Attached files

file filename
EX-32.1 - EXHIBIT 32.1 - EAGLE FINANCIAL SERVICES INCefsi-20180630exhibit321.htm
EX-31.2 - EXHIBIT 31.2 - EAGLE FINANCIAL SERVICES INCefsi-20180630exhibit312.htm
EX-31.1 - EXHIBIT 31.1 - EAGLE FINANCIAL SERVICES INCefsi-20180630exhibit311.htm



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549 
FORM 10-Q
(Mark One)
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2018
or
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from             to             
Commission File Number: 0-20146 
EAGLE FINANCIAL SERVICES, INC.
(Exact name of registrant as specified in its charter)
Virginia
 
54-1601306
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
2 East Main Street
P.O. Box 391
Berryville, Virginia
 
22611
(Address of principal executive offices)
 
(Zip Code)
(540) 955-2510
(Registrant’s telephone number, including area code) 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No  ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Date File required to be submitted pursuant to Rule 405 of Regulation S-T (232.405 of this Chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ý    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
¨
  
Accelerated filer
 
ý
 
 
 
 
Non-accelerated filer
 
¨
(Do not check if a smaller reporting company.)
Smaller reporting company
 
¨
 
 
 
 
Emerging growth company
 
¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 
¨


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

The number of shares of the registrant’s Common Stock ($2.50 par value) outstanding as of August 1, 2018 was 3,473,555.




TABLE OF CONTENTS
 
 
 
 
PART I - FINANCIAL INFORMATION
 
 
 
 
Item 1.
Financial Statements:
 
 
Consolidated Balance Sheets at June 30, 2018 and December 31, 2017
 
Consolidated Statements of Income for the Three and Six Months Ended June 30, 2018 and 2017
 
Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2018 and 2017
 
Consolidated Statements of Changes in Shareholders’ Equity for the Six Months Ended June 30, 2018 and 2017
 
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2018 and 2017
 
Notes to Consolidated Financial Statements
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
Item 4.
Controls and Procedures
 
 
PART II - OTHER INFORMATION
 
 
 
 
Item 1.
Legal Proceedings
Item 1A.
Risk Factors
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
Item 3.
Defaults Upon Senior Securities
Item 4.
Mine Safety Disclosures
Item 5.
Other Information
Item 6.
Exhibits




PART I - FINANCIAL INFORMATION
 
Item 1.        Financial Statements

EAGLE FINANCIAL SERVICES, INC.
Consolidated Balance Sheets
(dollars in thousands, except per share amounts)
 
 
June 30,
2018
 
December 31,
2017
 
(Unaudited)
 
 
Assets
 
 
 
Cash and due from banks
$
9,924

 
$
10,578

Interest-bearing deposits with other institutions
4,899

 
22,094

Federal funds sold
88

 
3,176

Total cash and cash equivalents
14,911

 
35,848

Securities available for sale, at fair value
138,325

 
132,566

Restricted investments
1,166

 
1,107

Loans
586,838

 
568,817

Allowance for loan losses
(4,548
)
 
(4,411
)
Net Loans
582,290

 
564,406

Bank premises and equipment, net
19,452

 
19,579

Other real estate owned, net of allowance
3,020

 
106

Other assets
16,027

 
12,139

Total assets
$
775,191

 
$
765,751

Liabilities and Shareholders’ Equity
 
 
 
Liabilities
 
 
 
Deposits:
 
 
 
Noninterest bearing demand deposits
$
246,141

 
$
234,990

Savings and interest bearing demand deposits
328,563

 
322,948

Time deposits
107,403

 
105,476

Total deposits
$
682,107

 
$
663,414

Other liabilities
8,285

 
18,520

Total liabilities
$
690,392

 
$
681,934

 
 
 
 
Commitments and contingencies
 
 
 
 
 
 
 
Shareholders’ Equity
 
 
 
Preferred stock, $10 par value; 500,000 shares authorized and unissued
$

 
$

Common stock, $2.50 par value; authorized 10,000,000 shares; issued and outstanding 2018, 3,473,555 including 22,201 shares of unvested restricted stock; issued and outstanding 2017, 3,449,027 including 14,401 shares of unvested restricted stock
8,628

 
8,587

Surplus
12,491

 
12,075

Retained earnings
66,313

 
62,845

Accumulated other comprehensive (loss) income
(2,633
)
 
