SURREY BANCORP - FORM 10-K - EX-13.1 - EXHIBIT 13.1

Attached files

file	filename
10-K - SURREY BANCORP 10-K 12-31-2014 - SURREY BANCORP	form10k.htm
EX-31.1 - EXHIBIT 31.1 - SURREY BANCORP	ex31_1.htm
EX-23 - EXHIBIT 23 - SURREY BANCORP	ex23.htm
EX-32 - EXHIBIT 32 - SURREY BANCORP	ex32.htm
EX-31.2 - EXHIBIT 31.2 - SURREY BANCORP	ex31_2.htm
EX-21 - EXHIBIT 21 - SURREY BANCORP	ex21.htm
EXCEL - IDEA: XBRL DOCUMENT - SURREY BANCORP	Financial_Report.xls

Exhibit 13.1

2014 Annual Report

Table of Contents

Letter to Stockholders	1

Financial Highlights Summary	2

Consolidated Balance Sheets	3

Consolidated Statements of Income	4

Consolidated Statements of Comprehensive Income	5

Consolidated Statements of Changes in Stockholders’ Equity	6

Consolidated Statements of Cash Flows	7

Notes to Consolidated Financial Statements	9

Report of Independent Registered Public Accounting Firm	40

Management’s Discussion and Analysis	41

Board of Directors and Officers	59

Stockholder Information	60

Dear Shareholder:

I am proud to report 2014 was the most profitable year in the history of the Bank. Higher levels of net interest income and noninterest income, as well as an improvement in asset quality supported increased profitability. Surrey Bancorp recorded a return on average assets of 1.38 percent and a return on average equity of 9.65 percent in 2014. We rank among the most profitable banks in North Carolina. The Bank’s capital levels continue to increase and we rank among the highest capitalized banks in the state and nation. Based on our continued success, the Board of Directors declared a special cash dividend of $.22 per common share in 2014, which was distributed to shareholders in 2015. The dividend payout totaled 23.95 percent of 2014 earnings available to common shareholders.

The Company reported net income of $3,443,569 or $.82 per fully diluted common share in 2014. This represents a 19.2 percent increase over 2013 profits of $2,889,351. Net interest income for the year totaled $9,466,418, an increase of $432,747, or 4.8 percent, compared to 2013. This increase was the result of loan growth and stable net asset yields. The 2014 provision for loan loss reserves totaled $211,863, a decrease of $107,702 or 33.7 percent from the 2013 loan loss provision. The reduction was due to lower charge-offs during the year. Noninterest income increased to $3,255,349 versus $2,906,844 the previous year. The 11.9 percent increase resulted from the collection of approximately $419,000 in tax-exempt life insurance proceeds during the fourth quarter of 2014. Noninterest expense increased 4.9 percent to $7,315,548 during 2014, primarily due to increases in personnel costs.

Total assets as of December 31, 2014, were $253,201,323, an increase of 5.1 percent over 2013 year ending assets. Total deposits increased 5.6 percent to $206,666,581; the growth was primarily in noninterest bearing demand deposits. Loans, net of the allowance for losses, increased 5.4 percent to $189,549,072. Our allowance for loan losses ended the year at $3,554,664, equaling 1.84 percent of total loans. The percentage of the allowance is unchanged from the previous year. Non-performing asset totaled 1.31 percent of total assets at the end of 2014, compared to 1.59 percent in 2013. The percentage of outstanding loans enhanced with government guarantees totaled 23.4 percent at year-end 2014. Asset quality continues to improve.

With the economic recovery building momentum, the banking industry has shifted its focus from loan quality to loan growth. The high level of liquidity in the banking system, the low interest rate environment and the increased expenses to cover regulatory burdens, has created intense competition for loans. Our company generates approximately three-fourths of its revenue from net interest income. Therefore, our primary focus will be on increasing loan growth to maintain our current level of profitability. In support of that effort, we have obtained regulatory approval to open a full-service branch in Elkin, North Carolina, which is set to open this fall. This branch will open up new markets in southwestern Surry County, as well as portions of Wilkes and Yadkin County.

Another area of focus for the company is Information Security. We understand the need to offer products and services that utilize technology and the risk associated with the digital age. The Company will continue to commit the monetary and personnel resources needed to stay competitive, while protecting the company and its customers.

I am optimistic 2015 will be a good year for the Company and its shareholders. On behalf of the employees, management and Board of Directors, thank you for your continued support.

Edward C. Ashby, III

President & CEO

Financial Highlights Summary¹

	2014			2013			2012			2011			2010 ²

Summary of Operations

Interest income	$	10,816		$	10,539		$	10,954		$	10,936		$	11,150
Interest expense		1,350			1,505			1,671			2,116			2,472
Net interest income		9,466			9,034			9,283			8,820			8,678
Provision for loan losses		212			320			471			744			3,004
Other income		3,255			2,907			2,614			2,571			2,739
Other expense		7,315			6,972			6,922			7,031			6,481
Income taxes		1,751			1,760			1,721			1,369			694
Net income		3,443			2,889			2,783			2,247			1,238
Preferred stock dividends declared		(183	)		(183	)		(183	)		(183	)		(301	)
Net income available to common stockholders	$	3,260		$	2,706		$	2,600		$	2,064		$	937


Per Common Share Data

Net income:
Basic	$	0.92	$	0.76	$	0.73	$	0.58	$	0.27
Diluted		0.82		0.69		0.67		0.54		0.27
Cash dividends declared		0.22		0.21		0.18		0.15		n/a
Book value per common share		9.27		8.57		8.01		7.45		7.03


Balance Sheet

Loans, net	$	189,549	$	179,909	$	173,578	$	175,446	$	171,794
Investment securities available for sale		4,364		4,550		3,503		2,506		2,012
Total assets		253,201		240,919		229,912		224,728		213,652
Deposits		206,667		195,801		187,823		183,938		173,960
Stockholders’ equity		36,771		34,218		32,237		30,227		28,644
Interest-earning assets		232,441		223,497		213,560		213,301		194,936
Interest-bearing liabilities		159,947		160,838		158,594		161,287		155,455


Selected Ratios

Return on average assets	1.38	%	1.22	%	1.23	%	1.00	%	0.57	%
Return on average equity	9.65	%	8.59	%	8.86	%	7.53	%	4.26	%
Dividends declared on common stock as a percent of net income available to common stockholders	23.95	%	27.50	%	24.53	%	25.70	%	n/a

1.	In thousands of dollars, except per share data.

2.	Adjusted for the effects of a common stock split affected in the form of a 10% common stock dividend declared on November 28, 2011.

Consolidated Balance Sheets

December 31, 2014 and 2013

	2014			2013

Assets

Cash and due from banks	$	6,236,749		$	7,424,593
Interest-bearing deposits with banks		37,315,779			34,351,505
Federal funds sold		1,212,776			1,311,641
Investment securities available for sale		4,363,805			4,549,702
Restricted equity securities		618,109			676,799
Loans, net of allowance for loan losses of $3,554,664 in 2014 and $3,375,350 in 2013		189,549,072			179,908,825
Property and equipment, net		4,368,589			4,440,215
Foreclosed assets		280,821			-
Accrued interest and other income		997,681			966,042
Goodwill		120,000			120,000
Bank owned life insurance		5,623,087			5,462,336
Other assets		2,514,855			1,707,319
Total assets	$	253,201,323			240,918,977

Liabilities and Stockholders’ Equity

Liabilities
Deposits:
Noninterest-bearing	$	52,969,691		$	42,713,122
Interest-bearing		153,696,890			153,087,839
Total deposits		206,666,581			195,800,961

Federal Home Loan Bank advances		6,250,000			7,750,000
Dividends payable		827,159			790,259
Accrued interest payable		110,261			123,558
Other liabilities		2,576,668			2,236,573
Total liabilities		216,430,669			206,701,351

Commitments and contingencies – Note 16

Stockholders’ equity

Preferred stock, 1,000,000 shares authorized, 189,356 shares of Series A, issued and outstanding with no par value, 4.5% convertible non-cumulative, perpetual; with a liquidation value of $14 per share;		2,620,325			2,620,325
181,154 shares of Series D, issued and outstanding with no par value, 5.0% convertible non-cumulative, perpetual; with a liquidation value of $7.08 per share;		1,248,482			1,248,482
Common stock, 10,000,000 shares authorized at no par value; 3,549,665 shares issued and outstanding in 2014 and 3,542,984 shares issued and outstanding in 2013		12,101,480			12,061,153
Retained earnings		20,808,309			18,329,089
Accumulated other comprehensive loss		(7,942	)		(41,423	)
Total stockholders’ equity		36,770,654			34,217,626
Total liabilities and stockholders’ equity	$	253,201,323		$	240,918,977

See Notes to Consolidated Financial Statements

Consolidated Statements of Income

For the years ended December 31, 2014 and 2013

	2014			2013
Interest income
Loans and fees on loans	$	10,634,674		$	10,377,342
Federal funds sold		2,720			2,286
Investment securities, taxable		60,427			55,648
Investment securities, dividends		24,419			22,190
Deposits with banks		93,744			81,449
Total interest income		10,815,984			10,538,915

Interest expense
Deposits		1,067,116			1,175,130
Federal funds purchased and securities sold under agreements to repurchase		19			80
Short-term debt		-			38,543
Federal Home Loan Bank advances		282,431			291,491
Total interest expense		1,349,566			1,505,244
Net interest income		9,466,418			9,033,671

Provision for loan losses		211,863			319,565
Net interest income after provision for loan losses		9,254,555			8,714,106

Noninterest income
Service charges on deposit accounts		795,832			863,862
Gain on the sale of government guaranteed loans		127,362			229,130
Fees on loans delivered to correspondents		30,650			78,763
Other service charges and fees		678,053			576,993
Gain (loss) on sale of investment securities		(1,670	)		9,206
Income from bank owned life insurance		160,752			163,982
Insurance commissions		766,855			666,704
Other operating income		278,365			318,204
Life insurance proceeds		419,150			-
Total noninterest income		3,255,349			2,906,844

Noninterest expense
Salaries and employee benefits		3,931,262			3,762,207
Occupancy expense		442,858			429,536
Equipment expense		269,221			237,229
Data processing		453,417			414,309
Foreclosed assets, net		3,331			(3,312	)
Postage, printing and supplies		189,646			190,985
Professional fees		463,844			389,338
FDIC insurance premiums		119,794			104,317
Other expense		1,441,848			1,447,323
Total noninterest expense		7,315,221			6,971,932
Net income before income taxes		5,194,683			4,649,018

Income tax expense		1,751,114			1,759,667
Net income		3,443,569			2,889,351
Preferred stock dividends		(183,423	)		(183,423	)
Net income available to common stockholders	$	3,260,146		$	2,705,928

Basic earnings per common share	$	0.92		$	0.76
Diluted earnings per common share	$	0.82		$	0.69
Basic weighted average common shares outstanding		3,544,057			3,542,984
Diluted weighted average common shares outstanding		4,179,908			4,176,919
Dividends declared per common share	$	0.22		$	0.21

See Notes to Consolidated Financial Statements

Consolidated Statements of Comprehensive Income

For the years ended December 31, 2014 and 2013

	2014			2013

Net income	$	3,443,569		$	2,889,351

Other comprehensive income:
Investment securities available for sale
Unrealized holding gains		51,631			39,126
Tax effect		(19,252	)		(14,627	)
Reclassification of (gains) losses recognized in net income		1,670			(9,206	)
Tax effect		(568	)		3,130
		33,481			18,423
Comprehensive income	$	3,477,050		$	2,907,774

See Notes to Consolidated Financial Statements

Consolidated Statements of Changes in Stockholders’ Equity

For the years ended December 31, 2014 and 2013

	Preferred									Accumulated Other
	Stock		Common Stock				Retained			Comprehensive
	Amount		Shares		Amount		Earnings			Income (Loss)			Total

Balance, January 1, 2013	$	3,868,807		3,542,984	$	12,061,153	$	16,367,187		$	(59,846	)	$	32,237,301

Net income		-		-		-		2,889,351			-			2,889,351
Other comprehensive income		-		-		-		-			18,423			18,423

Dividends declared on Series A convertible preferred stock ($.63 per share)		-		-		-		(119,294	)		-			(119,294	)
Dividends declared on Series D convertible preferred stock ($.35 per share)		-		-		-		(64,129	)		-			(64,129	)

Dividends declared on common stock ($.21 per share)		-		-		-		(744,026	)		-			(744,026	)

Balance, December 31, 2013		3,868,807		3,542,984		12,061,153		18,329,089			(41,423	)		34,217,626

Net income		-		-		-		3,443,569			-			3,443,569
Other comprehensive income		-		-		-		-			33,481			33,481

Common stock options exercised, net of shares surrendered in cashless exchange		-		6,681		40,327		-			-			40,327

Dividends declared on Series A convertible preferred stock ($.63 per share)		-		-		-		(119,294	)		-			(119,294	)
Dividends declared on Series D convertible preferred stock ($.35 per share)		-		-		-		(64,129	)		-			(64,129	)

Dividends declared on common stock ($.22 per share)		-		-		-		(780,926	)		-			(780,926	)

Balance, December 31, 2014	$	3,868,807		3,549,665	$	12,101,480	$	20,808,309		$	(7,942	)	$	36,770,654

See Notes to Consolidated Financial Statements

Consolidated Statements of Cash Flows

For the years ended December 31, 2014 and 2013

	2014			2013

Cash flows from operating activities
Net income	$	3,443,569		$	2,889,351
Adjustments to reconcile net income to net cash provided by operations:
Depreciation and amortization		271,024			257,213
Provision for loan losses		211,863			319,565
Gain on the sale of foreclosed assets		(39,610	)		(65,786	)
Gain on the sale of government guaranteed loans		(127,362	)		(229,130	)
(Gain) loss on the sale of investments		1,670			(9,206	)
(Gain) loss on disposal of property and equipment		(3,867	)		452
Deferred income taxes		(186,258	)		(25,498	)
Amortization of premiums on securities, net of accretion of discounts		27			40
Changes in assets and liabilities:
Accrued interest and other income		(31,639	)		13,056
Increase in cash surrender value of life insurance		(160,751	)		(163,982	)
Other assets		(641,098	)		(82,189	)
Accrued interest payable		(13,297	)		(12,243	)
Other liabilities		340,095			545,516
Net cash provided by operating activities		3,064,366			3,437,159

Cash flows from investing activities
Net increase in interest-bearing deposits with banks		(2,964,274	)		(1,985,187	)
Net (increase) decrease in federal funds sold		98,865			(601,053	)
Purchases of investment securities		(2,150,382	)		(2,081,221	)
Maturities of investment securities		2,256,480			1,009,520
Purchases of restricted equity securities		(310	)		(275	)
Redemption of restricted equity securities		59,000			61,800
Net increase in loans		(10,126,482	)		(6,697,105	)
Proceeds from the sale of investment securities		131,403			63,937
Proceeds from the sale of foreclosed assets		160,523			603,490
Proceeds from sale of property and equipment		5,575			100
Purchases of property and equipment		(201,106	)		(154,242	)
Net cash used in investing activities		(12,730,708	)		(9,780,236	)

Cash flows from financing activities
Net increase in deposits		10,865,620			7,977,924
Maturities of long-term debt		(1,500,000	)		-
Dividends paid on preferred stock		(183,423	)		(183,296	)
Dividends paid on common stock		(744,026	)		-
Common stock options exercised		40,327			-
Net cash provided by financing activities		8,478,498			7,794,628
Net increase (decrease) in cash and due from banks		(1,187,844	)		1,451,551

Cash and due from banks, beginning		7,424,593			5,973,042
Cash and due from banks, ending	$	6,236,749		$	7,424,593

Continued

Consolidated Statements of Cash Flows, continued

For the years ended December 31, 2014 and 2013

	2014		2013

Supplemental disclosures
Interest paid	$	1,362,863	$	1,517,487
Income taxes paid	$	2,009,722	$	1,819,472
Loans transferred to foreclosed properties	$	401,734	$	46,280
Cash dividends declared but not paid	$	827,159	$	790,259
Change in unrealized losses on investment securities available for sale, net	$	33,481	$	18,423

See Notes to Consolidated Financial Statements

Notes to Consolidated Financial Statements

Note 1.

Organization and Summary of Significant Accounting Policies

Organization

Surrey Bancorp (the “Company”) began operation on May 1, 2003, and was created for the purpose of acquiring all the outstanding shares of common stock of Surrey Bank & Trust. Shareholders of the Bank received six shares of Surrey Bancorp common shares for every five shares of Surrey Bank & Trust common shares owned. The Company is subject to regulation by the Federal Reserve.

Surrey Bank & Trust (the “Bank”) was organized and incorporated under the laws of the State of North Carolina on July 15, 1996, and commenced operations on July 22, 1996. The Bank currently serves Surry County, North Carolina and Patrick County, Virginia and surrounding areas through five banking offices. As a state chartered bank, which is not a member of the Federal Reserve, the Bank is subject to regulation by the State of North Carolina Banking Commission and the Federal Deposit Insurance Corporation.

Surrey Investment Services, Inc. (“Subsidiary”) was organized and incorporated under the laws of the State of North Carolina on February 10, 1998. The subsidiary provides insurance services through SB&T Insurance and investment advice and brokerage services through LPL Financial.

On July 31, 2000, Surrey Bank & Trust formed Freedom Finance, LLC (originally named Friendly Finance, LLC) a subsidiary operation specializing in the purchase of sales finance contracts from local automobile dealers.

