NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - BASIS OF PRESENTATION
The organization and business of Four Oaks Fincorp, Inc., a bank holding company incorporated under the laws of the State of North Carolina (the "Company"), accounting policies followed by the Company, and other information are contained in the notes to the consolidated financial statements filed as part of the Company’s Annual Report on Form 10-K for the year ended
December 31, 2015
. This Quarterly Report should be read in conjunction with such Annual Report.
The accompanying unaudited consolidated financial statements are prepared in accordance with instructions for Form 10-Q and the applicable rules and regulations of the Securities and Exchange Commission. In management’s opinion, the financial information contained in the accompanying unaudited consolidated financial statements reflects all adjustments (consisting solely of normal recurring adjustments) necessary for a fair presentation of the financial information as of and for the
six months ended
June 30, 2016
and
2015
, in conformity with accounting principles generally accepted in the United States of America. The consolidated financial statements include the accounts and transactions of the Company, and its wholly-owned subsidiary, Four Oaks Bank & Trust Company (the "Bank"). Operating results for the
six months ended
June 30, 2016
are not necessarily indicative of the results that may be expected for the fiscal year ending
December 31, 2016
.
Certain amounts previously presented in the Company's Consolidated Financial Statements for the prior periods have been reclassified to conform to current classifications. All such reclassifications had no impact on the prior periods' Statements of Operations, Comprehensive Income, or Shareholders' Equity as previously reported.
Recent Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update ("ASU") No. 2016-13,
Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
. This update replaces the incurred loss impairment methodology with one that reflects current expected credit losses (CECL) and requires consideration of a broader range of reasonable and supportable forecasted information to inform credit loss estimates. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The Company is currently evaluating the impact the adoption of this ASU will have on its consolidated financial statements.
In March 2016, the FASB issued ASU No. 2016-09,
Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting
. This update amends several aspects of the accounting for share-based payment transactions, including income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. ASU 2016-09 is effective for annual and interim reporting periods beginning after December 15, 2016. The Company is currently evaluating the impact of adoption of the new standard on its consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02,
Leases (Topic 842)
, which will require lessees to be recorded as an asset on the balance sheet for the right to use the leased asset and a liability for the corresponding lease obligation for leases with terms of more than 12 months. The accounting treatment for lessors will remain relatively unchanged. The ASU also requires additional qualitative and quantitative disclosures related to the nature, timing and uncertainty of cash flows arising from leases. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact the adoption of this ASU will have on its consolidated financial statements.
In January 2016, the FASB issued ASU No. 2016-01,
Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities
, which revises the accounting treatment related to classification and measurement of investments in equity securities and the presentation of certain fair value changes for financial liabilities measured at fair value. Upon adoption, investments in equity securities, except those accounted for under the equity method or that result in the consolidation of the investee, will be measured at fair value with changes in fair value recognized in net income. Equity investments that do not have a readily determinable fair value may be measured at cost minus impairment, plus or minus changes from observable price changes in an orderly transaction. ASU 2016-01 is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption of certain provisions is permitted. The Company does not believe the adoption of this ASU will have a material impact on the Company's consolidated financial statements.
In April 2015, the FASB issued ASU No. 2015-03,
Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs.
This update requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The existing recognition and measurement guidance for debt issuance costs are not affected by this update. ASU 2015-03 is effective for annual and interim reporting periods beginning after December 15, 2015. We adopted ASU No. 2015-03 and there was no impact to the Company’s consolidated financial statements.
In May 2014, the FASB issued ASU No. 2014-09,
Revenue from Contracts with Customers (Topic 606),
which supersedes the revenue recognition requirements of Accounting Standards Codification (“ASC”) Topic 605,
Revenue Recognition
, and most industry-specific guidance on revenue recognition throughout the ASC. The new standard is principles based and provides a five step model to determine when and how revenue is recognized. The core principle of the new standard is that revenue should be recognized when a company transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The new standard also requires disclosure of qualitative and quantitative information surrounding the amount, nature, timing and uncertainty of revenues and cash flows arising from contracts with customers. On August 12, 2015, the FASB issued ASU No. 2015-14,
Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date,
which defers the effective date of the new revenue recognition standard by one year. Based on ASU 2015-14, public organizations would apply the new revenue standard to annual reporting periods beginning after December 15, 2017. Early adoption is permitted, but not before the original effective date (i.e., interim and annual reporting periods beginning after December 15, 2016). The Company continues to evaluate the impact of adopting the new standard on its consolidated financial statements.
Other accounting standards that have been issued 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 and cash flows.
From time to time the FASB issues exposure drafts for proposed statements of financial accounting standards. Such exposure drafts are subject to comment from the public, to revisions by the FASB and to final issuance by the FASB as statements of financial accounting standards. Management considers the effect of the proposed statements on the consolidated financial statements of the Company and monitors the status of changes to and proposed effective dates of exposure drafts.
NOTE B - NET INCOME PER SHARE
Basic net income per share represents earnings credited to common shareholders divided by the weighted average number of common shares outstanding during the period. Diluted net income 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. Potential common shares that may be issued by the Company relate to outstanding stock options.
Basic and diluted net income per common share have been computed based upon net income as presented in the accompanying consolidated statements of operations divided by the weighted average number of common shares outstanding or assumed to be outstanding as summarized below
(amounts in thousands, except share data)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
June 30,
|
|
June 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Net income available to common shareholders
|
$
|
872
|
|
|
$
|
17,486
|
|
|
$
|
1,703
|
|
|
$
|
18,464
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares - basic
|
32,433,959
|
|
|
32,098,488
|
|
|
32,353,717
|
|
|
32,066,815
|
|
Effect of dilutive stock options
|
37,251
|
|
|
15,922
|
|
|
36,031
|
|
|
15,412
|
|
Effect of dilutive restricted stock awards
|
374,036
|
|
|
141,049
|
|
|
295,796
|
|
|
87,148
|
|
Weighted average number of common shares - dilutive
|
32,845,246
|
|
|
32,255,459
|
|
|
32,685,544
|
|
|
32,169,375
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share
|
$
|
0.03
|
|
|
$
|
0.54
|
|
|
$
|
0.05
|
|
|
$
|
0.58
|
|
Diluted earnings per common share
|
$
|
0.03
|
|
|
$
|
0.54
|
|
|
$
|
0.05
|
|
|
$
|
0.57
|
|
Anti-dilutive awards
|
12,305
|
|
|
176,857
|
|
|
12,305
|
|
|
176,857
|
|
NOTE C – INVESTMENT SECURITIES
The amortized cost, gross unrealized gains, gross unrealized losses, and fair values of securities available-for-sale and securities held-to-maturity as of
June 30, 2016
and
December 31, 2015
are as follows
(amounts in thousands)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2016
|
Securities Available-for-Sale:
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Fair
Value
|
Taxable municipal securities
|
$
|
19,852
|
|
|
$
|
1,244
|
|
|
$
|
—
|
|
|
$
|
21,096
|
|
Mortgage-backed securities
|
|
|
|
|
|
|
|
GNMA
|
12,888
|
|
|
268
|
|
|
—
|
|
|
13,156
|
|
FNMA & FHLMC
|
