Attached files

file filename
EXCEL - IDEA: XBRL DOCUMENT - MVB FINANCIAL CORPFinancial_Report.xls
EX-31.1 - EX-31.1 - MVB FINANCIAL CORPa14-14170_1ex31d1.htm
EX-31.2 - EX-31.2 - MVB FINANCIAL CORPa14-14170_1ex31d2.htm
EX-32.1 - EX-32.1 - MVB FINANCIAL CORPa14-14170_1ex32d1.htm
EX-32.2 - EX-32.2 - MVB FINANCIAL CORPa14-14170_1ex32d2.htm
EX-3.1 - EX-3.1 - MVB FINANCIAL CORPa14-14170_1ex3d1.htm

Table of Contents

 

 

 

United States
Securities and Exchange Commission

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

x      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2014

 

OR

 

o         TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                 to                  .

 

Commission File number 000-50567

 

MVB Financial Corp.

(Exact name of registrant as specified in its charter)

 

West Virginia

 

20-0034461

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification No.)

 

301 Virginia Avenue

Fairmont, West Virginia  26554-2777

(Address of principal executive offices)

 

304-363-4800

(Registrant’s telephone number, including area code)

 

Not Applicable

(Former name, former address, and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant has (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x  No o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x  No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check One):

 

Large accelerated filer o

 

Accelerated filer o

 

 

 

Non-accelerated filer x

 

Smaller reporting company o

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.)  Yes o  No x

 

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date:

 

As of August 11, 2014, the number of shares outstanding of the issuer’s only class of common stock was 8,083,439.

 

 

 



Table of Contents

 

MVB Financial Corp.

 

Part I.

Financial Information

 

 

Item 1.

Financial Statements

 

 

 

The unaudited interim consolidated financial statements of MVB Financial Corp. (“the Company” or “MVB”) and subsidiaries (“Subsidiaries”) including MVB Bank, Inc. (the “Bank” or “MVB Bank”) and its wholly-owned subsidiary Potomac Mortgage Group, Inc., which does business as MVB Mortgage (“MVB Mortgage”) and MVB Insurance, LLC (“MVB Insurance”) listed below are included on pages 3-30 of this report.

 

 

 

Consolidated Balance Sheets as of June 30, 2014 and December 31, 2013

 

Consolidated Statements of Income for the Six Months and Three Months ended June 30, 2014 and 2013

 

Consolidated Statements of Comprehensive Income for the Six Months and Three Months ended June 30, 2014 and 2013

 

Consolidated Statements of Cash Flows for the Six Months ended June 30, 2014 and 2013

 

Notes to Consolidated Financial Statements

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

 

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations are included on pages 31-43 of this report.

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk.

 

 

Item 4.

Controls and Procedures

 

 

Part II.

Other Information

 

 

Item 1.

Legal Proceedings

 

 

Item 1A.

Risk Factors

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

 

 

Item 3.

Defaults Upon Senior Securities

 

 

Item 4.

Mine Safety Disclosures

 

 

Item 5.

Other Information

 

 

Item 6.

Exhibits

 



Table of Contents

 

Part I. Financial Information

 

Item 1. Financial Statements

 

MVB Financial Corp. and Subsidiaries

Consolidated Balance Sheets

(Dollars in thousands except per share data)

 

 

 

June 30

 

December 31

 

 

 

2014

 

2013

 

 

 

(Unaudited)

 

(Note 1)

 

Assets

 

 

 

 

 

Cash and cash equivalents:

 

 

 

 

 

Cash and due from banks

 

$

18,093

 

$

28,907

 

Interest bearing balances

 

10,026

 

10,936

 

Total cash and cash equivalents

 

28,119

 

39,843

 

Certificates of deposits in other banks

 

9,427

 

9,427

 

Investment securities:

 

 

 

 

 

Securities available-for-sale

 

90,146

 

106,411

 

Securities held-to-maturity (fair value of $55,931 for 2014 and $54,118 for 2013)

 

55,978

 

56,670

 

Loans held for sale

 

69,209

 

89,186

 

Loans:

 

734,254

 

622,305

 

Less: Allowance for loan losses

 

(6,241

)

(4,935

)

Net loans

 

728,013

 

617,370

 

Bank premises, furniture and equipment

 

21,294

 

16,919

 

Bank owned life insurance

 

21,346

 

 16,062

 

Accrued interest receivable and other assets

 

21,310

 

17,393

 

Goodwill

 

17,779

 

17,779

 

Total assets

 

$

1,062,621

 

$

987,060

 

Liabilities

 

 

 

 

 

Deposits

 

 

 

 

 

Non-interest bearing

 

$

62,510

 

$

63,336

 

Interest bearing

 

684,534

 

632,475

 

Total deposits

 

747,044

 

695,811

 