The accounting and reporting policies of the Company and subsidiaries follow U.S. generally accepted accounting principles and general practices within the financial services industry. Following is a summary of the more significant policies.

Critical Accounting Policies

Management believes the policies with respect to the methodology for the determination of the allowance for loan losses, and asset impairment judgments, including the recoverability of intangible assets involve a higher degree of complexity and require management to make difficult and subjective judgments which often require assumptions or estimates about highly uncertain matters. Changes in these judgments, assumptions or estimates could cause reported results to differ materially. These critical policies and their application are periodically reviewed with the Audit Committee and the Board of Directors.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company, the Bank, and Subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that 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 relate to the determination of the allowance for loan losses and the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans. In connection with the determination of the allowances for loan and foreclosed real estate losses, management obtains independent appraisals for significant properties.

Notes to Consolidated Financial Statements

Note 1.

Organization and Summary of Significant Accounting Policies, continued

Use of Estimates, continued

Substantially, all of the Company’s loan portfolio consists of loans in its market area. Accordingly, the ultimate collectability of a substantial portion of the Company’s loan portfolio and the recovery of a substantial portion of the carrying amount of foreclosed real estate are susceptible to changes in local market conditions. The regional economy is diverse, but influenced to an extent by the manufacturing and agricultural segments.

While management uses available information to recognize loan and foreclosed real estate losses, future additions to the allowances may be necessary based on changes in local economic conditions. In addition, regulatory agencies, as a part of their routine examination process, periodically review the Company’s allowances for loan and foreclosed real estate losses. Such agencies may require the Company to recognize additions to the allowances based on their judgments about information available to them at the time of their examinations. Because of these factors, it is reasonably possible that the allowances for loan and foreclosed real estate losses may change materially in the near term.

Cash and Due from Banks

For the purpose of presentation in the statement of cash flows, cash and cash equivalents are defined as those amounts included in the balance sheet caption “cash and due from banks.” The Company maintains due from accounts with correspondent banks. During the normal course of business, the Company may have cash deposits with these banks that are in excess of federally insured limits.

Interest-bearing Deposits with Banks

Interest-bearing deposits with banks mature within one year and are carried at cost. These deposits are primarily at the Federal Home Loan Bank of Atlanta, which sweeps excess funds out nightly and invests the funds in accounts that pay a daily rate that mirrors the federal funds rate, and the Federal Reserve Bank. Other deposits included in this category are money market accounts and short-term certificates of deposit issued through the Certificate of Deposit Account Registry Service (“CDARS”).

Trading Securities

The Company does not hold securities for short-term resale and therefore does not maintain a trading securities portfolio.

Securities Held to Maturity

Bonds, notes, and debentures for which the Company has the positive intent and ability to hold to maturity are reported at cost, adjusted for premiums and discounts that are recognized in interest income using the interest method over the period to maturity or to call dates. No securities held by the Company for the periods presented were classified as held to maturity.

Securities Available for Sale

Available for sale securities are reported at fair value and consist of bonds, notes, debentures, and certain equity securities not classified as trading securities or as held to maturity securities.

Unrealized holding gains and losses, net of tax, on available for sale securities are reported as a net amount in a separate component of stockholders’ equity. Realized gains and losses on the sale of available for sale securities are determined using the specific-identification method and are recorded on a trade-date basis. Premiums and discounts are recognized in interest income using the interest method over the period to maturity or to call dates. Declines in the fair value of individual held to maturity and available for sale securities below cost that are other than temporary are reflected as write-downs of the individual securities to fair value.

Notes to Consolidated Financial Statements

Note 1.

Organization and Summary of Significant Accounting Policies, continued

Securities Available for Sale, continued

Related write-downs are included in earnings as realized losses. In determining whether other than temporary impairment exists, management considers many factors, including (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and the ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.

Loans Held for Sale

Government guaranteed loans originated in the normal course of business are sometimes sold into the secondary market. These sales are of the guaranteed portion of the loans only. Loans that carry variable rates, which eliminate the market risk to the Bank, are carried at cost. Fixed rate loans are carried the lower of cost or market. There were no loans held for sale at December 31, 2014 and 2013.

Loans Receivable

Loans receivable that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off are reported at their outstanding principal amount adjusted for any charge-offs, the allowance for loan losses, and any deferred fees or costs on originated loans and unamortized premiums or discounts on purchased loans.

Loan origination fees and certain direct origination costs are capitalized and recognized as an adjustment of the yield of the related loan using the interest method. Discounts and premiums on any purchased residential real estate loans are amortized to income using the interest method over the remaining period to contractual maturity, adjusted for anticipated prepayments. Discounts and premiums on any purchased consumer loans are recognized over the expected lives of the loans using methods that approximate the interest method.

Interest is accrued and credited to income based on the principal amount outstanding. The accrual of interest on impaired loans is discontinued when, in management’s opinion, the borrower may be unable to meet payments as they become due. When the interest accrual is discontinued, all unpaid accrued interest is reversed. Interest income is subsequently recognized only to the extent cash payments are received. Payments received on nonaccrual loans are first applied to principal and any residual amounts are then applied to interest. When facts and circumstances indicate the borrower has regained the ability to meet the required payments, the loan is returned to accrual status. Past due loans are determined on the basis of contractual terms.

Allowance for Loan Losses

The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to earnings. Loan losses are charged against the allowance when management believes the uncollectability of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.

The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral and prevailing economic conditions. 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, general and qualitative components. The specific component relates to loans that are classified as impaired. For loans that are 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-impaired loans and is based on historical loss experience adjusted for qualitative factors. A qualitative component is maintained to cover uncertainties that could affect management’s estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio.

Notes to Consolidated Financial Statements

Note 1.

Organization and Summary of Significant Accounting Policies, continued

Allowance for Loan Losses, continued

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan basis for commercial and construction loans by either the present value of 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.

Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, the Company does not separately identify individual consumer and residential loans for impairment disclosures.

Property and Equipment

Land is carried at cost. Premises, furniture and equipment, and leasehold improvements are carried at cost, less accumulated depreciation and amortization computed principally by the straight-line method over the following estimated useful lives:

	Years

Buildings and improvements		10-40
Furniture and equipment		3-25

Foreclosed Assets

Assets acquired through, or in lieu of, loan foreclosure are to be sold and are initially recorded at the lower of the investment in the loan or fair value less anticipated cost to sell at the date of foreclosure establishing a new cost basis. After foreclosure, valuations are periodically performed by management, and the assets are carried at the lower of carrying amount or fair value less cost to sell. Revenue and expenses from operations and changes in the valuation allowance are included in foreclosed asset expense.

Goodwill

Goodwill consists of premiums paid on acquisitions of insurance agencies. Goodwill is evaluated for impairment on an annual basis. Any impairment is charged against income in the period of impairment.

Employee Benefit Plans

The Company has a defined contribution plan qualifying under IRS Code Section 401(k). Employee contributions are matched by the Company up to the first six percent of an employee’s contribution. The Company match is expensed as incurred.

The Company has a noncontributory, nonqualified supplemental executive retirement plan (“SERP”) covering certain executive employees. The plan calls for monthly payments payable for the life of the executive, generally beginning at the age of 65. The SERP costs, which are actuarially determined and recorded on an unfunded basis, are charged to current operations and credited to a liability account on the consolidated balance sheets.

The Company has a deferred compensation plan under which directors may elect to defer their directors’ fees. Participating directors receive an additional 30% matching contribution from the Company. Benefit payments are paid for a specific number of years, generally beginning at age 65. The deferred compensation cost, including the Company’s matching contribution, are charged to current operations and credited to a liability account on the consolidated balance sheets.

Notes to Consolidated Financial Statements

Note 1.

Organization and Summary of Significant Accounting Policies, continued

Stock-based Compensation

The Company accounts for stock-based compensation in accordance with the provisions of Financial Accounting Standards Board (“FASB”) ASC (“Accounting Standards Codification”) 718, Compensation – Stock Compensation. Under the fair value recognition provisions of this statement, stock-based compensation is measured at the grant date based on the fair value of the award and is recognized as expense on a straight-line basis over the requisite service period, which is the vesting period.

Transfers of Financial Assets

Transfers of financial assets are accounted for as sales when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

Income Taxes

Income tax expense is based on amounts reported in the statements of income (after exclusion of non-taxable income such as interest on state and municipal securities) and consists of taxes currently due plus deferred taxes on temporary differences in the recognition of income and expense for tax and financial statement purposes. Deferred tax assets and liabilities are included in the financial statements 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 income tax expense.

Deferred income tax liability relating to unrealized appreciation (or the deferred tax asset in the case of unrealized depreciation) on investment securities available for sale is recorded in other liabilities (assets). Such unrealized appreciation or depreciation is recorded as an adjustment to equity in the financial statements and not included in income determination until realized. Accordingly, the resulting deferred income tax liability or asset is also recorded as an adjustment to equity.

Basic Earnings per Common Share

Basic earnings per common share is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding during the period, after giving retroactive effect to stock splits and dividends.

Diluted Earnings per Common Share

The computation of diluted earnings per common share is similar to the computation of basic earnings per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if dilutive potential common shares had been issued. The numerator is adjusted for any changes in income that would result from the assumed conversion of those potential common shares.

Notes to Consolidated Financial Statements

Note 1.

Organization and Summary of Significant Accounting Policies, continued

Comprehensive Income

Comprehensive income consists of net income plus certain other changes in assets and liabilities that are reported as separate components of stockholders’ equity rather than as income or expense. The Company’s other comprehensive income only consist of adjustments for unrealized gains or losses on investment securities available-for-sale.

Advertising Cost

The Company incurred marketing and advertising cost of $111,891 and $129,048 for the years ended December 31, 2014 and 2013, respectively. The amounts are expensed as incurred and included in the statements of income under other expense.

Off-Balance Sheet Credit Related Financial Instruments

In the ordinary course of business, the Company has entered into commitments to extend credit, including commitments under line of credit arrangements, commercial letters of credit, and standby letters of credit. Such financial instruments are recorded when they are funded.

Fair Value of Financial Instruments

FASB ASC 820, Fair Value Measurement and Disclosure, requires disclosure of fair value information about financial instruments, whether or not recognized in the balance sheet. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instruments. Certain financial instruments and all nonfinancial instruments are excluded from disclosure requirements. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company.

Reclassification

Certain reclassifications have been made to the prior years' financial statements to place them on a comparable basis with the current year. Net income and stockholders’ equity previously reported were not affected by these reclassifications.

Recent Accounting Pronouncements

The following is a summary of recent authoritative pronouncements:

In January 2014, the FASB amended Receivables topic of the Accounting Standards Codification. The amendments are intended to resolve diversity in practice with respect to when a creditor should reclassify a collateralized consumer mortgage loan to other real estate owned (OREO). In addition, the amendments require a creditor reclassify a collateralized consumer mortgage loan to OREO upon obtaining legal title to the real estate collateral, or the borrower voluntarily conveying all interest in the real estate property to the lender to satisfy the loan through a deed in lieu of foreclosure or similar legal agreement. The amendments will be effective for the Company for annual periods, and interim periods within those annual period beginning after December 15, 2014 with early implementation of the guidance permitted. In implementing this guidance, assets that are reclassified from real estate to loans are measured at the carrying value of the real estate at the date of adoption. Assets reclassified from loans to real estate are measured at the lower of the net amount of the loan receivable or the fair value of the real estate less costs to sell at the date of adoption. The Company will apply the amendments prospectively. The Company does not expect these amendments to have a material effect on its financial statements.

Notes to Consolidated Financial Statements

Note 1.

Organization and Summary of Significant Accounting Policies, continued

Recent Accounting Pronouncements, continued

In May 2014, the FASB issued guidance to change the recognition of revenue from contracts with customers. The core principle of the new guidance is that an entity should recognize revenue to reflect the transfer of goods and services to customers in an amount equal to the consideration the entity receives or expects to receive. The guidance will be effective for the Company for reporting periods beginning after December 15, 2016. The Company will apply the guidance using a full retrospective approach. The Company does not expect these amendments to have a material effect on its financial statements.

In August 2014, the FASB issued guidance that is intended to define management’s responsibility to evaluate whether there is substantial doubt about an organization’s ability to continue as a going concern and to provide related footnote disclosures. In connection with preparing financial statements, management will need to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the organization’s ability to continue as a going concern within one year after the date that the financial statements are issued. The amendments will be effective for the Company for annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. The Company does not expect these amendments to have a material effect on its financial statements.

In January 2015, the FASB issued guidance that eliminated the concept of extraordinary items from U.S. GAAP. Existing U.S. GAAP required that an entity separately classify, present, and disclose extraordinary events and transactions. The amendments will eliminate the requirements for reporting entities to consider whether an underlying event or transaction is extraordinary, however, the presentation and disclosure guidance for items that are unusual in nature or occur infrequently will be retained and will be expanded to include items that are both unusual in nature and infrequently occurring. The amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. The amendments may be applied either prospectively or retrospectively to all prior periods presented in the financial statements. Early adoption is permitted provided that the guidance is applied from the beginning of the fiscal year of adoption. The Company does not expect these amendments to have a material effect on its financial statements.

Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies are not expected to have a material impact on the Company’s financial position, results of operations, or cash flows.

Note 2.

Restrictions on Cash

To comply with banking regulations, the Company is required to maintain certain average cash reserve balances. The daily average cash reserve requirement was approximately $1,809,000 and $1,689,000 for the periods including December 31, 2014 and 2013, respectively.

Note 3.

Securities

Debt and equity securities have been classified in the balance sheets according to management’s intent. The amortized costs of securities available for sale and their approximate fair values at December 31, 2014 and 2013 follow:

	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value

2014
Government-sponsored enterprises	$	3,500,000	$	1,170	$	4,640	$	3,496,530
Mortgage-backed securities		25,592		715		-		26,307
Corporate bonds		300,000		-		45,000		255,000
Equities and mutual funds		552,635		42,900		9,567		585,968
	$	4,378,227	$	44,785	$	59,207	$	4,363,805

Notes to Consolidated Financial Statements

	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value

2013
Government-sponsored enterprises	$	3,500,000	$	795	$	2,030	$	3,498,765
Mortgage-backed securities		32,099		1,022		-		33,121
Corporate bonds		550,000		-		99,000		451,000
Equities and mutual funds		535,326		43,260		11,770		566,816
	$	4,617,425	$	45,077	$	112,800	$	4,549,702

Restricted equity securities were $618,109 and $676,799 at December 31, 2014 and 2013, respectively. Restricted equity securities primarily consist of investments in stock of the Federal Home Loan Bank of Atlanta (“FHLB”) and Community Bankers Bank (“CBB”). These investments are carried at cost. The FHLB requires financial institutions to make equity investments in the FHLB in order to borrow money. The Company is required to own the stock so long as it borrows from the FHLB. CBB stock is classified as restricted due to the transfer restrictions placed on the ownership of the stock by the issuer.

At December 31, 2014 and 2013, substantially all government-sponsored enterprises securities were pledged as collateral on public deposits and for other purposes as required or permitted by law. The mortgage-backed securities were pledged to the FHLB.

Maturities of mortgage-backed bonds are stated based on contractual maturities. Actual maturities of these bonds may vary as the underlying mortgages are prepaid. The investment in equities and mutual funds by nature have no maturity date and are classified as due in one year or less.

The scheduled maturities of securities (all available for sale) at December 31, 2014, were as follows:

	Amortized Cost		Fair Value

Due in one year or less	$	1,552,635	$	1,586,427
Due after one year through five years		2,810,353		2,761,699
Due after five years through ten years		5,846		5,998
Due after ten years		9,393		9,681
	$	4,378,227	$	4,363,805

The Company had realized losses of $1,670 from the sales of equity and mutual fund investment securities for the year ended December 31, 2014, and realized gains of $9,206 from the sales of equity and mutual fund investment securities for the year ended December 31, 2013. Total proceeds from the sales amounted to $131,403 and $63,937 in 2014 and 2013, respectively.

Notes to Consolidated Financial Statements

Note 3.

Securities, continued

The following tables show investments’ gross unrealized losses and fair value, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position, at December 31, 2014 and 2013. These unrealized losses on investment securities are a result of volatility in interest rates and market fluctuations and relate to government-sponsored enterprises, corporate bonds issued by other banks and equities and mutual funds at December 31, 2014, and corporate bonds issued by other banks at December 31, 2013.

	Less Than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
2014
Government-sponsored enterprises	$	1,995,360	$	4,640	$	-	$	-	$	1,995,360	$	4,640
Corporate bonds		-		-		255,000		45,000		255,000		45,000
Equities and mutual funds		69,129		5,592		107,999		3,975		177,128		9,567
	$	2,064,489	$	10,232	$	362,999	$	48,975	$	2,427,488	$	59,207

2013
Government-sponsored enterprises	$	1,497,970	$	2,030	$	-	$	-	$	1,497,970	$	2,030
Corporate bonds		-		-		451,000		99,000		451,000		99,000
Equities and mutual funds		245,218		11,770		-		-		245,218		11,770
	$	1,743,188	$	13,800	$	451,000	$	99,000	$	2,194,188	$	112,800

Management considers the nature of the investment, the underlying causes of the decline in the market value and the severity and duration of the decline in market value in determining if impairment is other than temporary. Consideration is given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. Based upon this evaluation, there are two securities in the portfolio with unrealized losses for a period greater than 12 months. We have analyzed each individual security for Other Than Temporary Impairment (“OTTI”) purposes by reviewing delinquencies, loan-to-value ratios, and credit quality and concluded that all unrealized losses presented in the tables above are not related to an issuer’s financial condition but are due to changes in the level of interest rates and market volatility. No declines are deemed to be other than temporary in nature.