29,278
|
|
|
328
|
|
|
—
|
|
|
29,606
|
|
Other debt securities
|
750
|
|
|
—
|
|
|
—
|
|
|
750
|
|
Total
|
$
|
62,768
|
|
|
$
|
1,840
|
|
|
$
|
—
|
|
|
$
|
64,608
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2016
|
Securities Held-to-Maturity:
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Fair
Value
|
Taxable municipal securities
|
$
|
3,405
|
|
|
$
|
84
|
|
|
$
|
—
|
|
|
$
|
3,489
|
|
Mortgage-backed securities
|
|
|
|
|
|
|
|
GNMA
|
52,812
|
|
|
1,324
|
|
|
—
|
|
|
54,136
|
|
FNMA
|
2,245
|
|
|
64
|
|
|
—
|
|
|
2,309
|
|
Total
|
$
|
58,462
|
|
|
$
|
1,472
|
|
|
$
|
—
|
|
|
$
|
59,934
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
Securities Available-for-Sale:
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Fair
Value
|
Taxable municipal securities
|
$
|
24,789
|
|
|
$
|
225
|
|
|
$
|
447
|
|
|
$
|
24,567
|
|
Mortgage-backed securities
|
|
|
|
|
|
|
|
GNMA
|
13,512
|
|
|
68
|
|
|
50
|
|
|
13,530
|
|
FNMA & FHLMC
|
32,024
|
|
|
—
|
|
|
351
|
|
|
31,673
|
|
Other debt securities
|
500
|
|
|
—
|
|
|
—
|
|
|
500
|
|
Equity securities
|
11
|
|
|
—
|
|
|
—
|
|
|
11
|
|
Total
|
$
|
70,836
|
|
|
$
|
293
|
|
|
$
|
848
|
|
|
$
|
70,281
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
Securities Held-to-Maturity:
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Fair
Value
|
Taxable municipal securities
|
$
|
3,531
|
|
|
$
|
1
|
|
|
$
|
20
|
|
|
$
|
3,512
|
|
Mortgage-backed securities
|
|
|
|
|
|
|
|
GNMA
|
59,185
|
|
|
509
|
|
|
230
|
|
|
59,464
|
|
FNMA
|
2,638
|
|
|
19
|
|
|
—
|
|
|
2,657
|
|
Total
|
$
|
65,354
|
|
|
$
|
529
|
|
|
$
|
250
|
|
|
$
|
65,633
|
|
The following tables show gross unrealized losses and fair values of investment securities, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position at
December 31, 2015
(amounts in thousands)
. There were
no
unrealized losses on securities at June 30, 2016.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
Less Than 12 Months
|
|
12 Months or More
|
|
Total
|
Securities Available-for-Sale:
|
# Securities
|
|
Fair
value
|
|
Unrealized
losses
|
|
# Securities
|
|
Fair
value
|
|
Unrealized
losses
|
|
Fair
value
|
|
Unrealized
losses
|
Taxable municipal securities
|
20
|
|
|
$
|
16,888
|
|
|
$
|
447
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
16,888
|
|
|
$
|
447
|
|
Mortgage-backed securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GNMA
|
3
|
|
|
10,010
|
|
|
50
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
10,010
|
|
|
50
|
|
FNMA & FHLMC
|
11
|
|
|
31,673
|
|
|
351
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
31,673
|
|
|
351
|
|
Total temporarily impaired securities
|
34
|
|
|
$
|
58,571
|
|
|
$
|
848
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
58,571
|
|
|
$
|
848
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
Less Than 12 Months
|
|
12 Months or More
|
|
Total
|
Securities Held-to-Maturity:
|
# Securities
|
|
Fair
value
|
|
Unrealized
losses
|
|
# Securities
|
|
Fair
value
|
|
Unrealized
losses
|
|
Fair
value
|
|
Unrealized
losses
|
Taxable municipal securities
|
9
|
|
|
$
|
3,325
|
|
|
$
|
20
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,325
|
|
|
$
|
20
|
|
Mortgage-backed securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GNMA
|
14
|
|
|
20,784
|
|
|
116
|
|
|
3
|
|
|
5,130
|
|
|
114
|
|
|
25,914
|
|
|
230
|
|
Total temporarily impaired securities
|
23
|
|
|
$
|
24,109
|
|
|
$
|
136
|
|
|
3
|
|
|
$
|
5,130
|
|
|
$
|
114
|
|
|
$
|
29,239
|
|
|
$
|
250
|
|
Management evaluates each quarter whether unrealized losses on securities represent impairment that is other than temporary. For debt securities, the Company considers its intent to sell the securities or if it is more likely than not that the Company will be required to sell the securities. If such impairment is identified, based upon the intent to sell or the more likely than not threshold, the carrying amount of the security is reduced to fair value with a charge to earnings. Upon the result of the aforementioned review, management then reviews for potential other than temporary impairment based upon other qualitative factors. In making this evaluation, management considers changes in market rates relative to those available when the security was acquired, changes in market expectations about the timing of cash flows from securities that can be prepaid, performance of the debt security, and changes in the market's perception of the issuer's financial health and the security's credit quality. If it is determined that a debt security has incurred other than temporary impairment, then the amount of the credit related impairment is determined. If a credit loss is evident, the amount of the credit loss is charged to earnings and the non-credit related impairment is recognized through other comprehensive income.
There were
no
unrealized losses on securities at June 30, 2016 and
no
other than temporary impairment losses were recognized during the
three and six months ended
June 30, 2016
.
The amortized cost and fair value of available-for-sale and held-to-maturity securities at
June 30, 2016
by expected maturities are shown on the following table
(amounts in thousands)
. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
|
|
|
|
|
|
|
|
|
|
June 30, 2016
|
Securities Available-for-Sale:
|
Amortized Cost
|
|
Fair Value
|
Taxable municipal securities:
|
|
|
|
Due after ten years
|
$
|
19,852
|
|
|
$
|
21,096
|
|
Total taxable municipal securities
|
19,852
|
|
|
21,096
|
|
|
|
|
|
Mortgage-backed securities - GNMA/FNMA & FHLMC:
|
|
|
|
Due after ten years
|
42,166
|
|
|
42,762
|
|
Total mortgage-backed securities - GNMA/FNMA & FHLMC
|
42,166
|
|
|
42,762
|
|
|
|
|
|
Other debt securities:
|
|
|
|
Due after five years through ten years
|
750
|
|
|
750
|
|
Total other debt securities
|
750
|
|
|
750
|
|
|
|
|
|
Total available-for-sale securities
|
$
|
62,768
|
|
|
$
|
64,608
|
|
|
|
|
|
Securities Held-to-Maturity:
|
|
|
|
Taxable municipal securities:
|
|
|
|
Due within one year
|
$
|
156
|
|
|
$
|
157
|
|
Due after one year through five years
|
2,192
|
|
|
2,237
|
|
Due after five years through ten years
|
1,057
|
|
|
1,095
|
|
Total taxable municipal securities
|
3,405
|
|
|
3,489
|
|
|
|
|
|
Mortgage-backed securities - GNMA/FNMA:
|
|
|
|
Due after five years through ten years
|
7,374
|
|
|
7,627
|
|
Due after ten years
|
47,683
|
|
|
48,818
|
|
Total mortgage-backed securities - GNMA/FNMA
|
55,057
|
|
|
56,445
|
|
|
|
|
|
Total held-to-maturity securities
|
$
|
58,462
|
|
|
$
|
59,934
|
|
Securities with a carrying value of approximately
$75.6 million
and
$61.1 million
at
June 30, 2016
and
December 31, 2015
, respectively, were pledged to secure public deposits, borrowing lines, and for other purposes required or permitted by law. Sales and calls of securities available-for-sale for the
six
months ended
June 30, 2016
and
2015
of
$5.2 million
and
$3.6 million
generated net realized gains of
$266,000
and
$56,000
, respectively, and
no
gross realized losses for either period. Sales and calls of securities available-for-sale for the
three
months ended
June 30, 2016
and
2015
of
$5.2 million
and
$1.0 million
generated net realized gains of
$266,000
and
$0
, respectively, and
no
gross realized losses for either period.
NOTE D – LOANS AND ALLOWANCE FOR LOAN LOSSES
The Company has adopted comprehensive lending policies, underwriting standards and loan review procedures, which are reviewed on a regular basis. Each class of loans is subject to risks that could have an adverse impact on the credit quality of the loan portfolio. Loans are primarily made in the Company's market area in North Carolina, principally Johnston, Wake, Harnett, Duplin, Sampson, and Moore counties. There have been no significant changes to the loan class definitions outlined in the Company's Annual Report on Form 10-K for the year ended
December 31, 2015
.
The classification of loan segments as of
June 30, 2016
and
December 31, 2015
are summarized as follows
(amounts in thousands)
:
|
|
|
|
|
|
|
|
|
|
June 30, 2016
|
|
December 31, 2015
|
Commercial and industrial
|
$
|
22,796
|
|
|
$
|
23,163
|
|
Commercial construction and land development
|
45,439
|
|
|
50,510
|
|
Commercial real estate
|
236,962
|
|
|
208,737
|
|
Residential construction
|
38,458
|
|
|
36,618
|
|
Residential mortgage
|
133,822
|
|
|
128,442
|
|
Consumer
|
7,099
|
|
|
6,638
|
|
Consumer credit cards
|
2,014
|
|
|
2,240
|
|
Business credit cards
|
1,272
|
|
|
1,168
|
|
Other
|
65
|
|
|
1,257
|
|
Gross loans
|
487,927
|
|
|
458,773
|
|
Less:
|
|
|
|
|
|
Net deferred loan fees
|
(812
|
)
|
|
(460
|
)
|
Net loans before allowance
|
487,115
|
|
|
458,313
|
|
Allowance for loan losses
|
(9,069
|
)
|
|
(9,616
|
)
|
Total net loans
|
$
|
478,046
|
|
|
$
|
448,697
|
|
|
|
|
|
Loans held for sale
|
$
|
681
|
|
|
$
|
1,145
|
|
Allowance for Loan Losses and Recorded Investment in Loans
The allowance for loan losses represents management’s estimate of an amount adequate to provide for known and inherent losses in the loan portfolio in the normal course of business. Management evaluates the adequacy of this allowance on at least a quarterly basis, which includes a review of loans both specifically and collectively evaluated for impairment.