310

Total shareholders’ equity
$
84,799

 
$
83,817

Total liabilities and shareholders’ equity
$
775,191

 
$
765,751

See Notes to Consolidated Financial Statements

1



EAGLE FINANCIAL SERVICES, INC.
Consolidated Statements of Income (Unaudited)
(dollars in thousands, except per share amounts)
 
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2018
 
2017
 
2018
 
2017
Interest and Dividend Income
 
 
 
 
 
 
 
Interest and fees on loans
$
7,000

 
$
6,108

 
$
13,541

 
$
11,844

Interest and dividends on securities available for sale:

 
 
 
 
 
 
Taxable interest income
669

 
591

 
1,274

 
1,141

Interest income exempt from federal income taxes
268

 
270

 
530

 
524

Dividends
14

 
19

 
27

 
24

Interest on deposits with other institutions
41

 
16

 
95

 
37

Interest on federal funds sold
2

 

 
2

 

Total interest and dividend income
$
7,994

 
$
7,004

 
$
15,469

 
$
13,570

Interest Expense
 
 
 
 
 
 
 
Interest on deposits
563

 
218

 
$
989

 
$
421

Interest on federal funds purchased
10

 
13

 
10

 
13

Interest on Federal Home Loan Bank advances

 
18

 

 
18

Total interest expense
$
573

 
$
249

 
$
999

 
$
452

Net interest income
$
7,421

 
$
6,755

 
$
14,470

 
$
13,118

(Recovery of) Provision for Loan Losses
(97
)
 
(230
)
 
108

 
(757
)
Net interest income after (recovery of) provision for loan losses
$
7,518

 
$
6,985

 
$
14,362

 
$
13,875

Noninterest Income
 
 
 
 
 
 
 
Income from fiduciary activities
$
299

 
$
309

 
$
743

 
$
601

Service charges on deposit accounts
302

 
295

 
610

 
594

Other service charges and fees
1,048

 
957

 
2,009

 
1,910

Gain on sale of securities

 
1

 
11

 
51

Loss on disposal of bank premises and equipment

 
(5
)
 
(3
)
 
(11
)
Other operating income
16

 
41

 
96

 
126

Total noninterest income
$
1,665

 
$
1,598

 
$
3,466

 
$
3,271

Noninterest Expenses

 
 
 
 
 
 
Salaries and employee benefits
$
3,406

 
$
3,364

 
$
6,932

 
$
6,714

Occupancy expenses
363

 
367

 
734

 
744

Equipment expenses
234

 
259

 
453

 
498

Advertising and marketing expenses
201

 
175

 
386

 
353

Stationery and supplies
47

 
47

 
103

 
88

ATM network fees
246

 
183

 
452

 
403

Other real estate owned expense
7

 
10

 
137

 
11

Loss (gain) on other real estate owned
282

 

 
(115
)
 
(1
)
FDIC assessment
55

 
55

 
113

 
107

Computer software expense
112

 
159

 
251

 
355

Bank franchise tax
145

 
134

 
279

 
259

Professional fees
283

 
267

 
558

 
558

Data processing fees
118

 
139

 
243

 
256

Other operating expenses
667

 
588

 
1,270

 
1,113

Total noninterest expenses
$
6,166

 
$
5,747

 
$
11,796

 
$
11,458

Income before income taxes
$
3,017

 
$
2,836

 
$
6,032

 
$
5,688

Income Tax Expense
496

 
809

 
972

 
1,619

Net income
$
2,521

 
$
2,027

 
$
5,060

 
$
4,069

Earnings Per Share
 
 
 
 
 
 
 
Net income per common share, basic
$
0.73

 
$
0.58

 
$
1.46

 
$
1.17

Net income per common share, diluted
$
0.73

 
$
0.58

 
$
1.46

 
$
1.17

See Notes to Consolidated Financial Statements

2



EAGLE FINANCIAL SERVICES, INC.
Consolidated Statements of Comprehensive Income
(Unaudited)
(dollars in thousands)
 
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2018
 
2017
 
2018
 
2017
Net income
$
2,521

 
$
2,027

 
$
5,060

 
$
4,069

Other comprehensive (loss) income:
 
 
 
 
 
 
 
Unrealized (loss) gain on available for sale securities net of reclassification adjustments, and net of deferred income tax of ($93) and $595 for the three months ended, respectively and ($782) and $558 for the six months ended, respectively
(350
)
 
1,154

 
(2,943
)
 
1,083

Total other comprehensive (loss) income
(350
)
 
1,154

 
(2,943
)
 