Note 4.

Loans Receivable

The major components of loans in the balance sheets at December 31, 2014 and 2013 are below.

	2014			2013

Commercial and industrial	$	56,602,425		$	66,612,984
Real estate:
Construction and land development		10,061,249			6,353,787
Residential, 1-4 families		41,824,806			40,203,978
Residential, 5 or more families		1,109,586			1,515,239
Farmland		3,486,002			2,219,688
Nonfarm, nonresidential		74,275,793			60,316,018
Agricultural		675,474			107,974
Consumer, net of discounts of $11,950 in 2014 and $11,931 in 2013		4,997,023			5,685,407
		193,032,358			183,015,075
Net, deferred loan origination costs (fees)		71,378			269,100
		193,103,736			183,284,175
Allowance for loan losses		(3,554,664	)		(3,375,350	)
	$	189,549,072		$	179,908,825

Residential, 1-4 family loans pledged as collateral against FHLB advances approximated $18,124,000 and $17,376,000 at December 31, 2014 and 2013, respectively.

Notes to Consolidated Financial Statements

Note 5.

Allowance for Loan Losses

The allocation of the allowance for loan losses by loan components at December 31, 2014 and 2013 was as follows:

	Construction & Development			1-4 Family Residential			Nonfarm, Nonresidential			Commercial and Industrial			Consumer			Other			Total

2014

Allowance for credit losses:
Beginning balance	$	73,000		$	617,629		$	753,050		$	1,708,962		$	181,309		$	41,400		$	3,375,350
Charge-offs		-			(102,168	)		(1,778	)		(146,444	)		(66,581	)		-			(316,971	)
Recoveries		-			1,463			80,630			160,418			41,911			-			284,422
Provision		87,100			281,275			235,413			(421,036	)		2,111			27,000			211,863
Ending balance	$	160,100		$	798,199		$	1,067,315		$	1,301,900		$	158,750		$	68,400		$	3,554,664

Ending balance: individually evaluated for impairment	$	-		$	97,799		$	117,215		$	162,900		$	-		$	-		$	377,914
Ending balance: collectively evaluated for impairment	$	160,100		$	700,400		$	950,100		$	1,139,000		$	158,750		$	68,400		$	3,176,750

Loans Receivable:
Ending balance	$	10,061,249		$	41,824,806		$	74,275,793		$	56,602,425		$	4,997,023		$	5,271,062		$	193,032,358

Ending balance: individually evaluated for impairment	$	13,536		$	574,078		$	2,658,938		$	1,399,469		$	-		$	228,111		$	4,874,132
Ending balance: collectively evaluated for impairment	$	10,047,713		$	41,250,728		$	71,616,855		$	55,202,956		$	4,997,023		$	5,042,951		$	188,158,226

2013

Allowance for credit losses:
Beginning balance	$	86,300		$	668,700		$	801,999		$	1,604,510		$	198,789		$	42,800		$	3,403,098
Charge-offs		-			(26,967	)		(238,541	)		(87,374	)		(79,667	)		-			(432,549	)
Recoveries		587			401			2,426			52,433			29,389			-			85,236
Provision		(13,887	)		(24,505	)		187,166			139,393			32,798			(1,400	)		319,565
Ending balance	$	73,000		$	617,629		$	753,050		$	1,708,962		$	181,309		$	41,400		$	3,375,350

Ending balance: individually evaluated for impairment	$	-		$	10,829		$	131,950		$	206,162		$	-		$	-		$	348,941
Ending balance: collectively evaluated for impairment	$	73,000		$	606,800		$	621,100		$	1,502,800		$	181,309		$	41,400		$	3,026,409

Loans Receivable:
Ending balance	$	6,353,787		$	40,203,978		$	60,316,018		$	66,612,984		$	5,685,407		$	3,842,901		$	183,015,075

Ending balance: individually evaluated for impairment	$	318,111		$	337,767		$	2,912,421		$	2,499,531		$	-		$	-		$	6,067,830
Ending balance: collectively evaluated for impairment	$	6,035,676		$	39,866,211		$	57,403,597		$	64,113,453		$	5,685,407		$	3,842,901		$	176,947,245

Notes to Consolidated Financial Statements

Note 5.

Allowance for Loan Losses, continued

The following table presents loans individually evaluated for impairment by class of loan as of December 31, 2014 and 2013:

	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized

2014
With no related allowance recorded:
Construction and development	$	13,536	$	13,536	$	-	$	13,788	$	2,710
1-4 family residential		174,314		174,314		-		174,882		7,269
Nonfarm, nonresidential		1,806,013		1,806,013		-		1,826,306		94,953
Commercial and industrial		844,682		844,682		-		986,462		9,452
Consumer		-		-		-		-		-
Other loans		228,111		228,111		-		228,884		15,244
		3,066,656		3,066,656		-		3,230,322		129,628

With an allowance recorded:
Construction and development	$	-	$	-	$	-	$	-	$	-
1-4 family residential		399,764		399,764		97,799		402,691		8,141
Nonfarm, nonresidential		852,925		852,925		117,215		852,872		358
Commercial and industrial		554,787		554,787		162,900		552,865		72
Consumer		-		-		-		-		-
Other loans		-		-		-		-		-
		1,807,476		1,807,476		377,914		1,808,428		8,571

Combined:
Construction and development	$	13,536	$	13,536	$	-	$	13,788	$	2,710
1-4 family residential		574,078		574,078		97,799		577,573		15,410
Nonfarm, nonresidential		2,658,938		2,658,938		117,215		2,679,178		95,311
Commercial and industrial		1,399,469		1,399,469		162,900		1,539,327		9,524
Consumer		-		-		-		-		-
Other loans		228,111		228,111		-		228,884		15,244
	$	4,874,132	$	4,874,132	$	377,914	$	5,038,750	$	138,199

2013
With no related allowance recorded:
Construction and development	$	318,111	$	318,111	$	-	$	320,260	$	21,825
1-4 family residential		263,562		263,562		-		261,364		21,295
Nonfarm, nonresidential		2,095,645		2,165,883		-		2,144,605		120,322
Commercial and industrial		1,359,371		1,561,253		-		1,393,077		71,409
Consumer		-		-		-		-		-
Other loans		-		-		-		-		-
		4,036,689		4,308,809		-		4,119,306		234,851

With an allowance recorded:
Construction and development	$	-	$	-	$	-	$	-	$	-
1-4 family residential		74,205		74,205		10,829		77,144		4,300
Nonfarm, nonresidential		816,776		816,776		131,950		930,060		24,653
Commercial and industrial		1,140,160		1,140,160		206,162		1,163,698		47,393
Consumer		-		-		-		-		-
Other loans		-		-		-		-		-
		2,031,141		2,031,141		348,941		2,170,902		76,346

Combined:
Construction and development	$	318,111	$	318,111	$	-	$	320,260	$	21,825
1-4 family residential		337,767		337,767		10,829		338,508		25,595
Nonfarm, nonresidential		2,912,421		2,982,659		131,950		3,074,665		144,975
Commercial and industrial		2,499,531		2,701,413		206,162		2,556,775		118,802
Consumer		-		-		-		-		-
Other loans		-		-		-		-		-
	$	6,067,830	$	6,339,950	$	348,941	$	6,290,208	$	311,197

Notes to Consolidated Financial Statements

Note 5.

Allowance for Loan Losses, continued

Nonperforming loans and impaired loans are defined differently. As such, some loans may be included in both categories, whereas other loans may only be included in one category. The following presents by class, an aging analysis of the recorded investment in loans.

The following table presents an age analysis of past due loans as of December 31, 2014 and 2013:

	30-59 Days Past Due			60-89 Days Past Due			90 Days Plus Past Due			Total Past Due			Current			Total			Recorded Investment > 90 Days and Accruing

2014

Construction and development	$	94,736		$	-		$	-		$	94,736		$	9,966,513		$	10,061,249		$	-
1-4 family residential		362,406			274,595			172,981			809,982			41,014,824			41,824,806			-
Nonfarm, nonresidential		137,733			105,473			663,902			907,108			73,368,685			74,275,793			-
Commercial and industrial		63,744			20,476			1,271,937			1,356,157			55,246,268			56,602,425			-
Consumer		169,895			48,785			54,306			272,986			4,724,037			4,997,023			53,184
Other loans		-			-			-			-			5,271,062			5,271,062			-
Total	$	828,514		$	449,329		$	2,163,126		$	3,440,969		$	189,591,389		$	193,032,358		$	53,184
Percentage of total loans		0.43	%		0.23	%		1.12	%		1.78	%		98.22	%		100.00	%

Non-accruals included above
Construction and development	$	-		$	-		$	-		$	-		$	-		$	-
1-4 family residential		162,027			56,664			172,981			391,672			112,752			504,424
Nonfarm, nonresidential		133,147			-			663,902			797,049			395,558			1,192,607
Commercial and industrial		18,859			-			1,271,937			1,290,796			-			1,290,796
Consumer		-			-			1,122			1,122			-			1,122
Other loans		-			-			-			-			-			-
	$	314,033		$	56,664		$	2,109,942		$	2,480,639		$	508,310		$	2,988,949

2013

Construction and development	$	-		$	-		$	-		$	-		$	6,353,787		$	6,353,787		$	-
1-4 family residential		544,559			165,244			173,786			883,589			39,320,389			40,203,978			-
Nonfarm, nonresidential		193,411			336,036			791,148			1,320,595			58,995,423			60,316,018			-
Commercial and industrial		84,145			2,528			929,552			1,016,225			65,596,759			66,612,984			15,837
Consumer		103,463			68,767			20,742			192,972			5,492,435			5,685,407			19,601
Other loans		-			-			-			-			3,842,901			3,842,901			-
Total	$	925,578		$	572,575		$	1,915,228		$	3,413,381		$	179,601,694		$	183,015,075		$	35,438
Percentage of total loans		0.51	%		0.31	%		1.05	%		1.87	%		98.13	%		100.00	%

Non-accruals included above
Construction and development	$	-		$	-		$	-		$	-		$	70,058		$	70,058
1-4 family residential		29,269			-			173,786			203,055			190,032			393,087
Nonfarm, nonresidential		85,646			-			791,148			876,794			1,222,090			2,098,884
Commercial and industrial		-			-			913,715			913,715			321,592			1,235,307
Consumer		259			547			1,141			1,947			1,044			2,991
Other loans		-			-			-			-			-			-
	$	115,174		$	547		$	1,879,790		$	1,995,511		$	1,804,816		$	3,800,327

Notes to Consolidated Financial Statements

Note 5.

Allowance for Loan Losses, continued

Credit Quality Indicators:

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. Loans classified as substandard or special mention are reviewed quarterly by the Company for further deterioration or improvement to determine if appropriately classified and impairment, if any. All other loans greater than $500,000, commercial lines greater than $250,000 and personal lines of credit greater than $100,000, and unsecured loans greater than $100,000 are specifically reviewed at least annually to determine the appropriate loan grading. In addition, during the renewal process of any loan, as well as when a loan becomes past due, the Company evaluates the loan grade.

Loans excluded from the scope of the annual review process above are generally classified as pass credits until: (a) they become past due; (b) management becomes aware of deterioration in the credit worthiness of the borrower; or (c) the customer contacts the Company for a modification. In these circumstances, the loan is specifically evaluated for potential classification as to special mention, substandard or even charged off. The Company uses the following definitions for risk ratings:

Special Mention. Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.

Substandard. Loans classified as substandard are inadequately protected by the current net worth and payment capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful. Loans classified as doubtful have all the weaknesses inherent in those classified as 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.

Notes to Consolidated Financial Statements

Note 5.

Allowance for Loan Losses, continued

Loans by credit quality indicator are provided in the following table.

	Total			Pass Credits			Special Mention			Substandard			Doubtful
December 31, 2014

Construction and development	$	10,061,249		$	10,061,249		$	-		$	-		$	-
1-4 family residential		41,824,806			41,009,963			641,862			172,981			-
Nonfarm, nonresidential		74,275,793			72,657,724			1,618,069			-			-
Commercial and industrial		56,602,425			55,274,007			1,328,418			-			-
Consumer		4,997,023			4,996,479			544			-			-
Other loans		5,271,062			5,254,896			16,166			-			-
	$	193,032,358		$	189,254,318		$	3,605,059		$	172,981		$	-

		100.0	%		98.0	%		1.9	%		0.1	%		-	%

Guaranteed portion of loans

Construction and development	$	15,604		$	15,604		$	-		$	-		$	-
1-4 family residential		584,842			306,212			278,630			-			-
Nonfarm, nonresidential		29,914,244			29,082,499			831,745			-			-
Commercial and industrial		13,858,258			12,877,497			980,761			-			-
Consumer		-			-			-			-			-
Other loans		768,869			760,786			8,083			-			-
	$	45,141,817		$	43,042,598		$	2,099,219		$	-		$	-

	Total			Pass Credits			Special Mention			Substandard			Doubtful

December 31, 2013

Construction and development	$	6,353,787		$	6,283,729		$	70,058		$	-		$	-
1-4 family residential		40,203,978			39,586,647			617,331			-			-
Nonfarm, nonresidential		60,316,018			58,188,799			2,022,868			104,351			-
Commercial and industrial		66,612,984			64,556,331			2,056,653			-			-
Consumer		5,685,407			5,684,245			1,162			-			-
Other loans		3,842,901			3,842,901			-			-			-
	$	183,015,075		$	178,142,652		$	4,768,072		$	104,351		$	-

		100.0	%		97.3	%		2.6	%		0.1	%		-	%

Guaranteed portion of loans

Construction and development	$	73,000		$	73,000		$	-		$	-		$	-
1-4 family residential		673,854			629,939			43,915			-			-
Nonfarm, nonresidential		26,835,404			26,063,658			771,746			-			-
Commercial and industrial		19,589,284			18,737,759			851,525			-			-
Consumer		-			-			-			-			-
Other loans		544,195			544,195			-			-			-
	$	47,715,737		$	46,048,551		$	1,667,186		$	-		$	-

Notes to Consolidated Financial Statements

Note 5.

Allowance for Loan Losses, continued

	For the year ended December 31, 2014						For the year ended December 31, 2013
	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled Debt Restructurings
Construction and development		-	$	-	$	-		-	$	-	$	-
1-4 Family residential		4		327,724		331,425		1		55,336		55,336
Nonfarm, nonresidential		-		-		-		1		145,219		145,219
Commercial and industrial		-		-		-		1		22,065		22,065

During the year ended December 31, 2014, the Bank modified four loans that were considered to be troubled debt restructurings. The terms for these loans were extended. The interest rate and payment were lowered on three loans and one loan was renewed while interest was not paid current.

During the year ended December 31, 2013, the Bank modified three loans that were considered to be troubled debt restructurings. The terms for these loans were extended. The interest rate and payment was lowered on one loan and the payment was modified on the other two loans.

During the year ended December 31, 2014 and 2013, no loans that had previously been restructured were in default.

In the determination of the allowance for loan losses, management considers troubled debt restructurings and subsequent defaults in these restructurings by adjusting the loan grades of such loans, which influence the environmental factors associated with the allowance. Defaults resulting in charge-offs affect the historical loss experience ratios which are a component of the allowance calculation. Additionally, specific reserves may be established on restructured loans evaluated individually.

Note 6.

Loan Servicing

The Company occasionally sells the guaranteed portion of certain government guaranteed loans in the secondary market. The Company continues to service these loans that totaled $11,321,566 and $9,157,496 at December 31, 2014 and 2013, respectively. The Company recognizes a servicing rights asset upon the sale of the guaranteed portion of government guaranteed loans for which the Company retains the underlying servicing obligation. Servicing rights assets are initially measured at fair value and amortized to expense over the estimated life of the servicing obligation. The fair value of servicing rights is determined at the date of sale of the underlying loan using the present value of estimated future net servicing income on assumptions that market participants use in their valuation estimates. The Company presents its servicing rights assets gross at the lower of cost or fair value in the Consolidated Balance Sheets. Servicing rights are included in other assets in the Consolidated Balance Sheets.

Notes to Consolidated Financial Statements

Note 6.

Loan Servicing, continued

The following table presents a roll forward of loan servicing rights for the years 2014 and 2013 and shows that the loan servicing rights are classified as Level 3 as discussed below.

	Level 3
	2014			2013
	Fair Value			Fair Value

Balance, January 1	$	260,862		$	63,017
Capitalized		97,221			200,839
Amortization included in other income		(7,851	)		(2,994	)
Balance, December 31	$	350,232		$	260,862

Note 7.

Property and Equipment

Components of property and equipment and total accumulated depreciation at December 31, 2014 and 2013 are as follows:

	2014			2013

Land and improvements	$	1,625,879		$	1,625,879
Buildings and improvements		3,891,557			3,845,457
Furniture and equipment		2,820,417			2,703,601
		8,337,853			8,174,937
Less accumulated depreciation		(3,969,264	)		(3,734,722	)
	$	4,368,589		$	4,440,215

Depreciation expense amounted to $271,024, and $257,213 for the years ended December 31, 2014 and 2013, respectively.