 

 

 

 

 

 

Accrued interest, taxes and other liabilities

 

9,483

 

6,878

 

Repurchase agreements

 

36,521

 

81,578

 

FHLB and other borrowings

 

125,769

 

104,647

 

Subordinated debt

 

33,437

 

4,124

 

Total liabilities

 

952,254

 

893,038

 

 

 

 

 

 

 

Stockholders’ equity

 

 

 

 

 

Preferred stock, par value $1,000; 20,783 and 20,000 shares authorized and 9,283 and 8,500 shares issued in 2014 and 2013, respectively

 

16,334

 

8,500

 

Common stock, par value $1; 10,000,000 shares authorized; 8,083,439 and 7,705,894 shares issued; and 8,032,362 and 7,654,817 shares outstanding in 2014 and 2013, respectively

 

8,083

 

7,706

 

Additional paid-in capital

 

74,161

 

68,518

 

Retained earnings

 

15,110

 

13,343

 

Accumulated other comprehensive loss

 

(2,237

)

(2,961

)

Treasury stock, 51,077 shares, at cost

 

(1,084

)

(1,084

)

Total stockholders’ equity

 

110,367

 

94,022

 

Total liabilities and stockholders’ equity

 

$

1,062,621

 

$

987,060

 

 

See accompanying notes to unaudited financial statements.

 

3



Table of Contents

 

MVB Financial Corp. and Subsidiaries

Consolidated Statements of Income

(Unaudited) (Dollars in thousands except per share data)

 

 

 

Six Months Ended

 

Three Months Ended

 

 

 

June 30

 

June 30

 

 

 

2014

 

2013

 

2014

 

2013

 

Interest income

 

 

 

 

 

 

 

 

 

Interest and fees on loans

 

$

14,870

 

$

10,898

 

$

7,831

 

$

5,528

 

Interest on deposits with other banks

 

97

 

97

 

51

 

52

 

Interest on investment securities — taxable

 

769

 

554

 

358

 

275

 

Interest on tax exempt loans and securities

 

1,511

 

971

 

757

 

489

 

Total interest income

 

17,247

 

12,520

 

8,997

 

6,344

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

 

 

 

 

 

 

 

Deposits

 

2,779

 

1,856

 

1,681

 

949

 

Repurchase agreements

 

233

 

271

 

107

 

148

 

FHLB and other borrowings

 

559

 

491

 

296

 

229

 

Subordinated debt

 

45

 

39

 

26

 

19

 

Total interest expense

 

3,616

 

2,657

 

2,110

 

1,345

 

Net interest income

 

13,631

 

9,863

 

6,887

 

4,999

 

Provision for loan losses

 

1,408

 

1,667

 

889

 

667

 

Net interest income after provision for loan losses

 

12,223

 

8,196

 

5,998

 

4,332

 

 

 

 

 

 

 

 

 

 

 

Noninterest income

 

 

 

 

 

 

 

 

 

Service charges on deposit accounts

 

259

 

306

 

139

 

169

 

Income on bank owned life insurance

 

255

 

224

 

127

 

132

 

Visa debit card income

 

325

 

262

 

173

 

139

 

Gain on loans held for sale

 

8,776

 

12,358

 

4,992

 

7,430

 

Capitalized servicing retained income

 

241

 

656

 

85

 

318

 

Insurance income

 

1,707

 

211

 

749

 

122

 

Gain on sale of securities

 

125

 

82

 

125

 

81

 

Gain (loss) on derivatives

 

939

 

699

 

604

 

(178

)

Other operating income

 

754

 

809

 

380

 

410

 

Total noninterest income

 

13,381

 

15,607

 

7,374

 

8,623

 

 

 

 

 

 

 

 

 

 

 

Noninterest expense

 

 

 

 

 

 

 

 

 

Salary and employee benefits

 

14,729

 

13,657

 

7,932

 

7,437

 

Occupancy expense

 

1,280

 

910

 

663

 

480

 

Equipment depreciation and maintenance

 

735

 

575

 

363

 

247

 

Data processing

 

765

 

451

 

385

 

246

 

Mortgage processing

 

1,115

 

1,185

 

569

 

678

 

Visa debit card expense

 

277

 

213

 

139

 

111

 

Advertising

 

627

 

569

 

347

 

333

 

Legal and accounting fees

 

364

 

385

 

144

 

183

 

Printing, stationery and supplies

 

231

 

250

 

116

 

162

 

Consulting fees

 

390

 

225

 

179

 

105

 

FDIC insurance

 

339

 

274

 

189

 

135

 

Travel

 

322

 

212

 

168

 

127

 

Other operating expenses

 

1,850

 

1,482

 

994

 

739

 

Total noninterest expense

 

23,024

 

20,388

 

12,188

 

10,983

 