1,083

Total comprehensive income
$
2,171

 
$
3,181

 
$
2,117

 
$
5,152

See Notes to Consolidated Financial Statements

3



EAGLE FINANCIAL SERVICES, INC.
Consolidated Statements of Changes in Shareholders’ Equity (Unaudited)
(dollars in thousands, except per share amounts)
 
 
Common
Stock
 
Surplus
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Total
Balance, December 31, 2016
$
8,633

 
$
12,642

 
$
58,165

 
$
(24
)
 
$
79,416

Net income
 
 
 
 
4,069

 
 
 
4,069

Other comprehensive income
 
 
 
 
 
 
1,083

 
1,083

Vesting of restricted stock awards, stock incentive plan (9,493 shares)
24

 
(24
)
 
 
 
 
 

Stock-based compensation expense
 
 
138

 
 
 
 
 
138

Issuance of common stock, dividend investment plan (8,887 shares)
22

 
232

 
 
 
 
 
254

Issuance of common stock, employee benefit plan (4,874 shares)
12

 
124

 
 
 
 
 
136

Repurchase and retirement of common stock (14,051 shares)
(35
)
 
(364
)
 
 
 
 
 
(399
)
Dividends declared ($0.44 per share)
 
 
 
 
(1,529
)
 
 
 
(1,529
)
Balance, June 30, 2017
$
8,656

 
$
12,748

 
$
60,705

 
$
1,059

 
$
83,168

 
 
 
 
 
 
 
 
 
 
Balance, December 31, 2017
$
8,587

 
$
12,075

 
$
62,845

 
$
310

 
83,817

Net income
 
 
 
 
5,060

 
 
 
5,060

Other comprehensive (loss)
 
 
 
 
 
 
(2,943
)
 
(2,943
)
Vesting of restricted stock awards, stock incentive plan (9,109 shares)
23

 
(23
)
 
 
 
 
 

Stock-based compensation expense
 
 
195

 
 
 
 
 
195

Issuance of common stock, dividend investment plan (8,852 shares)
22

 
262

 
 
 
 
 
284

Issuance of common stock, employee benefit plan (3,767 shares)
9

 
126

 
 
 
 
 
135

Repurchase and retirement of common stock (5,000 shares)
(13
)
 
(144
)
 
 
 
 
 
(157
)
Dividends declared ($0.46 per share)
 
 
 
 
(1,592
)
 
 
 
(1,592
)
Balance, June 30, 2018
$
8,628

 
$
12,491

 
$
66,313

 
$
(2,633
)
 
$
84,799

See Notes to Consolidated Financial Statements

4



EAGLE FINANCIAL SERVICES, INC.
Consolidated Statements of Cash Flows (Unaudited)
(dollars in thousands)
 
 
Six Months Ended
 
June 30,
 
2018
 
2017
Cash Flows from Operating Activities
 
 
 
Net income
$
5,060

 
$
4,069

Adjustments to reconcile net income to net cash (used in) operating activities:
 
 
 
Depreciation
468

 
474

Amortization of intangible and other assets
90

 
106

Provision for (recovery of) loan losses
108

 
(757
)
(Gain) on other real estate owned
(115
)
 
(1
)
Loss on the sale and disposal of premises and equipment
3

 
11

Loss on the sale of repossessed assets

 
6

(Gain) on the sale of securities
(11
)
 
(51
)
Stock-based compensation expense
195

 
138

Premium amortization on securities, net
273

 
246

Changes in assets and liabilities:
 
 
 
(Increase) in other assets
(3,196
)
 
(2,419
)
(Decrease) in other liabilities
(10,235
)
 
(7,985
)
Net cash (used in) operating activities
$
(7,360
)
 
$
(6,163
)
Cash Flows from Investing Activities
 
 
 
Proceeds from maturities, calls, and principal payments of securities available for sale
$
8,655

 
$
4,781

Proceeds from the sale of securities available for sale
3,464

 
4,925

Purchases of securities available for sale
(21,865
)
 
(20,653
)
Purchases of restricted investments
(59
)
 
(889
)
Purchases of bank premises and equipment
(344
)
 
(227
)
Proceeds from the sale of other real estate owned

 
318

Proceeds from the sale of repossessed assets

 
3

Net (increase) in loans
(20,791
)
 
(36,635
)
Net cash (used in) investing activities
$
(30,940
)
 
$
(48,377
)
Cash Flows from Financing Activities
 
 
 