The Company’s West Pine Street branch is leased under a five-year operating lease at a monthly rental of $2,215. The lease expires March 31, 2015. The Company has the option to renew the lease for two additional five-year terms. Each five-year term will carry a 12.5% increase in the monthly rental over the previous five-year term. In addition, the Company rents space for a loan production office under a one-year operating lease at a monthly rental of $945. The Company has the option to renew the lease for two additional six-month terms. Rental expense was $37,918 and $37,528 for 2014 and 2013, respectively.

Pursuant to the terms of non-cancelable lease agreements in effect at December 31, 2014, and leases expected to renew, pertaining to banking premises and equipment, future minimum rent commitments under various operating leases are as follows:

2015	$	35,685
2016		29,900
2017		29,900
2018		29,900
2019		29,900
	$	155,285

Notes to Consolidated Financial Statements

Note 8.

Deposits

Time deposits that meet or exceed the FDIC Insurance limit of $250,000 at December 31, 2014 and 2013 were $8,578,639 and $7,828,146, respectively. The aggregate amount of time deposits in denominations of $100,000 to $250,000 at December 31, 2014 and 2013, was $25,292,009 and $25,018,406, respectively. At December 31, 2014, the scheduled maturities of total time deposits are as follows:

2015	$	50,274,234
2016		17,408,010
2017		4,388,220
2018		4,203,282
2019		3,727,426
	$	80,001,172

Note 9.

Short-Term Debt

Short-term debt consists of Federal Home Loan Bank advances that have original maturities of 12 months or less, short-term secured borrowings associated with the sale of government guaranteed loans and federal funds purchased and securities sold under agreements to repurchase, which generally mature within one to four days from the transaction date. Additional information at December 31, 2014 and 2013 and for the periods then ended is summarized below:

	2014			2013

Outstanding balance at December 31	$	-		$	-
Year-end weighted average rate		-	%		-	%
Daily average outstanding during the year	$	1,583		$	950,544
Average rate for the year		1.20	%		4.09	%
Maximum outstanding at any month-end during the year	$	78,000		$	3,743,820

Lines of Credit

The Company has established various credit facilities to provide additional liquidity if and as needed. These include unsecured lines of credit with correspondent banks totaling $35,500,000 and a secured line of credit with the Federal Home Loan Bank of Atlanta of approximately $12,068,000. At December 31, 2014, there were no amounts outstanding on the unsecured lines with correspondent banks. Advances due to the Federal Home Loan Bank of Atlanta on the secured line of credit at December 31, 2014 and 2013 amounted to $6,250,000 and $7,750,000, respectively.

Note 10.

Federal Home Loan Bank Advances

The Company’s Federal Home Loan Bank advances include instruments bearing fixed rates ranging from 2.94% to 4.95%. The weighted average rate of all long-term debt at December 31, 2014 and December 31, 2013 was 3.90%. Collateral consists of eligible real estate, 1-4 family first and second lien and revolving residential real estate loans and certain investment securities. The contractual maturities of long-term debt are as follows:

2015	$	3,500,000
2016		1,000,000
2017		1,750,000
2018		-
2019		-
	$	6,250,000

Notes to Consolidated Financial Statements

Note 11.

Fair Value

The Company utilizes fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. Securities available for sale, trading securities and derivatives, if present, are recorded at fair value on a recurring basis. Additionally, from time to time, the Company may be required to record at fair value other assets on a nonrecurring basis, such as loans held for sale, loans held for investment, servicing assets and foreclosed properties. These nonrecurring fair value adjustments typically involve application of lower of cost or market accounting or write-downs of individual assets.

Fair Value Hierarchy

Under the Fair Value Measurements and Disclosures Topic of FASB ASC, the Company groups assets and liabilities at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. These levels are:

Level 1

Valuation is based upon quoted prices for identical instruments traded in active markets.

Level 2

Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.

Level 3

Valuation is generated from model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include use of option pricing models, discounted cash flow models and similar techniques.

Following is a description of valuation methodologies used for assets and liabilities recorded at fair value.

Investment Securities Available for Sale

Investment securities available for sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss assumptions. Level 1 securities include those traded on an active exchange, such as the New York Stock Exchange, U.S. Treasury securities that are traded by dealers or brokers in active over-the-counter markets and money market funds. Level 2 securities include mortgage-backed securities issued by government sponsored entities, municipal bonds and corporate debt securities. Securities classified as Level 3 include asset-backed securities in less liquid markets.

Loans

The Company does not record loans at fair value on a recurring basis. However, from time to time, a loan is considered impaired and an allowance for loan losses is established. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. Once a loan is identified as individually impaired, management measures the impairment in accordance with the Receivables Topic of the FASB ASC. The fair value of impaired loans is estimated using one of several methods, including collateral value, market value of similar debt, enterprise value, liquidation value and discounted cash flows. Those impaired loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans. At December 31, 2014 and 2013, substantially all of the total impaired loans were evaluated based on the fair value of the collateral and discounted cash flows. In accordance with the Fair Value and Measurement Topic of the FASB ASC, impaired loans, where an allowance is established based on the fair value of collateral; require classification in the fair value hierarchy. When the fair value of the collateral is based on an observable market price the Company records the impaired loan as nonrecurring Level 2. When an appraised value is available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Company records the impaired loan as nonrecurring Level 3.

Notes to Consolidated Financial Statements

Note 11.

Fair Value, continued

Servicing Assets

A valuation of loan servicing rights is performed on an individual basis due to the small number of loans serviced. Loans are evaluated on a discounted earnings basis to determine the present value of future earnings. The present value of the future earnings is the estimated market value for the loan, calculated using consensus assumptions that a third party purchaser would utilize in evaluating a potential acquisition of the servicing. As such, the Company classifies loan servicing rights as Level 3.

Foreclosed Assets

Foreclosed assets are recorded at the lower of investment in the loan or fair value upon transfer of the loans to foreclosed assets. Subsequently, foreclosed assets are carried at the lower of carrying value or fair value. Fair value is based upon independent market prices, appraised values of the collateral or management’s estimation of the value of the collateral.

Assets and Liabilities Recorded at Fair Value on a Recurring Basis

The table below presents the recorded amount of assets measured at fair value on a recurring basis. No liabilities were presented at fair value on a recurring basis at December 31, 2014 and 2013.

(in thousands)
December 31, 2014	Total		Level 1		Level 2		Level 3
Government-sponsored enterprises	$	3,497	$	-	$	3,497	$	-
Mortgage-backed securities		26		-		26		-
Corporate bonds		255		-		-		255
Equities and mutual funds		586		586		-		-
Total assets at fair value	$	4,364	$	586	$	3,523	$	255


(in thousands)
December 31, 2013	Total		Level 1		Level 2		Level 3
Government-sponsored enterprises	$	3,499	$	-	$	3,499	$	-
Mortgage-backed securities		33		-		33		-
Corporate bonds		451		-		-		451
Equities and mutual funds		567		567		-		-
Total assets at fair value	$	4,550	$	567	$	3,532	$	451

The changes in Level 3 assets measured at fair value on a recurring basis were:

	2014			2013
(in thousands)
Corporate Bonds-Available for Sale
Balance, January 1	$	451		$	443
Total realized gain (losses) included in income		-			-
Total unrealized gain (losses) included in other comprehensive income		54			8
Net purchases, sales, calls and maturities		(250	)		-
Net transfers in/out of Level 3		-			-
Balance, December 31	$	255		$	451

Of the Level 3 assets that were held by the Company at December 31, 2014, the unrealized gain for the year was $10,000. That gain is recognized in other comprehensive income in the consolidated statements of financial condition. The Company had a Level 3 available for sale corporate bond called during 2014. The gain included in comprehensive income due to the call was $44,000. Both observable and unobservable inputs may be used to determine the fair value of positions classified as Level 3 assets. As a result, the unrealized gains and losses for these assets presented in the tables above may include changes in fair value that were attributable to both observable and unobservable inputs.

Notes to Consolidated Financial Statements

Note 11.

Fair Value, continued

Assets and Liabilities Recorded at Fair Value on a Nonrecurring Basis

The Company may be required, from time to time, to measure certain assets or liabilities at fair value on a nonrecurring basis in accordance with U.S. generally accepted accounting principles. These include assets and liabilities that are required to be measured at the lower of cost or market that were recognized at fair value below cost at the end of the period. Assets and liabilities recorded at fair value on a nonrecurring basis are included in the table below. No liabilities were presented at fair value on a nonrecurring basis at December 31, 2014 and 2013.

(in thousands)
December 31, 2014	Total		Level 1		Level 2		Level 3

Impaired loans:
Commercial and industrial	$	392	$	-	$	-	$	392
Nonfarm, nonresidential		736		-		-		736
1- 4 family residential		302		-		-		302
Foreclosed assets		281		-		-		281
Servicing assets		350		-		-		350
Total assets at fair value	$	2,061	$	-	$	-	$	2,061

(in thousands)
December 31, 2013	Total		Level 1		Level 2		Level 3

Impaired loans:
Commercial and industrial	$	934	$	-	$	-	$	934
Nonfarm, nonresidential		685		-		-		685
1- 4 family residential		63		-		-		63
Foreclosed assets		-		-		-		-
Servicing assets		261		-		-		261
Total assets at fair value	$	1,943	$	-	$	-	$	1,943

For level 3 assets and liabilities measured at fair value on a recurring or non-recurring basis as of December 31, 2014 and 2013, the significant unobservable inputs used in the fair value measurements were as follows:

	Fair Value at December 31, 2014		Valuation Technique	Significant Unobservable Inputs	Significant Unobservable Input Value
Corporate bonds	$	255	Third party estimate	Sales of comparable instruments		n/a
Servicing assets	$	350	Management estimate	Present value of future payments/useful life		n/a
Impaired loans	$	1,430	Management estimate	Appraisals and/or sales of comparable properties		n/a
Foreclosed assets	$	281	Management estimate	Appraisals and/or sales of comparable properties		n/a

	Fair Value at December 31, 2013		Valuation Technique	Significant Unobservable Inputs	Significant Unobservable Input Value
Corporate bonds	$	451	Third party estimate	Sales of comparable instruments		n/a
Servicing assets	$	261	Management estimate	Present value of future payments/useful life		n/a
Impaired loans	$	1,682	Management estimate	Appraisals and/or sales of comparable properties		n/a

Notes to Consolidated Financial Statements

Note 11.

Fair Value, continued

Accounting standards for financial instruments require disclosure of fair value information about financial instruments, whether or not recognized in the balance sheet. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instruments. These accounting standards exclude certain financial instruments and all non-financial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company.

The methodologies for estimating fair value of financial assets and liabilities that are measured at fair value on a recurring or non-recurring basis are discussed above. The estimated fair value approximates carrying value for cash and cash equivalents, accrued interest and the cash surrender value of life insurance policies. The methodologies for other financial assets and liabilities are discussed below:

Financial Instruments

The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments:

Cash and due from banks: The carrying amounts reported in the balance sheet for cash and due from banks approximate their fair values.

Interest-bearing deposits with banks: Fair values for interest-bearing demand deposits and time deposits are estimated using a discounted cash flow analysis that applies interest rates currently being offered on certificates to a schedule of aggregated contractual maturities on such time deposits.

Federal funds sold: Due to the short-term nature of these assets, the carrying value approximates fair value.

Securities: Fair values for securities, excluding restricted equity securities, are based on quoted market prices, where available. If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss assumptions. The carrying values of restricted equity securities approximate fair values.

Loans receivable: For variable-rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying amounts. The fair values for other loans are estimated using discounted cash flow analysis, based on interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. Loan fair value estimates include judgments regarding future expected loss experience and risk characteristics. The fair value of impaired loans is estimated using one of several methods, including collateral value, market value of similar debt, enterprise value, liquidation value and discounted cash flows. The carrying amount of accrued interest receivable approximates its fair value.

Bank owned life insurance: The carrying amount reported in the balance sheet approximates the fair value as it represents the cash surrender value of the life insurance.

Deposit liabilities: The fair values disclosed for demand and savings deposits are, by definition, equal to the amount payable on demand at the reporting date. The fair values for certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated contractual maturities on such time deposits. The carrying amount of accrued interest payable approximates fair value.

Federal funds purchased, securities sold under agreements to repurchase and short-term debt: The carrying amounts of federal funds purchased, securities sold under agreements to repurchase and short-term debt approximate their fair values.

Long-term debt: The fair value of long-term debt is estimated using a discounted cash flow calculation that applies interest rates currently available on similar instruments.

Other liabilities: For fixed-rate loan commitments, fair value considers the difference between current levels of interest rates and the committed rates. The carrying amounts of other liabilities approximate fair value.

Notes to Consolidated Financial Statements

Note 11.

Fair Value, continued

Fair Values

The estimated fair values of the Company’s financial instruments are as follows (dollars in thousands):

					Fair Value Measurements
(dollars in thousands)	Carrying Amount		Fair Value		Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)

December 31, 2014
Financial Instruments - Assets
Loans	$	189,549	$	195,254	$	-	$	-	$	195,254

Financial Instruments – Liabilities
Deposits		206,667		202,750		-		61,925		140,825
Federal Home Loan Bank advances		6,250		6,486		-		-		6,486

December 31, 2013
Financial Instruments - Assets
Loans	$	179,909	$	179,531	$	-	$	-	$	179,531

Financial Instruments – Liabilities
Deposits		195,801		171,649		-		171,649		-
Federal Home Loan Bank advances		7,750		8,100		-		8,100		-

Notes to Consolidated Financial Statements

Note 12.

Earnings Per Common Share

The following table details the computation of basic and diluted earnings per share for the years ended December 31, 2014 and 2013:

	2014			2013

Net income	$	3,443,569		$	2,889,351
Convertible preferred stock dividends (Series A and D)		(183,423	)		(183,423	)
Net income available to common shareholders	$	3,260,146		$	2,705,928
Weighted average common shares outstanding		3,544,057			3,542,984

Effect of dilutive securities:
Options		1,916			-
Convertible preferred stock (Series A and D)		633,935			633,935
Weighted average common shares outstanding, diluted		4,179,908			4,176,919

Basic earnings per common share	$	0.92		$	0.76
Diluted earnings per common share	$	0.82		$	0.69

The Company has 22,187 shares of common stock available for exercise in its qualified incentive stock option plan. These shares were “in the money” at December 31, 2014. The 41,190 shares available at December 31, 2013, were not “in the money” therefore had no effect on fully diluted earnings per share.

Note 13.

Employee Benefit Plans

The Company has a defined contribution plan (the Plan) qualifying under IRS Code Section 401(k). Eligible participants in the Plan can contribute up to the maximum percentage allowable not to exceed the dollar limit under IRC Section 401(k). The Company matches 100% of the first six percent of an employee’s contribution. For the years ended December 31, 2014 and 2013, the Company contributed $154,958 and $150,093 to the Plan, respectively.

The Company has a Supplemental Retirement Benefit Plan (SERP) to provide future compensation to certain members of management upon retirement. Under plan provisions, payments projected to range from $50,827 to $89,914, per year, are payable for the life of the executive, generally beginning at age 65. The liability accrued for the compensation under the plan was $908,484 and $783,041 at December 31, 2014 and 2013, respectively. Employee benefits expense, an actuarially determined amount, was $145,279 and $133,229 for the years ended December 31, 2014 and 2013, respectively. Benefits paid during the years ended December 31, 2014 and 2013, amounted to $19,836 each year. The assumed discount rate for the plan was 5.25% and 5.5% at December 31, 2014 and 2013, respectively.

The Company also has a deferred compensation plan under which directors may elect to defer their directors’ fees. Participating directors receive an additional 30% matching contribution and will be paid an annual benefit for a specified number of years after retirement, generally beginning at age 65. The maximum payout period is ten years. The liability accrued for deferred directors’ fees was $968,398 and $851,751 at December 31, 2014 and 2013, respectively. Deferred directors’ fees expensed under the plan for the years ended December 31, 2014 and 2013 were $131,310 and $141,166, respectively. Benefits of $14,663 and $14,814 were paid out during the years ended December 31, 2014 and 2013, respectively.

The Company has purchased and is the primary beneficiary of life insurance policies indirectly related to the Supplemental Retirement Benefit Plan and the directors’ deferred compensation liability. The cash value of the life insurance policies totaled $5,623,087 and $5,462,336 at December 31, 2014 and 2013, respectively. In December of 2014, life insurance proceeds of $419,150 were accrued upon the death of a former officer of the Company. The proceeds were received in February of 2015.

Notes to Consolidated Financial Statements

Note 14.

Stock Based Compensation

The Company has two share-based compensation plans, which are described below. No compensation cost has been charged against income during the years ended December 31, 2014 and 2013, as the vesting period ended in 2012.

The Company’s qualified incentive stock option plan which expired on June 1, 2007 reserved shares for purchase by eligible employees. Options granted under this plan vest at the rate of 20% per year, expire not more than ten years from the date of grant, and are exercisable at not less than the fair market value of the stock at the date of the grant.

The Company’s non-qualified stock option plan, which expired on June 1, 2007, reserved shares for purchase by non-employee directors. Options granted under this plan were exercisable after six months from the date of the grant at not less than the fair market value of the stock at the date of the grant. The life of such options shall not extend more than ten years from the date of the grant.

The fair value of each option award is estimated on the date of grant using the Black-Scholes option-pricing model. The risk-free interest rate is based on the U.S. Treasury rate for the expected life at the time of grant. Volatility is based on the volatilities of our trading history. The expected life is based on the average life of the options of ten years and the weighted average graded vesting period of five years, and forfeitures are considered immaterial based on the historical data of the Company.