The following tables are an analysis of the allowance for loan losses by loan segment as of and for the
three and six months ended
June 30, 2016
and
2015
and as of and for the
twelve
months ended
December 31, 2015
(amounts in thousands)
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
June 30, 2016
|
|
|
|
Real Estate
|
|
|
|
|
|
|
Allowances for loan losses:
|
Commercial
and
Industrial
|
|
Commercial
Construction
and Land
Development
|
|
Commercial
Real
Estate
|
|
Residential
Construction
|
|
Residential
Mortgage
|
|
Consumer
|
|
Other
|
|
Totals
|
Balance, beginning of period
|
$
|
252
|
|
|
$
|
5,040
|
|
|
$
|
2,250
|
|
|
$
|
292
|
|
|
$
|
1,102
|
|
|
$
|
95
|
|
|
$
|
53
|
|
|
$
|
9,084
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses
|
(57
|
)
|
|
(178
|
)
|
|
242
|
|
|
(21
|
)
|
|
34
|
|
|
(26
|
)
|
|
6
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans charged-off
|
(35
|
)
|
|
(97
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(29
|
)
|
|
—
|
|
|
(161
|
)
|
Recoveries
|
22
|
|
|
51
|
|
|
—
|
|
|
—
|
|
|
11
|
|
|
61
|
|
|
1
|
|
|
146
|
|
Net (charge-offs) recoveries
|
(13
|
)
|
|
(46
|
)
|
|
—
|
|
|
—
|
|
|
11
|
|
|
32
|
|
|
1
|
|
|
(15
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
$
|
182
|
|
|
$
|
4,816
|
|
|
$
|
2,492
|
|
|
$
|
271
|
|
|
$
|
1,147
|
|
|
$
|
101
|
|
|
$
|
60
|
|
|
$
|
9,069
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
June 30, 2016
|
|
|
|
Real Estate
|
|
|
|
|
|
|
Allowances for loan losses:
|
Commercial
and
Industrial
|
|
Commercial
Construction
and Land
Development
|
|
Commercial
Real
Estate
|
|
Residential
Construction
|
|
Residential
Mortgage
|
|
Consumer
|
|
Other
|
|
Totals
|
Balance, beginning of period
|
$
|
221
|
|
|
$
|
5,470
|
|
|
$
|
2,268
|
|
|
$
|
305
|
|
|
$
|
1,191
|
|
|
$
|
113
|
|
|
$
|
48
|
|
|
$
|
9,616
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses
|
(29
|
)
|
|
(619
|
)
|
|
787
|
|
|
(55
|
)
|
|
(65
|
)
|
|
(29
|
)
|
|
10
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans charged-off
|
(59
|
)
|
|
(97
|
)
|
|
(565
|
)
|
|
—
|
|
|
—
|
|
|
(70
|
)
|
|
—
|
|
|
(791
|
)
|
Recoveries
|
49
|
|
|
62
|
|
|
2
|
|
|
21
|
|
|
21
|
|
|
87
|
|
|
2
|
|
|
244
|
|
Net (charge-offs) recoveries
|
(10
|
)
|
|
(35
|
)
|
|
(563
|
)
|
|
21
|
|
|
21
|
|
|
17
|
|
|
2
|
|
|
(547
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
$
|
182
|
|
|
$
|
4,816
|
|
|
$
|
2,492
|
|
|
$
|
271
|
|
|
$
|
1,147
|
|
|
$
|
101
|
|
|
$
|
60
|
|
|
$
|
9,069
|
|
Ending balance: individually evaluated for impairment
|
$
|
1
|
|
|
$
|
522
|
|
|
$
|
133
|
|
|
$
|
—
|
|
|
$
|
7
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
663
|
|
Ending balance: collectively evaluated for impairment
(1)
|
$
|
181
|
|
|
$
|
4,294
|
|
|
$
|
2,359
|
|
|
$
|
271
|
|
|
$
|
1,140
|
|
|
$
|
101
|
|
|
$
|
60
|
|
|
$
|
8,406
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
$
|
24,068
|
|
|
$
|
45,439
|
|
|
$
|
236,962
|
|
|
$
|
38,458
|
|
|
$
|
133,822
|
|
|
$
|
9,113
|
|
|
$
|
65
|
|
|
$
|
487,927
|
|
Ending balance: individually evaluated for impairment
|
$
|
27
|
|
|
$
|
1,132
|
|
|
$
|
1,813
|
|
|
$
|
287
|
|
|
$
|
1,517
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4,776
|
|
Ending balance: collectively evaluated for impairment
(1)
|
$
|
24,041
|
|
|
$
|
44,307
|
|
|
$
|
235,149
|
|
|
$
|
38,171
|
|
|
$
|
132,305
|
|
|
$
|
9,113
|
|
|
$
|
65
|
|
|
$
|
483,151
|
|
(1)
At
June 30, 2016
, there were
$220,000
in impaired loans collectively evaluated for impairment with
$31,000
in reserves established.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
June 30, 2015
|
|
|
|
Real Estate
|
|
|
|
|
|
|
Allowances for loan losses:
|
Commercial
and
Industrial
|
|
Commercial
Construction
and Land
Development
|
|
Commercial
Real
Estate
|
|
Residential
Construction
|
|
Residential
Mortgage
|
|
Consumer
|
|
Other
|
|
Totals
|
Balance, beginning of period
|
$
|
170
|
|
|
$
|
5,102
|
|
|
$
|
2,670
|
|
|
$
|
412
|
|
|
$
|
1,318
|
|
|
$
|
82
|
|
|
$
|
36
|
|
|
$
|
9,790
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses
|
(73
|
)
|
|
38
|
|
|
195
|
|
|
(94
|
)
|
|
(154
|
)
|
|
53
|
|
|
35
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans charged-off
|
(38
|
)
|
|
(19
|
)
|
|
(202
|
)
|
|
—
|
|
|
(17
|
)
|
|
(44
|
)
|
|
(42
|
)
|
|
(362
|
)
|
Recoveries
|
94
|
|
|
185
|
|
|
6
|
|
|
—
|
|
|
77
|
|
|
21
|
|
|
1
|
|
|
384
|
|
Net recoveries (charge-offs)
|
56
|
|
|
166
|
|
|
(196
|
)
|
|
—
|
|
|
60
|
|
|
(23
|
)
|
|
(41
|
)
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
$
|
153
|
|
|
$
|
5,306
|
|
|
$
|
2,669
|
|
|
$
|
318
|
|
|
$
|
1,224
|
|
|
$
|
112
|
|
|
$
|
30
|
|
|
$
|
9,812
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
June 30, 2015
|
|
|
|
Real Estate
|
|
|
|
|
|
|
Allowances for loan losses:
|
Commercial
and
Industrial
|
|
Commercial
Construction
and Land
Development
|
|
Commercial
Real
Estate
|
|
Residential
Construction
|
|
Residential
Mortgage
|
|
Consumer
|
|
Other
|
|
Totals
|
Balance, beginning of period
|
$
|
119
|
|
|
$
|
5,105
|
|
|
$
|
2,382
|
|
|
$
|
436
|
|
|
$
|
1,206
|
|
|
$
|
89
|
|
|
$
|
40
|
|
|
$
|
9,377
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses
|
(59
|
)
|
|
(284
|
)
|
|
303
|
|
|
(118
|
)
|
|
60
|
|
|
68
|
|
|
30
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans charged-off
|
(47
|
)
|
|
(19
|
)
|
|
(206
|
)
|
|
—
|
|
|
(165
|
)
|
|
(98
|
)
|
|
(42
|
)
|
|
(577
|
)
|
Recoveries
|
140
|
|
|
504
|
|
|
190
|
|
|
—
|
|
|
123
|
|
|
53
|
|
|
2
|
|
|
1,012
|
|
Net recoveries (charge-offs)
|
93
|
|
|
485
|
|
|
(16
|
)
|
|
—
|
|
|
(42
|
)
|
|
(45
|
)
|
|
(40
|
)
|
|
435
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
$
|
153
|
|
|
$
|
5,306
|
|
|
$
|
2,669
|
|
|
$
|
318
|
|
|
$
|
1,224
|
|
|
$
|
112
|
|
|
$
|
30
|
|
|
$
|
9,812
|
|
Ending balance: individually evaluated for impairment
|
$
|
—
|
|
|
$
|
498
|
|
|
$
|
116
|
|
|
$
|
2
|
|
|
$
|
—
|
|
|
$
|
3
|
|
|
$
|
—
|
|
|
$
|
619
|
|
Ending balance: collectively evaluated for impairment
(1)
|
$
|
153
|
|
|
$
|
4,808
|
|
|
$
|
2,553
|
|
|
$
|
316
|
|
|
$
|
1,224
|
|
|
$
|
109
|
|
|
$
|
30
|
|
|
$
|
9,193
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
$
|
27,769
|
|
|
$
|
51,388
|
|
|
$
|
204,569
|
|
|
$
|
27,962
|
|
|
$
|
134,586
|
|
|
$
|
8,604
|
|
|
$
|
431
|
|
|
$
|
455,309
|
|
Ending balance: individually evaluated for impairment
|
$
|
—
|
|
|
$
|
3,857
|
|
|
$
|
3,496
|
|
|
$
|
771