Income before income taxes

 

2,580

 

3,415

 

1,184

 

1,972

 

Income tax expense

 

453

 

743

 

215

 

488

 

Net income

 

$

2,127

 

$

2,672

 

$

969

 

$

1,484

 

Preferred dividends

 

43

 

43

 

22

 

22

 

Net income available to common shareholders

 

$

2,084

 

$

2,629

 

$

947

 

$

1,462

 

 

 

 

 

 

 

 

 

 

 

Earnings per share — basic

 

$

0.27

 

$

0.41

 

$

0.12

 

$

0.21

 

Earnings per share — diluted

 

$

0.26

 

$

0.40

 

$

0.12

 

$

0.21

 

Weighted average shares outstanding - basic

 

7,778,152

 

6,370,912

 

7,897,242

 

6,885,018

 

Weighted average shares outstanding - diluted

 

7,991,701

 

6,540,444

 

8,110,791

 

7,054,548

 

 

See accompanying notes to unaudited financial statements.

 

4



Table of Contents

 

MVB Financial Corp. and Subsidiaries

Consolidated Statements of Comprehensive Income

(Unaudited)(Dollars in thousands)

 

 

 

Six Months Ended

 

Three Months Ended

 

 

 

June 30

 

June 30

 

 

 

2014

 

2013

 

2014

 

2013

 

 

 

 

 

 

 

 

 

 

 

Net Income

 

$

2,127

 

$

2,672

 

$

969

 

$

1,484

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized holding gains (losses) during the year

 

1,646

 

(1,573

)

1,109

 

(1,539

)

 

 

 

 

 

 

 

 

 

 

Income tax effect

 

(658

)

629

 

(443

)

615

 

 

 

 

 

 

 

 

 

 

 

Reclassification adjustment for gain recognized in income

 

(125

)

(82

)

(125

)

(81

)

 

 

 

 

 

 

 

 

 

 

Income tax effect

 

50

 

33

 

50

 

33

 

 

 

 

 

 

 

 

 

 

 

Change in defined benefit pension plan

 

(315

)

 

(315

)

 

 

 

 

 

 

 

 

 

 

 

Income tax effect

 

126

 

 

126

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss)

 

724

 

(993

)

402

 

(972

)

 

 

 

 

 

 

 

 

 

 

Comprehensive income

 

$

2,851

 

$

1,679

 

$

1,371

 

$

512

 

 

See accompanying notes to unaudited financial statements.

 

5



Table of Contents

 

MVB Financial Corp. and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited) (Dollars in thousands)

 

 

 

Six Months Ended

 

 

 

June 30

 

June 30

 

 

 

2014

 

2013

 

Operating activities

 

 

 

 

 

Net income

 

$

2,127

 

$

2,672

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

Net amortization and accretion of investments

 

434

 

540

 

Net amortization of deferred loan cost

 

27

 

19

 

Provision for loan losses

 

1,408

 

1,667

 

Depreciation and amortization

 

587

 

417

 

Stock based compensation

 

129

 

77

 

Loans originated for sale

 

(381,190

)

(374,920

)

Proceeds of loans sold

 

409,942

 

396,111

 

Gain on sale of loans held for resale

 

(8,776

)

(12,358

)

Gain on sale of investment securities

 

(215

)

(82

)

Loss on sale of investment securities

 

90

 

 

Income on bank owned life insurance

 

(255

)

(224

)

Deferred taxes

 

(936

)

(87

)

Other, net

 

150

 

(2,395

)

Net cash provided by operating activities

 

23,522

 

11,437

 

Investing activities

 

 

 

 

 

Purchases of investment securities available-for-sale

 

(24,268

)

(17,769

)

Purchases of investment securities held-to-maturity

 

(250

)

(12,075

)

Maturities/paydowns of investment securities held-to-maturity

 

750

 

 

Maturities/paydowns of investment securities available-for-sale

 

4,759

 

8,089

 

Sales of investment securities available-for-sale

 

37,177

 

3,637

 

Purchases of premises and equipment

 

(4,962

)

(2,840

)

Net increase in loans

 

(112,078

)

(29,345

)

Purchases of restricted bank stock

 

(7,361

)

(3,869

)

Redemptions of restricted bank stock

 

5,937

 

1,062

 

Proceeds from sale of other real estate owned

 

76

 

 

Purchase of bank owned life insurance

 

(5,000

)

(5,078

)

Net cash used in investing activities

 

(105,220

)

(58,188

)

Financing activities

 

 

 

 

 

Net increase in deposits

 

51,232

 

44,819

 

Net (decrease) increase in repurchase agreements

 

(45,057

)

12,722

 

Net change in short-term FHLB borrowings

 

22,202

 

(17,915

)

Principal payments on FHLB borrowings

 

(1,080

)