Net increase in noninterest bearing demand deposits, savings, and interest bearing demand deposits
$
16,766

 
$
15,312

Net increase in time deposits
1,927

 
12,821

Net increase in Federal Home Loan Bank advances

 
20,000

Issuance of common stock, employee benefit plan
135

 
136

Repurchase and retirement of common stock
(157
)
 
(399
)
Cash dividends paid
(1,308
)
 
(1,275
)
Net cash provided by financing activities
$
17,363

 
$
46,595



5



EAGLE FINANCIAL SERVICES, INC.
Consolidated Statements of Cash Flows (Unaudited)
(dollars in thousands)
(continued)
 
 
Six Months Ended
 
June 30,
 
2018
 
2017
(Decrease) in cash and cash equivalents
$
(20,937
)
 
$
(7,945
)
Cash and Cash Equivalents
 
 
 
Beginning
35,848

 
35,281

Ending
$
14,911

 
$
27,336

Supplemental Disclosures of Cash Flow Information
 
 
 
Cash payments for:
 
 
 
Interest
$
963

 
$
452

Income taxes
$
1,136

 
$
598

Supplemental Schedule of Noncash Investing and Financing Activities:
 
 
 
Unrealized (loss) gain on securities available for sale
$
(3,725
)
 
$
1,641

Other real estate and repossessed assets acquired in settlement of loans
$
2,799

 
$
57

Issuance of common stock, dividend investment plan
$
284

 
$
254

See Notes to Consolidated Financial Statements


6



EAGLE FINANCIAL SERVICES, INC.
Notes to Consolidated Financial Statements (Unaudited)
June 30, 2018
NOTE 1. General

The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America.

In the opinion of management, the accompanying financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial position at June 30, 2018 and December 31, 2017, the results of operations for the three and six months ended June 30, 2018 and 2017, and cash flows for the six months ended June 30, 2018 and 2017. The results of operations for the three and six months ended June 30, 2018 are not necessarily indicative of the results to be expected for the full year. These financial statements should be read in conjunction with the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017 (the “2017 Form 10-K”).

Eagle Financial Services, Inc. (the "Company") owns 100% of Bank of Clarke County (the “Bank”). The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary. All significant intercompany accounts and transactions between the Company and the Bank have been eliminated.

Certain amounts in the consolidated financial statements have been reclassified to conform to current year presentations. None of the reclassifications were of a material nature and they had no effect on prior year net income or shareholders' equity.

On January 1, 2018, the Company adopted ASU No. 2014-09, "Revenue from Contracts with Customers: Topic 606." This ASU revised guidance for the recognition, measurement, and disclosure of revenue from contracts with customers. The original guidance was amended through subsequent accounting standard updates that resulted in technical corrections, improvements, and a one-year deferral of the effective date to January 1, 2018. The guidance, as amended, is applicable to all entities and replaces significant portions of existing industry and transaction-specific revenue recognition rules with a more principles-based recognition model. Most revenue associated with financial instruments, including interest income, loan origination fees, and credit card fees, is outside the scope of the guidance. Gains and losses on investment securities, derivatives, financial guarantees, and sales of financial instruments are similarly excluded from the scope. The guidance is applicable to noninterest revenue streams such as trust and asset management income, deposit related fees, interchange fees, and merchant income. The Company adopted this guidance via the modified retrospective approach, meaning the standard is applied only to the most current period presented in the financial statements with the cumulative effect of initially applying the standard recognized at the date of initial application.

Since the guidance does not apply to revenue associated with financial instruments, including loans and securities that are accounted for under other GAAP, the new guidance did not have a material impact on revenue most closely associated with financial instruments, including interest income and expense. The Company completed its overall assessment of revenue streams and review of related contracts potentially affected by the ASU, including trust and asset management fees, deposit related fees, interchange fees, and merchant income. The Company also completed an evaluation of certain costs related to these revenue streams to determine whether such costs should be presented gross versus net. Based on these assessments, the Company concluded that ASU 2014-09 did not materially change the method in which the Company currently recognizes revenue for these revenue streams. Since there was no net income impact upon adoption of the new guidance, a cumulative effect adjustment to opening retained earnings was not deemed necessary.

NOTE 2. Stock-Based Compensation Plan

During 2014, the Company’s shareholders approved a stock incentive plan which allows key employees and directors to increase their personal financial interest in the Company. This plan permits the issuance of incentive stock options and non-qualified stock options and the award of stock appreciation rights, common stock, restricted stock, and phantom stock. The plan authorizes the issuance of up to 500,000 shares of common stock.