A summary of option activity under the stock option plans during the years ended December 31, 2014 and 2013 is presented below:

	Options Outstanding			Weighted Average Exercise Price
Balance at December 31, 2012		41,190		$	12.06

Exercised		-			-
Authorized		-			-
Forfeited		-			-
Granted		-			-
Expired		-			-
Balance at December 31, 2013		41,190			12.06

Exercised		(19,003	)		12.06
Authorized		-			-
Forfeited		-			-
Granted		-			-
Expired		-			-
Balance at December 31, 2014		22,187		$	12.06

Notes to Consolidated Financial Statements

Note 14.

Stock Based Compensation, continued

The following table sets forth the exercise prices, the number of options outstanding and the number of options exercisable at December 31, 2014:

Exercise Price		Number of Options Outstanding		Weighted Average Exercise Price		Weighted Average Contractual Life Remaining (Years)		Number of Options Exercisable		Weighted Average Exercise Price
$	12.06		22,187	$	12.06		2.4		22,187	$	12.06
	Total/Average		22,187		12.06		2.4		22,187		12.06

As of December 31, 2014, there was no unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the Company’s stock option plans. The intrinsic value of option exercisable at December 31, 2014, was $48,368.

Note 15.

Income Taxes

Current and Deferred Income Tax Components

The components of income tax expense are as follows:

	2014			2013

Current	$	1,937,372		$	1,785,165
Deferred		(186,258	)		(25,498	)
	$	1,751,114		$	1,759,667

Rate Reconciliation

A reconciliation of expected income tax expense computed at the statutory federal income tax rate of 34% to income tax expense included in the statements of income is as follows:

	2014			2013

Expected tax expense	$	1,766,192		$	1,580,666
State income tax, net of federal tax benefit		184,559			207,817
Tax exempt income		(227,117	)		(75,568	)
Nondeductible and other items		27,480			46,752
	$	1,751,114		$	1,759,667

Notes to Consolidated Financial Statements

Note 15.

Income Taxes, continued

Deferred Income Tax Analysis

Net deferred tax assets are included in other assets in the consolidated balance sheets. The significant components of net deferred tax assets at December 31, 2014 and 2013 are summarized as follows:

	2014		2013

Deferred tax assets
Allowance for loan losses	$	939,429	$	878,918
Deferred compensation liability		700,077		609,777
Net unrealized loss on securities available for sale		6,480		26,301
Interest income on non-accrual loans		211,177		162,335
Lower of cost or market adjustment on loans transferred from available for sale to portfolio		13,880		15,322
		1,871,043		1,692,653

Deferred tax liabilities
Depreciation		305,846		305,985
Net deferred loan cost		112,466		100,374
Other		19,091		19,091
		437,403		425,450
Net deferred tax asset	$	1,433,640	$	1,267,203

The Company files tax returns in the United States Federal jurisdiction and the states of North Carolina and Virginia.

The Company classifies interest and penalties related to income tax assessments, if any, in interest expense or non-interest expense, respectively in the consolidated statements of income. Tax years 2011 through 2013 are subject to examination by the Internal Revenue Service, North Carolina Department of Revenue, and the Virginia Department of Taxation. The Company has analyzed the tax positions taken or expected to be taken in its tax returns and has concluded it has no liability related to uncertain tax positions.

Note 16.

Commitments and Contingencies

Litigation

In the normal course of business the Company is involved in various legal proceedings. After consultation with legal counsel, management believes that any liability resulting from such proceedings will not be material to the financial statements.

Financial Instruments with Off-Balance-Sheet Risk

The Company is 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 include commitments to extend credit and standby letters of credit. These instruments involve, to varying degrees, credit risk in excess of the amount recognized in the balance sheets.

Notes to Consolidated Financial Statements

Note 16.

Commitments and Contingencies, continued

The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as for on-balance-sheet instruments. A summary of the Company’s commitments at December 31, 2014 and 2013 is as follows:

	2014		2013

Commitments to extend credit, including unused lines of credit	$	36,699,062	$	34,138,058
Standby letters of credit		2,414,247		1,601,847
	$	39,113,309	$	35,739,905

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. 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 Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the party. Collateral held varies, but may include accounts receivable, inventory, property and equipment, residential real estate and income-producing commercial properties.

Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. Collateral held varies as specified above and is required in instances which the Company deems necessary. The commitments carry both fixed and variable rates of interest.

Concentrations of Credit Risk

Substantially all of the Company’s loans, commitments to extend credit, and standby letters of credit have been granted to customers in the Company’s market area and such customers are generally depositors of the Company. The concentrations of credit by type of loan are set forth in Note 4. The distribution of commitments to extend credit approximates the distribution of loans outstanding. The Company, as a matter of policy, does not extend credit to any single borrower or group of related borrowers in excess of approximately $5,600,000 unless guaranteed by SBA or USDA Rural Development Corporation. Although the Company has a reasonably diversified loan portfolio, the following industries are considered concentrations: real estate, motion picture and sound recording, truck transportation, fabricated metal product manufacturing, heavy and civil engineering construction and building construction.

Other Commitments

The Company has entered into employment agreements with certain of its key officers covering duties, salary, benefits, provisions for termination and Company obligations in the event of merger or acquisition. The Bank also has lease commitments summarized in Note 7 to these financial statements.

Note 17.

Regulatory Restrictions

Dividends

The Company’s principal source of funds for dividend payments is dividends received from the Bank. The Bank, as a North Carolina banking corporation, may pay cash dividends only out of undivided profits as determined pursuant to North Carolina banking laws. However, regulatory authorities may limit payment of dividends by a bank when it is determined that such a limitation is in the public interest and is necessary to ensure financial soundness of the bank.

Notes to Consolidated Financial Statements

Note 17.

Regulatory Restrictions, continued

Intercompany Transactions

The Bank’s legal lending limit on loans to the Company is governed by Federal Reserve Act 23A, and differs from legal lending limits on loans to external customers. Generally, a bank may lend up to 10% of its capital and surplus to its Parent, if the loan is secured. Under this definition, the legal lending limit for the Bank on loans to the Company was approximately $3,597,000 at December 31, 2014. No 23A transactions were deemed to exist between the Company and the Bank at December 31, 2014 or 2013.

Capital Requirements

The Company and the Bank are subject to various regulatory capital requirements administered by federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory (and possibly additional discretionary) actions by regulators that, if undertaken, could have a direct material effect on the Company’s consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier I capital to risk-weighted assets, and of Tier I capital to average assets, as all those terms are defined in the regulations. Management believes, as of December 31, 2014, that the Bank meets all capital adequacy requirements to which it is subject.

As of December 31, 2014, the most recent notification from the Federal Deposit Insurance Corporation categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Bank must maintain minimum total risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in the following table. There are no conditions or events after that notification that management believes to have changed the institution’s category.

On July 7, 2014 the Federal Reserve Board approved Basel III Final Rule to begin implementation January 1, 2015. The desired overall objective of Basel III is to improve the banking sector’s ability to absorb shocks arising from financial and economic stress. The Final Rule changes minimum capital ratios and raises the Tier 1 Risk Weighted Assets to 6% from 4%. In addition, the new rules require a bank to maintain a capital conservation buffer of between 2 and 2 ½ % beginning in 2016. The new rules will be phased in beginning in 2015 with complete compliance required by 2019. Generally, the Basel III Final Rule will require banks to maintain higher levels of common equity and regulatory capital.

Notes to Consolidated Financial Statements

Note 17.

Regulatory Restrictions, continued

The Company’s and Bank’s actual capital amounts and minimum required amounts (dollars in thousands) and ratios are also presented in the following table.

	Actual					Minimum Required For Capital Adequacy Purposes					Minimum To Be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio			Amount		Ratio			Amount			Ratio
December 31, 2014
Total Capital (to Risk-Weighted Assets) Consolidated	$	37,412		21.55	%	$	13,888		8.00	%	$	n/	a		n/	a
Surrey Bank & Trust	$	36,623		21.11	%	$	13,878		8.00	%	$	17,348			10.00	%
Tier I Capital (to Risk-Weighted Assets) Consolidated	$	35,225		20.29	%	$	6,944		4.00	%	$	n/	a		n/	a
Surrey Bank & Trust	$	34,438		19.85	%	$	6,939		4.00	%	$	10,409			6.00	%
Tier I Capital (to Average Assets) Consolidated	$	35,225		13.93	%	$	10,117		4.00	%	$	n/	a		n/	a
Surrey Bank & Trust	$	34,438		13.65	%	$	10,094		4.00	%	$	12,618			5.00	%

December 31, 2013
Total Capital (to Risk-Weighted Assets) Consolidated	$	34,880		21.90	%	$	12,740		8.00	%	$	n/	a		n/	a
Surrey Bank & Trust	$	34,154		21.46	%	$	12,730		8.00	%	$	15,913			10.00	%
Tier I Capital (to Risk-Weighted Assets) Consolidated	$	32,872		20.64	%	$	6,370		4.00	%	$	n/	a		n/	a
Surrey Bank & Trust	$	32,148		20.20	%	$	6,365		4.00	%	$	9,548			6.00	%
Tier I Capital (to Average Assets) Consolidated	$	32,872		13.58	%	$	9,685		4.00	%	$	n/	a		n/	a
Surrey Bank & Trust	$	32,148		13.31	%	$	9,663		4.00	%	$	12,079			5.00	%

Note 18.

Transactions with Related Parties

The Company has entered into transactions with its directors, significant shareholders and their affiliates (related parties). Such transactions were made in the ordinary course of business on substantially the same terms and conditions, including interest rates and collateral, as those prevailing at the same time for comparable transactions with other customers, and did not, in the opinion of management, involve more than normal credit risk or present other unfavorable features.

Aggregate loan transactions with related parties were as follows:

	2014			2013

Balance, beginning	$	2,954,100		$	4,060,425

New loans		698,101			684,223
Repayments		(868,652	)		(1,790,548	)
Balance, ending	$	2,783,549		$	2,954,100

Deposit transactions with related parties at December 31, 2014 and 2013 were insignificant.

Notes to Consolidated Financial Statements

Note 19.

Parent Company Activity

Surrey Bancorp owns all of the outstanding shares of the Bank. Condensed financial statements of Surrey Bancorp follow:

Condensed Balance Sheets

December 31, 2014 and 2013

	2014			2013

Assets

Cash and due from banks	$	1,033,992		$	89,528
Dividends receivable from subsidiary		-			867,000
Investment securities available for sale		585,968			566,816
Other assets		16,427			11,972
Investment in subsidiaries		35,972,759			33,483,275
	$	37,609,146		$	35,018,591

Liabilities and Capital
Liabilities
Dividends payable	$	827,159		$	790,259
Other liabilities		11,333			10,706
		838,492			800,965

Capital
Preferred stock		3,868,807			3,868,807
Common stock		12,101,480			12,061,153
Retained earnings		20,808,309			18,329,089
Accumulated other comprehensive loss		(7,942	)		(41,423	)
		36,770,654			34,217,626
	$	37,609,146		$	35,018,591

Condensed Statements of Income

For the years ended December 31, 2014 and 2013

	2014			2013

Income
Equity in undistributed income of subsidiary	$	2,457,219		$	1,790,589
Dividends from subsidiary		1,020,000			1,122,000
Gain (loss) on the sale of investment securities		(1,670	)		9,206
Interest income		9			8
Dividend income		24,419			22,190
Total income		3,499,977			2,943,993

Expenses
Other expense		72,835			66,614
Income before income taxes		3,427,142			2,877,379
Income tax benefit		(16,427	)		(11,972	)
Net income		3,443,569			2,889,351

Preferred stock dividends		(183,423	)		(183,423	)
Net income available to common stockholders	$	3,260,146		$	2,705,928

Notes to Consolidated Financial Statements

Note 19.

Parent Company Activity, continued

Condensed Statements of Cash Flows

For the years ended December 31, 2014 and 2013

	2014			2013

Cash flows from operating activities
Net income	$	3,443,569		$	2,889,351
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in undistributed earnings of subsidiary		(2,457,219	)		(1,790,589	)
(Gain) loss on the sale of investment securities		1,670			(9,206	)
(Increase) decrease in dividends receivable from subsidiary		867,000			(867,000	)
Net (increase) decrease in other assets		(4,455	)		8,868
Net decrease in other liabilities		-			(942	)
Net cash provided by operating activities		1,850,565			230,482

Cash flows from investing activities
Purchase of investment securities		(150,382	)		(81,221	)
Proceeds from the sale of investment securities		131,403			63,938
Net cash used by investing activities		(18,979	)		(17,283	)

Cash flows from financing activities
Common stock options exercised		40,327			-
Dividends paid		(927,449	)		(183,296	)
Net used by financing activities		(887,122	)		(183,296	)
Net increase (decrease) in cash and due from banks		944,464			29,903

Cash and due from banks, beginning		89,528			59,625
Cash and due from banks, ending	$	1,033,992		$	89,528

Note 20.

Subsequent Events

The Company has evaluated events and transactions through the date these financial statements were filed for potential recognition and disclosure.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders

Surrey Bancorp

Mount Airy, North Carolina

We have audited the accompanying consolidated balance sheets of Surrey Bancorp and subsidiaries (the “Company”) as of December 31, 2014 and 2013, and the related consolidated statements of income, comprehensive income, changes in stockholders' equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company'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. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also 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 Surrey Bancorp and subsidiaries as of December 31, 2014 and 2013, and the results of their operations and their cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.

/s/ Elliott Davis Decosimo, PLLC

Charlotte, North Carolina

March 27, 2015

Management’s Discussion and Analysis

General

Surrey Bancorp was formed on May 1, 2003, and was created for the purpose of acquiring all the outstanding shares of common stock of Surrey Bank & Trust.

Surrey Bank & Trust was incorporated on July 15, 1996, as a North Carolina banking corporation and opened for business on July 22, 1996. The Bank operates for the primary purpose of serving the banking needs of individuals and small to medium sized businesses in Surry County, North Carolina and Patrick County, Virginia and the surrounding area, while developing personal, hometown associations with these customers. The Bank offers a wide range of banking services including checking and savings accounts; commercial, consumer and mortgage loans; safe deposit boxes; and other associated services. Through its subsidiaries, Surrey Investment Services, Inc. and Freedom Finance, LLC, the Bank offers insurance and investment products and sales finance services, respectively. The Bank’s primary sources of revenue are interest income from its commercial and real estate lending activities and, to a lesser extent, from its investment portfolio. The Bank also earns fees from lending and deposit activities. The major expenses of the Bank are interest on deposit accounts and general and administrative expenses, such as salaries, occupancy and related expenses.

Primary Market Area

The Bank’s market area consists of an area extending from Surry County, with branches in Mount Airy and Pilot Mountain and a loan production office in Elkin, North Carolina, north into the southern portions of Carroll and Patrick Counties, Virginia. Mount Airy is the industrial and trading center of Surry County with a population of approximately 8,500 people living in the city limits and 30,000 in the metropolitan area. The total population of Surry County is approximately 73,000 people. Mount Airy is served by Interstate Highways 77 and 74 and U.S. Highways 52 and 601. Surry County has a civilian labor force of over 31,000. Major industries include manufacturing, construction, fabricated metals, and lumber and wood. The Bank has a branch office in Stuart, Virginia, which is located in Patrick County, Virginia. The primary industries found in Patrick County are lumber and wood, textiles and agricultural.

Management’s Discussion and Analysis of Operations

Management’s Discussion and Analysis is provided to assist in the understanding and evaluation of the Company’s financial condition and its results of operations. The following discussion should be read in conjunction with the Company’s financial statements and related notes.

Certain information contained in this discussion may include “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements are generally identified by phrases such as “the Company expects,” “the Company believes” or words of similar import. Such forward-looking statements involve known and unknown risks including, but not limited to, changes in general economic and business conditions, interest rate fluctuations, competition within and from outside the banking industry, new products and services in the banking industry, risk inherent in making loans such as repayment risks and fluctuating collateral values, problems with technology utilized by the Company, changing trends in customer profiles and changes in laws and regulations applicable to the Company. Although the Company believes that its expectations with respect to the forward-looking statements are based upon reliable assumptions within the bounds of its knowledge of its business and operations, there can be no assurance that actual results, performance or achievements of the Company will not differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements.

Critical Accounting Policies

Surrey Bancorp’s financial statements are prepared in accordance with accounting principles generally accepted in the United States (GAAP). The notes to the audited consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2014 contain a summary of its significant accounting policies. Management believes the Company’s policies with respect to the methodology for the determination of the allowance for loan losses, and asset impairment judgments, involve a higher degree of complexity and require management to make difficult and subjective judgments that often require assumptions or estimates about highly uncertain matters. Accordingly, management considers the policies related to those areas as critical.

Management’s Discussion and Analysis

Critical Accounting Policies, continued

The allowance for loan losses is an estimate of the losses that may be sustained in the loan portfolio. The allowance is based on two basic principles of accounting: (i) Accounting for Contingencies, which requires that losses be accrued when they are probable of occurring and determinable, and (ii) Accounting by Creditors for Impairment of a Loan, 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 Bank’s investment in the loan.

The allowance for loan losses has three basic components: (i) the formula allowance, (ii) the specific allowance, and (iii) the qualitative allowance. Each of these components is determined based upon estimates that can and do change when the actual events occur. The formula allowance uses a historical loss view as an indicator of future losses and, as a result, could differ from the loss incurred in the future. However, since this history is updated with the most recent loss information, the errors that might otherwise occur are mitigated. The specific allowance uses various techniques to arrive at an estimate of loss. Historical loss information, expected cash flows and fair market value of collateral are used to estimate these losses. The use of these values is inherently subjective and our actual losses could be greater or less than the estimates. The qualitative allowance captures losses that are attributable to various economic environmental factors or changes in industry or geographic sectors whose impact on the portfolio have occurred but have yet to be recognized in either the formula or specific allowance.