(839

)

Proceeds from subordinated debt

 

29,313

 

 

Proceeds from stock offering

 

5,662

 

13,347

 

Preferred stock issuance

 

7,834

 

 

Dividend reinvestment plan proceeds

 

180

 

310

 

Common stock options exercised

 

48

 

 

Cash dividends paid on common stock

 

(317

)

(241

)

Cash dividends paid on preferred stock

 

(43

)

(43

)

Net cash provided by financing activities

 

69,974

 

52,160

 

(Decrease) increase in cash and cash equivalents

 

(11,724

)

5,409

 

Cash and cash equivalents at beginning of period

 

39,843

 

25,340

 

Cash and cash equivalents at end of period

 

$

28,119

 

$

30,749

 

Supplemental disclosure of cash flow information

 

 

 

 

 

Loans transferred to other real estate owned

 

$

146

 

$

 

 

 

 

 

 

 

Cash payments for:

 

 

 

 

 

 

 

 

 

 

 

Interest on deposits, repurchase agreements and borrowings

 

$

3,632

 

$

2,387

 

Income taxes

 

$

845

 

$

776

 

 

See accompanying notes to unaudited financial statements.

 

6



Table of Contents

 

MVB Financial Corp. and Subsidiaries

 

Notes to Consolidated Financial Statements

 

Note 1 — Basis of Presentation

 

These consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with instructions to Form 10-Q.  Accordingly, they do not include all the information and footnotes required by GAAP for annual year-end financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation, have been included and are of a normal, recurring nature. The balance sheet as of December 31, 2013 has been derived from the audited financial statements at that date, but does not include all of the information and footnotes required by GAAP.  Operating results for the six and three months ended June 30, 2014 are not necessarily indicative of the results that may be expected for the year ending December 31, 2014.

 

The accounting and reporting policies of MVB Financial Corp. (“the Company” or “MVB”) and its subsidiaries (“Subsidiaries”), including MVB Bank, Inc. (the “Bank”), the Bank’s subsidiary Potomac Mortgage Group, Inc., which does business as MVB Mortgage (“MVB Mortgage”) and MVB Insurance, LLC, conform to accounting principles generally accepted in the United States and practices in the banking industry. The preparation of the financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Estimates, such as the allowance for loan losses, are based upon known facts and circumstances. Estimates are revised by management in the period such facts and circumstances change.  Actual results could differ from those estimates. All significant inter-company accounts and transactions have been eliminated in consolidation.

 

The consolidated balance sheet as of December 31, 2013 has been extracted from audited financial statements included in the Company’s 2013 filing on Form 10-K. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been omitted. These financial statements should be read in conjunction with the financial statements and notes thereto included in MVB’s December 31, 2013, Form 10-K filed with the Securities and Exchange Commission.

 

In certain instances, amounts reported in prior periods’ consolidated financial statements have been reclassified to conform to the current presentation. Specifically, a portion of the prior periods’ interest income and interest expense was classified as gain on loans held for sale and has been reclassified in the current presentation. In addition, all share amounts have been revised to reflect the two for one stock split effected as a stock dividend as disclosed in Note 12.

 

Information is presented in these notes with dollars expressed in thousands, unless otherwise noted or specified.

 

Note 2 — Recent Accounting Pronouncements

 

In January 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 2014-04, “Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure.” The objective of this guidance is to clarify when an in substance repossession or foreclosure occurs, that is, when a creditor should be considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan such that the loan receivable should be derecognized and the real estate property recognized. ASU No. 2014-04 states that an in substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either (1) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure or (2) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. Additionally, ASU No. 2014-04 requires interim and annual disclosure of both (1) the amount of foreclosed residential real estate property held by the creditor and (2) the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction. ASU No. 2014-04 is effective for interim and annual reporting periods beginning after December 15, 2014. The adoption of ASU No. 2014-04 is not expected to have a material impact on MVB Financials Corp’s Consolidated Financial Statements.

 

7



Table of Contents

 

In May 2014, the FASB issued ASU 2014-09 — Revenue from Contracts with Customers, which will supersede nearly all existing revenue recognition guidance under U.S. GAAP. The core principal of this ASU is that an entity should recognize revenue when it transfers 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. This ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. This ASU will be effective for us in our first quarter of 2018. Early adoption is not permitted. The ASU allows for either full retrospective or modified retrospective adoption. We are evaluating the transition method that will be elected and the potential effects of the adoption of this ASU on our financial statements.

 

In June 2014, the FASB issued an update to the accounting standards related to stock compensation and accounting for share-based payments when the terms of an award provide that a performance target could be achieved after the requisite service period. The amendments clarify the proper method of accounting for share-based payments when the terms of an award provide that a performance target could as a performance condition. The performance target should not be reflected in estimating the grant-date fair value of the award. Compensation cost should be recognized be achieved after the requisite service period. This update requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. The amendments in this update are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Earlier adoption is permitted.  Management is currently evaluating the impact of adoption on the consolidated financial statements, but does not believe that adoption will have a material impact.

