281
|
|
|
|
21
|
|
|
|
332
|
|
|
|
(625
|
)
|
|
|
3,273
|
|
Salaries and employee benefits
|
|
|
11,897
|
|
|
|
9,212
|
|
|
|
1,545
|
|
|
|
-
|
|
|
|
-
|
|
|
|
22,654
|
|
Other expenses
|
|
|
6,220
|
|
|
|
1,293
|
|
|
|
910
|
|
|
|
3,141
|
|
|
|
(1,200
|
)
|
|
|
10,364
|
|
Total operating expenses
|
|
|
21,381
|
|
|
|
10,786
|
|
|
|
2,476
|
|
|
|
3,473
|
|
|
|
(1,825
|
)
|
|
|
36,291
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
$
|
18,889
|
|
|
$
|
5,043
|
|
|
$
|
(350
|
)
|
|
$
|
(2,072
|
)
|
|
$
|
-
|
|
|
$
|
21,510
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,006,576
|
|
|
$
|
47,160
|
|
|
$
|
1,624
|
|
|
$
|
17,791
|
|
|
$
|
(20,271
|
)
|
|
$
|
1,052,880
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
$
|
251
|
|
|
$
|
2
|
|
|
$
|
-
|
|
|
$
|
8
|
|
|
$
|
-
|
|
|
$
|
261
|
|
Notes to Consolidated Financial Statements
Note 18. Parent Corporation Only Statements
ACCESS NATIONAL CORPORATION
(Parent Corporation
Only)
Balance Sheets
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(In Thousands)
|
|
Assets
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
11,339
|
|
|
$
|
9,469
|
|
Investment in subsidiaries
|
|
|
109,825
|
|
|
|
99,520
|
|
Other assets
|
|
|
585
|
|
|
|
586
|
|
Total assets
|
|
$
|
121,749
|
|
|
$
|
109,575
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
$
|
1,219
|
|
|
$
|
437
|
|
Total liabilities
|
|
|
1,219
|
|
|
|
437
|
|
|
|
|
|
|
|
|
|
|
Shareholders' Equity
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
8,881
|
|
|
|
8,805
|
|
Capital surplus
|
|
|
21,779
|
|
|
|
19,953
|
|
Retained earnings
|
|
|
91,439
|
|
|
|
81,385
|
|
Accumulated other comprehensive loss
|
|
|
(1,569
|
)
|
|
|
(1,005
|
)
|
Total shareholders' equity
|
|
|
120,530
|
|
|
|
109,138
|
|
Total liabilities and shareholders' equity
|
|
$
|
121,749
|
|
|
$
|
109,575
|
|
Notes to Consolidated
Financial Statements
Note 18. Parent Corporation Only Statements (continued)
ACCESS NATIONAL CORPORATION
(Parent Corporation
Only)
Statements of Income
|
|
Year Ended December
31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
(In Thousands)
|
|
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends from subsidiaries
|
|
$
|
8,000
|
|
|
$
|
8,625
|
|
|
$
|
9,390
|
|
Interest
|
|
|
20
|
|
|
|
15
|
|
|
|
13
|
|
Other
|
|
|
134
|
|
|
|
113
|
|
|
|
199
|
|
|
|
|
8,154
|
|
|
|
8,753
|
|
|
|
9,602
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expenses
|
|
|
3,079
|
|
|
|
1,660
|
|
|
|
1,704
|
|
Total expenses
|
|
|
3,079
|
|
|
|
1,660
|
|
|
|
1,704
|
|
Income before income taxes and undistributed income of subsidiaries
|
|
|
5,075
|
|
|
|
7,093
|
|
|
|
7,898
|
|
Income tax benefit
|
|
|
(588
|
)
|
|
|
(467
|
)
|
|
|
(469
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before undistributed income of subsidiaries
|
|
|
5,663
|
|
|
|
7,560
|
|
|
|
8,367
|
|
Undistributed income of subsidiaries
|
|
|
10,741
|
|
|
|
7,859
|
|
|
|
5,558
|
|
Net income
|
|
$
|
16,404
|
|
|
$
|
15,419
|
|
|
$
|
13,925
|
|
ACCESS NATIONAL CORPORATION
(Parent Corporation
Only)
Statements of Comprehensive
Income
(In Thousands)
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Net income
|
|
$
|
16,404
|
|
|
$
|
15,419
|
|
|
$
|
13,925
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains (losses) on securities
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding gains (losses) arising during period
|
|
|
(816
|
)
|
|
|
(528
|
)
|
|
|
2,205
|
|
Less: reclassification adjustment for gains included in net income
|
|
|
(52
|
)
|
|
|
(188
|
)
|
|
|
(18
|
)
|
Tax effect
|
|
|
304
|
|
|
|
255
|
|
|
|
(765
|
)
|
Net of tax amount
|
|
|
(564
|
)
|
|
|
(461
|
)
|
|
|
1,422
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$
|
15,840
|
|
|
$
|
14,958
|
|
|
$
|
15,347
|
|
Notes to Consolidated Financial Statements
Note 18. Parent Corporation Only Statements (continued)
ACCESS NATIONAL CORPORATION
(Parent Corporation
Only)
Statements of Cash
Flows
|
|
Year
Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
(In Thousands)
|
|
Cash Flows from Operating Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
16,404
|