Management’s Discussion and Analysis

Net Interest Income and Average Balances

Net interest income is the Company’s principal source of earnings. 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 and FHLB Advances used to fund earning assets). Changes in the volume and mix of earning assets and interest-bearing liabilities, as well as their respective yields and rates, have a significant impact on the level of net interest income. Changes in the interest rate environment and the Company’s cost of funds also affect net interest income. Table 1 summarizes the major components of net interest income for the years ended December 31, 2014, 2013 and 2012.

Table 1. Net Interest Income and Average Balances (dollars in thousands)

	Periods Ended December 31,
	2014								2013								2012
	Average Balance			Income Interest / Expense		Yield/ Cost			Average Balance			Interest Income/ Expense		Yield/ Cost			Average Balance			Interest Income/ Expense		Yield/ Cost
Interest-earning assets
Deposits in other banks	$	38,408		$	93		0.24	%	$	32,398		$	82		0.25	%	$	24,253		$	49		0.20	%
Taxable investment securities		5,075			85		1.67	%		5,103			78		1.53	%		3,775			61		1.63	%
Federal funds sold		1,241			3		0.22	%		1,049			2		0.22	%		713			2		0.22	%
Loans ^{1 2}		186,428			10,635		5.70	%		181,895			10,377		5.71	%		180,342			10,842		6.01	%
Total interest-earning assets		231,152			10,816					220,445			10,539					209,083			10,954
Yield on average interest-earning assets							4.68	%							4.78	%							5.24	%

Noninterest-earning assets
Cash and due from banks		8,188								6,987								6,371
Property and equipment		4,403								4,470								4,546
Foreclosed assets		108								228								477
Interest receivable and other		9,385								8,873								8,698
Allowance for loan losses		(3,511	)							(3,344	)							(3,800	)
Total noninterest-earning assets		18,573								17,214								16,292
Total assets	$	249,725							$	237,659							$	225,375

Interest-bearing liabilities
Demand deposits	$	30,093		$	63		0.21	%	$	27,445		$	67		0.24	%	$	23,510		$	71		0.30	%
Savings deposits		39,640			166		0.42	%		37,363			187		0.50	%		34,847			218		0.63	%
Time deposits		84,659			838		0.99	%		84,312			921		1.09	%		87,086			1,083		1.24	%
Fed funds purchased/repurchase0 agreements		2			1		1.23	%		9			1		0.93	%		15			1		0.97	%
Short-term debt		-			-		-	%		942			38		4.09	%		-			-		-	%
Long-term debt		7,450			282		3.79	%		7,750			291		3.76	%		7,898			298		3.78	%
Total interest-bearing liabilities		161,844			1,350					157,821			1,505					153,356			1,671
Cost of average interest bearing liabilities							0.83	%							0.95	%							1.09	%

Noninterest-bearing liabilities
Demand deposits		48,658								43,072								37,851
Interest payable and other		3,521								3,132								2,746
Total noninterest-bearing liabilities		52,179								46,204								40,597
Total liabilities		214,023								204,025								193,953
Stockholders' equity		35,702								33,634								31,422
Total liabilities and stockholders' equity	$	249,725							$	237,659							$	225,375
Net interest income$					9,466							$	9,034							$	9,283
Net yield on interest-earning assets							4.10	%							4.10	%							4.44	%

1.	Includes non-accrual loans.

2.	Amortization of deferred loan fees are included in interest income.

Management’s Discussion and Analysis

Net Interest Income and Average Balances, continued

Yields on interest-earning assets decreased during the year ended December 31, 2014, primarily due to a change in asset mix during the year compared to 2013. The cost of interest bearing liabilities also decreased in 2014, as deposit costs continue to fall. As a result the net yield on interest earning assets was unchanged from 2013 remaining at 4.10% for the year ended December 31, 2014.

Table 2. Rate/Volume Variance Analysis (dollars in thousands)

	2014 Compared to 2013									2013 Compared to 2012
	Interest Income/ Expense Variance			Variance Rate			Attributed To Volume			Interest Income/ Expense Variance			Variance Rate			Attributed To Volume

Interest-earning assets
Deposits in other banks	$	12		$	(2	)	$	14		$	33		$	13		$	20
Taxable investments securities		7			7			-			16			(3	)		19
Federal funds sold		1			-			1			1			-			1
Loans		257			(1	)		258			(465	)		(559	)		94
Total		277			4			273			(415	)		(549	)		134
Interest-bearing liabilities
Demand deposits		(4	)		(10	)		6			(5	)		(16	)		11
Savings deposits		(21	)		(32	)		11			(31	)		(46	)		15
Time deposits		(83	)		(87	)		4			(161	)		(127	)		(34	)
Federal funds purchased/
Repurchase agreements		-			-			-			-			-			-
Short-term debt		(38	)		-			(38	)		38			-			38
Long-term debt		(9	)		2			(11	)		(7	)		(2	)		(5	)
Total		(155	)		(127	)		(28	)		(166	)		(191	)		25
Net interest income	$	432		$	(131	)	$	301		$	(249	)	$	(358	)	$	109

As discussed above, the Company’s net interest income is affected by the change in the amount and mix of interest-earning assets and interest-bearing liabilities (referred to as “volume change”) as well as by changes in yields earned on interest-earning assets and rates paid on deposits and borrowed funds (referred to as “rate change”). The table above presents, for the periods indicated, a summary of changes in interest income and interest expense for the major categories of interest-earning assets and interest-bearing liabilities and the amounts of change attributable to variations in volumes and rates. Changes attributable to the combined impact of volume and rate have been allocated proportionately to the changes due to volume and rate, respectively.

Provision for Loan Losses

The allowance for loan losses is established to provide for expected losses in the Bank’s loan portfolio. Loan losses and recoveries are charged or credited directly to the allowance. Management determines the provision for loan losses required to maintain an allowance adequate to provide for probable losses. Management regularly reviews asset quality and re-evaluates the allowance for loan losses. However, no assurance can be given as to unforeseen adverse economic conditions or other circumstances that could result in increased provisions in the future. Additionally, regulatory examiners may require the Company to recognize additions to the allowance based upon their judgment about the loan portfolio and other information available to them at the time of their examinations.

Management’s Discussion and Analysis

Provision for Loan Losses, continued

A consolidated provision for loan losses of $211,863 was made during 2014, a decrease of $107,702 or 33.7% from the $319,565 provision made during 2013. The decrease is in recognition of the current economic environment, our estimate of inherent risk associated with lending activities and to a reduction in loan charge offs. The provision attributable to the Bank decreased from $293,042 in 2013 to $170,076 in 2014. This decrease is primarily attributable to decrease in loan charge offs during 2014. Net charge offs decreased from $306,810 during the year ended December 31, 2013 to $4,903 during 2014. This reduction was the result of $273,329 of charge off recoveries in 2014, of which $216,534 was from two previously charged off loans. The provision attributable to Freedom Finance, LLC increased from $26,523 in 2013 to $41,787 for the year ended December 31, 2014. The increase in the Freedom Finance, LLC provision was due to loan growth of over 18.0%. Freedom Finance, LLC had net charge offs of $27,646 and $40,502 in 2014 and 2013, respectively. A consolidated provision for loan losses of $319,565 was made in 2013, a decrease of $151,727, or 32.2% from the $471,292 provided during 2012.

The allowance for loan losses was $3,554,664 or 1.84% of total loans outstanding at December 31, 2014. This compares to an allowance for loan losses of $3,375,350, or 1.84% of total loans outstanding at December 31, 2013. Although the Bank experienced significantly lower charge offs in 2014 the reserve did not decrease as a percentage of total loans outstanding due to a decrease in the percentage of loans carrying government guarantees. At December 31, 2013, the guaranteed portion of loans in the portfolio was $47,715,737, or 26.1%, compared to $45,141,818, or 23.4% at December 31, 2014. Overall loans outstanding increased 5.5% from $183,015,075 at December 31, 2013 to $193,032,358 at December 31, 2014. All of the 2014 year net loan growth was in unguaranteed loans. These guaranteed loans, for which the Bank's exposure ranges from 10% to 49% of the outstanding balance, decreased approximately $2,573,919 or 5.4% during 2014. When the guaranteed portion of the loans are factored into the equation the loan loss reserve is approximately 2.40% of the net credit exposure of the loan portfolio at December 31, 2014. The reserve for loan losses at December 31, 2013, after the effect of guaranteed loans, was 2.49% of net loan credit exposure.

The level of reserve is established based upon management's evaluation of historical loss data and the effects of certain environmental factors on the loan portfolio. The historical loss portion of the reserve is computed using the average loss data from the past three years applied to its corresponding category of loans. However, historical losses only reflect a portion of the Bank’s loan loss reserve. The environmental factors represent risk from external economic influences on the credit quality of the loan portfolio. These factors include the movement of interest rates, unemployment rates, past due and charge off trends, loan grading migrations, movement in collateral values and the Bank’s exposure to certain loan concentrations. Positive or negative movements in any of these factors have an effect on the credit quality of the loan portfolio. As a result, management continues to actively monitor the Bank's asset quality affected by these environmental factors. Table 3 is a summary of loans past due, inclusive of nonaccrual loans, at December 31, 2014 and December 31, 2013.

Table 3. Past Due Loans

	December 31, 2014						December 31, 2013
	30-89 Days			90 Days Plus			30-89 Days			90 Days Plus
Construction and development	$	94,736		$	-		$	-		$	-
1-4 Family residential		637,000			172,981			709,803			173,786
Nonfarm, non-residential		243,206			663,902			529,447			791,148
Commercial and industrial		84,221			1,271,937			86,673			929,552
Consumer		218,680			55,428			172,230			20,742
Other loans		-			-			-			-
	$	1,277,843		$	2,164,248		$	1,498,153		$	1,915,228
Percentage of total loans		0.66	%		1.13	%		0.82	%		1.05	%
Guaranteed portion of past dues	$	100,869		$	1,935,839$			288,601		$	1,193,581

Management’s Discussion and Analysis

Provision for Loan Losses, continued

Past due loans are reviewed weekly and the situation assessed to determine potential problems arising in the loan portfolio. Proactive management of past due accounts allows management to anticipate trends within the portfolio and make appropriate adjustments to collection efforts and to the allowance for loan losses. Collectively, past dues increased 0.8% from $3,413,381 at December 31, 2013 to $3,442,091 at December 31, 2014. Past dues on non-accrual status at the end of 2014 amount to 72.1% of total past dues compared to 58.5% in non-accrual status at the end of 2013. At December 31, 2014 total past dues amount to 1.78% of total loans compared to 1.87% at the end of 2013. Loans past due 30-89 days are considered potential problem loans and amounted to $1,277,843 at December 31, 2014 compared to $1,498,153 at December 31, 2013. The government guaranteed portion of 2014 past dues totals $2,036,708, or 59.2% of total past dues compared to $1,482,182, or 43.4% of 2013 past dues.

Management believes that its loan portfolio is diversified so that a downturn in a particular market or industry will not have a significant impact on the loan portfolio or the Bank's financial condition. Management believes that its provision and reserve offer an adequate allowance for loan losses.

Noninterest Income

Noninterest income consists of revenues generated from a broad range of financial services and activities. The majority of noninterest income is a result of service charges on deposit accounts, including charges for insufficient funds; debit and ATM exchange fees; fees charged for non-deposit services; insurance commissions and fees on mortgage loans delivered to correspondents.

Table 4 discloses noninterest income for the periods ended December 31, 2014 and 2013.

Table 4. Sources of Noninterest Income

	For the Period Ended December 31,
	2014			2013

Service charges on deposit accounts	$	795,832		$	863,862
Gain on the sale of government guaranteed loans		127,362			229,130
Fees on mortgage loans delivered to correspondents		30,650			78,763
Gain on the sale of investment securities		(1,670	)		9,206
Other service charges and fees		204,653			156,172
Debit/ATM card income		473,401			420,821
Insurance commissions		766,855			666,704
Brokerage commissions		173,070			160,562
Income from bank owned insurance		160,752			163,982
Other income		105,294			157,642
Life insurance proceeds		419,150			-
	$	3,255,349		$	2,906,844

Activity in the deposit related noninterest income accounts decreased in 2014 primarily as the result of decreases in insufficient funds fees due to regulatory changes. The Bank had a gain from the sale of government guaranteed loans of $127,362 in 2014 compared to gains of $229,130 in 2013. Activity in mortgage lending decreased compared to 2013 activity, as the refinancing of mortgage loans decreased, resulting in an decrease in fees on mortgage loans delivered to correspondents of approximately 61%. Other service charges and fees increased primarily due to an increase in loan servicing fees associated with government guaranteed loans. Debit/ATM card income increased as usage of cards continues to increase. Revenue from the Bank’s investment and insurance subsidiary increased by 13.6%. The insurance division’s revenues were up 15.0% as its commercial business continues to grow. Brokerage commissions were up 7.8% due to an increase in fixed and variable annuity sales. Other income increased slightly in 2014 primarily from income from Bank owned life insurance. In December of 2014, the Bank recorded tax-exempt life insurance proceeds of $419,150. The proceeds were on the life of a former executive of the Bank.

Management’s Discussion and Analysis

Noninterest Expense

The major components of noninterest expense for the periods ended December 31, 2014 and 2013 are as follows:

Table 5. Sources of Noninterest Expense

	For the Period Ended December 31,
	2014		2013

Salary and benefits	$	3,931,262	$	3,762,207
Occupancy expenses		442,858		429,536
Furniture/equipment expenses		269,221		237,229
Data processing		453,417		414,309
Foreclosed assets, net		3,331		(3,312	)
Postage, printing and supplies		189,646		190,985
Advertising and business promotion		111,89		129,048
Professional fees		463,844		389,338
FDIC insurance premiums		119,794		104,317
Other expenses		1,329,957		1,318,275
	$	7,315,221	$	6,971,932

Salaries and employee benefits of $3,931,262 increased $169,055 or 4.5% over the 2013 total of $3,762,207. This increase is primarily due to normal salary adjustments and increased incentive accruals. Occupancy expenses increased minimally in 2014, due to slight increases in property insurance premiums and utilities. Furniture and equipment expenses increased 13.5% in 2014 due to higher maintenance contract and depreciation expenses. Data processing expense increased 9.4% to $453,417 as a result of increased processing activity and communication enhancements. Fix up cost associated with foreclosed assets increased during 2014 resulting in an increase in net expense for the year. The net amount in 2014 consist of gains from the sale of foreclosed properties of $39,610 and expenses of $42,941, compared to 2013 gains on sales of $65,786 and expenses of $62,474. Postage, printing and supplies remained virtually unchanged as the Company continues its tighter control over the ordering of supplies and usage of paper. Advertising and business promotion cost decreased as the Company saw reduced cost in its marketing efforts. Professional fees increased 19.1% primarily due to an increase in legal fees and credit review cost associated with loans. Internal audit fees also contributed to the increase in professional fees. FDIC insurance premiums expense increased in 2014 due to an increase in deposits. Other expenses increased slightly by 0.9% during 2014 as the Company continues to contain operating cost.

The overhead ratio of noninterest expense to adjusted total revenue (net interest income plus noninterest income) decreased slightly from 58.4% in 2013 to 57.5% for the year ended December 31, 2014. Adjusted total revenue increased from $11,941,515 in 2013 to $12,721,767 in 2014, and noninterest expense increased 4.9% to $7,315,221 in 2014 from $6,971,932 in 2013.

Analysis of Financial Condition

Average earning assets increased 4.9% from December 31, 2013, to December 31, 2014. Total earning assets represented 92.6% of total average assets at December 31, 2014, just under the 92.8% at the end of 2013. The mix of average earning assets changed moderately from December 31, 2013, to December 31, 2014. Average net loans decreased in relationship to total average assets and as a percent of average earning assets in 2014. Average loans as a percentage of average earning assets decreased from 82.5% in 2013 to 80.7% in 2014. This change in the average earning asset mix contributed to the reduction in the yield on average earning assets to 4.68% in 2014 from 4.78% in 2013. The average cost of funds decreased 11 basis points, including noninterest bearing deposits during 2014. The decrease in asset yields coupled with the reduction in the cost of funds resulted in no change in the net yield on average earning assets from 2013 to 2014 as shown in Table 1.