 

Note 3 — Investments

 

Amortized cost and fair values of investment securities held-to-maturity at June 30, 2014, including gross unrealized gains and losses, are summarized as follows:

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

Fair

 

(in thousands)

 

Cost

 

Gain

 

Loss

 

Value

 

 

 

 

 

 

 

 

 

 

 

Municipal securities

 

$

55,978

 

$

1,006

 

$

(1,053

)

$

55,931

 

Total investment securities held—to-maturity

 

$

55,978

 

$

1,006

 

$

(1,053

)

$

55,931

 

 

Amortized cost and fair values of investment securities held-to-maturity at December 31, 2013, including gross unrealized gains and losses, are summarized as follows:

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

Fair

 

(in thousands)

 

Cost

 

Gain

 

Loss

 

Value

 

 

 

 

 

 

 

 

 

 

 

Municipal securities

 

$

56,670

 

$

367

 

$

(2,919

)

$

54,118

 

Total investment securities held—to-maturity

 

$

56,670

 

$

367

 

$

(2,919

)

$

54,118

 

 

8



Table of Contents

 

Amortized cost and fair values of investment securities available-for-sale at June 30, 2014 are summarized as follows:

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

Fair

 

(in thousands)

 

Cost

 

Gain

 

Loss

 

Value

 

 

 

 

 

 

 

 

 

 

 

U.S. Agency securities

 

$

44,818

 

$

32

 

$

(958

)

$

43,892

 

U.S. Sponsored Mortgage-backed securities

 

29,986

 

48

 

(539

)

29,495

 

Municipal securities

 

15,470

 

315

 

(68

)

15,717

 

 

 

 

 

 

 

 

 

 

 

Total debt securities

 

90,274

 

395

 

(1,565

)

89,104

 

Equity and other securities

 

810

 

232

 

 

1,042

 

Total investment securities available-for-sale

 

$

91,084

 

$

627

 

$

(1,565

)

$

90,146

 

 

Amortized cost and fair values of investment securities available-for-sale at December 31, 2013 are summarized as follows:

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

Fair

 

(in thousands)

 

Cost

 

Gain

 

Loss

 

Value

 

 

 

 

 

 

 

 

 

 

 

U.S. Agency securities

 

$

60,744

 

$

 

$

(1,922

)

$

58,822

 

U.S. Sponsored Mortgage-backed securities

 

47,317

 

118

 

(843

)

46,592

 

Total debt securities

 

108,061

 

118

 

(2,765

)

105,414

 

Equity and other securities

 

810

 

187

 

 

997

 

Total investment securities available-for-sale

 

$

108,871

 

$

305

 

$

(2,765

)

$

106,411

 

 

The following tables summarize amortized cost and fair values of debt securities by maturity:

 

 

 

June 30, 2014

 

 

 

Held to Maturity

 

Available for sale

 

 

 

Amortized

 

Fair

 

Amortized

 

Fair

 

 

 

Cost

 

Value

 

Cost

 

Value

 

 

 

 

 

 

 

 

 

 

 

Within one year

 

$

 

$

 

$

 

$

 

After one year, but within five

 

2,432

 

2,484

 

29,704

 

29,520

 

After five years, but within ten

 

14,806

 

15,003

 

27,668

 

27,015

 

After ten years

 

38,740

 

38,444

 

32,902

 

32,569

 

Total

 

$

55,978

 

$

55,931

 

$

90,274

 

$

89,104

 

 

Investment securities with a carrying value of $102,778 at June 30, 2014, were pledged to secure public funds, repurchase agreements and potential borrowings at the Federal Reserve discount window.

 

The Company’s investment portfolio includes securities that are in an unrealized loss position as of June 30, 2014, the details of which are included in the following table.  Although these securities, if sold at June 30, 2014 would result in a pretax loss of $2,618, the Company has no intent to sell the applicable securities at such market values, and maintains the Company has the ability to hold these securities until all principal has been recovered.  Declines in the market values of these securities can be traced to general market conditions which reflect the prospect for the economy as a whole.  When determining other-than-temporary impairment on securities, the Company considers such factors as adverse conditions specifically related to a certain security or to specific conditions in an industry or geographic area, the time frame securities have been in an unrealized loss position, the Company’s ability to hold the security for a period of time sufficient to allow for anticipated recovery in value, whether or not the security has been downgraded by a rating agency, and whether or not the financial condition of the security issuer has severely deteriorated.  As of June 30, 2014, the Company considers all securities with unrealized loss positions to be temporarily impaired, and consequently, does not believe the Company will sustain any material realized losses as a result of the current temporary decline in market value.