|
|
|
$
|
1,886
|
|
|
$
|
3
|
|
|
$
|
41
|
|
|
$
|
10,054
|
|
Ending balance: collectively evaluated for impairment
(1)
|
$
|
27,769
|
|
|
$
|
47,531
|
|
|
$
|
201,073
|
|
|
$
|
27,191
|
|
|
$
|
132,700
|
|
|
$
|
8,601
|
|
|
$
|
390
|
|
|
$
|
445,255
|
|
(1)
At
June 30, 2015
, there were
$304,000
impaired loans collectively evaluated for impairment with
$24,000
in reserves established.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended
|
|
December 31, 2015
|
|
|
|
Real Estate
|
|
|
|
|
|
|
Allowances for loan losses:
|
Commercial
and
Industrial
|
|
Commercial
Construction
and Land
Development
|
|
Commercial
Real
Estate
|
|
Residential
Construction
|
|
Residential
Mortgage
|
|
Consumer
|
|
Other
|
|
Totals
|
Balance, beginning of period
|
$
|
119
|
|
|
$
|
5,105
|
|
|
$
|
2,382
|
|
|
$
|
436
|
|
|
$
|
1,206
|
|
|
$
|
89
|
|
|
$
|
40
|
|
|
$
|
9,377
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses
|
(58
|
)
|
|
(615
|
)
|
|
71
|
|
|
(90
|
)
|
|
497
|
|
|
121
|
|
|
74
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans charged-off
|
(74
|
)
|
|
(196
|
)
|
|
(578
|
)
|
|
(41
|
)
|
|
(713
|
)
|
|
(210
|
)
|
|
(69
|
)
|
|
(1,881
|
)
|
Recoveries
|
234
|
|
|
1,176
|
|
|
393
|
|
|
—
|
|
|
201
|
|
|
113
|
|
|
3
|
|
|
2,120
|
|
Net recoveries (charge-offs)
|
160
|
|
|
980
|
|
|
(185
|
)
|
|
(41
|
)
|
|
(512
|
)
|
|
(97
|
)
|
|
(66
|
)
|
|
239
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
$
|
221
|
|
|
$
|
5,470
|
|
|
$
|
2,268
|
|
|
$
|
305
|
|
|
$
|
1,191
|
|
|
$
|
113
|
|
|
$
|
48
|
|
|
$
|
9,616
|
|
Ending balance: individually evaluated for impairment
|
$
|
2
|
|
|
$
|
989
|
|
|
$
|
228
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,219
|
|
Ending balance: collectively evaluated for impairment
(1)
|
$
|
219
|
|
|
$
|
4,481
|
|
|
$
|
2,040
|
|
|
$
|
305
|
|
|
$
|
1,191
|
|
|
$
|
113
|
|
|
$
|
48
|
|
|
$
|
8,397
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
$
|
24,331
|
|
|
$
|
50,510
|
|
|
$
|
208,737
|
|
|
$
|
36,618
|
|
|
$
|
128,442
|
|
|
$
|
8,878
|
|
|
$
|
1,257
|
|
|
$
|
458,773
|
|
Ending balance: individually evaluated for impairment
|
$
|
84
|
|
|
$
|
2,564
|
|
|
$
|
3,957
|
|
|
$
|
721
|
|
|
$
|
1,305
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
8,631
|
|
Ending balance: collectively evaluated for impairment
(1)
|
$
|
24,247
|
|
|
$
|
47,946
|
|
|
$
|
204,780
|
|
|
$
|
35,897
|
|
|
$
|
127,137
|
|
|
$
|
8,878
|
|
|
$
|
1,257
|
|
|
$
|
450,142
|
|
(1)
At
December 31, 2015
, there were
$295,000
in impaired loans collectively evaluated for impairment with
$42,000
in reserves established.
Credit Risk
The Company uses an internal grading system to assign the degree of inherent risk on each individual loan and monitors trends in portfolio quality. The grade is initially assigned by the lending officer or credit administration and reviewed by the loan administration function throughout the life of the loan. There have been no significant changes in credit grade definitions as outlined in the Company's Annual Report on Form 10-K for the year ended
December 31, 2015
.
The following tables are an analysis of the creditworthiness by loan class and credit card portfolio exposure as of
June 30, 2016
and
December 31, 2015
(amounts in thousands)
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2016
|
|
|
|
Real Estate
|
|
|
|
|
|
|
|
Commercial
and
Industrial
|
|
Commercial
Construction
and Land
Development
|
|
Commercial
Real
Estate
|
|
Residential
Construction
|
|
Residential
Mortgage
|
|
Consumer
|
|
Other
|
|
Totals
|
1 - Lowest Risk
|
$
|
1,178
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,462
|
|
|
$
|
—
|
|
|
$
|
2,640
|
|
2 - Strong
|
898
|
|
|
798
|
|
|
2,939
|
|
|
111
|
|
|
14,671
|
|
|
573
|
|
|
5
|
|
|
19,995
|
|
3 - Standard
|
9,673
|
|
|
11,706
|
|
|
110,502
|
|
|
9,463
|
|
|
56,509
|
|
|
1,150
|
|
|
10
|
|
|
199,013
|
|
4 - Acceptable
|
10,710
|
|
|
30,026
|
|
|
113,602
|
|
|
28,597
|
|
|
55,911
|
|
|
3,835
|
|
|
50
|
|
|
242,731
|
|
5 - Special Mention
|
310
|
|
|
1,736
|
|
|
7,551
|
|
|
—
|
|
|
5,213
|
|
|
80
|
|
|
—
|
|
|
14,890
|
|
6-8 - Substandard
|
27
|
|
|
1,173
|
|
|
2,367
|
|
|
287
|
|
|
1,518
|
|
|
—
|
|
|
—
|
|
|
5,372
|
|
|
$
|
22,796
|
|
|
$
|
45,439
|
|
|
$
|
236,961
|
|
|
$
|
38,458
|
|
|
$
|
133,822
|
|
|
$
|
7,100
|
|
|
$
|
65
|
|
|
$
|
484,641
|
|
|
|
|
|
|
|
|
|
|
|
Consumer -
Credit Card
|
|
Business-
Credit Card
|
Performing
|
$
|
1,987
|
|
|
$
|
1,260
|
|
Nonperforming
|
27
|
|
|
12
|
|
Total
|
$
|
2,014
|
|
|
$
|
1,272
|
|
|
|
|
|
Total Loans
|
|
|
$
|
487,927
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
Real Estate
|
|
|
|
|
|
|
|
Commercial
and
Industrial
|
|
Commercial
Construction
and Land
Development
|
|
Commercial
Real
Estate
|
|
Residential
Construction
|
|
Residential
Mortgage
|
|
Consumer
|
|
Other
|
|
Totals
|
1 - Lowest Risk
|
$
|
1,942
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,773
|
|
|
$
|
—
|
|
|
$
|
3,715
|
|
2 - Strong
|
971
|
|
|
749
|
|
|
2,280
|
|
|
—
|
|
|
15,187
|
|
|
386
|
|
|
7
|
|
|
19,580
|
|
3 - Standard
|
10,530
|
|
|
11,262
|
|
|
94,357
|
|
|
4,296
|
|
|
56,493
|
|
|
1,250
|
|
|
469
|
|
|
178,657
|
|
4 - Acceptable
|
9,297
|
|
|
33,832
|
|
|
103,740
|
|
|
31,431
|
|
|
50,226
|
|
|
3,170
|
|
|
757
|
|
|
232,453
|
|
5 - Special Mention
|
304
|
|
|
2,486
|
|
|
4,444
|
|
|
170
|
|
|
5,231
|
|
|
59
|
|
|
—
|
|
|
12,694
|
|
6-8 - Substandard
|
119
|
|
|
2,181
|
|
|
3,916
|
|
|
721
|
|
|
1,305
|
|
|
—
|
|
|
24
|
|
|
8,266
|
|
|
$
|
23,163
|
|
|
$
|
50,510
|
|
|
$
|
208,737
|
|
|
$
|
36,618
|
|
|
$
|
128,442
|
|
|
$
|
6,638
|
|
|
$
|
1,257
|
|
|
$
|
455,365
|
|
|
|
|
|
|
|
|
|
|
|
Consumer-
Credit Card
|
|
Business-
Credit Card
|
Performing
|
$
|
2,211
|
|
|
$
|
1,133
|
|
Non Performing
|
29
|
|
|
35
|
|
Total
|
$
|
2,240
|
|
|
$
|
1,168
|
|
|
|
|
|
Total Loans
|
|
|
$
|
458,773
|
|
Asset Quality
The following tables are an age analysis of past due loans, including those on nonaccrual by loan class, as of
June 30, 2016
and
December 31, 2015
(amounts in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2016
|
|
30-89 Days
Past Due
|
|
Nonaccrual
|
|
Greater than 90 Days Past Due
|
|
Total Past
Due
|
|
Current
|
|
Total
Loans
|
Commercial & industrial
|
$
|
20
|
|
|
$
|
27
|
|
|
$
|
—
|
|
|
$
|
47
|
|
|
$
|
22,749
|
|
|
$
|
22,796
|
|
Commercial construction & land development
|
68
|
|
|
1,173
|
|
|
—
|
|
|
1,241
|
|
|
44,198
|
|