Management’s Discussion and Analysis

Analysis of Financial Condition, continued

Table 6. Average Asset Mix

	For the Year Ended December 31, 2014						For the Year Ended December 31, 2013
	Average Balance			%			Average Balance			%
Interest earning assets
Loans, net	$	186,428,192			74.65	%	$	181,895,084			76.54	%
Investment securities		5,075,482			2.03	%		5,103,188			2.15	%
Federal funds sold		1,240,509			0.50	%		1,049,132			0.44	%
Interest-bearing bank balances		38,407,941			15.38	%		32,397,555			13.63	%
Total earning assets		231,152,124			92.56	%		220,444,959			92.76	%

Nonearning assets
Cash and due from banks		8,187,795			3.28	%		6,986,618			2.94	%
Property and equipment		4,402,816			1.76	%		4,470,613			1.88	%
Foreclosed assets		108,019			0.05	%		227,602			0.10	%
Other assets		9,385,436			3.76	%		8,873,679			3.73	%
Allowance for loan losses		(3,511,165	)		(1.41	)%		(3,344,026	)		(1.41	)%
Total nonearning assets		18,572,901			7.44	%		17,214,486			7.24	%
Total assets	$	249,725,025			100.00	%	$	237,659,445			100.00	%

For the year ended December 31, 2014, average net loans represented 74.65% of total average assets compared to 76.54% for the year ended 2013. Investments decreased from 2.15% of average assets to 2.03% of average assets over the same time period. Interest-bearing bank balances increased over the period from 13.63% to 15.38% of average assets. The increase in nonearning assets in 2014 primarily comes from an increase in cash and due from banks and an increase in other assets. Cash and due from banks increased due to an increase in clearing balances at other correspondent banks. Averages in other assets increased due to increased balances in deferred income taxes, prepaid income taxes, servicing assets and Bank owned life insurance (BOLI). Even though the BOLI does produce income, its revenue is classified as other non-interest income and therefore is grouped with nonearning assets in the table above.

Loans

Average net loans totaled $186,428,192 for the year ended December 31, 2014. This represents an increase of 2.49% over the average net loans for 2013. Loan demand rebounded in 2014 as general economic conditions improved. Loan production was also boosted by the Bank’s Loan Production Office (LPO) in Elkin, North Carolina.

The loan portfolio is dominated by real estate and commercial loans. These loans make up 97.06% of the total loan portfolio at December 31, 2014. This is up from the 96.84% that the two categories maintained at December 31, 2013. The amount of loans outstanding by type at December 31, 2014, and December 31, 2013, and the maturity distribution for variable and fixed rate loans as of December 31, 2014 are presented in Tables 7 and 8, respectively.

Management’s Discussion and Analysis

Loans, continued

Table 7. Loan Portfolio Summary

	December 31, 2014					December 31, 2013					December 31, 2012
	Amount		%			Amount		%			Amount		%

Construction and development	$	10,061,249		5.21	%	$	6,353,787		3.47	%	$	4,873,512		2.76	%
1-4 family residential		41,824,806		21.67	%		40,203,978		21.97	%		36,091,051		20.43	%
5 or more family residential		1,109,586		0.57	%		1,515,239		0.83	%		1,676,449		0.95	%
Farmland		3,486,002		1.81	%		2,219,688		1.21	%		2,284,155		1.29	%
Nonfarm, nonresidential		74,275,793		38.48	%		60,316,018		32.96	%		48,993,867		27.73	%
Total real estate		130,757,436		67.74	%		110,608,710		60.44	%		93,919,034		53.16	%

Agricultural		675,474		0.35	%		107,974		0.06	%		147,860		0.08	%
Commercial and industrial		56,602,425		29.32	%		66,612,984		36.40	%		75,914,072		42.97	%
Consumer		4,997,023		2.59	%		5,685,407		3.10	%		6,703,363		3.79	%
Other		-		-	%		-		-	%		3,000		-	%
Total	$	193,032,358		100.00	%	$	183,015,075		100.00	%	$	176,687,329		100.00	%

	December 31, 2011					December 31, 2010
	Amount		%			Amount		%
Construction and development	$	6,213,443		3.46	%	$	5,986,045		3.35	%
1-4 family residential		39,499,189		22.02	%		46,356,711		25.98	%
5 or more family residential		2,214,365		1.23	%		1,853,346		1.04	%
Farmland		2,722,872		1.52	%		2,854,481		1.60	%
Nonfarm, nonresidential		47,867,333		26.69	%		48,170,698		27.00	%
Total real estate		98,517,202		54.92	%		105,221,281		58.97	%

Agricultural		29,493		0.02	%		73,852		0.04	%
Commercial and industrial		73,756,422		41.13	%		66,377,076		37.20	%
Consumer		7,041,846		3.93	%		6,759,770		3.79	%
Other		-		-	%		-		-	%
Total	$	179,344,963		100.00	%	$	178,431,979		100.00	%

The concentrations represented above do not, based on managements’ assessment, expose the Bank to any unusual concentration risk. Based on the Bank’s size, concentrations that are above area peer group analysis are nonfarm, nonresidential and commercial and industrial loans. Management recognizes the inherent risk associated with commercial real estate and commercial lending, including stability of real estate values; or whether or not a borrower's actual results of operations will correspond to those projected by the borrower when the loan was funded; economic factors such as the number of housing starts and increases in interest rates, etc.; depression of collateral values; and completion of projects within the original cost and time estimates. The Bank mitigates some of that risk by actively seeking government guarantees on these loans. As mentioned above, the Bank has approximately $56,967,794 in loans that carry government guarantees at December 31, 2014. The guaranteed portion of these loans amounts to $45,141,817, much of which are classified as commercial and industrial loans and nonfarm, nonresidential loans.

Loans in higher risk categories, such as non-owner occupied nonfarm, non-residential property and commercial real estate construction represent a small segment of our loan portfolio. Commercial construction loans included in construction and development loans amounted to $7,122,890 and $3,433,279 at December 31, 2014 and 2013, respectively. Non-owner occupied nonfarm, non-residential properties included in nonfarm, non-residential loans above amounted to $12,167,921 and $9,327,226 at December 31, 2014 and 2013, respectively.

Management’s Discussion and Analysis

Loans, continued

Table 8. Maturity Schedule of Loans as of December 31, 2014

	Commercial Financial and		Real				Total
	Agricultural		Estate		Others		Amount		%
Fixed rate loans
Three months or less	$	11,715,612	$	20,639,708	$	797,618	$	33,152,938		17.17	%
Over three months to twelve months		11,904,015		11,746,943		1,129,479		24,780,437		12.84	%
Over one year to five years		18,856,681		34,695,409		1,551,737		55,103,827		28.55	%
Over five years		482,243		9,609,690		912,028		11,003,961		5.70	%
Total fixed rate loans	$	42,958,551	$	76,691,750	$	4,390,862	$	124,041,163		64.26	%

Variable rate loans
Three months or less	$	1,814,138	$	412,556	$	160,572	$	2,387,266		1.24	%
Over three months to twelve months		730,296		382,419		198,550		1,311,265		0.68	%
Over one year to five years		1,844,145		4,044,193		247,039		6,135,377		3.18	%
Over five years		9,930,769		49,226,518		-		59,157,287		30.64	%
Total variable rate loans	$	14,319,348	$	54,065,686	$	606,161	$	68,991,195		35.74	%

Total loans
Three months or less	$	13,529,750	$	21,052,264	$	958,190	$	35,540,204		18.41	%
Over three months to twelve months		12,634,311		12,129,362		1,328,029		26,091,702		13.52	%
Over one year to five years		20,700,826		38,739,602		1,798,776		61,239,204		31.73	%
Over five years		10,413,012		58,836,208		912,028		70,161,248		36.34	%
Total loans	$	57,277,899	$	130,757,436	$	4,997,023	$	193,032,358		100.00	%

Interest rates charged on loans vary with the degree of risk, maturity and amount of the loan. Competitive pressures, money market rates, availability of funds, and government regulation also influence interest rates. On average, loans yielded 5.70% for the year ended December 31, 2014, compared to an average yield of 5.71% in 2013. This decrease in yields is attributable to a change in loan mix as average prime rates during 2014 and 2013 remained virtually unchanged. Commercial loans decreased to 29.32% of loans outstanding at December 31, 2014, compared to 36.40% at the end of 2013. Total real estate loans increased from 60.44% of total loans at December 31, 2013, to 67.74% of total loans at December 31, 2014. An increase in nonfarm nonresidential loans was a contributing factor in this increase. Nonfarm nonresidential loans increased to 38.48% of total loans at December 31, 2014, from 32.96% at December 31, 2013. The guaranteed portion of nonfarm nonresidential loans amounted to $29,914,244, or 40.27% at December 31, 2014 compared to $26,835,404, or 42.34% at December 31, 2013.

Investment Securities

The Company uses its investment portfolio to provide for unexpected deposit decreases or loan generation, to meet the Company’s interest rate sensitivity goals, and to generate income.

Management’s Discussion and Analysis

Investment Securities, continued

Management of the investment portfolio has been conservative with virtually all investments taking the form of purchases of government-sponsored enterprises and mortgage-backed securities. Management views the investment portfolio as a source of income, and purchases securities with that in mind. However, adjustments are necessary in the portfolio to provide an adequate source of liquidity, which can be used to meet funding requirements for loan demand and deposit fluctuations and to control interest rate risk. Therefore, from time to time management may sell certain securities prior to their maturity. Table 9 presents the investment portfolio at December 31, 2014 by major type of investment and maturity ranges. The investment portfolio by major type is also presented for December 31, 2013 and 2012.

The average yield of the investment portfolio to increase to 1.67% for the year ended December 31, 2014, compared to 1.53% for 2013. At December 31, 2014 the market value of the investment portfolio was $4,981,914, which was $14,422 less than book value. At December 31, 2013, the market value of the investment portfolio was $67,723 below book value.

The Company has an investment in FHLB stock of $565,100 at December 31, 2014 and $624,100 at December 31, 2013, which is included in restricted equity securities. The Company carries its investment in FHLB at its cost which is the par value of the stock. The level of investment in FHLB stock is based on the asset size of the Bank and the amount of borrowings outstanding. The FHLB evaluates on a quarterly basis whether to repurchase excess capital stock from its members. FHLB paid a cash dividend for the fourth quarter of 2013 at an annualized rate of 3.74% on March 28, 2014, a first quarter dividend at an annualized rate of 3.74% on June 3, 2014, a second quarter dividend at an annualized rate of 3.73% on August 5, 2014, and a third quarter dividend at an annualized dividend rate of 4.23% paid November 4, 2014. At September 30, 2014 (the most recent date available), the FHLB was in compliance with all of its regulatory capital requirements as its total regulatory capital-to-assets ratio was 5.15% exceeding the 4% requirement, and its risk-based capital was $6.41 billion, exceeding its $1.79 billion requirement. Management believes that our investment in FHLB stock was not impaired as of December 31, 2014 or December 31, 2013. There can be no assurance that the impact of recent or future legislation on the Federal Home Loan Banks will not cause a decrease in the value of the Company’s investment in FHLB stock.

Table 9. Investment Securities

December 31, 2014, Available for Sale and Restricted

	In One Year or Less			One Year Through Five Years			After Five Through Ten Years			After Ten Years			Total			Market Value
Investment securities
Government-sponsored enterprises	$	1,000,000		$	2,500,000		$	-		$	-		$	3,500,000		$	3,496,530
Government-sponsored enterprises pools (MBS)		-			10,353			5,846			9,393			25,592			26,307
Corporate securities		-			300,000			-			-			300,000			255,000
Equities and mutual funds		552,635			-			-			-			552,635			585,968
Restricted		618,109			-			-			-			618,109			618,109
Total	$	2,170,744		$	2,810,353		$	5,846		$	9,393		$	4,996,336		$	4,981,914

Weighted average yields
Government-sponsored enterprises		0.33	%		0.92	%		-	%		-	%		0.75	%
Government-sponsored enterprises pools (MBS)		-	%		3.29	%		2.43	%		1.57	%		2.46	%
Corporate securities		-	%		4.14	%		-	%		-	%		4.14	%
Equities and mutual funds		4.20	%		-	%		-	%		-	%		4.20	%
Restricted		3.67	%		-	%		-	%		-	%		3.67	%
Consolidated		2.27	%		2.47	%		2.43	%		1.57	%		1.70	%

Management’s Discussion and Analysis

Table 9. Investment Securities, continued

December 31, 2013 and December 31, 2012, Available for Sale and Restricted

	December 31, 2013				December 31, 2012
	Total		Market Value		Total		Market Value
Investment securities
Government-sponsored enterprises	$	3,500,000	$	3,498,765	$	2,500,000	$	2,504,875
Government-sponsored enterprises pools (MBS)		32,099		33,121		41,659		42,975
Corporate securities		550,000		451,000		550,000		442,750
Equities and mutual funds		535,326		566,816		508,836		512,252
Restricted		676,799		676,799		738,324		738,324
Total	$	5,294,224	$	5,226,501	$	4,338,819	$	4,241,176

Fed Funds Sold and Interest-bearing Bank Balances

Average federal funds sold totaled $1,240,509 for the year ended December 31, 2014, which was up from the 2013 average. Federal funds represent the most liquid portion of the Bank’s invested funds and generally the lowest yielding portion of earning assets. Deposits in other banks primarily represent deposits at the Federal Reserve Bank, which pay an overnight rate on those deposits. These rates usually mirror the federal funds rate. Occasionally, included in these deposits are short-term time deposit investments in other banks through the Certificate of Deposit Account Registry Service (“CDARS”). These time deposits generally are for terms less than one month and carry market rates. No short-term time deposits were included in interest-bearing bank balances at other banks at December 31, 2014. Management has made an effort to maintain interest-bearing bank balances at the lowest level possible consistent with prudent risk management strategies, while having available resources to fund loan demand and the maturity of time deposits. Large average demand deposit balances also make it necessary to retain funds in more liquid investments. During the year ended December 31, 2014, average federal funds and deposits in other banks represented 0.50% and 15.38% of average assets, respectively. This compares to 0.44% and 13.63% in 2013, respectively.

Deposits

The Bank relies on deposits generated in its market area to provide the majority of funds needed to support lending activities and for investment in liquid assets. More specifically, core deposits (total deposits less certificates of deposit in denominations of $100,000 or more) are the primary funding source. The Bank’s balance sheet growth is largely determined by the availability of deposits in its markets, the cost of attracting the deposits, and the prospects of profitably utilizing the available deposits by increasing loans or investment portfolios. Market conditions have resulted in depositors shopping for deposit rates more than in the past. An increased customer awareness of interest rates adds to the importance of rate management. The Bank’s management must continually monitor market pricing, competitor’s rates, and internal interest rate spreads to maintain the Bank’s growth and profitability. The Bank attempts to structure rates so as to promote deposit and asset growth, while at the same time, increasing overall profitability of the Bank.

Management’s Discussion and Analysis

Deposits, continued

Average deposits for the year ended December 31, 2014, amounted to $203,049,996 which was an increase of $10,857,995 or 5.65% from the 2013 averages. Average core deposits (total deposits less large denomination and brokered certificates) totaled $165,648,871 for the year ended December 31, 2014, an increase of $9,146,280, or 5.84% over the 2013 average of $156,502,591. The percentage of the Bank’s average deposits that are interest bearing decreased to 76.03% for the year ended December 31, 2014, from 77.59% in 2013. Average demand deposits, which earn no interest, increased 12.97% from $43,072,005 in 2013 to $48,657,700 in 2014. Average deposits for the periods ended December 31, 2014, December 31, 2013 and December 31, 2012 are summarized in Table 10 below:

Table 10. Deposit Mix

	For the Year Ended December 31, 2014					For the Year Ended December 31, 2013					For the Year Ended December 31, 2012
Interest-bearing deposits	Average Balance		%			Average Balance		%			Average Balance		%
NOW Accounts	$	30,092,922		14.82	%	$	27,444,968		14.28	%	$	23,509,879		12.83	%
Money Market		29,532,120		14.54	%		28,762,185		14.97	%		27,917,572		15.23	%
Savings		10,108,273		4.98	%		8,601,190		4.48	%		6,928,659		3.78	%
Small denomination certificates		47,257,856		23.27	%		48,622,243		25.29	%		48,459,992		26.43	%
Large denomination certificates		35,067,026		17.27	%		32,576,002		16.95	%		34,360,587		18.75	%
Brokered certificates		2,334,099		1.15	%		3,113,408		1.62	%		4,265,650		2.33	%
Repurchase agreements		-		-	%		-		-	%		-		-	%
Total interest-bearing deposits		154,392,296		76.03	%		149,119,996		77.59	%		145,442,339		79.35	%

Noninterest-bearing deposits		48,657,700		23.97	%		43,072,005		22.41	%		37,851,154		20.65	%
Total deposits	$	203,049,996		100.00	%	$	192,192,001		100.00	%	$	183,293,493		100.00	%

The average balance of certificates of deposit issued in denominations of $100,000 or more increased by $2,491,024, or 7.65% for the year ended December 31, 2014. The strategy of management has been to support loan and investment growth with core deposits and not to aggressively solicit the more volatile, large denomination certificates of deposit. Due to the influx of non-interest bearing deposits in 2014, management was able to minimize the Bank’s reliance on large denomination certificates of deposit. The average balance in brokered certificates of deposit in 2014 amounted to $2,334,099 compared to $3,113,408 in 2013. These deposits are not considered core deposits. Table 11 provides maturity information relating to certificates of deposit of $100,000 or more at December 31, 2014.

Table 11. Large Time Deposit Maturities

Analysis of time deposits of $100,000 or more at December 31, 2014:

Remaining maturity of three months or less	$	8,849,567
Remaining maturity of three through six months		5,285,128
Remaining maturity over six through twelve months		7,045,237
Remaining maturity over twelve months		12,375,005
Total time deposits of $100,000 or more	$	33,554,937

Borrowings

From time to time the Bank will find that funds gathered through deposits and repurchase agreements will not fully satisfy the Bank’s liquidity needs. When this occurs, the Bank uses borrowings from correspondent banks and the Federal Home Loan Bank (FHLB) to fund the shortfall. At year-end 2014, the Bank had no short-term borrowings from correspondent banks or the FHLB.