 

9



Table of Contents

 

The following table discloses investments in an unrealized loss position at June 30, 2014:

 

Description and number
of positions

 

Less than 12 months

 

12 months or more

 

(in thousands)

 

Fair Value

 

Unrealized Loss

 

Fair Value

 

Unrealized Loss

 

 

 

 

 

 

 

 

 

 

 

U.S. Agency securities (14)

 

$

6,888

 

$

(10

)

$

27,438

 

$

(948

)

U.S. Sponsored Mortgage-backed securities (18)

 

6,034

 

(25

)

16,648

 

(514

)

Municipal securities (183)

 

4,508

 

(93

)

25,165

 

(1,028

)

 

 

$

17,430

 

$

(128

)

$

69,251

 

$

(2,490

)

 

The following table discloses investments in an unrealized loss position at December 31, 2013:

 

Description and number
of positions

 

Less than 12 months

 

12 months or more

 

(in thousands)

 

Fair Value

 

Unrealized Loss

 

Fair Value

 

Unrealized Loss

 

 

 

 

 

 

 

 

 

 

 

U.S. Agency securities (19)

 

$

58,822

 

$

(1,922

)

$

 

$

 

U.S. Sponsored Mortgage-backed securities (18)

 

14,969

 

(113

)

19,781

 

(730

)

Municipal securities (103)

 

35,502

 

(2,535

)

4,471

 

(384

)

 

 

$

109,293

 

$

(4,570

)

$

24,252

 

$

(1,114

)

 

For the six month period ended June 30, 2014 and 2013, the Company sold investments available-for-sale of $37.2 million and $3.7 million, respectively, resulting in a net gains of $125 and $82.

 

For the three month period ended June 30, 2014 and 2013, the Company sold investments available-for-sale of $37.2 million and $1.7 million, respectively, resulting in a net gains of $125 and $81.

 

Note 4 — Loans and Allowance for Loan Losses

 

The following table summarizes the primary segments of the allowance for loan losses (“ALL”), segregated into the amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment as of June 30, 2014.  Activity in the allowance is presented for the periods indicated (in thousands):

 

 

 

 

 

 

 

Home

 

 

 

Credit

 

 

 

 

 

Commercial

 

Residential

 

Equity

 

Installment

 

Card

 

Total

 

ALL balance March 31, 2014

 

$

3,902

 

$

746

 

$

555

 

$

233

 

$

15

 

$

5,451

 

Charge-offs

 

 

(103

)

 

 

(1

)

(104

)

Recoveries

 

4

 

 

1

 

 

 

5

 

Provision

 

579

 

42

 

269

 

(1

)

 

889

 

ALL balance June 30, 2014

 

$

4,485

 

$

685

 

$

825

 

$

232

 

$

14

 

$

6,241

 

 

10



Table of Contents

 

 

 

 

 

 

 

Home

 

 

 

Credit

 

 

 

 

 

Commercial

 

Residential

 

Equity

 

Installment

 

Card

 

Total

 

ALL balance December 31, 2013

 

$

3,609

 

$

519

 

$

554

 

$

239

 

$

14

 

$

4,935

 

Charge-offs

 

 

(103

)

 

(7

)

(1

)

(111

)

Recoveries

 

4

 

 

2

 

3

 

 

9

 

Provision

 

872

 

269

 

269

 

(3

)

1

 

1,408

 

ALL balance June 30, 2014

 

$

4,485

 

$

685

 

$

825

 

$

232

 

$

14

 

$

6,241

 

Individually evaluated for impairment

 

$

1,507

 

$

322

 

$

29

 

$

7

 

$

 

$

1,866

 

Collectively evaluated for impairment

 

$

2,978

 

$

363

 

$

796

 

$

225

 

$

14

 

$

4,375

 

 

 

 

 

 

 

 

Home

 

 

 

Credit

 

 

 

 

 

Commercial

 

Residential

 

Equity

 

Installment

 

Card

 

Total

 

ALL balance March 31, 2013

 

$

3,645

 

$

490

 

$

271

 

$

216

 

$

17

 

$

4,639

 

Charge-offs

 

(472

)

 

 

 

(11

)

(483

)

Recoveries

 

3

 

 

1

 

1

 

 

5

 

Provision

 

564

 

 

79

 

14

 

10

 

667

 

ALL balance June 30, 2013

 

$

3,740

 

$

490

 

$

351

 

$

231

 

$

16

 

$

4,828

 

 

 

 

 

 

 

 

Home

 

 

 

Credit

 

 

 

 

 

Commercial

 

Residential

 

Equity

 

Installment

 

Card

 

Total

 

ALL balance December 31, 2012

 

$

3,107

 

$

514

 