7



The Company periodically grants Restricted Stock to its directors, executive officers and certain non-executive officers. Restricted Stock provides grantees with rights to shares of common stock upon completion of a service period or achievement of Company performance measures. During the restriction period, all shares are considered outstanding and dividends are paid to the grantee. In general, outside directors are periodically granted restricted shares which vest over a period of less than 9 months. Beginning during 2006, executive officers were granted restricted shares which vest over a 3 year service period and restricted shares which vest based on meeting annual performance measures over a 1 year period. Beginning in 2018, certain non-executive officers also were granted restricted shares which vest over a 3 year service period. The Company recognizes compensation expense over the restricted period based on the fair value of the Company's stock on the grant date. The Company's policy is to recognize forfeitures as they occur. As of June 30, 2018, there was $363 thousand of unrecognized compensation cost related to nonvested restricted stock.

The following table presents Restricted Stock activity for the six months ended June 30, 2018 and 2017:
 
 
Six Months Ended
 
June 30,
 
2018
 
2017
 
Shares
 
Weighted
Average
Grant Date
Fair Value
 
Shares
 
Weighted
Average
Grant Date
Fair Value
Nonvested, beginning of period
14,401

 
$
24.68

 
14,901

 
$
23.05

Granted
16,950

 
32.84

 
14,650

 
27.46

Vested
(9,109
)
 
24.63

 
(9,493
)
 
23.08

Forfeited
(41
)
 
25.50

 
(657
)
 
23.00

Nonvested, end of period
22,201

 
30.93

 
19,401

 
26.37



NOTE 3. Earnings Per Common Share

Basic earnings per share represents income available to common shareholders divided by the weighted average number of common shares outstanding during the period. Nonvested restricted shares are included in the weighted average number of common shares used to compute basic earnings per share because of dividend participation and voting rights. Diluted earnings per share reflects additional common shares that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustment to income that would result from the assumed issuance. The number of potential common shares is determined using the treasury method.

The following table shows the weighted average number of shares used in computing earnings per share for the three and six months ended June 30, 2018 and 2017. During 2018 and 2017, there were no potentially dilutive securities outstanding.
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2018
 
2017
 
2018
 
2017
Weighted average number of common shares outstanding used to calculate basic and diluted earnings per share
3,465,601

 
3,474,628

 
3,463,621

 
3,476,159



8



NOTE 4. Securities

Amortized costs and fair values of securities available for sale at June 30, 2018 and December 31, 2017 were as follows:
 
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
(Losses)
 
Fair
Value
 
June 30, 2018
 
(in thousands)
Obligations of U.S. government corporations and agencies
$
19,346

 
$
44

 
$
(678
)
 
$
18,712

Mortgage-backed securities
75,489

 
3

 
(2,249
)
 
73,243

Obligations of states and political subdivisions
46,877

 
354

 
(861
)
 
46,370

 
$
141,712

 
$
401

 
$
(3,788
)
 
$
138,325

 
December 31, 2017
 
(in thousands)
Obligations of U.S. government corporations and agencies
$
21,565

 
$
213

 
$
(258
)
 
$
21,520

Mortgage-backed securities
61,464

 
126

 
(346
)
 
61,244

Obligations of states and political subdivisions
49,199

 
789

 
(186
)
 
49,802

 
$
132,228

 
$
1,128

 
$
(790
)
 
$
132,566


During the six months ended June 30, 2018, the Company received proceeds of $3.5 million on sales of available for sale securities for gross gains of $54 thousand and gross losses of $43 thousand. During the six months ended June 30, 2017, the Company sold $4.9 million of available for sale securities for gross gains of $51 thousand. There were no losses on the sale of available for sale securities during the six months ended June 30, 2017.
The fair value and gross unrealized losses for securities available for sale, totaled by the length of time that individual securities have been in a continuous gross unrealized loss position, at June 30, 2018 and December 31, 2017 were as follows:
 