|
45,439
|
|
Commercial real estate
|
10
|
|
|
1,332
|
|
|
—
|
|
|
1,342
|
|
|
235,620
|
|
|
236,962
|
|
Residential construction
|
—
|
|
|
287
|
|
|
—
|
|
|
287
|
|
|
38,171
|
|
|
38,458
|
|
Residential mortgage
|
215
|
|
|
1,226
|
|
|
—
|
|
|
1,441
|
|
|
132,381
|
|
|
133,822
|
|
Consumer
|
37
|
|
|
—
|
|
|
—
|
|
|
37
|
|
|
7,062
|
|
|
7,099
|
|
Consumer credit cards
|
65
|
|
|
—
|
|
|
27
|
|
|
92
|
|
|
1,922
|
|
|
2,014
|
|
Business credit cards
|
30
|
|
|
—
|
|
|
12
|
|
|
42
|
|
|
1,230
|
|
|
1,272
|
|
Other loans
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
65
|
|
|
65
|
|
Total
|
$
|
445
|
|
|
$
|
4,045
|
|
|
$
|
39
|
|
|
$
|
4,529
|
|
|
$
|
483,398
|
|
|
$
|
487,927
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
30-89 Days
Past Due
|
|
Nonaccrual
|
|
Greater than 90 Days Past Due
|
|
Total Past
Due
|
|
Current
|
|
Total
Loans
|
Commercial & industrial
|
$
|
56
|
|
|
$
|
119
|
|
|
$
|
—
|
|
|
$
|
175
|
|
|
$
|
22,988
|
|
|
$
|
23,163
|
|
Commercial construction & land development
|
211
|
|
|
1,626
|
|
|
—
|
|
|
1,837
|
|
|
48,673
|
|
|
50,510
|
|
Commercial real estate
|
—
|
|
|
2,929
|
|
|
—
|
|
|
2,929
|
|
|
205,808
|
|
|
208,737
|
|
Residential construction
|
133
|
|
|
721
|
|
|
—
|
|
|
854
|
|
|
35,764
|
|
|
36,618
|
|
Residential mortgage
|
499
|
|
|
1,203
|
|
|
—
|
|
|
1,702
|
|
|
126,740
|
|
|
128,442
|
|
Consumer
|
71
|
|
|
—
|
|
|
—
|
|
|
71
|
|
|
6,567
|
|
|
6,638
|
|
Consumer credit cards
|
95
|
|
|
—
|
|
|
29
|
|
|
124
|
|
|
2,116
|
|
|
2,240
|
|
Business credit cards
|
107
|
|
|
—
|
|
|
36
|
|
|
143
|
|
|
1,025
|
|
|
1,168
|
|
Other loans
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,257
|
|
|
1,257
|
|
Total
|
$
|
1,172
|
|
|
$
|
6,598
|
|
|
$
|
65
|
|
|
$
|
7,835
|
|
|
$
|
450,938
|
|
|
$
|
458,773
|
|
Nonperforming assets
Nonperforming assets at
June 30, 2016
and
December 31, 2015
consist of the following
(amounts in thousands)
:
|
|
|
|
|
|
|
|
|
|
June 30, 2016
|
|
December 31, 2015
|
Loans past due ninety days or more and still accruing
|
$
|
39
|
|
|
$
|
65
|
|
Nonaccrual loans
|
4,045
|
|
|
6,598
|
|
Foreclosed assets
|
2,519
|
|
|
1,760
|
|
Total nonperforming assets
|
$
|
6,603
|
|
|
$
|
8,423
|
|
Impaired Loans
The following tables illustrate the impaired loans by loan class as of
June 30, 2016
and
December 31, 2015
(amounts in thousands)
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2016
|
|
As of Date
|
|
Year to Date
|
|
Recorded
Investment
|
|
Unpaid
Principal
Balance
|
|
Related
Allowance
|
|
Average
Recorded
Investment
|
|
Interest
Income
Recognized
|
With no related allowance recorded:
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
$
|
21
|
|
|
$
|
21
|
|
|
$
|
—
|
|
|
$
|
21
|
|
|
$
|
—
|
|
Commercial construction & land development
|
483
|
|
|
1,313
|
|
|
—
|
|
|
520
|
|
|
—
|
|
Commercial real estate
|
1,517
|
|
|
1,999
|
|
|
—
|
|
|
1,534
|
|
|
20
|
|
Residential construction
|
287
|
|
|
288
|
|
|
—
|
|
|
267
|
|
|
—
|
|
Residential mortgage
|
1,472
|
|
|
1,508
|
|
|
—
|
|
|
1,494
|
|
|
12
|
|
Subtotal:
|
3,780
|
|
|
5,129
|
|
|
—
|
|
|
3,836
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
6
|
|
|
6
|
|
|
1
|
|
|
6
|
|
|
—
|
|
Commercial construction & land development
|
690
|
|
|
1,072
|
|
|
528
|
|
|
699
|
|
|
1
|
|
Commercial real estate
|
296
|
|
|
296
|
|
|
133
|
|
|
296
|
|
|
—
|
|
Residential mortgage
|
224
|
|
|
303
|
|
|
32
|
|
|
227
|
|
|
3
|
|
Subtotal:
|
1,216
|
|
|
1,677
|
|
|
694
|
|
|
1,228
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
Totals:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
3,013
|
|
|
4,707
|
|
|
662
|
|
|
3,076
|
|
|
21
|
|
Residential
|
1,983
|
|
|
2,099
|
|
|
32
|
|
|
1,988
|
|
|
15
|
|
Grand Total
|
$
|
4,996
|
|
|
$
|
6,806
|
|
|
$
|
694
|
|
|
$
|
5,064
|
|
|
$
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
As of Date
|
|
Year to Date
|
|
Recorded
Investment
|
|
Unpaid
Principal
Balance
|
|
Related
Allowance
|
|
Average
Recorded
Investment
|
|
Interest
Income
Recognized
|
With no related allowance recorded:
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
$
|
67
|
|
|
$
|
67
|
|
|
$
|
—
|
|
|
$
|
63
|
|
|
$
|
3
|
|
Commercial construction & land development
|
737
|
|
|
1,706
|
|
|
—
|
|
|
1,031
|
|
|
19
|
|
Commercial real estate
|
2,258
|
|
|
2,614
|
|
|
—
|
|
|
2,020
|
|
|
50
|
|
Residential construction
|
721
|
|
|
722
|
|
|
—
|
|
|
408
|
|
|
8
|
|
Residential mortgage
|
1,305
|
|
|
1,312
|
|
|
—
|
|
|
1,191
|
|
|
51
|
|
Subtotal:
|
5,088
|
|
|
6,421
|
|
|
—
|
|
|
4,713
|
|
|
131
|
|
|
|
|
|
|
|
|
|
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
52
|
|
|
63
|
|
|
7
|
|
|
58
|
|
|
4
|
|
Commercial construction & land development
|
1,948
|
|
|
3,020
|
|
|
1,006
|
|
|
2,086
|
|
|
122
|
|
Commercial real estate
|
1,699
|
|
|
1,699
|
|
|
228
|
|
|
1,713
|
|
|
79
|
|
Residential mortgage
|
139
|
|
|
217
|
|
|
20
|
|
|
183
|
|
|
8
|
|
Subtotal:
|
3,838
|
|
|
4,999
|
|
|
1,261
|
|
|
4,040
|
|
|
213
|
|
|
|
|
|
|
|
|
|
|
|
Totals:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
6,761
|
|
|
9,169
|
|
|
1,241
|
|
|
6,971
|
|
|
277
|
|
Residential
|
2,165
|
|
|
2,251
|
|
|
20
|
|
|
1,782
|
|
|
67
|
|
Grand Total:
|
$
|
8,926
|
|
|
$
|
11,420
|
|
|
$
|
1,261
|
|
|
$
|
8,753
|
|
|
$
|
344
|
|
Troubled Debt Restructurings
Loans are classified as a troubled debt restructuring ("TDR") when, for economic or legal reasons which result in a debtor experiencing financial difficulties, the Bank grants a concession through a modification of the original loan agreement that would not otherwise be considered. Generally concessions are granted as a result of a borrower's inability to meet the contractual repayment obligations of the initial loan terms and in the interest of improving the likelihood of recovery of the loan. We may grant these concessions by a number of means such as (1) forgiving principal or interest, (2) reducing the stated interest rate to a below market rate, (3) deferring principal payments, (4) changing repayment terms from amortizing to interest only, (5) extending the repayment period, or (6) accepting a change in terms based upon a bankruptcy plan. However, the Bank only restructures loans for borrowers that demonstrate the willingness and capacity to repay the loan under reasonable terms and where the Bank has sufficient protection provided by the cash flow of the underlying collateral or business.