Management’s Discussion and Analysis

Borrowings, continued

Federal Home Loan Bank advances are relatively cost-effective funding sources and provide the Company with the flexibility to structure borrowings in a manner that aids in the management of interest rate risk and liquidity. Long-term debt consists of fixed, variable and convertible rate advances from the FHLB. The average interest rate paid on long- term debt for the year ended December 31, 2014 and 2013, was 3.79% and 3.76%, respectively. See Note 10 of the Company’s Consolidated Financial Statements for more information on the long-term advances.

Capital Adequacy

Stockholders’ equity amounted to $36,770,654 at December 31, 2014, a 7.46% increase over the 2013 year-end total of $34,217,626. Average stockholders’ equity as a percentage of average total assets amounted to 14.30% for the year ended December 31, 2014, and 14.15% in 2013.

Regulatory guidelines relating to capital adequacy provide minimum risk-based ratios which assess capital adequacy while encompassing all credit risks, including those related to off-balance sheet activities. Capital ratios under these guidelines are computed by weighing the relative risk of each asset category to derive risk-adjusted assets. The risk-based capital guidelines require minimum ratios of core (Tier 1) capital (common stockholders’ equity) to risk-weighted assets of 4.0% and total regulatory capital (core capital plus allowance for loan losses up to 1.25% of risk-weighted assets) to risk-weighted assets of 8.0%. As of December 31, 2014, the Bank has a ratio of Tier 1 capital to risk-weighted assets of 19.85% and a ratio of total capital to risk-weighted assets of 21.11%. All capital ratio levels indicate that the Bank is well capitalized.

At December 31, 2014, the Company had 3,549,665 shares of common stock outstanding, which were held by approximately 1,400 stockholders of record.

Additionally, the Company had 189,356 shares of Series A 4.5% Convertible Non-Cumulative Perpetual Preferred Stock outstanding at December 31, 2014. The shares have a liquidation value of $14 per share. The shares were issued in a private placement and are held by approximately 48 stockholders of record. The shares are non-voting and are each convertible into 2.2955 shares of common stock.

The Company also had 181,154 shares of Series D 5.0% Convertible Non-Cumulative Perpetual Preferred Stock outstanding at December 31, 2014. The shares have a liquidation value of $7.08 per share and are convertible into 1.10 shares of common stock at the election of the holder, but are not redeemable at the option of the holder. Provided that the market value of the Company’s common stock is $8.85 on or after January 1, 2014, Surrey may redeem all or a portion of the outstanding shares of Series D Preferred Stock at a redemption price of $7.08 per share. The non-voting shares were issued in a private placement and are held by approximately 15 stockholders of record.

Nonperforming and Problem Assets

Certain credit risks are inherent in making loans, particularly commercial and consumer loans. Management prudently assesses these risks and attempts to manage them effectively. The Bank also attempts to reduce repayment risks by adhering to internal credit policies and procedures. These policies and procedures include officer and customer limits, periodic loan documentation review and follow up on exceptions to credit policies.

The Company actively monitors delinquencies, nonperforming assets and potential problem loans. Unsecured loans that are past due more than 90 days are placed into nonaccrual status. Secured loans reach nonaccrual status when they surpass 120 days past due. When facts and circumstances indicate the borrower has regained the ability to meet the required payments, the loan is returned to accrual status.

Management reviews all criticized loans on a periodic basis for possible charge offs. Any unsecured loans that are 90+ days past due must be charged off in full. If secured, a reserve equal to the potential loss is established. Any charge off is reported to the Board of Directors within 30 days. On a monthly basis, recovery actions are provided to the Board of Directors.

Nonperforming and Problem Assets, continued

The table below shows the amount of non-performing assets.

Table 12. Nonperforming Assets

	2014			2013			2012			2011			2010
Nonaccrual loans	$	2,988,949		$	3,800,327		$	3,740,725		$	4,395,210		$	6,362,127
Loans past due 90 days and still accruing		53,185			35,439			683,720			49,881			-
Troubled debt restructured loans		-			-			-			-			-
Foreclosed assets		280,821			-			491,424			560,018			450,532
Total	$	3,322,955		$	3,835,766		$	4,915,869		$	5,005,109		$	6,812,659

Total assets	$	253,201,323		$	240,918,977		$	229,912,432		$	224,727,764		$	213,652,484

Ratio		1.31	%		1.59	%		2.14	%		2.23	%		3.19	%

Interest receivable on original note terms	$	566,158		$	435,214		$	327,714		$	201,828		$	127,836

Interest actually recorded in income	$	40,481		$	27,463		$	7,733		$	11,646		$	38,271

At December 31, 2014 and 2013, the Bank had loans in nonaccrual status of $2,988,946 and $3,800,327, respectively. Foreclosed assets at December 31, 2014 primarily include 1-4 family dwellings and nonfarm, nonresidential property. Loans that were considered impaired but were still accruing interest at December 31, 2014 and 2013, totaled $1,921,549 and $2,319,291, respectively. A loan is considered impaired when, based on current information and events it is probable that the Bank will be unable to collect all amounts due according to the contractual terms of the loan agreement. The number of loans in nonaccrual status at December 31, 2014 was twenty-five. The average nonaccrual loan balance was approximately $119,558. At the end of 2013 nonaccrual loans numbered thirty-eight and averaged $100,009. Approximately $2,260,205 or 76% of the nonaccrual loans at December 31, 2014 consisted of eight loans ranging in value from $138,000 to $607,000. Approximately $2,891,064 or 76% of the nonaccrual loans at December 31, 2013 consisted of eleven loans ranging in value from $104,000 to $618,000. Impaired loans still accruing numbered seventeen at December 31, 2014, with an average balance of $113,032. Six of these loans amounted to $1,534,000 or approximately 80% of the total. At December 31, 2013, impaired loans still accruing numbered twenty-seven with an average balance of $89,204. Six loans totaled $1,781,000 or 77% of the total impaired. Specific reserves on nonaccrual and impaired loans totaled $377,914 at December 31, 2014, or 7.7% of the balances outstanding compared to $348,941 or 5.7% of the balances outstanding at December 31, 2013. Many of these loans also carry government guaranties. The guaranteed portions of nonaccrual and impaired loans at December 31, 2014 and 2013 are $2,090,348 and $2,235,481, respectively. Combined, specific reserves and loan guarantees amount to approximately 50% and 42% of nonaccrual and impaired loans at December 31, 2014 and 2013, respectively.

All nonaccrual loans are considered to be impaired. The following table summarizes nonaccrual and impaired loans still accruing:

Table 13. Nonaccrual and Impaired Loans

	December 31, 2014		December 31, 2013
Construction and development	$	13,536	$	318,111
1-4 family residential		601,587		386,564
Nonfarm, non-residential		2,658,937		2,912,421
Commercial and industrial		1,399,470		2,499,531
Consumer		8,854		2,991
Other loans		228,111		-
Total impaired and nonaccrual	$	4,910,495	$	6,119,618

Management’s Discussion and Analysis

Loan Losses

The allowance for loan losses is maintained at a level adequate to absorb probable losses. Some of the factors which management considers in determining the appropriate level of the allowance for credit losses are: past loss experience, an evaluation of the current loan portfolio, identified loan problems, the loan volume outstanding, the present and expected economic conditions in general, and in particular, how such conditions relate to the market area that the Bank serves. Bank regulators also periodically review the Bank’s loans and other assets to assess their quality. Loans deemed uncollectible are charged to the allowance. Provisions for loan losses and recoveries on loans previously charged off are added to the allowance.

Net loans charged off as a percentage of average loans were 0.02% and 0.19% in 2014 and 2013, respectively.

The provision for loan losses and the activity in the allowance for loan losses are detailed in Table 14.

Table 14. Loan Losses (dollars in thousands)

	December 31,
	2014			2013			2012			2011			2010
Balance at January 1	$	3,375		$	3,403		$	3,881		$	6,684		$	4,670
Recoveries
Commercial		161			52			151			91			151
Residential, 1-4 family		1			1			1			63			2
Nonfarm, nonresidential property		81			3			84			109			21
Loans to individuals		42			29			19			24			28
Total recoveries		285			85			255			287			202

Charged-off loans
Commercial		(146	)		(87	)		(711	)		(2,258	)		(546	)
Residential, 1-4 family		(102	)		(27	)		(305	)		(1,249	)		(27	)
Nonfarm, nonresidential property		(2	)		(239	)		(22	)		(271	)		(110	)
Loans to individuals		(67	)		(80	)		(166	)		(56	)		(509	)
Total charge-off loans		(317	)		(433	)		(1,204	)		(3,834	)		(1,192	)

Net charge-offs		(32	)		(348	)		(949	)		(3,547	)		(990	)
Provision for loan losses		212			320			471			744			3,004

Balance at December 31	$	3,555		$	3,375		$	3,403		$	3,881		$	6,684

Total loans outstanding	$	193,032		$	183,015		$	176,687		$	179,345		$	178,432

Average outstanding loans during period	$	186,428		$	181,895		$	180,342		$	180,256		$	181,184

Allowance for loan losses to loans outstanding		1.84	%		1.84	%		1.93	%		2.16	%		3.74	%

Ratio of net charge-offs to average loans outstanding		0.02	%		0.19	%		0.53	%		1.97	%		0.55	%

The following table presents the allowance for loan losses by loan type and as a percentage of loans outstanding:

	December 31, 2014					December 31, 2013					December 31, 2012					December 31, 2011					December 31, 2010
(Dollars in thousands)	Amount		% of Total Loans			Amount		% of Total Loans			Amount		% of Total Loans			Amount		% of Total Loans			Amount		% of Total Loans
Construction and development	$	160		0.08	%	$	73		0.04	%	$	86		0.05	%	$	103		0.06	%	$	119		0.06	%
Residential, 1-4 family		1,302		0.42	%		618		0.34	%		669		0.38	%		837		0.47	%		1,696		0.95	%
Nonfarm, nonresidential property		798		0.55	%		753		0.41	%		802		0.45	%		866		0.48	%		1,199		0.67	%
Commercial and industrial		1,067		0.67	%		1,709		0.93	%		1,605		0.91	%		1,808		1.00	%		3,411		1.91	%
Consumer		159		0.08	%		181		0.10	%		199		0.11	%		211		0.12	%		206		0.12	%
Other		69		0.04	%		41		0.02	%		42		0.02	%		56		0.03	%		53		0.03	%
Total	$	3,555		1.84	%	$	3,375		1.84	%	$	3,403		1.93	%	$	3,881		2.16	%	$	6,684		3.74	%

Management’s Discussion and Analysis

Liquidity and Sensitivity

The principal goals of the Bank’s asset and liability management strategy are the maintenance of adequate liquidity and the management of interest rate risk. Liquidity is the ability to convert assets to cash in order to fund depositors’ withdrawals or borrowers’ loans without significant loss. Interest rate risk management balances the effects of interest rate changes on assets that earn interest or liabilities on which interest is paid, to protect the Bank from wide fluctuations in its net interest income which could result from interest rate changes.

Management must ensure that adequate funds are available at all times to meet the needs of its customers. On the asset side of the balance sheet, maturing investments, loan payments, maturing loans, federal funds sold, and unpledged investment securities are principal sources of liquidity. On the liability side of the balance sheet, liquidity sources include core deposits, the ability to increase large denomination certificates, federal fund lines from correspondent banks, borrowings from the Federal Home Loan Bank, as well as the ability to generate funds through the issuance of long-term debt and equity.

The liquidity ratio (the level of liquid assets divided by total deposits plus short-term liabilities) was 23.38% at December 31, 2014, compared to 24.14% at December 31, 2013. The liquidity ratio at December 31, 2014 is considered adequate by management.

Interest rate risk is the effect that changes in interest rates would have on interest income and interest expense as interest-sensitive assets and interest-sensitive liabilities either reprice or mature. Management attempts to maintain the portfolios of interest-earning assets and interest-bearing liabilities with maturities or repricing opportunities at levels that will afford protection from erosion of net interest margin, to the extent practical, from changes in interest rates. Table 15 shows the sensitivity of the Bank’s balance sheet as of that specific date and is not necessarily indicative of the position on other dates. At December 31, 2014, the Bank appeared to be cumulatively asset-sensitive (earning assets subject to interest rate changes exceeding interest-bearing liabilities subject to changes in interest rates). However, in the four to twelve month window, liabilities subject to change in interest rates exceed assets subject to interest rate changes (non-asset sensitive).

Matching sensitive positions alone does not ensure the Bank has no interest rate risk. The repricing characteristics of assets are different from the repricing characteristics of funding sources. Thus, net interest income can be impacted by changes in interest rates even if the repricing opportunities of assets and liabilities are perfectly matched.

Management’s Discussion and Analysis

Table 15. Interest Rate Sensitivity

	1 - 3 Months			4 - 12 Months			13 - 60 Months			Over 60 Months			Total
Earning Assets
Loans	$	40,804,415		$	22,438,350		$	88,488,583		$	41,301,010		$	193,032,358
Investments		1,341,007			510,101			2,506,699			5,998			4,363,805
Interest-bearing balances with banks		37,315,779			-			-			-			37,315,779
Federal funds sold		1,212,776			-			-			-			1,212,776
Total	$	80,673,977		$	22,948,451		$	90,995,282		$	41,307,008		$	235,924,718

Interest-bearing deposits
NOW accounts	$	30,302,622		$	-		$	-		$	-		$	30,302,622
Money market		32,841,594			-			-			-			32,841,594
Savings		10,551,502			-			-			-			10,551,502
Certificates of deposit		20,894,970			29,379,264			29,726,938			-			80,001,172
Long-term debt		-			3,500,000			2,750,000			-			6,250,000
Total	$	94,590,688		$	32,879,264		$	32,476,938		$	-		$	159,946,890

Interest sensitivity gap	$	(13,916,711	)	$	(9,930,813	)	$	58,518,344		$	41,307,008		$	-
Cumulative interest sensitivity gap	$	(13,916,711	)	$	(23,847,524	)	$	34,670,820		$	75,977,828		$	75,977,828
Ratio of sensitive assets to sensitive liabilities		85.29	%		69.80	%		280.18	%		-	%		147.50	%
Cumulative ratio of sensitive assets to sensitive liabilities		85.29	%		81.29	%		121.68	%		147.50	%		147.50	%

Table 16. Key Financial Ratios

	December 31,
	2014			2013			2012

Return on average assets		1.38	%		1.22	%		1.23	%
Return on average equity		9.65	%		8.59	%		8.86	%
Average equity to average assets		14.30	%		14.15	%		13.94	%
Dividends declared on common stock as a percent of net income available to common stockholders		23.95	%		27.50	%		24.53	%

Board of Directors and Officers

Board of Directors

Edward C. Ashby, III	Surrey Bank & Trust

Elizabeth Johnson Lovill	Town and Country Builders of Mount Airy, Inc.

Robert H. Moody	Moody Funeral Services, Inc.

Gene Rees	F. Rees Company, Inc.

Tamra W. Thomas	Retired

Tom G. Webb	Westwood Partners, LLC

Buddy Williams	Ten Oaks, LLC

Bank Officers

Robert H. Moody	Chairman

Edward C. Ashby, III	President and CEO

Peter A. Pequeno	Senior Vice President and CLO

Mark H. Towe	Senior Vice President, Treasurer and CFO

John Canosa	Vice President

Lesa Hensley	Vice President

William Johnson	Vice President

Jared Moser	Vice President

Mark Dodson	Vice President

J. Cory Tucker	Vice President

Stockholder Information

Annual Meeting

The annual meeting of stockholders will be held Friday, April 24, 2015, at 10:00 a.m. at Cross Creek Country Club, 1129 Greenhill Road, Mount Airy, North Carolina.

Requests for Information

Requests for information should be directed to Mr. Mark H. Towe, Senior Vice President and CFO, at Surrey Bank & Trust, Post Office Box 1227, Mount Airy, North Carolina, 27030; telephone (336) 783-3900. A copy of the Company’s Form 10-K for 2014 will be furnished, without charge, after March 31, 2015, upon written request, or will be available on the internet at www.surreybank.com.

Independent Auditors	Stock Transfer Agent

Elliott Davis Decosimo, PLLC	Broadridge Corporate Issuer Solutions, Inc.
Certified Public Accountants	51 Mercedes Way
700 East Morehead Street, Suite 400	Edgewood, NY 11717
Charlotte, North Carolina 28202

Federal Deposit Insurance Corporation

The Bank is a member of the FDIC. This statement has not been reviewed, or confirmed for accuracy or relevance by the Federal Deposit Insurance Corporation.

Banking Offices

145 North Renfro Street

Mount Airy, North Carolina

(336) 783-3900

1280 West Pine Street

Mount Airy, North Carolina

(336) 783-3920

940 Woodland Drive

Stuart Virginia

(276) 694-4825

Loan Production Office

2050 Rockford Street

Mount Airy, North Carolina

(336) 783-3940

1328 North Bridge Street

Elkin, North Carolina

(336) 526-1803

653 South Key Street

Pilot Mountain, North Carolina

(336) 368-1122

Mortgage Lending Office

199 North Renfro Street

Mount Airy, North Carolina

(336) 783-3933

Freedom Finance, LLC

165 North Renfro Street

Mount Airy, North Carolina

(336) 783-3980

SB & T Insurance

199 North Renfro Street

Mount Airy, North Carolina

(336) 783-3939

Surrey Investment Services, Inc.

145 North Renfro Street

Mount Airy, North Carolina

(336) 783-3938

SURREY BANCORP - FORM 10-K - EX-13.1 - EXHIBIT 13.1 - March 27, 2015

Attached files

SURREY BANCORP Reports