 
Less than 12 months
 
12 months or more
 
Total
 
Fair Value
 
Gross
Unrealized
Losses
 
Fair Value
 
Gross
Unrealized
Losses
 
Fair Value
 
Gross
Unrealized
Losses
 
June 30, 2018
 
(in thousands)
Obligations of U.S. government corporations and agencies
$
8,175

 
$
253

 
$
7,485

 
$
425

 
$
15,660

 
$
678

Mortgage-backed securities
56,713

 
1,443

 
16,125

 
806

 
72,838

 
2,249

Obligations of states and political subdivisions
18,606

 
581

 
4,041

 
280

 
22,647

 
861

 
$
83,494

 
$
2,277

 
$
27,651

 
$
1,511

 
$
111,145

 
$
3,788

 
December 31, 2017
 
(in thousands)
Obligations of U.S. government corporations and agencies
$
4,455

 
$
58

 
$
7,810

 
$
200

 
$
12,265

 
$
258

Mortgage-backed securities
11,885

 
59

 
17,931

 
287

 
29,816

 
346

Obligations of states and political subdivisions
4,071

 
27

 
4,692

 
159

 
8,763

 
186

 
$
20,411

 
$
144

 
$
30,433

 
$
646

 
$
50,844

 
$
790



9



Gross unrealized losses on available for sale securities included one hundred thirteen (113) and fifty-four (54) debt securities at June 30, 2018 and December 31, 2017, respectively. The Company evaluates securities for other-than-temporary impairment on at least a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to the length of time and the amount of an unrealized loss, the financial condition of the issuer, and the intent and ability of the Company to retain its investment in the issuer long enough to allow for an anticipated recovery in fair value. The fair value of a security reflects its liquidity as compared to similar instruments, current market rates on similar instruments, and the creditworthiness of the issuer. Absent any change in the liquidity of a security or the creditworthiness of the issuer, prices will decline as market rates rise and vice-versa. The primary cause of the unrealized losses at June 30, 2018 and December 31, 2017 was changes in market interest rates and not credit concerns of the issuers. Since the losses can be primarily attributed to changes in market interest rates and not expected cash flows or an issuer’s financial condition and management does not intend to sell and it is likely that management will not be required to sell the securities prior to their anticipated recovery, the unrealized losses were deemed to be temporary. The Company’s mortgage-backed securities are issued by U.S. government agencies, which guarantee payments to investors regardless of the status of the underlying mortgages. The Company monitors the financial condition of these issuers continuously and will record other-than-temporary impairment if the recovery of value is unlikely.

The Company’s securities are exposed to various risks, such as interest rate, market, currency and credit risks. Due to the level of risk associated with certain securities and the level of uncertainty related to changes in the value of securities, it is at least reasonably possible that changes in risks in the near term would materially affect securities reported in the financial statements.

Securities having a carrying value of $2.9 million at June 30, 2018 were pledged for various purposes required by law.

The composition of restricted investments at June 30, 2018 and December 31, 2017 was as follows:
 
 
June 30, 2018
 
December 31, 2017
 
(in thousands)
Federal Reserve Bank Stock
$
344

 
$
344

Federal Home Loan Bank Stock
682

 
623

Community Bankers’ Bank Stock
140

 
140

 
$
1,166

 
$
1,107




10



NOTE 5. Loans and Allowance for Loan Losses

The composition of loans at June 30, 2018 and December 31, 2017 was as follows:
 
 
June 30,
 
December 31,
 
 
2018
 
2017
 
 
(in thousands)
Mortgage loans on real estate:
 
 
 
 
Construction and land development
 
$
52,101

 
$
43,786

Secured by farmland
 
6,769

 
8,568

Secured by 1-4 family residential properties
 
221,581

 
223,210

Multifamily
 
4,100

 
4,095

Commercial
 
244,253

 
239,915

Commercial and industrial loans
 
39,875

 
37,427

Consumer installment loans
 
9,484

 
10,187

All other loans
 
9,119

 
2,050

Total loans
 
$
587,282

 
$
569,238

Net deferred loan fees
 
(444
)
 
(421
)
Allowance for loan losses
 
(4,548
)
 
(4,411
)
Net Loans
 
$
582,290

 
$
564,406

 
 
 
 
 

Changes in the allowance for loan losses for the six months ended June 30, 2018 and 2017 and the year ended December 31, 2017 were as follows:
 
 
Six Months Ended
 
Year Ended
 
Six Months Ended
 
June 30,
 
December 31,
 
June 30,
 
2018
 
2017
 
2017
 
 
 
(in thousands)
 
 
Balance, beginning
$
4,411

 
$
4,505

 
$
4,505

Provision for (recovery of) loan losses
108

 
(625
)
 
(757
)
Recoveries added to the allowance
197

 
901

 
799

Loan losses charged to the allowance
(168
)
 