The Bank's policy with respect to accrual of interest on loans restructured in a TDR process follows relevant supervisory guidance. If a borrower has demonstrated performance under the previous loan terms and shows capacity to perform under the restructured loan terms, continued accrual of interest at the restructured interest rate is considered and the loan is considered performing. If the borrower does not perform under the restructured terms, the loan is placed on nonaccrual status. If the borrower was materially delinquent on payments prior to the restructuring but shows the capacity to meet the restructured loan terms, the loan will likely continue as nonaccrual and nonperforming until such time as continued performance has been demonstrated, which is typically a period of at least
six
consecutive payments.
The following table provides a summary of loans modified as TDRs at
June 30, 2016
and
December 31, 2015
(amounts in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2016
|
|
|
Accrual
|
|
Nonaccrual
|
|
Total TDRs
|
|
Allowance for Loan Losses Allocated
|
Commercial construction and land development
|
|
$
|
—
|
|
|
$
|
393
|
|
|
$
|
393
|
|
|
$
|
—
|
|
Commercial real estate
|
|
481
|
|
|
363
|
|
|
844
|
|
|
—
|
|
Residential mortgage
|
|
219
|
|
|
—
|
|
|
219
|
|
|
—
|
|
Total modifications
|
|
$
|
700
|
|
|
$
|
756
|
|
|
$
|
1,456
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
Accrual
|
|
Nonaccrual
|
|
Total TDRs
|
|
Allowance for Loan Losses Allocated
|
Commercial construction and land development
|
|
$
|
1,059
|
|
|
$
|
557
|
|
|
$
|
1,616
|
|
|
$
|
447
|
|
Commercial real estate
|
|
1,028
|
|
|
574
|
|
|
1,602
|
|
|
20
|
|
Residential mortgage
|
|
226
|
|
|
—
|
|
|
226
|
|
|
—
|
|
Total modifications
|
|
$
|
2,313
|
|
|
$
|
1,131
|
|
|
$
|
3,444
|
|
|
$
|
467
|
|
There were
no
new TDRs made to borrowers for the
three and six months ended
June 30, 2016
and there were
no
TDR loans modified during the previous
twelve
months that had a payment default for the
three and six months ended
June 30, 2016
.
NOTE E – BORROWINGS
At
June 30, 2016
and
December 31, 2015
, borrowed funds included the following Federal Home Loan Bank ("FHLB") advances
(amounts in thousands)
:
|
|
|
|
|
|
|
|
|
|
Maturity
|
|
Interest Rate
|
|
June 30, 2016
|
August 9, 2017
|
|
0.73%
|
|
Fixed
|
|
$
|
10,000
|
|
February 5, 2018
|
|
2.06%
|
|
Fixed
|
|
10,000
|
|
May 25, 2018
|
|
1.13%
|
|
Fixed
|
|
10,000
|
|
June 5, 2018
|
|
2.25%
|
|
Fixed
|
|
5,000
|
|
June 5, 2018
|
|
2.55%
|
|
Fixed
|
|
5,000
|
|
September 18, 2018
|
|
2.71%
|
|
Fixed
|
|
10,000
|
|
April 29, 2019
|
|
2.54%
|
|
Fixed
|
|
5,000
|
|
April 29, 2019
|
|
2.62%
|
|
Fixed
|
|
5,000
|
|
April 29, 2019
|
|
2.83%
|
|
Fixed
|
|
10,000
|
|
|
|
|
|
|
|
$
|
70,000
|
|
|
|
|
|
|
|
|
|
|
|
Maturity
|
|
Interest Rate
|
|
December 31, 2015
|
February 22, 2016
|
|
0.48%
|
|
Fixed
|
|
$
|
10,000
|
|
August 14, 2017
|
|
3.94%
|
|
Fixed
|
|
5,000
|
|
February 5, 2018
|
|
2.06%
|
|
Fixed
|
|
10,000
|
|
June 5, 2018
|
|
2.25%
|
|
Fixed
|
|
5,000
|
|
June 5, 2018
|
|
2.55%
|
|
Fixed
|
|
5,000
|
|
June 5, 2018
|
|
3.03%
|
|
Fixed
|
|
5,000
|
|
September 10, 2018
|
|
3.14%
|
|
Fixed
|
|
10,000
|
|
September 18, 2018
|
|
2.71%
|
|
Fixed
|
|
10,000
|
|
|
|
|
|
|
|
$
|
60,000
|
|
FHLB advances are secured by a floating lien covering the Company's loan portfolio of qualifying mortgage loans, as well as specific bonds in the investment portfolio. At
June 30, 2016
, the Company had available lines of credit totaling
$142.3 million
with the FHLB for borrowing dependent on adequate collateralization. The weighted average rates for the above borrowings at
June 30, 2016
and
December 31, 2015
were
2.06%
and
2.38%
, respectively.
In addition to the above advances, the Company has lines of credit of
$37.0 million
from various financial institutions to purchase federal funds on a short-term basis. The Company has
no
federal funds purchases outstanding as of
June 30, 2016
.
NOTE F - COMMITMENTS AND CONTINGENCIES
Commitments
The following table presents loan commitments at
June 30, 2016
(amounts in thousands)
.
|
|
|
|
|
|
June 30, 2016
|
Commitments to extend credit
|
$
|
33,621
|
|
Undisbursed lines of credit
|
98,058
|
|
Financial stand-by letters of credit
|
439
|
|
Performance stand-by letters of credit
|
484
|
|
Legally binding commitments
|
132,602
|
|
|
|
|
Unused credit card lines
|
16,279
|
|
|
|
|
Total
|
$
|
148,881
|
|
Pledged Assets
Certain assets are pledged to secure municipal deposits, borrowings, and borrowing capacity, subject to certain limits, at the FHLB and the Federal Reserve Bank of Richmond (the "FRB"), as well as for other purposes as required or permitted by law. FHLB borrowings are secured by securities and a floating lien covering the Company's loan portfolio of qualifying residential (1-4 units) first mortgage and commercial real estate loans. The following table provides the total market value of pledged assets by asset type at
June 30, 2016
(amounts in thousands)
.
|
|
|
|
|
|
June 30, 2016
|
Securities
|
$
|
75,612
|
|
Loans
|
25,822
|
|
Litigation Proceedings
There have been no material developments in the description of material litigation proceedings as reported in Note L to the consolidated financial statements filed as part of the Company's Annual Report on Form 10-K for the year ended December 31, 2015, as updated in Note F to the consolidated financial statements filed as part of the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2016.
Additionally, the Company is party to certain legal actions in the ordinary course of its business. The Company believes these actions are routine in nature and incidental to the operation of its business. While the outcome of these actions cannot be predicted with certainty, management’s present judgment is that the ultimate resolution of these matters will not have a material adverse impact on its business, financial condition, results of operations, cash flows or prospects. If, however, the Company's assessment of these actions is inaccurate, or there are any significant adverse developments in these actions, its business, financial condition, results of operations, cash flows and prospects could be adversely affected.
NOTE G – FAIR VALUE
MEASUREMENT
Fair Value Measured on a Recurring Basis.
The Company measures certain assets at fair value on a recurring basis, as described below.
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 have historically included equity securities traded on an active exchange, such as the New York Stock Exchange. As of
June 30, 2016
, there were no Level 1 securities. Level 2 securities include taxable municipalities and mortgage-backed securities issued by government sponsored entities. The Company’s mortgage-backed securities were primarily issued by the Government National Mortgage Association ("GNMA"), the Federal National Mortgage Association ("FNMA"), and the Federal Home Loan Mortgage Corporation ("FHLMC"). As of
June 30, 2016
, all of the Company’s mortgage-backed securities were agency issued and designated as Level 2 securities. Securities classified as Level 3 include other debt securities in less liquid markets and with no quoted market price.