|
|
$
|
15,419
|
|
|
$
|
13,925
|
|
Adjustments to reconcile net income to net cash provided
by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Undistributed income of subsidiaries
|
|
|
(10,741
|
)
|
|
|
(7,859
|
)
|
|
|
(5,558
|
)
|
(Increase) decrease in other assets
|
|
|
3
|
|
|
|
12
|
|
|
|
(6
|
)
|
Increase (decrease) in other liabilities
|
|
|
51
|
|
|
|
(75
|
)
|
|
|
89
|
|
Stock-based compensation
|
|
|
335
|
|
|
|
332
|
|
|
|
236
|
|
Net cash provided by operating activities
|
|
|
6,052
|
|
|
|
7,829
|
|
|
|
8,686
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments for investments in and advances to subsidiaries
|
|
|
(127
|
)
|
|
|
(592
|
)
|
|
|
(433
|
)
|
Sale or repayment of investments in and advances to subsidiaries
|
|
|
728
|
|
|
|
968
|
|
|
|
30
|
|
Net cash provided by (used in) investing activities
|
|
|
601
|
|
|
|
376
|
|
|
|
(403
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net proceeds from issuance of common stock
|
|
|
1,567
|
|
|
|
1,145
|
|
|
|
1,066
|
|
Dividends paid
|
|
|
(6,350
|
)
|
|
|
(9,866
|
)
|
|
|
(5,214
|
)
|
Net cash used in financing activities
|
|
|
(4,783
|
)
|
|
|
(8,721
|
)
|
|
|
(4,148
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
1,870
|
|
|
|
(516
|
)
|
|
|
4,135
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
|
|
|
9,469
|
|
|
|
9,985
|
|
|
|
5,850
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending
|
|
$
|
11,339
|
|
|
$
|
9,469
|
|
|
$
|
9,985
|
|
Note 19. Bank-Owned Life Insurance
The Corporation had $26.4 million and $15.8 million in bank-owned
life insurance (“BOLI”) at December 31, 2016 and 2015, respectively. The Corporation recognized interest income, which
is included in other noninterest income, of $558 thousand, $460 thousand, and $332 thousand in 2016, 2015, and 2014, respectively.
Notes to Consolidated
Financial Statements
Note 20. Merger with Middleburg Financial Corporation
On October 24, 2016, the Corporation announced the signing of a
definitive agreement and plan of reorganization, dated October 21, 2016 (the “Middleburg Merger Agreement”), to acquire
Middleburg Financial Corporation (“Middleburg”), and its wholly-owned subsidiaries, Middleburg Bank and Middleburg
Investment Group, Inc. Middleburg Bank is a Virginia-based bank with twelve financial service centers and one limited service
facility primarily servicing Northern Virginia. The Middleburg Merger Agreement and the transactions pursuant thereto have been
unanimously approved by the Boards of Directors of the Corporation and Middleburg and the merger is expected to close in the second
quarter of 2017, subject to customary closing conditions, including the receipt of required regulatory approvals and the approval
of each company’s shareholders. At December 31, 2016, Middleburg had total assets of $1.27 billion, gross loans of $860.1
million, and total deposits of $1.05 billion. Under the terms of the Middleburg Merger Agreement, Middleburg shareholders will
receive 1.3314 shares of the Corporation’s common stock for each share of Middleburg common stock held immediately prior
to the effective date of the merger. As a result of the merger, each option to purchase shares of Middleburg common stock granted
under a Middleburg equity-based compensation plan that is outstanding immediately prior to the effective date of the merger will
be cancelled for a cash payment equal to the product of (i) the difference between the closing sale price of Middleburg common
stock on the trading day immediately preceding the effective date of the merger and the per share exercise price of the stock
option, and (ii) the number of shares of Middleburg common stock subject to such stock option. Each restricted share of Middleburg
common stock granted under a Middleburg equity compensation plan that is outstanding immediately prior to the effective date of
the merger will, pursuant to the terms of each such grant, vest in full immediately prior to the effective date of the merger
and be converted into unrestricted shares of the Corporation’s common stock based on the exchange ratio.