(370
)
 
(140
)
Balance, ending
$
4,548

 
$
4,411

 
$
4,407



11



Nonaccrual and past due loans by class at June 30, 2018 and December 31, 2017 were as follows:
 
 
June 30, 2018
 
(in thousands)
 
30 - 59
Days
Past Due
 
60 - 89
Days
Past Due
 
90 or More
Days
Past Due
 
Total Past
Due
 
Current
 
Total Loans
 
90 or More
Days Past 
Due Still Accruing
 
Nonaccrual
Loans
Commercial - Non Real Estate:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial & Industrial
$

 
$
10

 
$

 
$
10

 
$
39,865

 
$
39,875

 
$

 
$
148

Commercial Real Estate:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Owner Occupied
210

 

 

 
210

 
135,186

 
135,396

 

 

Non-owner occupied
674

 

 

 
674

 
108,183

 
108,857

 

 
383

Construction and Farmland:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential

 

 

 

 
7,601

 
7,601

 

 

Commercial

 
12

 

 
12

 
51,257

 
51,269

 

 

Consumer:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Installment
17

 

 

 
17

 
9,467

 
9,484

 

 
1

Residential:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity Lines

 

 

 

 
31,126

 
31,126

 

 
89

Single family
334

 
69

 
152

 
555

 
189,900

 
190,455

 

 
478

Multifamily

 

 

 

 
4,100

 
4,100

 

 

All Other Loans

 

 

 

 
9,119

 
9,119

 

 

Total
$
1,235

 
$
91

 
$
152

 
$
1,478

 
$
585,804

 
$
587,282

 
$

 
$
1,099

 
 
December 31, 2017
 
(in thousands)
 
30 - 59
Days
Past Due
 
60 - 89
Days
Past Due
 
90 or More
Days
Past Due
 
Total Past
Due
 
Current
 
Total Loans
 
90 or More
Past Due 
Still
Accruing
 
Nonaccrual
Loans
Commercial - Non Real Estate:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial & Industrial
$
75

 
$
10

 
$
142

 
$
227

 
$
37,200

 
$
37,427

 
$

 
$
594

Commercial Real Estate:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Owner Occupied

 

 

 

 
127,018

 
127,018

 

 

Non-owner occupied

 
368

 

 
368

 
112,529

 
112,897

 

 
767

Construction and Farmland:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential

 

 

 

 
3,214

 
3,214

 

 

Commercial
187

 

 

 
187

 
48,953

 
49,140

 

 

Consumer:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Installment
17

 

 
2

 
19

 
10,168

 
10,187

 

 
13

Residential:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity Lines
18

 

 

 
18

 
32,820

 
32,838

 

 
44

Single family
829

 
572

 
4,060

 
5,461

 
184,911

 
190,372

 

 
4,921

Multifamily

 

 

 

 
4,095

 
4,095

 

 

All Other Loans

 

 

 

 
2,050

 
2,050

 

 

Total
$
1,126

 
$
950

 
$
4,204

 
$
6,280

 
$
562,958

 
$
569,238

 
$

 
$
6,339



12



Allowance for loan losses by segment at June 30, 2018 and December 31, 2017 were as follows:
 
 
As of and For the Six Months Ended
 
June 30, 2018
 
(in thousands)
 
Construction
and Farmland
 
Residential
 
Commercial
Real Estate
 
Commercial - Non Real Estate
 
Consumer
 
All Other
Loans
 
Unallocated
 
Total
Allowance for credit losses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning Balance
$
332

 
$
1,754

 
$
1,627

 
$
570

 
$
69

 
$
29

 
$
30

 
$
4,411

Charge-Offs

 

 

 
(122
)
 
(24
)
 
(22
)
 

 
(168
)
Recoveries
20

 
15

 
73

 
72

 
11

 
6

 

 
197

(Recovery of) provision for loan losses
29

 
(79
)
 
(43
)
 
(149
)
 