$

242

 

$

200

 

$

13

 

$

4,076

 

Charge-offs

 

(972

)

(2

)

 

 

(11

)

(985

)

Recoveries

 

25

 

36

 

8

 

1

 

 

70

 

Provision

 

1,580

 

(58

)

101

 

30

 

14

 

1,667

 

ALL balance June 30, 2013

 

$

3,740

 

$

490

 

$

351

 

$

231

 

$

16

 

$

4,828

 

Individually evaluated for impairment

 

$

1,094

 

$

195

 

$

 

$

12

 

$

 

$

1,301

 

Collectively evaluated for impairment

 

$

2,646

 

$

295

 

$

351

 

$

219

 

$

16

 

$

3,527

 

 

The allowance for loan losses is based on estimates, and actual losses will vary from current estimates.  Management believes that the granularity of the homogeneous pools and the related historical loss ratios and other qualitative factors, as well as the consistency in the application of assumptions, result in an ALL that is representative of the risk found in the components of the portfolio at any given date.

 

All loan origination fees and direct loan origination costs are deferred and recognized over the life of the loan. As of June 30, 2014 and 2013, net deferred fees and costs of $1,596 and $1,171, respectively, were included in the carryings value of loans.

 

During late 2013, the Bank purchased $74.3 million in commercial loans in the northern Virginia area that were marked to fair value at the time they were recorded on the balance sheet.

 

11



Table of Contents

 

The following table summarizes the primary segments of the Company loan portfolio as of June 30, 2014:

 

(in thousands)

 

Commercial

 

Residential

 

Home
Equity

 

Installment

 

Credit
Cards

 

Total

 

Individually evaluated for impairment

 

$

6,726

 

$

873

 

$

29

 

$

14

 

$

 

$

7,642

 

Collectively evaluated for impairment

 

526,776

 

142,754

 

39,060

 

17,339

 

683

 

726,612

 

Total Loans

 

$

533,502

 

$

143,627

 

$

39,089

 

$

17,353

 

$

683

 

$

734,254

 

 

The following table summarizes the primary segments of the Company loan portfolio as of June 30, 2013:

 

(in thousands)

 

Commercial

 

Residential

 

Home
Equity

 

Installment

 

Credit
Cards

 

Total

 

Individually evaluated for impairment

 

$

4,063

 

$

472

 

$

 

$

20

 

$

 

$

4,555

 

Collectively evaluated for impairment

 

329,624

 

100,446

 

21,547

 

18,063

 

619

 

470,299

 

Total Loans

 

$

333,687

 

$

100,918

 

$

21,547

 

$

18,083

 

$

619

 

$

474,854

 

 

The following table presents impaired loans by class, segregated by those for which a specific allowance was required and those for which a specific allowance was not necessary as of June 30, 2014 and December 31, 2013 (in thousands):

 

 

 

 

 

 

 

Impaired

 

 

 

 

 

 

 

 

 

 

 

Loans with

 

 

 

 

 

 

 

Impaired Loans with

 

No Specific

 

 

 

 

 

 

 

Specific Allowance

 

Allowance

 

Total Impaired Loans

 

 

 

 

 

 

 

 

 

 

 

Unpaid

 

 

 

Recorded

 

Related

 

Recorded

 

Recorded

 

Principal

 

 

 

Investment

 

Allowance

 

Investment

 

Investment

 

Balance

 

June 30, 2014

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

$

6,603

 

$

1,507

 

$

123

 

$

6,726

 

$

6,726

 

Residential

 

873

 

322

 

 

873

 

873

 

Home Equity

 

29

 

29

 

 

29

 

29

 

Installment

 

14

 

7

 

 

14

 

14

 

Total impaired loans

 

$

7,519

 

$

1,865

 

$

123

 

$

7,642

 

$

7,642

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2013

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

$

6,134

 

$

1,243

 

$

120

 

$

6,254

 

$

6,254

 

Residential

 

261

 

175

 

 

261

 

261

 

Home Equity

 

28

 

28

 

 

28

 

28

 

Installment

 

24

 

11

 

68

 

92

 

92

 

Credit Cards

 

1

 

1

 

 

1

 

1

 

Total impaired loans

 

$

6,448

 

$

1,458

 

$

188

 

$

6,636

 

$

6,636

 

 

12



Table of Contents

 

The following tables present the average recorded investment in impaired loans and related interest income recognized for the periods indicated (in thousands):

 

 

 

Six months ended

 

Three months ended

 

 

 

June 30, 2014

 

June 30, 2014

 

 

 

Average
Investment in
Impaired
Loans

 

Interest Income
Recognized on
Accrual Basis

 

Interest Income
Recognized on
Cash Basis

 

Average
Investment in
Impaired
Loans

 

Interest Income
Recognized on
Accrual Basis

 