The following table presents information about assets measured at fair value on a recurring basis at
June 30, 2016
and
December 31, 2015
(amounts in thousands)
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at
|
|
|
|
|
|
June 30, 2016, Using
|
|
Total Carrying
Amount in the
Consolidated
Balance Sheet
|
|
Assets
Measured
at Fair Value
|
|
Quoted Prices
in Active
Markets
for Identical
Assets
|
|
Significant
Other
Observable
Inputs
|
|
Significant
Unobservable
Inputs
|
Available-for-Sale Securities:
|
6/30/2016
|
|
6/30/2016
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
Taxable municipal securities
|
$
|
21,096
|
|
|
$
|
21,096
|
|
|
$
|
—
|
|
|
$
|
21,096
|
|
|
$
|
—
|
|
Mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
GNMA
|
13,156
|
|
|
13,156
|
|
|
—
|
|
|
13,156
|
|
|
—
|
|
FNMA & FHLMC
|
29,606
|
|
|
29,606
|
|
|
—
|
|
|
29,606
|
|
|
—
|
|
Other debt securities
|
750
|
|
|
750
|
|
|
—
|
|
|
—
|
|
|
750
|
|
Total available-for-sale securities
|
$
|
64,608
|
|
|
$
|
64,608
|
|
|
$
|
—
|
|
|
$
|
63,858
|
|
|
$
|
750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at
|
|
|
|
|
|
December 31, 2015, Using
|
|
Total Carrying
Amount in the Consolidated
Balance Sheet
|
|
Assets
Measured
at Fair Value
|
|
Quoted Prices
in Active
Markets
for Identical
Assets
|
|
Significant
Other
Observable
Inputs
|
|
Significant
Unobservable
Inputs
|
Available-for-Sale Securities:
|
12/31/2015
|
|
12/31/2015
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
Taxable municipal securities
|
$
|
24,567
|
|
|
$
|
24,567
|
|
|
$
|
—
|
|
|
$
|
24,567
|
|
|
$
|
—
|
|
Mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
GNMA
|
13,530
|
|
|
13,530
|
|
|
—
|
|
|
13,530
|
|
|
—
|
|
FNMA & FHLMC
|
31,673
|
|
|
31,673
|
|
|
—
|
|
|
31,673
|
|
|
—
|
|
Other debt securities
|
500
|
|
|
500
|
|
|
—
|
|
|
—
|
|
|
500
|
|
Equity securities
|
11
|
|
|
11
|
|
|
—
|
|
|
11
|
|
|
—
|
|
Total available-for-sale securities
|
$
|
70,281
|
|
|
$
|
70,281
|
|
|
$
|
—
|
|
|
$
|
69,781
|
|
|
$
|
500
|
|
The following table presents the reconciliation for the
three and six months ended
June 30, 2016
and
2015
for all Level 3 assets that are measured at fair value on a recurring basis
(amounts in thousands)
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
June 30,
|
|
June 30,
|
Securities Available-for-Sale:
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Beginning Balance
|
$
|
500
|
|
|
$
|
—
|
|
|
$
|
500
|
|
|
$
|
—
|
|
Total realized and unrealized gains or (losses):
|
|
|
|
|
|
|
|
Included in earnings
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Included in other comprehensive income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Purchases, issuances and settlements
|
250
|
|
|
—
|
|
|
250
|
|
|
—
|
|
Ending Balance
|
$
|
750
|
|
|
$
|
—
|
|
|
$
|
750
|
|
|
$
|
—
|
|
Fair Value Measured on a Nonrecurring Basis.
The Company measures certain assets at fair value on a nonrecurring basis, as described below.
Loans Held for Sale
Loans held for sale are carried at the lower of cost or market value. The fair value of loans held for sale is based on what secondary markets are currently offering for portfolios with similar characteristics. As such, the Company classifies loans held for sale as a Level 2 valuation.
Impaired Loans
The Company does not record loans at fair value on a recurring basis. However, when a loan is considered impaired, it is evaluated for impairment and written down to its estimated fair value or an allowance for loan losses is established. When the fair value of an impaired loan is based on an observable market price or a current appraised value with no adjustments, the Company records the impaired loan as nonrecurring Level 2. When there is no observable market prices, an appraised value is not available, or the Company determines the fair value of the collateral is further impaired below the appraised value, the impaired loan is classified as nonrecurring Level 3.
Foreclosed Assets
Foreclosed assets are adjusted to fair value less estimated selling costs 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. Given the lack of observable market prices for identical properties, the Company records foreclosed assets as non-recurring Level 3.
Assets measured at fair value on a non-recurring basis are included in the tables below at
June 30, 2016
and
December 31, 2015
(amounts in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at
|
|
|
|
|
|
June 30, 2016, Using
|
|
Total Carrying
Amount in the
Consolidated
Balance Sheet
|
|
Assets
Measured
at Fair Value
|
|
Quoted Prices
in Active
Markets
for Identical
Assets
|
|
Significant
Other
Observable
Inputs
|
|
Significant
Unobservable
Inputs
|
|
6/30/2016
|
|
6/30/2016
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
Loans held for sale
|
$
|
681
|
|
|
$
|
681
|
|
|
$
|
—
|
|
|
$
|
681
|
|
|
$
|
—
|
|
Impaired loans
|
1,758
|
|
|
1,758
|
|
|
—
|
|
|
—
|
|
|
1,758
|
|
Foreclosed assets
|
2,519
|
|
|
2,519
|
|
|
—
|
|
|
—
|
|
|
2,519
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at
|
|
|
|
|
|
|
|
December 31, 2015, Using
|
|
Total Carrying
Amount in the
Consolidated
Balance Sheet
|
|
Assets
Measured
at Fair Value
|
|
Quoted Prices
in Active
Markets
for Identical
Assets
|
|
Significant
Other
Observable Inputs
|
|
Significant Unobservable Inputs
|
|
12/31/2015
|
|
12/31/2015
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
Loans held for sale
|
$
|
1,145
|
|
|
$
|
1,145
|
|
|
$
|
—
|
|
|
$
|
1,145
|
|
|
$
|
—
|
|
Impaired loans
|
3,540
|
|
|
3,540
|
|
|
—
|
|
|
—
|
|
|
3,540
|
|
Foreclosed assets
|
1,760
|
|
|
1,760
|
|
|
—
|
|
|
—
|
|
|
1,760
|
|
Quantitative Information about Level 3 Fair Value Measurements
The following table presents the valuation methodology and unobservable inputs for Level 3 assets measured at fair value on a recurring and nonrecurring basis at
June 30, 2016
(amounts in thousands, except percentages).
|
|
|
|
|
|
|
|
|
|
Total Carrying Amount at June 30, 2016
|
|
Valuation Methodology
|
|
Range of Inputs
|
Recurring measurements:
|
|
|
|
|
|
Other debt securities
|
$
|
750
|
|
|
Probability of default
|
|
0%
|
|
|
|
Loss given default
|
|
100%
|
Nonrecurring measurements:
|
|
|
|
|
|
Impaired loans
|
$
|
1,758
|
|
|
Collateral discounts
|
|
9 - 50%
|
Foreclosed assets
|
$
|
2,519
|
|
|
Discounted appraisals
|
|
10 - 30%
|
Collateral discounts to determine fair value on impaired loans varies widely and result from the consideration of the following factors: the age of the most recent appraisal, the type of asset serving as collateral, the expected marketability of the asset, its material or environmental condition, and comparisons to actual sales data of similar assets from both internal and external sources.
The following table reflects the general range of collateral discounts for impaired loans by segment.
|
|
|
Loan Segment:
|
Range of Percentages
|
Commercial construction and land development
|
10% - 40%
|
Commercial real estate
|
9% - 50%
|
Residential construction
|
9% - 30%
|
Residential mortgage
|
9% - 20%
|
All other segments
|
9% - 20%
|
As foreclosed assets are brought into other real estate owned through a process which requires a fair market valuation, further discounts typically reflect market conditions specific to the asset. These conditions are usually captured in subsequent appraisals which are required on an annual basis, and depending upon asset type and marketability demonstrate a more restrained variance than that noted above.
Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value of each class of financial instrument.
Cash and Cash Equivalents
The carrying amounts of cash and cash equivalents are equal to the fair value due to the liquid nature of the financial instruments.
Certificate of Deposits
These investments are valued at carrying amounts for fair value purposes.
Securities Available-for-Sale and Securities Held-to-Maturity
Fair values of investment securities are based on quoted market prices. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities.
Loans Held For Sale
The fair value of mortgage loans held for sale is based on commitments on hand from investors within the secondary market for loans with similar characteristics.
Loans
The fair value of loans has been estimated utilizing the net present value of future cash flows based upon contractual balances, prepayment assumptions, and applicable weighted average interest rates, adjusted for a
5%
current liquidity and market discount assumption. The Company has assigned no fair value to off-balance sheet financial instruments since they are either short term in nature or subject to immediate repricing.
FHLB Stock
The carrying amount of FHLB stock approximates fair value.
Deposits
The fair value of non-maturing deposits such as noninterest-bearing demand, money market, NOW, and savings accounts, are by definition, equal to the amount payable on demand. Fair value for maturing deposits such as CDs and IRAs are estimated using a discounted cash flow approach that applies current interest rates to expected maturities.