1

 
91

 
258

 
108

Ending balance
$
381

 
$
1,690

 
$
1,657

 
$
371

 
$
57

 
$
104

 
$
288

 
$
4,548

Ending balance: Individually evaluated for impairment
$

 
$
162

 
$
57

 
$

 
$

 
$

 
$

 
$
219

Ending balance: collectively evaluated for impairment
$
381

 
$
1,528

 
$
1,600

 
$
371

 
$
57

 
$
104

 
$
288

 
$
4,329

Loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ending balance
$
58,870

 
$
225,681

 
$
244,253

 
$
39,875

 
$
9,484

 
$
9,119

 
$

 
$
587,282

Ending balance individually evaluated for impairment
$
298

 
$
3,767

 
$
1,505

 
$
383

 
$
1

 
$

 
$

 
$
5,954

Ending balance collectively evaluated for impairment
$
58,572

 
$
221,914

 
$
242,748

 
$
39,492

 
$
9,483

 
$
9,119

 
$

 
$
581,328

 
 
As of and for the Twelve Months Ended
 
December 31, 2017
 
(in thousands)
 
Construction
and Farmland
 
Residential
 
Commercial
Real Estate
 
Commercial - Non Real Estate
 
Consumer
 
All Other
Loans
 
Unallocated
 
Total
Allowance for credit losses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning Balance
$
450

 
$
1,992

 
$
1,522

 
$
235

 
$
69

 
$
22

 
$
215

 
$
4,505

Charge-Offs
(19
)
 
(55
)
 
(1
)
 
(187
)
 
(59
)
 
(49
)
 

 
(370
)
Recoveries
535

 
212

 
65

 
44

 
40

 
5

 

 
901

(Recovery of) provision for loan losses
(634
)
 
(395
)
 
41

 
478

 
19

 
51

 
(185
)
 
(625
)
Ending balance
$
332

 
$
1,754

 
$
1,627

 
$
570

 
$
69

 
$
29

 
$
30

 
$
4,411

Ending balance: Individually evaluated for impairment
$

 
$
195

 
$
59

 
$
195

 
$
9

 
$

 
$

 
$
458

Ending balance: collectively evaluated for impairment
$
332

 
$
1,559

 
$
1,568

 
$
375

 
$
60

 
$
29

 
$
30

 
$
3,953

Loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ending balance
$
52,354

 
$
227,305

 
$
239,915

 
$
37,427

 
$
10,187

 
$
2,050

 
$

 
$
569,238

Ending balance individually evaluated for impairment
$
315

 
$
8,315

 
$
1,904

 
$
858

 
$
34

 
$

 
$

 
$
11,426

Ending balance collectively evaluated for impairment
$
52,039

 
$
218,990

 
$
238,011

 
$
36,569

 
$
10,153

 
$
2,050

 
$

 
$
557,812



13



Impaired loans by class as of and for the periods ended June 30, 2018 and December 31, 2017 were as follows:
 
 
As of and for the Six Months Ended
 
June 30, 2018
 
(in thousands)
 
Unpaid
Principal
Balance
 
Recorded
Investment (1)
 
Related
Allowance
 
Average
Recorded
Investment
 
Interest
Income
Recognized
With no related allowance:
 
 
 
 
 
 
 
 
 
Commercial - Non Real Estate:
 
 
 
 
 
 
 
 
 
Commercial & Industrial
$
604

 
$
384

 
$

 
$
601

 
$
13

Commercial Real Estate:
 
 
 
 
 
 
 
 
 
Owner Occupied

 

 

 

 

Non-owner occupied
430

 
383

 

 
426

 

Construction and Farmland:
 
 
 
 
 
 
 
 
 
Residential

 

 

 

 

Commercial
347

 
298

 

 
347

 
14

Consumer:
 
 
 
 
 
 
 
 
 
Installment
1

 
1

 

 
2

 

Residential:
 
 
 
 
 
 
 
 
 
Equity lines
234

 
48

 

 
48

 

Single family
3,031

 
2,814

 

 
2,913

 
56

Multifamily

 

 

 

 

Other Loans

 

 

 

 

 
$
4,647

 
$
3,928

 
$

 
$
4,337

 
$
83

With an allowance recorded:
 
 
 
 
 
 
 
 
 
Commercial - Non Real Estate:
 
 
 
 
 
 
 
 
 
Commercial & Industrial
$

 
$

 
$

 
$

 
$

Commercial Real Estate:
 
 
 
 
 
 
 
 
 
Owner Occupied

 

 

 

 

Non-owner occupied
797

 
799

 
57

 
804

 
18

Construction and Farmland:
 
 
 
 
 
 
 
 
 
Residential

 

 

 

 

Commercial

 

 

 

 

Consumer:
 
 
 
 
 
 
 
 
 
       Installment

 

 

 

 

Residential:
 
 
 
 
 
 
 
 
 
Equity lines
217

 
41

 
41

 
41