Interest Income
Recognized on Cash
Basis

 

Commercial

 

$

6,556

 

$

142

 

$

116

 

$

6,697

 

$

73

 

$

84

 

Residential

 

734

 

8

 

8

 

884

 

5

 

5

 

Home Equity

 

28

 

1

 

 

29

 

 

 

Consumer

 

29

 

1

 

1

 

14

 

 

 

Credit Cards

 

1

 

 

 

1

 

 

 

Total

 

$

7,348

 

$

152

 

$

125

 

$

7,625

 

$

78

 

$

89

 

 

 

 

Six months ended

 

Three months ended

 

 

 

June 30, 2013

 

June 30, 2013

 

 

 

Average
Investment in
Impaired
Loans

 

Interest Income
Recognized on
Accrual Basis

 

Interest Income
Recognized on
Cash Basis

 

Average
Investment in
Impaired
Loans

 

Interest Income
Recognized on
Accrual Basis

 

Interest Income
Recognized on Cash
Basis

 

Commercial

 

$

4,283

 

$

56

 

$

60

 

$

3,990

 

$

33

 

$

31

 

Residential

 

528

 

2

 

4

 

474

 

2

 

2

 

Consumer

 

21

 

1

 

1

 

20

 

1

 

 

Total

 

$

4,832

 

$

59

 

$

65

 

$

4,484

 

$

36

 

$

33

 

 

Bank management uses a nine point internal risk rating system to monitor the credit quality of the overall loan portfolio.  The first six categories are considered not criticized, and are aggregated as “Pass” rated.  The criticized rating categories utilized by Bank management generally follow bank regulatory definitions.  The Special Mention category includes assets that are currently protected but are potentially weak, resulting in an undue and unwarranted credit risk, but not to the point of justifying a Substandard classification.  Loans in the Substandard category have well-defined weaknesses that jeopardize the liquidation of the debt, and have a distinct possibility that some loss will be sustained if the weaknesses are not corrected.  All loans greater than 90 days past due are considered Substandard.  The portion of any loan that represents a specific allocation of the allowance for loan losses is placed in the Doubtful category.  Any portion of a loan that has been charged off is placed in the Loss category.

 

13



Table of Contents

 

To help ensure that risk ratings are accurate and reflect the present and future capacity of borrowers to repay a loan as agreed, the Bank has a structured loan rating process with several layers of internal and external oversight.  Generally, consumer and residential mortgage loans are included in the Pass categories unless a specific action, such as bankruptcy, repossession, or death occurs to raise awareness of a possible credit event.  The Bank’s Chief Credit Officer is responsible for the timely and accurate risk rating of the loans in the portfolio at origination and on an ongoing basis.  The Bank’s Credit Department performs an annual review of all commercial relationships $1,000,000 or greater.  Confirmation of the appropriate risk grade is included in the review on an ongoing basis.  The Bank has an experienced Credit Department that continually reviews and assesses loans within the portfolio.  The Bank engages an external consultant to conduct loan reviews on at least an annual basis.  Generally, the external consultant reviews larger commercial relationships or criticized relationships.  The Bank’s Credit Department compiles detailed reviews, including plans for resolution, on loans classified as Substandard on a quarterly basis.  Loans in the Special Mention and Substandard categories that are collectively evaluated for impairment are given separate consideration in the determination of the allowance.

 

The following table represents the classes of the loan portfolio summarized by the aggregate Pass and the criticized categories of Special Mention, Substandard and Doubtful within the internal risk rating system as of June 30, 2014 and December 31, 2013 (in thousands):

 

 

 

 

 

Special

 

 

 

 

 

 

 

 

 

Pass

 

Mention

 

Substandard

 

Doubtful

 

Total

 

June 30, 2014

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

$

514,673

 

$

10,985

 

$

7,610

 

$

234

 

$

533,502

 

Residential

 

141,043

 

1,696

 

888

 

 

143,627

 

Home Equity

 

38,809

 

251

 

29

 

 

39,089

 

Installment

 

16,729

 

608

 

16

 

 

17,353

 

Credit Cards

 

683

 

 

 

 

683

 

Total Loans

 

$

711,937

 

$

13,540

 

$

8,543

 

$

234

 

$

734,254

 

 

 

 

 

 

Special

 

 

 

 

 

 

 

 

 

Pass

 

Mention

 

Substandard

 

Doubtful

 

Total

 

December 31, 2013

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

$

437,474

 

$

11,566

 

$

8,348

 

$

 

$

457,388

 

Residential

 

115,283

 

2,660

 

261

 

 

118,204

 

Home Equity

 

27,662

 

107

 

28

 

 

27,797

 

Installment

 

17,560

 

633

 

92

 

 

18,285

 

Credit Cards

 

628

 

2

 

1