Borrowings, Subordinated Debentures, and Subordinated Promissory Notes
The fair value of borrowings, subordinated debentures, and subordinated promissory notes, is based on discounting expected cash flows at the interest rate from debt with the same or similar remaining maturities and collection requirements.
Accrued Interest Receivable and Payable
The carrying amounts of accrued interest approximates fair value.
The following table presents information for financial assets and liabilities as of
June 30, 2016
and
December 31, 2015
(amounts in thousands)
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2016
|
|
Carrying
Value
|
|
Estimated
Fair Value
|
|
Level 1
|
Level 2
|
Level 3
|
Financial assets:
|
|
Cash and cash equivalents
|
$
|
34,591
|
|
|
$
|
34,591
|
|
|
$
|
34,591
|
|
$
|
—
|
|
$
|
—
|
|
Certificates of deposit
|
21,805
|
|
|
21,805
|
|
|
—
|
|
21,805
|
|
—
|
|
Securities available-for-sale
|
64,608
|
|
|
64,608
|
|
|
—
|
|
63,858
|
|
750
|
|
Securities held-to-maturity
|
58,462
|
|
|
59,934
|
|
|
—
|
|
59,934
|
|
—
|
|
Loans held for sale
|
681
|
|
|
681
|
|
|
—
|
|
681
|
|
—
|
|
Loans, net
|
478,046
|
|
|
440,716
|
|
|
—
|
|
—
|
|
440,716
|
|
FHLB stock
|
3,596
|
|
|
3,596
|
|
|
—
|
|
3,596
|
|
—
|
|
Accrued interest receivable
|
1,526
|
|
|
1,526
|
|
|
—
|
|
1,526
|
|
—
|
|
|
|
|
|
|
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
Deposits
|
$
|
551,775
|
|
|
$
|
551,946
|
|
|
$
|
—
|
|
$
|
551,946
|
|
$
|
—
|
|
Subordinated debentures and subordinated promissory notes
|
23,872
|
|
|
23,872
|
|
|
—
|
|
—
|
|
23,872
|
|
Borrowings
|
70,000
|
|
|
71,977
|
|
|
—
|
|
71,977
|
|
—
|
|
Accrued interest payable
|
401
|
|
|
401
|
|
|
—
|
|
401
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
Carrying
Value
|
|
Estimated
Fair Value
|
|
Level 1
|
Level 2
|
Level 3
|
Financial assets:
|
|
Cash and cash equivalents
|
$
|
26,755
|
|
|
$
|
26,755
|
|
|
$
|
26,755
|
|
$
|
—
|
|
$
|
—
|
|
Certificates of deposit
|
23,520
|
|
|
23,520
|
|
|
—
|
|
23,520
|
|
—
|
|
Securities available-for-sale
|
70,281
|
|
|
70,281
|
|
|
—
|
|
69,781
|
|
500
|
|
Securities held-to-maturity
|
65,354
|
|
|
65,633
|
|
|
—
|
|
65,633
|
|
—
|
|
Loans held for sale
|
1,145
|
|
|
1,145
|
|
|
—
|
|
1,145
|
|
—
|
|
Loans, net
|
448,697
|
|
|
423,285
|
|
|
—
|
|
—
|
|
423,285
|
|
FHLB stock
|
3,288
|
|
|
3,288
|
|
|
—
|
|
3,288
|
|
—
|
|
Accrued interest receivable
|
1,594
|
|
|
1,594
|
|
|
—
|
|
1,594
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
Deposits
|
$
|
542,334
|
|
|
$
|
541,818
|
|
|
$
|
—
|
|
$
|
541,818
|
|
$
|
—
|
|
Subordinated debentures and subordinated promissory notes
|
23,872
|
|
|
23,872
|
|
|
—
|
|
—
|
|
23,872
|
|
Borrowings
|
60,000
|
|
|
61,709
|
|
|
—
|
|
61,709
|
|
—
|
|
Accrued interest payable
|
437
|
|
|
437
|
|
|
—
|
|
437
|
|
—
|
|
NOTE H - REGULATORY RESTRICTIONS
North Carolina banking law requires that the Bank may not pay a dividend that would reduce its capital below the applicable required capital. In addition, regulatory authorities may limit payment of dividends by any bank when it is determined that such a limitation is in the public interest and is necessary to ensure the financial soundness of the Bank. Although not currently limited by regulatory authorities, there were
no
dividends paid to the Company by the Bank during the
six
months ended
June 30, 2016
.
Current federal regulations require that the Company and the Bank maintain a minimum ratio of total capital to risk weighted assets of
8.0%
, with at least
6.0%
being in the form of Tier 1 capital, as defined in the regulations. In addition, the Company and the Bank must maintain a common equity Tier 1 capital ratio of
4.5%
and a leverage ratio of
4.0%
. For the Bank to be categorized as well capitalized, the Bank must maintain minimum amounts and ratios as set forth in the table below. There is no such category for well capitalized at the Company level. At
June 30, 2016
, the Bank was classified as well capitalized for regulatory capital purposes.
Capital ratios for the Bank and the Company are presented in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual Ratio
|
|
Minimum For Capital
Adequacy Purposes
|
|
Minimum to be Well
Capitalized under
Prompt Corrective
Action Provisions
|
|
6/30/2016
|
|
12/31/2015
|
|
Ratio
|
|
Ratio
|
Bank
|
|
|
|
|
|
|
|
Total Capital (to Risk Weighted Assets)
|
15.6
|
%
|
|
15.6
|
%
|
|
8.0
|
%
|
|
10.0
|
%
|
Tier I Capital (to Risk Weighted Assets)
|
14.4
|
%
|
|
14.4
|
%
|
|
6.0
|
%
|
|
8.0
|
%
|
Common Equity Tier 1 Capital (to Risk Weighted Assets)
|
14.4
|
%
|
|
14.4
|
%
|
|
4.5
|
%
|
|
6.5
|
%
|
Tier I Capital (to Average Assets)
|
10.6
|
%
|
|
10.2
|
%
|
|
4.0
|
%
|
|
5.0
|
%
|
|
|
|
|
|
|
|
|
Company
|
|
|
|
|
|
|
|
|
|
|
|
Total Capital (to Risk Weighted Assets)
|
15.9
|
%
|
|
16.0
|
%
|
|
8.0
|
%
|
|
N/A
|
|
Tier I Capital (to Risk Weighted Assets)
|
12.4
|
%
|
|
12.4
|
%
|
|
6.0
|
%
|
|
N/A
|
|
Common Equity Tier 1 Capital (to Risk Weighted Assets)
|
10.9
|
%
|
|
11.3
|
%
|
|
4.5
|
%
|
|
N/A
|
|
Tier I Capital (to Average Assets)
|
9.2
|
%
|
|
8.8
|
%
|
|
4.0
|
%
|
|
N/A
|
|
In July 2015, the Bank entered into a Written Agreement (the "2015 Written Agreement") with the FRB replacing the Written Agreement the Company and the Bank entered into with the FRB and the North Carolina Office of the Commissioner of Banks in 2011. Under the terms of the 2015 Written Agreement, the Bank submitted and implemented the following plans:
•
a written plan to assure ongoing board oversight of the Bank's management and operations;
•
a written program for the review of new products, services, or business lines; and
|
|
•
|
an enhanced written program for conducting appropriate levels of customer due diligence by the Bank.
|
In addition, the Bank agreed that it will within
30 days
after the end of each calendar quarter following the date of the 2015 Written Agreement, submit to FRB written progress reports detailing the form and manner of all actions taken to secure compliance with the 2015 Written Agreement and the results thereof.
NOTE I - RESTRICTED STOCK
A summary of the activity of the Company's restricted stock awards
for the six months ended
June 30, 2016
is presented below:
|
|
|
|
|
|
|
|
|
Restricted Stock
|
|
Weighted Average Grant-Date Fair Value
|
Unvested at December 31, 2015:
|
1,363,175
|
|
|
$
|
1.64
|
|
Granted
|
210,000
|
|
|
1.90
|
|
Vested
|
(149,325
|
)
|
|
1.53
|
|
Forfeited
|
(85,000
|
)
|
|
1.66
|
|
Unvested at June 30, 2016:
|
1,338,850
|
|
|
$
|
1.69
|
|
The Company measures the fair value of restricted shares based on the price of the Company's common stock on the grant date, and compensation expense is recorded over the vesting period. The related compensation expense recognized for restricted stock awards
for the six months ended
June 30, 2016
and
2015
was
$150,000
and
$270,000
, respectively. At
June 30, 2016
, the Company estimates there was
$2.0 million
of total unrecognized compensation cost related to unvested restricted stock granted under the plan. That cost is expected to be recognized over the next
three years
. The grant-date fair value of restricted stock grants vested during the
six months ended
June 30, 2016
was
$1.53
.